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Evaluation on the Hub 34

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Background Characteristics of Postsecondary Institutions In fall 2015, almost 20 million students were enrolled in over 4,500 2- and 4-year postsecondary institutions, according to IPEDS data. Postsecondary institutions vary in terms of their funding, the length and type of programs offered, and instructional mission, among other characteristics. Public institutions, which include state universities and community colleges, are traditionally supported by federal, state, and local funds, in addition to revenue from tuition and fees. Private, not-for- profit schools are owned and operated by independent or religious organizations, and their net earnings do not benefit any shareholder or individual. Tuition and fees as well as other revenue sources primarily support these schools. For-profit institutions are privately owned and earnings can benefit shareholders or individuals. Two-year institutions often provide career-oriented programs at the certificate and associate’s degree levels. Four-year institutions tend to have a broad range of instructional programs at the undergraduate level leading to bachelor’s degrees. Many 4-year institutions also offer master’s or doctorate level programs, and some 4-year institutions have a research focus. The landscape of postsecondary institutions has changed over the past 20 years, particularly with respect to for-profit institutions. The number of public institutions remained relatively constant and the number of private institutions declined slightly; however, the number of for-profit institutions more than tripled between 1995 and 2011 before declining slightly to 2015 levels (see fig. 1). How National Data Count Faculty IPEDS and CPS both provide data on postsecondary faculty. IPEDS data can provide information on positions filled by different types of faculty across postsecondary education or by types of institutions (see sidebar for how we categorize institutions using IPEDS data). In terms of faculty types, IPEDS distinguishes between tenure-track and contingent positions and also has data on graduate assistants, though we cannot determine whether these graduate teaching assistants are the instructors of record for courses or are instead providing classroom support (e.g., grading, leading discussions, and lab setup). Because IPEDS counts positions, any faculty who teach at more than one institution are counted multiple times—for each position they fill. CPS counts the number of actual workers in a given occupation and, in terms of faculty, provides data on how many individuals are employed as postsecondary teachers in colleges and universities nationwide. CPS does not differentiate faculty by type of institution or by tenure status. For example, CPS cannot identify full-time contingent faculty separately from full-time tenure-track faculty. Contingent Faculty Fill Most Instructional Positions Nationwide and Teach Close to Half or More of All Courses at Public Institutions in Three Selected States From 1995 to 2011, the Number of Instructional Positions Filled by Contingent Faculty More than Doubled While Those Filled by Full-Time Tenure- track Faculty Increased By 10 Percent According to IPEDS data, from 1995 to 2011, the percentage of postsecondary instructional positions filled by contingent faculty increased from 57.6 to 71.6 percent. During this period the number of instructional faculty positions at all institutions nationwide grew by over 60 percent— though most of this growth was among positions held by contingent faculty. More specifically, the number of positions held by full-time and part-time non-tenure-track faculty—which we define as contingent—both doubled during this period, while the number of positions held by full-time tenure-track faculty grew by about 10 percent (see table 1). In addition to full- and part-time contingent faculty, some graduate assistants may also teach courses. During the same period, the number of graduate teaching assistant positions grew by 63.8 percent. Some of the increase in the percentage of contingent faculty positions is due to the growth of the for-profit sector and growth among 2-year institutions, which as a whole rely primarily on contingent faculty. For example, the number of positions nationwide across for-profit institutions in 2011 was almost 9 times as many as in 1995. However, the shift towards contingent faculty positions was clear even among only 4-year public and private institutions (see fig. 2). Contingent Faculty Fill about 70 Percent of Instructional Positions Nationwide, Though This Varies Greatly by Institution and Many of These Positions Have Some Job Stability Contingent faculty currently fill most instructional positions nationwide, though these numbers cannot be compared to historical data. According to 2015 IPEDS data, contingent faculty fill 69.5 percent of the 1,444,774 postsecondary instructional positions across all institutions nationwide, including about 61.4 percent of instructional positions at 4-year institutions, 83.5 percent at 2-year institutions, and 99.7 percent at for- profit institutions (see fig. 3). As noted previously, aggregated IPEDS data count faculty who teach at multiple institutions multiple times; therefore, there are likely more contingent faculty positions than there are contingent faculty workers. Although it is unknown how many faculty hold jobs at multiple institutions, this is likely to be more prevalent among faculty filling part-time positions. To illustrate, according to CPS data— which counts individuals—an estimated 31.7 percent (+/- 4.1) of individuals employed as postsecondary teachers in colleges and universities worked part-time in 2015. In contrast, according to IPEDS data, part-time faculty held about 50.0 percent of instructional positions. Though the majority of instructional faculty positions across institutions are contingent, employment stability among these positions may vary widely. Many of these contingent positions may have some job stability, depending on contract specifics. For example, about a quarter of contingent positions across all institutions have full-time, annual, multi- year, or potentially pseudo-tenure contracts (see fig. 3). Some of these positions may expire at the end of a set term or have no option for renewal—potentially requiring a new application process—while others may be relatively long-term with continuously repeating contracts. For example, officials at one North Dakota institution we visited described their non-tenure-track positions as “tenure light” because full-time faculty receive 1-year contracts for their first 4 years and then, after a successful promotion review, receive continuous 3-year contracts that can be terminated only for adequate cause, such as gross professional misconduct. In contrast to these more stable contingent positions, more than half of the contingent positions across all institutions nationwide are part-time and have less-than-annual contracts or lack faculty status— which we define as being among the least stable (see fig. 3). For some of the faculty filling these positions, this employment may be their sole source of income. Similar to contingent workers in the broader labor force, as we reported previously, these faculty may face volatility and uncertainty in their economic circumstances. Other faculty in these positions may have employment or sources of income outside of teaching. For example, some part-time instructors are employed full-time in their fields and teach on the side as subject-matter experts or to stay connected with their local university community. Examples of Part-Time Faculty Situations from Faculty Discussion Groups at Selected Institutions Two part-time faculty members at an institution in Ohio said they had jobs outside of teaching and said they teach on the side because they love it, rather than relying on it for subsistence. One part-time faculty member at an institution in Georgia said that she was retired, but teaches courses to keep a foot in the education world while also enjoying free time in retirement. One younger part-time faculty member at an institution in North Dakota stated that she teaches on a semester-to-semester contract and that this was her primary employment. While it is unknown how many faculty rely on their instructional positions as their primary employment, nationally representative data from the Current Population Survey (CPS) and Survey of Doctorate Recipients (SDR) provide some limited information that suggests many part-time faculty prefer working part-time. The CPS data show that an estimated 46.2 percent (+/- 6.3) of part-time faculty reported wanting to work part- time, while only 10.0 percent (+/- 5.1) reported working part-time because they could only find a part-time job or because of seasonal or temporary fluctuations in the availability of employment. Similarly, SDR data on doctorate-holding instructional faculty in STEM (science, technology, engineering, and math), health, and social sciences fields show that most part-time contingent faculty report wanting to work part-time, though among those who reported wanting a full-time job, most reported not being able to find one (see table 2). According to IPEDS data, different types of postsecondary institutions rely more heavily on different segments of the instructional workforce. As shown in figure 4, many 4-year institutions employ tenure-track, full-time contingent, and part-time contingent positions—though the balance varies. Far fewer 2-year institutions and very few for-profit institutions have tenure-track positions. Part-time and short-term positions are substantially more prevalent at these institutions. For example, part-time contingent positions make up 67.9 percent and 80.5 percent of instructional positions at 2-year and for-profit institutions, respectively, as compared to 39.8 percent at 4-year institutions. Beyond institution type, reliance on different types of faculty positions also varies by institutional characteristics, such as size and highest degree offered. For example, across 4-year institutions with more than 10,000 students, 43.1 percent of positions are tenure-track, as compared to 30.6 percent across institutions with fewer than 5,000 students. Similarly, a higher percentage of instructional positions are tenure-track across 4-year institutions that offer doctorate degrees, compared to those institutions that do not offer doctorate degrees (see fig. 5). At 4-Year Public Institutions in Three Selected States, Contingent Faculty Teach Close to Half or More of All Courses and Credit Hours Contingent faculty fill more than half of instructional positions at 2- or 4- year public institutions in the three selected states (see fig. 6). Two-year public institutions in North Dakota and Ohio were especially reliant on contingent faculty, where they fill about 72 and 84 percent of instructional positions, respectively (see sidebar for our definition of instructional faculty in the state data, as compared to our other data analyses). We examined several different demographic characteristics of contingent faculty including gender, race, educational attainment, and age. Gender According to 2015 IPEDS data, instructional positions nationwide are divided roughly evenly between the sexes, but women fill fewer tenure- track positions and more contingent positions than men do. As shown in figure 7, across all institutions, women hold a substantially lower proportion of full-time tenured positions (38.4 percent) than men do, though women fill 48.9 percent of full-time positions that are on a tenure track but not yet tenured, and that are generally more recent hires. Across all institutions, women also hold a slightly greater proportion of contingent positions (about 53 percent). This imbalance in representation, in part, reflects the higher concentration of women at 2-year and for-profit institutions, where they fill 54.3 and 55.9 percent of positions, respectively. These institutions generally rely more heavily on contingent faculty positions than do 4-year institutions. White (non-Hispanic) faculty fill almost three-quarters of instructional positions across all institutions nationwide. This racial/ethnic representation is relatively consistent across full-time tenure-track, full- time contingent, and part-time positions. Though filling 27.6 percent of positions across all institutions, racial and ethnic minorities have slightly greater representation at institutions in large cities (33.2 percent) and at for-profit institutions (38.4 percent). Educational Attainment Our analysis of state data suggests that across 4-year public institutions in North Dakota and Ohio, lower proportions of individuals in contingent positions have a graduate or doctoral degree (see fig. 8). While the differences between tenure-track and contingent faculty are substantial, possible explanations include variation in degree requirements by discipline or individual circumstances, such as having professional experience in the field. Across public institutions in all three selected states, and excluding positions held by instructional graduate students, most positions held by the youngest faculty are contingent, and the most common positions held by the oldest faculty are part-time contingent. More specifically, most positions held by individuals under age 40 are contingent—60.2 percent in Georgia, 66.9 percent in North Dakota, and 74.5 percent in Ohio (excluding instructional graduate assistants). This suggests that newer graduates may be more likely to be hired into contingent rather than tenure-track positions. In addition, the most common positions held by faculty ages 70 and older are part-time contingent positions—51.0 percent in Georgia, 45.5 percent in North Dakota, and 59.4 percent in Ohio (excluding instructional graduate assistants). This suggests that a segment of the part-time contingent workforce may consist of retirees or workers who are approaching retirement. Administrators Said Contingent Faculty Have a Range of Responsibilities, and They Consider Multiple Needs When Determining Faculty Makeup Full-Time Contingent Faculty at Institutions We Visited May Have a Variety of Responsibilities, but Part-Time Contingent Faculty Generally Focus on Teaching According to administrators we interviewed, institutions utilize full-time contingent faculty for different purposes, which may involve responsibilities beyond teaching. Administrators said full-time contingent faculty are hired primarily to teach and generally have larger course loads than tenure-track faculty who may teach fewer courses per semester due to significant research responsibilities. However, they also noted that— similar to tenure-track faculty—many full-time contingent faculty carry out additional responsibilities. For example, some full-time contingent faculty may perform service, conduct research, advise students, serve as department chairs, or manage student recruitment efforts for their programs. Many other full-time contingent faculty serve as instructors or lecturers whose sole responsibility is to teach. For example, administrators from one institution explained that they employ professional instructors who teach four courses per semester and have no service or research responsibilities. In addition, some full-time contingent faculty are hired because they have certain professional qualifications or experience. For example, one institution we visited employed academic professionals who may teach one or two courses per year while carrying out administrative, marketing, mentoring, or other duties. While full-time contingent faculty may have a variety of responsibilities, administrators stated that part-time contingent faculty generally focus on teaching, though they also may fulfill different purposes. In some cases, part-time contingent faculty serve as expert practitioners who teach specific subject matter. For example, administrators from one institution said that they hire part-time contingent faculty to teach instrumental music courses because teaching each instrument requires specialized expertise, and there may not be enough students learning any single instrument to warrant a full-time position. In other cases, part-time contingent faculty teach general education courses, such as Introduction to English Composition, which most students are required to take. In addition, while some part-time contingent faculty may have full-time jobs outside of academia, others may be working toward long-term careers as tenure-track professors, according to administrators. Administrators from some institutions also told us that they hire part-time contingent faculty help to manage lab courses (e.g., setting up laboratory equipment, assisting students) or to serve as mentors to students in specific programs (e.g., theological studies). Administrators Consider Financial, Institutional, Faculty, and Student Needs When Determining Faculty Makeup University and college administrators we interviewed identified a number of financial and institutional considerations as well as faculty and student needs that affect their decisions regarding faculty makeup (see fig. 9). Administrators stated that utilizing contingent faculty allows for flexibility in managing various financial considerations, including the following: Budget uncertainty: Administrators from several public institutions explained that utilizing contingent faculty helps them manage uncertainty regarding the level of public funding they may receive. Administrators have the option not to renew contracts of contingent faculty if they experience a decrease in their funding, whereas institutions commit to retain tenure-track faculty until they retire. In addition, administrators from several public institutions noted that, as a result of decreased state funding, they have become more reliant on tuition to meet their budget needs. They told us that hiring contingent faculty to focus on teaching rather than research allows the institution to offer more classes and serve additional students, which in turn, generates more tuition revenue. Compensation costs: Administrators stated that, in general, they cannot employ tenure-track faculty for all courses because they can be more expensive to employ than contingent faculty. In addition to the long-term commitment associated with tenure, other costs may include spending to support research conducted by tenure-track faculty (e.g., investment in specialized labs or equipment). Legal or grant program requirements: Some administrators said that legal or grant program requirements affect their decisions regarding the utilization of contingent faculty. For example, administrators from several institutions told us that they had reduced teaching loads for part-time faculty because the Patient Protection and Affordable Care Act (PPACA) requires certain employers to provide health insurance for employees working 30 hours or more per week. Administrators from another institution stated that they utilized in-house faculty and hired additional contingent faculty to staff a federal grant program aimed at providing training for inmates at correctional facilities because—after receiving notification that they had been awarded the grant—they had approximately 2 months to staff 160 course sections. In addition, since they did not know whether the grant would be renewed, they did not know whether they would be able to retain those faculty at the end of the program. Institutional Considerations Administrators said that utilizing contingent faculty also allows flexibility to meet different institutional needs. Examples of institutional considerations cited by administrators include the following: Enrollment: By utilizing contingent faculty, institutions have more flexibility to meet course demand if there is a surge in enrollment or to downsize if there is a drop in enrollment, according to administrators. For example, administrators from one 2-year institution noted that enrollment generally increases when the economy is weak and decreases when the economy is strong. These administrators also said that their enrollment fluctuates greatly with changes in the economy and that, in their experience, prospective students are more likely to choose 4-year institutions rather than 2-year institutions when the economy is strong. In addition, when offering a course, administrators said part-time faculty may teach that course during a trial period while administrators decide whether to offer the course long term. Location and market demand: Some administrators stated that they offer contingent faculty positions in response to market conditions. For example, administrators from institutions located in small towns or rural areas said they rely on local professionals to teach certain courses on a part-time basis, in part, because of challenges finding qualified faculty and having fewer students enrolled at remote sites. Some administrators also said contingent faculty positions offer certain advantages that help them recruit high quality instructors. For example, administrators from one university noted that their institution offers stable, full-time employment to recent graduates looking to gain experience before applying for tenure-track positions at other institutions. Specialized experience: Contingent faculty may bring professional expertise to certain courses. For example, administrators from several institutions stated that their programs for health professionals rely on contingent faculty working in their field to teach clinical courses so that students may gain experience at an established medical practice. Administrators said that hiring practitioners from local industry as part- time instructors is an effective way to support specialized courses that have a limited number of sections. Administrators from one institution also noted that practitioners may have the qualifications needed to meet accreditation requirements for certain programs and departments (e.g., professional and technical programs). Balancing priorities: Administrators said that utilizing a combination of tenure-track and contingent faculty helps their institutions fulfill both teaching and research missions and accommodate the hiring needs of different programs and departments. For example, administrators from one institution noted that the additional revenue from increased course offerings—staffed by part-time contingent faculty—allows them to invest more money in research programs for tenure-track faculty. Administrators from two institutions explained that hiring part-time contingent faculty in a given department allows them to reallocate resources as needed, for example, to hire full-time contingent or tenure-track positions in another department. In addition, while contingent faculty may help fulfill accreditation requirements for certain programs, administrators from several institutions also stated that their accrediting bodies require a balance of contingent and tenure-track faculty, or alternatively, full-time and part-time contingent faculty. For example, administrators from one 4-year institution told us that part-time faculty may teach no more than 25 percent of student credit hours within their business school. Faculty Needs As part of faculty utilization decisions, administrators said that they consider the personal and professional needs of faculty. Examples of faculty needs cited by administrators include the following: Flexibility: Administrators told us that they offer part-time positions, in part, because many qualified candidates want to work part-time for professional, family, or other reasons. For example, administrators at one institution said that part-time contingent faculty positions allow expert-practitioners to continue working full-time in their field while pursuing an interest in teaching. Alternatively, for those teaching as full-time contingent faculty, in some cases, their position may offer a more predictable schedule or other benefits compared to their professional field. Course loads: Administrators at some institutions said they prioritize the professional needs of existing full-time faculty before hiring part- time faculty by ensuring that full-time faculty have enough courses to meet their required teaching loads. Career paths: Some institutions have established mechanisms to support long-term career paths for full-time contingent faculty. For example, administrators from one institution stated that full-time contingent faculty may qualify for multi-year contracts that can be terminated only for adequate cause, such as gross professional misconduct. Administrators from several institutions said that they offer the full set of professorial ranks (i.e., Assistant Professor, Associate Professor, and Professor) to some full-time contingent faculty positions in order to provide opportunities for advancement. Student Needs Administrators stated that having a combination of tenure-track and contingent faculty—or full-time and part-time contingent faculty at institutions without tenure—is necessary to meet different student needs. Examples of student needs cited by administrators include the following: Learning opportunities: Administrators stated that different types of faculty may offer different opportunities to students. For example, administrators told us that tenure-track faculty may provide research and academic networking opportunities whereas contingent faculty may not have the same opportunities to develop professional networks or conduct research in their field. Some administrators also said that the academic freedom associated with tenure or having faculty who conduct research in their field may be beneficial to students. Nonetheless, administrators from several institutions emphasized that contingent faculty were equally qualified to teach and that their positions allowed them to focus on teaching. Administrators also noted that contingent faculty may bring professional expertise and real-world experiences to the classroom. In addition to courses that require specialized experience, administrators from one institution said they also value the outside experience that contingent faculty bring to general education courses. As an example, they stated that part-time contingent faculty with experience from other jobs or professions may be able to relate to the real-world needs of their students because the majority of students will seek employment outside of academia. Community: Administrators said that, regardless of tenure status, they depend on having full-time faculty to help create a sense of community. They discussed informal ways that faculty support their campus community. For example, some administrators noted that full- time faculty contribute by mentoring students and participating in activities on campus. In contrast, part-time faculty are not able to spend as much time on campus because they often have other jobs or commitments, according to administrators. Absent National Information on Pay Rates, Contingent Faculty in Two Selected States Are Paid Less per Course, and Relatively Few Part- Time Faculty Receive Health or Retirement Benefits Data from Two States Show Contingent Faculty Are Paid Less per Course, Though Disparities Shrink If Pay for Research and Service Is Excluded National data on contingent faculty pay rates are not available, but data from two states show that contingent faculty are paid less per course. IPEDS data cannot be used to determine faculty pay rates because salary data are not collected for part-time faculty nor are they collected at the individual faculty level, and CPS data do not differentiate between full- time tenure-track and full-time contingent faculty. Given the limitations of national data, we used data from two states to compare annual earnings across different types of faculty. The differences in median annual earnings shown in table 5 provide some insight into the generally lower overall compensation of contingent faculty, though these data are not generalizable. Further, particularly for part-time faculty who may be paid on a piecemeal or per-course basis, this measure does not provide information about whether compensation differences are due to lower pay rates or less work performed (e.g., courses taught or hours worked). Thus, we use the state data to calculate and examine comparable pay rates per course for all faculty types. Private organizations have attempted to collect data specifically on pay-per-course rates for part-time faculty, though efforts have been limited. On a per-course basis, we found that contingent faculty at public institutions in two states are paid less per course taught, on average, than full-time tenure-track faculty, though the extent of differences varies depending on contingent faculty group and pay measure. We conducted regression analyses of total pay per course and instructional pay per course, which provide two different perspectives on faculty compensation (see sidebar for explanations of these approaches and see appendix I for details on our methods). These analyses controlled for other factors that may affect earnings, such as employing institution, discipline, highest degree earned, and demographics. As shown in table 6, in terms of total pay per course, we found the following: Part-time contingent faculty in both states are paid about 75 percent less per course regardless of whether the population includes all faculty or is limited to “primarily teaching” faculty. The primarily teaching group excludes faculty who primarily hold other roles unrelated to instruction (e.g., administrators and research faculty). Full-time contingent faculty are paid about 35 percent less per course in North Dakota and about 40 percent less per course in Ohio, among primarily teaching faculty—differences are larger in Ohio if all faculty are included. Instructional graduate assistants earn more per course than part-time faculty (though still less than full-time tenure-track faculty). However, compensation for these groups is fundamentally different because instructional graduate assistants generally receive a stipend, similar to an annual salary, rather than being paid by the course like many part- time faculty. In addition, graduate assistantships may be awarded for academic merit or recruitment, and could also be considered as compensation for a graduate assistant’s work as a student. Disparities in instructional pay per course—which measures pay for equivalent work (see sidebar above)—are smaller for all contingent faculty groups than those for total pay per course. As shown in table 7, we found the following: Part-time contingent faculty in both states are paid about 60 percent less per course regardless of whether the population includes all faculty or is limited to primarily teaching faculty. Among primarily teaching faculty in both states, full-time contingent faculty are paid about 10 percent less per course than full-time tenure- track faculty. As with total pay, the instructional pay disparity for full-time contingent faculty in Ohio is larger if all faculty are included. However, when all faculty are included in North Dakota, the pay difference between full- time contingent and full-time tenure-track faculty is not significant at the 95 percent confidence level. Consistent with our other findings, when we analyzed national data from the 2013 Survey of Doctorate Recipients (SDR), we also found that contingent faculty in sciences fields earned less annually than full-time tenure-track faculty. Full-time contingent faculty earned 22 percent less than full-time tenure-track faculty, on average, and part-time contingent faculty earned 70 percent less, among instructional, doctorate-holding faculty in STEM, health, and social sciences fields. Unlike our analyses of state data, the SDR analysis cannot account for differences in the number of courses taught, and thus the results represent the combined effects of lower pay rates and smaller workloads, to the extent either exists. Relatively Few Part-Time Contingent Faculty Receive Health or Retirement Benefits from Their Employment Data from North Dakota and Georgia, as well as national data covering different populations, suggest that relatively few part-time contingent faculty receive health or retirement benefits from their employment though full-time contingent faculty may. Although not generalizable, data from North Dakota and Georgia include data on actual benefits provided to faculty by institutions, as opposed to self-reported rates of coverage found in national survey data. Relatively few part-time contingent faculty and instructional graduate assistants in the North Dakota and Georgia data receive retirement, health, and life insurance benefits from their employment. For example, in Georgia and North Dakota, about 98 percent or more of individuals in full-time tenure-track and full-time contingent positions receive work-provided retirement benefits, compared to 19.4 and 9.3 percent, respectively, of those in part-time contingent positions (see table 8). An even smaller percentage of instructional graduate assistants in both states receive any of these benefits from their employment; however, instructional graduate assistants are students, so the terms of their employment may be different than traditional full-time and part-time employees. Similarly, our analysis of SDR and CPS data show that relatively few part- time contingent faculty nationwide receive retirement benefits from their employment. According to the 2013 SDR data, among instructional, doctorate-holding faculty in STEM, health, and social sciences fields, an estimated 48.4 percent (+/- 4.2) of part-time contingent faculty report having access to “a retirement plan to which employer contributed,” compared to the vast majority of full-time tenure-track and full-time contingent faculty. According to CPS data covering employment in 2015, an estimated 16.6 percent (+/- 6.1) of part-time faculty report participating in a work-provided retirement plan, as compared to 60.8 percent (+/- 4.7) of full-time faculty. National Data on Health Insurance Benefits While comparing health insurance coverage is complicated because workers may be covered by other family members’ plans, in both the SDR and CPS data, smaller proportions of part-time faculty had health insurance through their own employment. According to the 2013 SDR data, only 39.4 percent (+/- 4.6) of part-time contingent faculty had access to “health insurance that was at least partially paid by employer” compared to almost all full-time tenure-track and full-time contingent faculty. Similarly, in the CPS data, much smaller percentages of part- time faculty than full-time faculty report having health insurance through their own employment (see table 9). Data from a 2013 Sample of Faculty with Doctorates Show That Contingent Faculty Were Less Satisfied with Certain Aspects of their Economic Circumstances In addition to the lower pay and access to benefits experienced by some contingent faculty, among a national sample of instructional, doctorate- holding faculty in STEM, health, and social sciences fields, contingent faculty were less satisfied with their job security and career prospects. Based on our analysis of 2013 SDR data, the vast majority of all instructional faculty, including contingent faculty, stated that they are very or somewhat satisfied with their employment overall. However, compared to full-time tenure-track faculty, more contingent faculty reported some level of dissatisfaction (see fig. 10). While most faculty reported satisfaction with their employment, at least a third of both full- and part- time contingent faculty stated that they are dissatisfied with their job security and opportunities for career advancement. For example, an estimated 55.1 percent (+/- 4.5) of part-time contingent faculty reported some level of dissatisfaction with opportunities for advancement (see fig. 10), and the proportion who said they were very dissatisfied—26.1 percent (+/- 3.8)—is around 5 times greater than for full-time tenure-track faculty. While Contingent Faculty at Selected Institutions Said Their Work Offers Certain Advantages, They Expressed Concerns about Contracts, Wages, and Institutional Support Contingent Faculty Identified Certain Advantages of Their Work Contingent faculty at selected institutions said their work offers certain advantages, including those allowing them to balance professional and personal responsibilities, develop skills, or work with students. Part-time contingent faculty in some discussion groups said they choose to work part-time because it gives them needed flexibility to balance teaching with working full-time or to meet family needs, such as childcare or caring for sick parents. As stated previously, our analysis of nationally representative 2013 SDR data showed that, among a sample of instructional faculty with doctorate degrees in STEM, health, and social sciences fields, many faculty preferred to work part-time for reasons including family responsibilities or holding another job. In terms of developing skills, one instructional graduate assistant told us that having teaching experience gives her an advantage in the job market. In addition, in both full- and part-time discussion groups, some contingent faculty told us they primarily want to teach, and their roles allow them to do that rather than having to conduct research or take on other responsibilities. In some discussion groups, contingent faculty said they are committed to teaching because they find it rewarding to interact with students. Insight from a Full-Time Contingent Faculty Member about Connecting with Students “I have yet to meet a contingent faculty member that does not say that student contact is extremely important to them…We’re excellent teachers. We’re interested in teaching. We are interested in being with students.” Contingent Faculty Expressed Concerns about Short-term Contracts, Untimely Contract Renewals, and Compensation Contract-Related Concerns Contingent faculty in some of our discussion groups expressed concerns about contractual issues. In particular, they cited concerns regarding contract length, untimely contract renewals, or insufficient notice about their class schedules. Full- and part-time contingent faculty said short- term contracts—annual or semester-to-semester contracts—produce anxiety about job stability because of uncertainty about whether contracts will be renewed. Part-time faculty who teach at multiple institutions additionally said that short-term contracts hinder their ability to form lasting relationships with institutions or students. In some discussion groups, full- and part-time contingent faculty said untimely contract renewals can make it difficult to find another position if a contract is not renewed. For example, a full-time contingent faculty member said she received notification in August that her contract was not being renewed for the fall semester, at which point she could not find another position elsewhere for that semester. Part-time contingent faculty told us that notices about the status of their class schedules are also sometimes untimely. One full-time contingent faculty member said that, when he worked part-time, he sometimes did not know, until the first night of class, that a course he was scheduled to teach had been given to a full-time faculty member instead. While some contingent faculty expressed concerns about contract lengths and renewals, some contingent faculty said they do not have concerns in this area. Faculty members in some part-time discussion groups told us teaching is not their primary source of income or they are retired, so they are not concerned about job security and contract renewals. Insight from a Full-Time Contingent Faculty Member “The lack of long term job security/stability that results from short term contracts is my biggest concern. I find it insulting when comments like “great work, we’re committed to you” are coupled with actions like one year contracts when I have been in this position for 15 years. It does not make me feel valued.” Compensation-Related Concerns Contingent faculty we spoke with identified insufficient compensation as a disadvantage of their employment (see table 10). Full-time and part-time contingent faculty in some discussion groups said they must supplement their teaching income to cover their living expenses. For example, one full-time contingent faculty member said he does consulting work, bookkeeping, and product reviews to increase his income because his teaching salary is not adequate. In addition, some part-time faculty said they teach at several institutions to make ends meet financially and some instructional graduate assistants also said they take on extra work to cover living expenses. Union officials at the national level said their members have expressed similar concerns. Specifically, Service Employees International Union (SEIU) officials told us some contingent faculty members qualify for public assistance due to the low level of compensation they receive. Insight from Part-Time Contingent Faculty Member Teaching at Multiple Institutions “Society at large, I think, associates the college professor with a rather well paid and stable career. And I think most of us who worked in this field know that is anything but the case.” Some contingent faculty in both full- and part-time discussion groups said they are not paid for all of their job requirements or are undercompensated given their qualifications. Full- and part-time contingent faculty and graduate student instructors said they are required to assume extra responsibilities at no additional pay. For example, a faculty member in a full-time discussion group told us she was given additional duties of advising 15 students and attending meetings, neither of which was included in her contract. Both full- and part-time faculty in some discussion groups said their pay is not commensurate with their academic credentials. One full-time faculty member told us an administrator with a doctorate who works in the local school district near her institution is paid double her salary. Similarly, a part-time faculty member told us her salary is less than $20 an hour, a rate she considers as too low for a professional with a doctorate. Some Contingent Faculty at Selected Institutions Said They Have Limited Career Advancement or Institutional Involvement Opportunities and Lack Certain Types of Professional Support Limited Career Advancement Opportunities Contingent faculty in some discussion groups said they would like to move into a tenure-track or full-time position, but face barriers doing so, and union officials expressed similar views. For example, one full-time contingent faculty member told us teaching 6 to 10 classes per year does not allow her time to conduct the research needed to be competitive for a tenure-track position. In some discussion groups, both full- and part-time faculty said that they perceive that their colleagues sometimes view them as less capable because they are not tenure-track faculty. As a result, these faculty may not be considered for tenure-track positions when they become available. A part-time contingent faculty member who teaches at multiple institutions noted that availability of full-time positions may be limited because many institutions hire only part-time faculty. Union officials from the American Association of University Professors (AAUP) and SEIU also cited the decline in the availability of tenure-track positions as a barrier regarding career advancement for contingent faculty. Insight from a Part-Time Contingent Faculty Member Who Teaches at Multiple Institutions “It wasn’t that long ago that once you went to work for a college as an adjunct and you were there a certain number of years, there was a real expectation that you would be offered a full-time position or at least you would move to an annual contract so you only had to worry once a year. That’s disappearing. More and more colleges are moving away from that. Also, a lot of colleges are moving away from full-time positions.” Limited Institutional Involvement Contingent faculty in some discussion groups expressed concerns that they do not have a voice in institutional decision-making because they cannot serve on some department or university-level committees or vote on particular issues. They explained that sometimes a school’s policy prohibits their service or relevant policy is not clearly articulated. For example, a full-time contingent faculty member told us that contingent faculty members at her institution cannot participate on governance committees, which she said leaves administrators free to ignore the concerns of contingent faculty. Insight from a Full-Time Contingent Faculty Member “We have no voice. We have no say. We have no governance. We don’t have any of that. And yet, we all—every one of us around here earned the same degree, worked the same amount. So there is huge inequality between choosing to focus on research primarily, and therefore, getting this basic job guarantee until die and choosing to focus on teaching, not having that , even though in many other ways we are equivalent.” Contingent faculty in some discussion groups also told us they are reluctant to voice their views because they do not have job protections. For example, a full-time contingent faculty member in one discussion group told us she would feel more comfortable speaking up if she had a continuing contract rather than her current annual contract. An official from the National Center for the Study of Collective Bargaining in Higher Education and the Professions said that an issue for contingent faculty broadly is whether they are protected by due process. He said it can be unclear for contingent faculty whether they can be terminated without due process consideration when, for example, a student complains about the content of a faculty member’s lecture. Despite concerns about opportunities for institutional involvement, contingent faculty told us they preferred to use informal mechanisms to raise issues with the administration and had mixed views about the value of unions. Several full- and part-time faculty members said they are comfortable approaching their department chairperson or even university administrators to ask questions or express concerns. In terms of unions, some faculty in both full-time and part-time discussion groups said they were opposed to unions based on prior experiences or not wanting to pay dues. In contrast, some faculty said they thought a union could be beneficial by helping with certain issues, such as compensation and working conditions. Union officials told us there has been greater interest in recent years from contingent faculty—including graduate assistants—in learning about faculty unionization or in organizing into unions. However, one union official noted that it can be challenging for part-time faculty to form a union because they may move from one institution to another. Institutional Support Examples of Academic Associations’ Efforts to Focus on Contingent Worker Issues The American Political Science Association (APSA): Convened a committee in 2016 on the status of contingent faculty in the profession to expand ways to support contingent faculty members. The committee sponsored a roundtable at the APSA Annual Meeting in August 2017 to examine a range of topics related to contingent faculty, including promotion paths, fairness within the profession, and the role of unionization. The American Sociological Association (ASA): Formed a task force on contingent faculty in November 2015 to examine the implications of the recent growth of contingent employment among sociologists. The task force’s interim report, issued in August 2017, includes recommendations to ASA and universities, for improving contingent faculty working conditions. The Modern Language Association: (MLA) Convened a committee that will work through June 2019 to examine issues that affect contingent faculty, including salary and benefits, workplace issues and conditions of employment, demographics, participation in departmental and institutional governance, academic freedom, and professional development. The committee plans to identify effective policies and practices related to contingent faculty. The American Institute of Physics (AIP): Conducted a survey of individual faculty in 2016 that included questions on school climate and culture. As of February 2017, AIP was in the early stages of analyzing the survey response rates and results. Contingent faculty in some discussion groups also described a lack of institutional support in areas that can affect faculty teaching duties, such as access to information systems or office space. For example, a part- time faculty member told us her access to institutional email and the online grading system was terminated too soon because her contract ended a few days before she gave final examinations. Part-time faculty and faculty teaching at multiple institutions also raised concerns that they sometimes lack appropriate office space to ensure student privacy. Union officials we spoke with also said contingent faculty nationwide commonly cite these areas of limited institutional support as concerns. Some discipline-specific academic associations have also begun to focus on issues related to contingent faculty (see sidebar). Insight from a Part-Time Contingent Faculty Member Who Teaches at Multiple Institutions “The office space problem is a big problem. Either one doesn’t have any office space or it’s a jointly shared office space, a very large space with lots of people in it. It is very difficult to have kind of close conversations with students. I think it brings up some Family Educational Rights and Privacy Act (FERPA) problems, anonymity problems as well.” Agency Comments, Third Party Views, and Our Evaluation We provided a draft of this report to Education, NSF, and experts on contingent faculty issues or the data used in this report for their review and comment. Education did not have any comments. NSF and expert reviewers provided technical comments, which we incorporated, as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, to the Secretary of Education and the Director of the National Science Foundation, and to other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology The objectives of this review were to determine (1) what is known about the makeup and utilization of the postsecondary instructional workforce; (2) the roles different types of faculty fill at selected institutions and the factors administrators consider when determining their faculty makeup; (3) what is known about how economic circumstances compare across different faculty types; and (4) what contingent faculty members report as advantages and disadvantages of their work. To address objectives 2 and 4, we interviewed administrators and contingent faculty members during site visits at selected institutions in three states—Georgia, North Dakota, and Ohio. In each state, we visited one 4-year public institution, one 4-year private (non-profit) institution, and one 2-year public institution (see table 11). We selected institutions in these states, in part, to provide context for our analysis of faculty and course data that we obtained from their postsecondary data systems (see Section 1 of this appendix for more information). In addition to data availability, we considered size and geographic location as part of our state selection process. When selecting institutions within each state, we considered factors such as the size of the instructional faculty workforce, the percentage of contingent faculty, and whether the institution is located in an urban, suburban, or rural area. In our interviews with administrators—chief academic officers, vice presidents, or deans, among others—we asked about the roles different types of instructional faculty fill and the factors administrators consider when determining their institution’s faculty makeup. In addition to administrators at the institutions above, we also interviewed administrators from one large online-based for-profit institution, which we selected primarily based on size of the institution. In total, we interviewed administrators from 10 institutions. The findings from these interviews are not generalizable. At each institution, we held discussion groups with full-time and part-time contingent faculty and graduate student instructors, where applicable. University administrators solicited participants for the discussion groups on our behalf. During these discussion groups, we asked contingent faculty broad, open-ended questions about the advantages and disadvantages of their work and about their working conditions. Participants were invited to complete a written questionnaire to provide demographic information about themselves. Among the 109 contingent faculty members who completed our questionnaire, the average age of full- and part-time contingent faculty we met with was 53. Graduate student instructors were younger, with an average age of 30. Contingent faculty we interviewed came from a range of disciplines, including English, music, engineering, and the health professions. The vast majority of full- and part-time contingent faculty indicated that they held a master’s or doctorate degree. At the institutions we visited in Georgia, North Dakota, and Ohio, the majority of part-time faculty worked at one institution. To ensure we collected a broad range of perspectives, we conducted two additional discussion groups with contingent faculty who taught at multiple institutions. In total, we conducted 21 discussion groups with contingent faculty. Finally, we conducted additional interviews to obtain background and context for our work. We met with individuals knowledgeable about issues related to postsecondary faculty and unions representing postsecondary faculty, including the American Association of University Professors and the Service Employees International Union. For all questions, we also reviewed relevant federal laws and regulations. The remainder of this appendix provides detailed information about the data and quantitative analysis methods we used in our review, as follows: Section 1: Key data sources Section 2: Quantitative analysis methods used to address the makeup, utilization, and economic circumstances of postsecondary instructional faculty (objectives 1 and 3) Section 3: Pay-per-course regression analysis methods (objective 3) Section 4: Annual earnings regression analysis methods (objective 3) Section 1: Data Sources To address our objectives, we used data from multiple sources (see table 12). To gain an understanding of and provide context for the relevant faculty data that we analyzed, we interviewed officials from federal, state, and non-governmental agencies who collect and maintain the respective datasets, including the Department of Education (Education), Labor, National Science Foundation, North Dakota University System (NDUS), Ohio Department of Higher Education (ODHE), University System of Georgia (USG), and American Academy of Arts & Sciences (AAAS). The Integrated Postsecondary Education Data System (IPEDS) and the state administrative data represent the entire populations they cover, and while the Current Population Survey (CPS), the Survey of Doctorate Recipients (SDR), and the Humanities Departmental Survey (HDS) are sample survey data, when weighted, they also represent the populations they cover. Because the sample surveys followed a probability procedure based on random selections, each respective sample is only one of a large number of samples that might have been drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as the margin of error (i.e. the half width of the 95 percent confidence interval—for example, +/- 7 percentage points). This is the interval that would contain the actual population value for 95 percent of the samples that could have been drawn. Throughout our analyses, for estimates from survey data we reported the applicable margins of error. In some cases, the confidence intervals around our estimates were asymmetrical; however, we presented the maximum half-width for simplicity and for a consistent and conservative representation of the sampling error associated with our estimates. Our analyses of CPS and SDR survey data are weighted analyses using sample design information, replicate weights, and survey analysis software to get the proper sample survey estimates and margins of error. Additional details about the datasets follow. Integrated Postsecondary Education Data System (IPEDS) IPEDS is a system of interrelated surveys conducted annually by Education’s National Center for Education Statistics (NCES). IPEDS gathers information from every college, university, and technical and vocational institution that participates in federal student financial aid programs, as well as other institutions that report data voluntarily. In 2015, more than 7,500 institutions reported data to IPEDS. IPEDS collects data in the following 12 areas: institutional characteristics; completions; 12-month enrollment; fall enrollment; graduation rates; 200% graduation rates; student financial aid; outcome measures; admissions; human resources; finance; and academic libraries. As of the 2005 IPEDS data collection, information on faculty and staff are collected as part of the human resources survey component, and include information on faculty demographics and types of positions, among other things. We used IPEDS data from 1995, 1999, 2003, 2007, 2011, and 2015. We utilized IPEDS as our primary data source because we are able to identify a universe of postsecondary institutions and also because the data allow us to distinguish between tenure-track and contingent positions. Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC) The CPS is sponsored jointly by the Census Bureau and the Department of Labor’s Bureau of Labor Statistics. It is the source of official government statistics on employment and unemployment in the United States. The basic monthly survey is used to collect information on employment, such as employment status, occupation, and industry, as well as demographic information, among other things. The survey is based on a sample of the civilian, non-institutionalized population of the United States. Using a multistage stratified sample design, about 54,000 households are interviewed monthly based on area of residence to represent the country as a whole and individual states; the total sample also includes additional households that are not interviewed for various reasons, such as not being reachable. In addition to these interviewed and non-interviewed households from the basic CPS monthly sample, the ASEC includes additional households; the total sample size for the 2016 ASEC was almost 100,000 households. The ASEC provides supplemental data on work experience, income components, such as earnings from employment, and noncash benefits, such as health insurance coverage, among other things. Data on employment and income refer to the preceding calendar year, although demographic data refer to the time of the survey. This report used data from the March 2016 ASEC, which refers to employment and income during calendar year 2015. Survey of Doctorate Recipients (SDR) SDR is a biennial survey conducted by the National Science Foundation’s (NSF) National Center for Science and Engineering Statistics (NCSES) that provides demographic and career history information about individuals with a research doctoral degree in a science, technology, engineering, and math (STEM), health, or social sciences field from a U.S. academic institution. The survey follows a large sample of individuals throughout their careers from the year they received their doctoral degree until age 75, plus a sample of new doctoral recipients added in each cycle. The survey includes questions regarding occupation (including discipline area for postsecondary faculty), earnings, job satisfaction, faculty tenure status, and faculty rank, among other topics. While some data from the survey are released publicly, other data are restricted from public use—including data on tenure and rank— in order to protect the anonymity of survey respondents. This report used data from the 2013 SDR, which refers to employment in February 2013. We obtained the publicly available data and a few additional restricted-use variables that NCSES recoded for our use. Faculty and Course Data Received from Selected States The data from Georgia, North Dakota, and Ohio contained variables on faculty characteristics, earnings and benefits, and courses taught. We developed data requests through discussions with officials in each state. Georgia Postsecondary Institution Administrative Data (USG data) The data from USG covered all 4-year public institutions in Georgia identified in our IPEDS universe and included course and enrollment data from an academic database merged with faculty and earnings data from USG’s Human Resources Data Mart. The Georgia data also included information on the percentage of individual faculty members’ roles comprised of instruction, research, and other responsibilities. The course and enrollment data covered academic year 2015-16—courses taught during fall term 2015, spring term 2016, and summer term 2016. Most faculty data are from fall 2015. For some faculty who were not in the fall 2015 data file because they started teaching in spring 2016, for instance, USG matched fall 2016 faculty data to the course data. Earnings data covered calendar year 2015 and included earnings year-to-date through November. North Dakota Postsecondary Institution Administrative Data (NDUS data) The data from NDUS officials covered all non-tribal 4-year and 2-year public institutions in North Dakota identified in our IPEDS universe and included course and enrollment data, as well as faculty and earnings data. All of the data covered academic year 2015-16—courses taught and earnings during fall term 2015, spring term 2016, and summer term 2016. The data included common unique identifiers that allowed us to merge extracts we received according to faculty ID and institution. The data were downloaded by NDUS officials from a centralized data system into which the North Dakota institutions report their data directly. Ohio Postsecondary Institution Administrative Data (ODHE data) The data from ODHE covered all 4-year public institutions and most 2- year institutions in Ohio identified in our IPEDS universe and included: (1) course and enrollment data, (2) faculty data, and (3) faculty earnings data. All of the data were from ODHE’s Higher Education Information (HEI) system, a comprehensive relational database that includes student enrollment, course, financial aid, personnel, finance, and other data submitted by Ohio’s colleges and universities. The course and enrollment data covered academic year 2014-15—courses taught during summer term 2014, fall term 2014, and spring term 2015. Faculty and earnings data covered fiscal year 2015 (i.e., July 2014 through June 2015). Humanities Departmental Survey (HDS) The HDS is a collaborative effort to collect and analyze information from humanities departments across a number of academic fields. The HDS is sponsored by AAAS, and national humanities organizations and disciplinary associations, such as the Modern Language Association and the American Historical Association, helped develop the HDS. The survey collects a variety of information for each humanities field, including data on the number and types of faculty and students taught by faculty type. The survey has been administered twice, covering academic years 2007- 08 and 2012-13. In both instances, the Statistical Research Center of the American Institute of Physics administered the surveys to a nationally representative stratified sample of humanities departments in four-year colleges and universities that existed in 2007-08 and was updated for new disciplines in 2012-13. The 2012-13 survey included 2,127 departments in its sample across 13 humanities fields, and its overall response rate was 71 percent. Information about faculty referred to employment levels as of fall 2012. We identified several other discipline-specific academic associations that have collected or are currently collecting data on faculty makeup in their departments, including contingent faculty. However, we did not compare the results of other department surveys to the HDS because the response rates in other surveys were too low to be considered generalizable or because any observable differences in faculty composition could be attributed to differences in survey methodology or timeframe covered. Data Reliability For each of the datasets described above, we conducted a data reliability assessment of variables included in our analyses. We reviewed technical documentation and related publications and websites with information about the data. We spoke with the appropriate officials at each agency or organization to review our plans for analyses, as well as to resolve any questions about the data and any known limitations. We also conducted electronic testing, as applicable, to check for logical consistency, missing data, and consistency with data reported in technical documentation. We determined that the variables we used from the data we reviewed were sufficiently reliable for the purposes of this report. Section 2: Quantitative Analyses of the Makeup, Utilization, and Economic Circumstances of the Postsecondary Instructional Workforce This section discusses the quantitative analysis methods (not including regression analyses) we used to address the makeup, utilization, and economic circumstances of the postsecondary instructional workforce. We used federal data from CPS, IPEDS, and SDR, state data from Georgia, North Dakota, and Ohio, and non-governmental data from HDS for these analyses. In each of the analyses that follow, our population of analysis was postsecondary instructional faculty. However, our definition of instructional faculty varied depending on the data source, as different sources provide different information regarding instructional responsibilities. For example, IPEDS indicates whether an individual’s responsibilities are primarily instructional whereas the state data indicates whether an individual teaches a course. For each set of analyses, we explain what definition of instructional faculty we used. Within our population of instructional faculty, we defined as contingent faculty any full-time or part-time faculty who do not have tenure or are not on the tenure track. IPEDS Analyses of Historical and Current Makeup To analyze whether and how the size of the contingent faculty workforce has changed over time, we used IPEDS data to identify instructional staff nationwide by type of institution in 1995, 1999, 2003, 2007, 2011, and 2015, which is the most recently available year of data. The five historical snapshots used data from the fall staff surveys to examine counts of faculty and any trends in postsecondary education during the period 1995-2011. The 2015 snapshot used data from the “employees by assigned position” survey to examine current counts of faculty by position type and used data from the fall staff survey to examine counts of faculty by gender and race. We could not compare the historical and current snapshots of faculty counts due to a significant change in 2012-13 to how IPEDS defines instructional staff. Prior to this change, instructional staff included those “whose primary responsibility is instruction, research, and/or public service” combined in a single category. After the change, instructional staff included only those whose responsibilities are primarily instructional or those “for whom it is not possible to differentiate between instruction or teaching, research, and public service because each of these functions is an integral component of his/her regular assignment.” As a result, data on instructional faculty collected since 2012 is not comparable to data collected prior to 2012. For each of these years of faculty data, we merged information from the IPEDS institutional characteristics file and focused our analyses on a universe of institutions that fit as close as possible to the following definition: Active, Title IV, degree-granting 2-year and 4-year primarily postsecondary institutions that are generally open to the public, have at least 15 full-time equivalent staff, and reported at least 1 instructional staff member or graduate teaching assistant. The number of postsecondary institutions can change from year to year due to new schools opening or existing schools closing or consolidating with other schools, as well as due to changes in how schools elect to report data to IPEDS. Not all of the same variables were available in the 1999 and 1995 IPEDS institutional characteristics files. As a result, for the 1999 data, we used different variables that also identified institutions that fit this definition. For the 1995 data, we approximated this definition by identifying institutions that offered at least an associate’s degree or higher and that were active institutions eligible for student financial aid (to approximate Title IV institutions). For the historical snapshots, we identified counts of faculty by institution type (i.e., control: public, private, for-profit; and level: 2-year, 4-year). We categorized faculty according to the following position types: full-time tenure-track (both tenured and non-tenured but on a tenure track); part-time; and graduate teaching assistant. The historical IPEDS data (from the fall staff surveys) do not break out part-time tenure-track from part-time contingent. For the 2015 snapshot, we identified counts of faculty by institution type, as well as by other institutional characteristics, such as size and the highest degree offered by the institution. We categorized faculty according the following position types: full-time tenure-track (both tenured and non-tenured but on a tenure track); part-time tenure-track (both tenured and non-tenured but on a tenure part-time contingent; and graduate teaching assistant. We also identified contingent faculty positions by their contract types: non-faculty status. We used the 2015 IPEDS fall staff survey data to identify faculty by gender and race/ethnicity group. For full-time faculty, we were able to examine the full spectrum of tenure-track versus contingent with various contracts. However, because these data were from the 2015 IPEDS fall staff survey, the data do not break out part-time tenure-track from part- time contingent. The IPEDS race/ethnicity categories we analyzed were: Black or African American Other or unknown (includes the IPEDS race/ethnicity categories: American Indian or Alaska Native; Native Hawaiian or other Pacific Islander; two or more races; and race/ethnicity unknown) White (non-Hispanic) Aggregated IPEDS data represent the universe of postsecondary instructional faculty positions, rather than a mutually exclusive count of unique instructional faculty members. IPEDS data are reported at the institution level, and so for any given institution the counts they report represent both the number of faculty at the institution and the number of positions they fill. However, because faculty who teach at more than one institution are counted and reported by each institution, when faculty counts are aggregated across multiple institutions, these faculty are counted multiple times—for each position they fill. As a result, aggregated counts based on IPEDS data represent the universe of unique instructional faculty positions, rather than the universe of unique faculty workers. CPS Analyses of Current Faculty Makeup and Economic Circumstances We used CPS data from the March 2016 ASEC to estimate the numbers of workers employed as postsecondary teachers in colleges and universities nationwide during calendar year 2015. We categorized as postsecondary instructional faculty any worker whose employment was in both the “postsecondary teachers” occupation (census code 2200) and the “colleges and universities, including junior colleges” industry (Census code 7870). We also determined whether a worker was employed full- time (35 hours or more) or part-time (less than 35 hours) using another variable in the ASEC. Among other differences with IPEDS data (see discussion of IPEDS above), CPS data capture the number of workers rather than the number of positions in postsecondary education and counts each worker once even if they work at multiple institutions. In addition, because CPS represents the entire labor force, the data include workers at postsecondary institutions that we may have excluded from our IPEDS analyses (e.g., non-degree-granting institutions). We utilized CPS data to provide context for the total number of postsecondary teachers and to estimate the proportions of the instructional workforce represented by full- time and part-time faculty. However, analysis of CPS data was not a primary component of our report because the data cannot differentiate workers by institution or by tenure status. As a result, the estimated population of full-time faculty includes both tenure-track and contingent faculty. Because CPS identifies workers as opposed to positions (which might yield a lower count than the IPEDS data) and includes workers at postsecondary institutions that we excluded from our IPEDS analyses (which might yield a higher count than the IPEDS data), the count of workers in the CPS data and the count of positions in the IPEDS data are not directly comparable. We also examined the reasons part-time faculty reported they worked part-time. We focused our analysis on 3 groups of part-time faculty: (1) those who reported wanting to work part-time; (2) those who reported they could only find a part-time job; and (3) those who reported seasonal or temporary fluctuations in the availability of employment (i.e., “slack work”)—we combined the latter two groups because they are both related to economic circumstances. To analyze the economic circumstances of contingent faculty, we used CPS data to estimate the median earnings of full-time and part-time faculty, as well as their receipt of work-provided retirement and health benefits. Our analysis of median earnings used ASEC data on the self- reported amount earned from a worker’s employer before deductions. In examining benefits, we used the term “work-provided” rather than “employer-sponsored” because the ASEC survey questions ask about benefits offered by a worker’s employer or union. For our analysis of access to work-provided retirement plans, we counted a worker as having a work-provided retirement plan if they responded “yes” to both of the following questions from the ASEC: (1) “Other than Social Security, did the employer or union that worked for have a pension or other type of retirement plan for any of the employees?” and (2) “Was included in that plan?” We also estimated the percentages of full- time and part-time faculty who were covered by any private health insurance plan; were covered by private health insurance in their own name; or had a work-provided health insurance plan. Those individuals without insurance could have received insurance coverage through a family member or other means. SDR Analyses of Compensation and Employment Experiences To compare—at the national level—the compensation and employment experiences of contingent faculty and tenure-track faculty, we used 2013 SDR data to identify different faculty types and examined the extent to which there were differences in earnings, benefits, and job satisfaction. SDR data only include doctorate holders in STEM, health, and social sciences fields, and thus our estimates cannot be generalized to non- doctorate holders or to fields outside of STEM, health, and social sciences fields. For that reason, we did not present faculty population size estimates using SDR data. We created our analysis population of instructional faculty based on responses to questions regarding work activities and institution type. Using these variables, we classified as instructional faculty any respondents who said that their “primary or secondary work activity is teaching,” and whose institution type was a 2-year college; 4-year college or university; medical school; or university-affiliated research institute. This resulted in an analysis population of 7,232 instructional faculty respondents; however, our analyses are weighted analyses that generalize to the population. Within our analysis population, we identified faculty types based on tenure status (i.e., tenured/on the tenure track or not on the tenure track) and whether respondents said they worked 36 hours or more per week or less than that (i.e., full-time versus part-time). We categorized graduate assistants separately, though we chose not to present estimated percentages for graduate assistants. Given that SDR is a survey of doctorate holders, it may be that graduate assistants in the SDR data are—for example—working toward another doctoral degree or have remained at their degree-granting institution in a postdoctoral position. In either case, we believe the working arrangements and economic circumstances of these individuals may be unique from those of most other graduate assistants. Without more detailed information, the data do not allow us to determine the exact nature of graduate assistant positions in the SDR data or explain how they compare to other types of positions. We also chose not to present estimated percentages for part- time tenure-track faculty given that they represented a small proportion of our analysis population. To analyze the economic circumstances of contingent faculty, we used SDR data to calculate median annual earnings by faculty type, as well as data on the availability of work-provided benefits. We calculated median earnings using data on basic annual salary from the respondent’s principal job. We analyzed data on the following types of benefits: health insurance, pension or retirement plans, profit-sharing plans, and paid vacation/sick/personal days. Respondents were asked whether each type of benefit was available to them regardless of whether they chose to take the benefits. To analyze the employment experiences of contingent faculty, we used SDR data on job satisfaction, reasons for working part-time, and attendance of professional meetings. To examine job satisfaction, we used data on satisfaction with overall employment, job security, opportunities for advancement, salary, and benefits, from which we estimated the percentage of faculty who were satisfied, somewhat dissatisfied, or very dissatisfied by faculty type. Our analysis of part-time work first included whether a respondent who reported working part-time said they wanted to work full-time. Secondly, among those who wanted—and who did not want—to work full-time, we calculated the percentage who said they worked part-time (1) for family reasons, (2) because a full-time job was not available, (3) because they did not need/want full-time work, and (4) because they were a student, had an illness, or held another job. Respondents could indicate more than one reason for working part-time. We also analyzed a variable on attendance of professional meetings to calculate the percentage of faculty, by faculty type, who reported attending professional association meetings or conferences during the past 12 months. The SDR data included other variables that identify a respondent’s academic position, such as research faculty, administrators, adjuncts, and others. We analyzed these variables to determine whether to use them to categorize faculty, but found that they were not the most appropriate for our purposes. However, we observed that these variables may have implications on the economic circumstances of different types of faculty and so used them as control variables in two of our regression models on annual earnings. For example, we analyzed earnings of instructional faculty who said they were “adjunct” faculty or administrators. Among full-time and part-time contingent faculty, estimated median annual earnings decreased when we included only faculty who said that they were adjunct faculty (see table 13). However, the data do not allow us to explain how or whether the positions for faculty who identified as adjuncts are different compared to the positions of those who did not identify as adjuncts, and, based on our team’s interviews with administrators, different institutions and individuals apply different meanings to the term “adjunct.” As may be expected, among full-time tenure-track and full-time contingent faculty, estimated median annual earnings increased when we limited the population to only those faculty who said they were administrators (see table 13). State Data Analyses of Makeup and Utilization We used consistent methods to analyze data from Georgia, North Dakota, and Ohio on faculty workforce makeup and utilization, though we analyzed the data from each state separately. In addition, while each state dataset was structured slightly differently, used different variable names, and contained some unique elements or ways of capturing information about faculty or courses, we restructured and compiled the information to provide consistency across the states. In the state data, we identified instructional faculty as any individual who taught a course during the given academic year. This definition includes a variety of staff (e.g., deans, administrators, coaches, research faculty, and postdocs) who fill about 2-10 percent of positions, depending on institution type and state. In addition, instructional graduate assistants— who are listed in the state data as instructors of record—fill about 8 to 15 percent of positions at 4-year institutions in the three states. Each state’s data were ultimately structured as a set of unique faculty- institution pair observations—where faculty were listed once, by their employing institution. Each faculty-institution pair observation had variables describing the faculty member’s and institution’s characteristics, as well as counts of courses, students, and student credit hours taught by the faculty member at that institution (including by academic term and by course characteristics). Faculty Data Compilation and Restructuring For all three state datasets, we coded and grouped certain faculty characteristics variables, including academic rank, age group, race/ethnicity, sex, and tenure status, to ensure consistency across states. For example, in coding tenure status, we consistently categorized faculty as “non-tenure-track” if they were identified in the source data as not in a tenure-track position, as having been denied tenure, as being in some other status, or as being in a position for which tenure was not applicable. Some faculty characteristics variables were structured differently in each of the three states and thus required unique methods of recoding, though we applied consistent approaches and logic in each case (see table 14). We also identified each individual’s academic discipline based on information provided in each state’s data about their department. Faculty members’ departments in the Georgia and Ohio data are identified by their standardized Classification of Instructional Programs (CIP) code. The North Dakota data did not include the CIP code for faculty members’ departments and department names in the North Dakota data were not consistent across institutions. Thus, we coded North Dakota departments by matching them manually to corresponding CIP codes. After manually assigning CIP codes to faculty in the North Dakota data, we identified the highest level 2-digit CIP code for each faculty member in all three state datasets. However, because the 2-digit CIP code identifies over 40 fields of study, we grouped these by academic discipline for our analyses. To group departments, we used a crosswalk provided by Ohio that listed CIP codes according to 12 possible disciplines they were most closely associated with. Although the Department of Education’s CIP coding system does not include a commonly accepted list of disciplines, we determined that Ohio’s convention was reasonable and we applied the coding consistently across all three states to identify the academic discipline of each individual. The North Dakota data included multiple observations for some faculty members within a single institution and term. This occurred for a variety of reasons, such as a faculty member holding two positions at the same institution (e.g., both a coach and an instructor, or half time as an instructional graduate assistant and half time as a research graduate assistant). To compile a consistently structured dataset of unique faculty- institution pair observations, we implemented the following sequential process to select and eliminate duplicate faculty observations. We confirmed with North Dakota officials that our approach and methods were appropriate. For faculty with multiple observations, we dropped any observations where (1) no earnings were listed in any term or earnings were only listed for the summer term but the faculty member taught no courses at the given institution in the summer; or (2) the work responsibilities associated with the faculty observation were not directly related to teaching (e.g., graduate assistant research or grading, management, administration, research, or coaching) and a different observation for that faculty member at the same institution had teaching duties listed. We dropped these duplicate observations because there was a more appropriate observation to be used for the given faculty member at the given institution with earnings information and an associated instructional position. For the remaining faculty with multiple observations, we sequentially kept one observation as the primary faculty position based on hierarchical logic we developed. For example, we dropped any additional observations with an employee status other than “active” or a position identified as “temporary.” As appropriate, we either aggregated hours worked and earnings across the multiple observations before dropping the duplicate observations or we took the hours worked and earnings values from the observation identified as primary. Course Data Compilation and Restructuring Course data from all three states included each unique course section taught over the academic year by institution, term, and faculty instructor. We analyzed course sections for which there was an instructor identified and enough information about that faculty member to categorize them by faculty type (e.g., full-time tenure-track versus part-time contingent, etc.). For all three states, we aggregated these data by course type and other information to the level of the unique faculty-institution pair. For example, a single faculty member at a single institution may have taught 10 course sections, all at the undergraduate level and spread across the year—4 in fall term, 4 in spring term, and 2 in summer term. Courses are listed in the state data at both the course number level (e.g., Biology 101) and the course section level (e.g., Biology 101, Sections A, B, and C). Our analyses generally examined unique course sections by faculty member (e.g., two separate sections of Biology 101 are considered as two courses), as that is a more accurate depiction of faculty workload. Thus, for consistency and clarity throughout our report, we use the term “courses” to refer to our analyses of course sections. In a few special circumstances, we counted courses at the course number level instead of the course section level to minimize potential bias in our work (see additional information below). The course data included information about courses that we systematically coded and grouped to ensure consistency across the three states. For example, each state identified the academic level of each course. The Georgia and North Dakota data identified courses along a spectrum—generally developmental, freshman, sophomore, junior, senior, or graduate. The Ohio data had a different classification series: Developmental: All courses which are below college level General Studies: All courses which are general, introductory, or core Technical: Only those courses which are part of an associate degree program of technical education and are within the technical portion of a curriculum Baccalaureate: All courses which are specialized within a discipline Master’s / Doctoral / Professional – All graduate courses of various To categorize undergraduate course levels consistently across the states, we identified courses as (1) undergraduate lower if they were at the freshman, sophomore, general, or technical levels; or (2) undergraduate upper if they were at the junior, senior, or baccalaureate levels. Developmental and graduate courses were identified consistently in each state’s data. We made a number of decisions about how to categorize and count courses consistently across institutions and states. For example, we dropped cancelled courses or courses with no student enrollment. We also excluded from our primary analyses courses that would likely be student-led or student-initiated and thus could be considered atypical courses. We excluded these courses to minimize the potential bias of inflating the percentage of courses taught and deflating the earnings per course of one faculty type relative to another. After reviewing course types and titles, as well as associated student enrollment numbers and credit hours, we identified courses that met this definition and categorized them as atypical. Among the courses we identified as student-led or student-initiated were: Art or musical exhibitions, performances, or recitals Independent, supervised, dissertation, or thesis research Internships, fieldwork, practicums, cooperative experiences Varsity athletics These atypical courses made up close to a quarter of all courses across 4-year institutions in the three states and less than 10 percent of courses at 2-year institutions. As expected, and due to many being independent or single-student enrollment courses, they generally represented much smaller proportions of student credit hours across all institutions. Across 4-year public institutions in all 3 states, tenure-track faculty taught close to 75 percent or more of these courses. We also accounted for cross-listed courses and multiple lab sections to more accurately capture faculty workloads. Some courses in the Georgia and North Dakota data were cross-listed in multiple departments with different course acronyms for each department. For example, the course “Intro Robotics Research” taught by a single faculty member at one institution was listed three times under different department acronyms, with several students enrolled under each listing. Course sections listed multiple times due to being cross-listed would artificially inflate counts of courses taught, as these cross-listings actually represent only one course section. To avoid inappropriately counting them as separate courses, we counted cross-listed courses by using their course numbers (and also their course name in North Dakota) without the course acronyms attached. Thus, when we aggregated counts of courses by faculty- institution pair, term, and course type, these cross-listed courses were counted as one course and numbers of students and student credit hours were aggregated in association with the course. Due to inconsistencies in how lab sections were organized in the data, we aggregated labs by their course number (within a faculty-institution pair and term). For example, some lab sections were listed as 4-credit courses that appeared to have the lecture and lab components combined in a single listing, while others had a 3-credit lecture course listed and multiple sections of a 1-credit lab. To be as consistent across states as possible and to minimize the potential bias of inflating the percentage of courses taught and deflating the earnings per course of one faculty type relative to another, we combined lab sections into a single course count. To do so, we identified the lab sections within a particular course number, instructor, institution, and term and then flagged the first lab section for counting. Thus, similar to the cross-listed courses, when we aggregated counts of courses by faculty-institution pair, term, and course type, these lab sections were counted as one course and enrollment numbers aggregated in association with the course. For outlier faculty who taught especially large numbers of course sections, we counted their courses taught at the course number level (e.g., Biology 101) instead of the course section level (e.g., section 1 of Biology 101). After compiling the data and producing preliminary counts of course sections taught, some faculty in all three states emerged as outliers—teaching large numbers of course sections in a given term, in some cases, more than 50, for example. Though the data do not provide exact reasons for the large numbers of course sections taught, these outliers may have a number of possible explanations that could vary by state and institution. Among other effects, these outlier observations could artificially inflate the percentage of courses taught and deflate the earnings per course of one faculty type relative to another. To mitigate these effects, we counted courses taught for these outlier faculty at the course number level—where they are clearly distinct—instead of the course section level—where it is less clear why there are multiple sections. For example, Biology 101 is clearly a different course than Biology 201 or Chemistry 101 (regardless of section number), whereas section A of Biology 101 could actually be combined with section B and they are just listed separately for other reasons. We did not set a maximum number of courses that an individual could teach (i.e., individual faculty could still be listed as teaching large numbers of courses if they were associated with large counts at the course number level). We counted course numbers for outlier faculty because their large numbers of course sections listed suggested the possibility of a data anomaly; for all others (non-outlier faculty), we counted course sections. We set our outlier threshold as 15 course sections taught over the academic year based on an examination of the range of course sections taught by faculty in the three states’ data and conversations with administrators during our site visits. According to preliminary counts of course sections taught after excluding atypical courses, more than 95 percent of faculty in each state taught 15 course sections or fewer over the entire academic year. In addition, during our site visits, the largest number of course sections taught per term that administrators identified was 6, which could reasonably result in 15 course sections over the year (6 in fall term, 6 in spring term, and 3 in summer term—half the amount due to the condensed format). Analysis of Faculty Makeup and Utilization To analyze faculty makeup and utilization by institution, we merged information about institutional characteristics from IPEDS onto our state datasets. We analyzed faculty makeup, including counts and percentages of faculty positions by type of position and faculty characteristics (e.g., age, education, and academic discipline), by the following faculty categories (based, in part, on faculty tenure and work statuses): We sometimes analyzed full-time and part-time contingent faculty and instructional graduate assistants combined as “contingent faculty” and full-time and part-time tenure-track combined as “tenure-track faculty.” Unlike our analyses of IPEDS data, we included instructional graduate assistants in our combined contingent faculty group because they were listed as teachers of record for courses in the state data. We analyzed administrators/management as a separate group because these individuals represent a non-traditional class of faculty. For example, administrators may not have tenure-track status due to their management roles, but are in positions that may not be appropriate to be considered “contingent” (e.g., a dean might not be a tenure-track faculty member, but neither are they a contingent faculty member). We analyzed educational attainment of faculty by calculating the percentage of faculty with graduate or doctoral degrees by faculty type and institution type in in North Dakota and Ohio. Table 15 shows the total number of instructional faculty positions by institution type in each state, as well as selected faculty demographics. We analyzed faculty utilization by aggregating counts of courses, students, and student credit hours taught by each faculty category above, and by term and type of course, and by calculating percentages taught out of the entire population and certain subgroups. As a first step in this process, we aggregated counts of courses, students, and student credit hours for each faculty-institution pair by term and type of course. As a result, each faculty-institution pair had count variables that listed, for example, how many courses and students they taught in fall term at the undergraduate upper level. The Georgia and Ohio data listed courses multiple times if multiple faculty share the instructional responsibility. To ensure course sections were not double-counted, we counted them in fractional terms based on how many instructors were listed; for example, if a course section was listed twice—with two faculty members having equal responsibility for the course—we counted each faculty member as teaching half of that course. We also used this fractional count to pro-rate or assign responsibility for students and student credit hours. We calculated this fractional count slightly differently for the Georgia and the Ohio data: Georgia: The Georgia data provided a teaching responsibility percentage for each faculty member associated with a course section. For example, a course section that was listed 3 times (for 3 different faculty with responsibility) might be split evenly 1/3-1/3-1/3 or might be split as 50-30-20 percent responsibility to each of the three faculty members. Thus, we used this individually provided fractional value. Ohio: The Ohio data did not provide a teaching responsibility percentage for each faculty member associated with a course section. Thus, we assigned equal responsibility (as the simplest assumption) to all staff listed for a course. After aggregating counts to the faculty-institution pair level, we further aggregated counts to the faculty category and institution type level. Our analyses focused on counts and percentages of courses and student credit hours by these faculty categories. Table 16 shows the total number of courses taught by institution and faculty types in each state. We also analyzed economic circumstances by examining median annual earnings and receipt of work-provided retirement, health insurance, and life insurance benefits by faculty type. We calculated an annual earnings amount for each faculty member and then analyzed median earnings by faculty type. For benefits, we identified whether individual faculty received a given benefit during the year, and then calculated the percentage of each faculty type receiving those benefits. We were unable to analyze benefits in this way for faculty in Ohio. See table 14 above for additional details about our earnings and benefits calculations by state. HDS Analyses of Faculty Makeup To estimate population percentages by faculty type and discipline in humanities departments at 4-year institutions, we used HDS data that were published in a technical report sponsored by AAAS. Our population of instructional faculty included faculty in humanities departments at 4-year institutions. The sample was stratified by discipline and degree level of courses taught (i.e., bachelor’s, master’s, and doctoral degree courses). We were unable to access the data with the sample design information (i.e. sampling weights and stratification identifiers) necessary to calculate margins of errors that took into account the sample design features. To allow us to estimate margins of error for the estimates presented in the report, AAAS provided information on the number of respondents associated with each response category since the survey had unit and item nonresponse. We incorporated this information into a simple random sampling formula, which we adjusted for the design effect due to unequal weighting that resulted from stratification within departments (e.g., differences in the extent to which departments may offer bachelor’s, master’s, and doctoral degree courses). Section 3: Pay per Course Regression Analysis (State Data) This section discusses the regression analysis methods we used to analyze and compare pay-per-course rates across different types of faculty at public institutions in North Dakota and Ohio. We used data from the three states to conduct multivariate regression analyses that examined rates of compensation across faculty types. Data from North Dakota and Ohio allowed us to link faculty members’ pay over the course of an academic year with the number of courses they taught to calculate pay-per-course rates that are comparable across faculty types. Data from Georgia did not allow us to do this because the earnings data from Georgia is for a calendar year that did not align with the course data for the academic year. However, we used Georgia’s data to develop assumptions about faculty work activities (see below for more details). The state data we used to analyze pay-per-course rates covered courses taught and earnings from fall 2015 through summer 2016 for North Dakota, and summer 2014 through spring 2015 for Ohio. Analysis Population The faculty populations included in our regression analyses of the North Dakota and Ohio data begin with the same population of instructional faculty analyzed elsewhere in our work—any individual who teaches a course at a 4-year or 2-year public institution in the state. However, due to some faculty observations missing information for independent variables, as well as the specifications of some of our models that focused on subgroups within the data, the number of faculty observations in our regression analyses differed slightly from those in our other analyses. In assessing the association between faculty type (e.g., contingent faculty) and pay per course, we focused on three primary populations: (1) all faculty; (2) primarily teaching faculty; and (3) primarily teaching faculty at 4-year institutions. The primarily teaching faculty group excludes faculty who primarily hold other roles unrelated to instruction (e.g., administrators and research faculty). We also examined a population limited to 4-year institutions because their pay and faculty utilization structures may differ substantively from 2-year institutions. North Dakota: Compared to the 3,608 faculty observations with complete faculty and course identification data across North Dakota public institutions that we analyze for workforce makeup and utilization, the number of observations included in our regression analysis population is reduced to 3,486 due to our dropping of cases where total earnings was less than one dollar or missing, or where the number of in-scope courses taught was zero (more information below under discussion of dependent variables). After introducing the full range of independent variables in our complete model with all faculty at all institutions, our population is reduced to 3,485 due to one faculty member being omitted due to missing data. When we limit the population to primarily teaching faculty at all institutions, there are 3,404 observations, and when we only include 4-year institutions, there are 2,876 observations. Ohio: Compared to the 34,461 faculty observations with complete faculty and course identification data across Ohio public institutions that we analyze for workforce makeup and utilization, the number of observations included in our regression analysis population is reduced to 30,672 due to our dropping of cases where total earnings was less than one dollar or missing, or where the number of in-scope courses taught was zero (more information below under discussion of dependent variables). After introducing the full range of independent variables in our complete model with all faculty at all institutions, our population is reduced to 30,656 due to 16 faculty members missing data for covariates. When we limit the population to primarily teaching faculty at all institutions, there are 28,811 observations, and when we only include 4-year institutions, there are 21,482 observations. Approximating Instructional Pay from Georgia Data on Faculty Work Activities As explained earlier in the report, we examined instructional pay per course as a way to isolate the earnings for comparable work across faculty types—for example, those who only teach (salaried or paid by the course) versus those who have other responsibilities beyond teaching. Institutions do not generally structure compensation by types of work activities, though some faculty have work responsibility expectations associated with their positions; for example, a full time tenure-track assistant professor may have work responsibly expectations of 60 percent instructional, 30 percent research, and 10 percent other service to the institution. If this faculty member earns $80,000 per year and teaches 8 courses over the course of the year, her total pay per course, which ignores time spent on research and other activities, would be $80,000/8 = $10,000 per course. However, prorating the earnings to those for instructional work activities only, the instructional pay per course would be ($80,000*0.6)/8 = $6,000. We assessed each regression model based on the outcomes of total pay per course and instructional pay per course, where earnings were prorated for instructional time. Because information about faculty work activity was unavailable in the North Dakota and Ohio data, but was available in the Georgia data, we used empirical data that we received on four of the Georgia 4-year public institutions to identify work activity percentages by faculty type. We then assigned those percentages to similar faculty in North Dakota and Ohio. We identified the median instructional work activity percentages for the faculty in Georgia’s 4-year public institutions within profiles based on a combination of faculty characteristics including faculty category (e.g., full- time tenure-track, full-time non-tenure-track, part-time non-tenure-track, etc.), job category (e.g. administration/management, teaching faculty, research/other faculty, etc.), and when applicable, rank (e.g. full professor, assistant professor, instructor/lecturer, etc.). We then applied the median instructional work activity percentage from the Georgia data by these profile groups to faculty at 4-year institutions in the North Dakota and Ohio data with the same profile. For faculty in the job categories of administrators/management staff, instructional graduate assistants, coaches, and postdocs, the median instructional work activity percentage in those groups overall was sufficiently explanatory. For the remaining two job category groups of instructional faculty and research/other faculty, we used median work activity percentages by faculty category (e.g., full- time tenure-track) and rank (e.g., full professor). If a faculty member did not have a rank identified in the data, we used the median work activity percentage for the faculty category overall (see table 17). Because the data on work responsibilities pertained to public 4-year institutions in the Georgia data, we did not prorate faculty at 2-year institutions accordingly. Because 2-year institutions generally do not have a research mission, we coded all faculty at 2-year institutions as 100 percent instructional, except for administrators/management staff. We prorated administrators/management staff according to the same method as at 4- year institutions due to their likely having substantial non-teaching responsibilities. Faculty earnings in the North Dakota and Ohio data were multiplied by the relevant median instructional work activity percentage in order to adjust pay to reflect instructional work activity, resulting in an “instructional pay” amount. The majority of adjustments—prorating of earnings to account for non-instructional activities—were applied to faculty in the full-time tenure-track group, who were most likely to have other work responsibilities. Some adjustment to earnings also occurred in the full- and part-time contingent groups, as well as for faculty who had a job type that indicated substantial administrative and management roles. No prorating occurred for instructional graduate assistants. Dependent Variables We conducted regressions using the following dependent variables: a) Log (total pay per course) – In our analysis of the North Dakota and Ohio data, we used the natural logarithm of the total pay per course, which is defined as the total annual earnings (i.e., total pay) divided by the total courses taught within that year. b) Log (instructional pay per course) – In our analysis of the North Dakota and Ohio data, we also used the natural logarithm of the instructional pay per course, which is defined as total annual earnings adjusted to reflect instructional work activity (i.e., instructional pay) divided by the total courses taught within that year. We excluded cases from our analysis if they were missing values for either total annual earnings or total courses taught within that same year because these variables were the primary components of pay per course. We dropped cases where total earnings were less than one dollar or missing (19 observations in North Dakota and 2,869 observations in Ohio) or the number of courses taught was zero (103 observations in North Dakota and 920 observations in Ohio) since division by zero is undefined, and our population is intended to reflect any individual who actually teaches a course at 4-year and 2-year public institutions in the state. We then divided pay (total or instructional) by the number of courses taught to obtain the pay-per-course value. We use the log of total and instructional pay per course for the dependent variables in a linear model reflecting both the assumption that the underlying distribution is closer to the log normal than normal, and also to present results in terms of percentage changes in pay per course. In the Ohio data, because we use fractional counts for courses when multiple faculty are listed as having responsibility for the course, 3,453 faculty in the analysis population teach less than 1 course. For those faculty, we round all course counts that are less than 1 up to 1 to avoid dividing faculty earnings by a fractional course count (between 0 and 1), which would result in an inaccurate and substantially large pay-per- course value. Independent Variables The primary independent variable of interest in our analysis was faculty type. We categorized faculty into five types: full-time tenure-track, full-time contingent, part-time tenure-track, part-time contingent, and graduate assistant. Our main interest was comparing contingent faculty and graduate assistants to full-time tenure-track faculty. We controlled for the part-time tenure-track group, but due to the small size of this population (at most, 35 faculty in North Dakota and 274 faculty in Ohio), we did not substantively examine these estimates. All regression models set the base group for faculty type as full-time tenure-track. We included in our regression models additional independent variables as controls for faculty and institution characteristics. Faculty characteristics include sex, race, age, age squared (to account for the potential non- linear relationship between earnings and age), highest degree earned, and academic discipline. Other faculty characteristics we controlled for in our models included whether a faculty member had grant funds (North Dakota only), whether a faculty member taught summer courses, and indicators identifying non-traditional faculty roles, such as administrators/management or coaches. We also included fixed effects for institutions to control for differences between institutions, especially in terms of pay due to factors such as size, sector, and research/graduate component, among other things. We also examined rank of faculty (e.g. associate professor, assistant professor, instructor/lecturer, etc.), but excluded it from our complete models due to collinearity with the faculty type variable. Regression Model Detailed Results Tables 18 and 19 (below) shows the coefficients and standard errors from each of our final pay-per-course regression models, as well as for the unadjusted model that included only the primary independent variable of interest (total pay-per-course results at the top and instructional pay-per- course results below). For our categorical variables, estimated coefficients are relative to the excluded (reference) category. For example, since the reference category for our main independent variable, faculty type, was full-time tenure-track, the estimated coefficients for other categories of this variable are always relative to this excluded reference category, holding all other variables in the model constant. Thus, in model 2 for North Dakota, the coefficient for full-time contingent faculty is 0.682. This can be interpreted as full-time contingent faculty pay per course is 0.682 that of full-time tenure-track faculty (i.e., full-time contingent faculty are paid 68.2 percent what full-time tenure-track are, per course), holding all other variables in the model constant. Because the dependent variables in the earnings models are the natural logarithms of earnings, subtracting one from the presented coefficients on categorical variables can be interpreted as the percentage change in the dependent variable associated with a change in the categorical variable, relative to the reference category, holding all other variables constant. In this same example, full-time contingent faculty are paid an estimated 31.8 percent less than full-time tenure-track faculty, because 0.682 – 1 = -0.318, or 31.8 percent less. Additional Analyses and Sensitivity Tests The North Dakota and Ohio data used in the regression analyses include a small number of faculty (1.1 and 0.5 percent of observations, respectively) who are listed as teacher of record for more than 15 courses over the year, which may represent unusually high workloads or data anomalies. In addition, some faculty have small or large pay-per-course values when compared to the overall distribution. To preserve the integrity of the data, we did not exclude these observations from the analyses. However, we tested our models with and without these observations to assess the effect on our substantive regression results. In order to assess the effect of faculty with a large workload, we conducted regression models 3 and 4 (in tables 18 and 19 above) limited to faculty who taught 15 or fewer courses over the year. In order to assess the effect of faculty with the outermost values of the dependent variable pay per course, we conducted the same regression models limited to faculty whose pay per course was within the middle 98 percent of pay-per-course values (i.e., we trimmed the bottom and top 1 percent of observations). In both of these sensitivity analyses, we found substantively similar results. We also ran our regression models on a more refined population that only included primarily teaching faculty at 4-year institutions (faculty at 4-year institutions represent most of our analysis population). As shown in table 18 above, in terms of total pay per course, full-time contingent faculty in North Dakota and Ohio are paid about 40 and 43 percent less per course, respectively, than full-time tenure-track faculty—compared to 35 and 40 percent less per course, respectively, when both 4-year and 2-year institutions are included. This slightly larger pay-per-course disparity as compared to the population overall may be, in part, because pay and utilization of full-time faculty vary somewhat by institution type (e.g., at 4- year institutions, pay is generally higher but less flat, and some full-time tenure-track faculty teach fewer courses due to their more extensive research responsibilities). Section 4: Annual Earnings Regression Analysis (SDR Data) This section discusses the regression analysis methods we used to analyze and compare annual earnings among different types of faculty using national 2013 SDR data on doctorate-holding faculty in the STEM, health, and social sciences fields. Dependent Variable We conducted regressions using the following dependent variable: Log (annual salary)—the natural logarithm of annual salary, defined as the basic annual salary from the respondent’s principal job. Independent Variables The primary independent variable of interest in our analysis was faculty type. We categorized faculty into five types: full-time tenure-track, full-time contingent, part-time tenure-track, part-time contingent, and graduate assistant. Our main interest was comparing contingent faculty to full-time tenure-track faculty. Though we controlled for the part-time tenure-track and graduate assistant groups, we did not substantively examine these estimates. All regression models set the reference group for faculty type as full-time tenure-track. We included in our regression models additional independent variables as controls for faculty and institution characteristics. Faculty characteristics included sex, race, age, age squared, number of weeks worked per year, and academic discipline. Other faculty characteristics we controlled for included the year of highest degree earned—which we used as proxy for general experience—and whether a respondent indicated that they were an administrator. We also included institution type (e.g., 4-year college or university, 2-year college or university). After introducing the full range of independent variables in our complete model, our analysis sample was reduced from 7,232 faculty respondents to 7,226 due to 6 faculty respondents being omitted due to missing data. We examined faculty rank (e.g. professoriate, instructor/lecturer) and academic position variables for “adjunct” faculty and postdocs, but we excluded these variables from our complete model, as we determined they did not have meaningful information for the purpose of our analyses. Regression Model Detailed Results In our complete model, full-time and part-time contingent faculty earned 22 percent less and 70 percent less, respectively, than full-time tenure- track faculty annually (see table 20). Across our preliminary models (not shown below) and complete model, the coefficients related to our main independent variable remained relatively constant, ranging from 0.76 to 0.86 for full-time contingent faculty and 0.26 to 0.43 for part-time contingent faculty, expressed as proportion of full-time tenure-track faculty earnings. Appendix II: IPEDS Data on the Racial and Ethnic Distribution of Faculty Positions Nationwide, 2015 Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Nagla’a El-Hodiri (Assistant Director), Nisha R. Hazra (Analyst-in-charge), Sandra Baxter, Justin Gordinas, Michael Kniss, and Alexandra Squitieri made key contributions to this report. Also contributing significantly to this report were Melinda Cordero, Grant Mallie, Jean McSween, Moon Parks, and Sonya Vartivarian. Key support was provided by James Ashley, James Bennett, Grace Cho, Jessica Orr, James Rebbe, Almeta Spencer, and Elaine Vaurio.

Contingent faculty play a large role in postsecondary education but may not have the same job protections as tenured or tenure-track faculty. In 2015, GAO reported that contingent workers—those in temporary, contract, or other non-standard employment arrangements—earn less, are less likely to have work-provided benefits, and are more likely to experience job instability than standard workers. GAO was asked to examine issues related to contingent faculty. This report examines (1) what is known about the makeup and utilization of the postsecondary instructional workforce; (2) the roles different types of faculty fill at selected institutions and the factors administrators consider when determining faculty makeup; (3) what is known about how economic circumstances compare across different faculty types; and (4) what contingent faculty members report as advantages and disadvantages of their work. GAO analyzed data from nationally representative sources and from public institutions in three states—Georgia, North Dakota, and Ohio. GAO selected these states based primarily on data availability. GAO interviewed administrators from 9 postsecondary institutions in these states and one large for-profit institution. GAO selected institutions based on factors such as institution size and percent of contingent faculty. GAO also conducted 21 discussion groups with contingent faculty. The Department of Education did not have comments on this report. The National Science Foundation provided technical comments, which we incorporated, as appropriate. According to 2015 Department of Education data, contingent faculty—those employed outside of the tenure track—made up about 70 percent of postsecondary instructional positions nationwide, though this varied by type of institution. In addition, data from three selected states show that contingent faculty teach about 45 to 54 percent of all courses at 4-year public institutions, and higher proportions at 2-year public institutions. In terms of job stability, some full-time contingent positions with annual or longer contracts may be relatively stable while part-time positions with short-term contracts may be among the least stable, though it is unknown whether faculty in these positions have other employment. In contrast, tenure-track positions are often viewed as having a high degree of job security that is somewhat unique to postsecondary education. Administrators GAO interviewed at selected postsecondary institutions said full-time contingent faculty generally carry heavy teaching loads, and some also take on additional responsibilities, such as conducting research or advising students. However, administrators stated that part-time contingent faculty generally focus solely on teaching. As shown in the figure below, administrators also described factors they consider in determining their institution's faculty makeup. GAO examined recent data from North Dakota and Ohio public institutions and found that, among faculty who primarily teach—which excludes individuals such as administrators or researchers—part-time and full-time contingent faculty were paid about 75 percent and 40 percent less per course, respectively, compared to full-time tenure-track faculty. This comparison includes earnings for all of their responsibilities, including teaching and any other duties. However, when estimating faculty earnings for teaching duties only, pay disparities decreased to about 60 percent and 10 percent less per course for these contingent faculty, respectively. In addition, state and national data also showed that relatively few part-time contingent faculty received work-provided health or retirement benefits. In discussion groups with GAO, contingent faculty cited advantages such as the flexibility to balance professional and personal responsibilities, skill development, or working with students, and described disadvantages that included uncertainty due to short-term contracts, untimely contract renewals, and pay—including a lack of compensation for some of their work. Other concerns they cited included limited career advancement opportunities, not having a voice in institutional decision-making, and not having certain types of institutional support.

GAO_GAO-19-223

Background EM’s cleanup sites and areas of cleanup work, EM’s status as a program, the history of EM’s requirements for operations activities, and key EM offices and DOE oversight bodies for EM’s cleanup work. EM Cleanup Sites and Areas of Cleanup Work EM has a headquarters office and 16 sites at which the agency oversees cleanup work. Figure 1 shows the EM sites where cleanup work remains. EM divides its cleanup work into six work areas. These areas, described below, sometimes include both operations activities and capital asset projects: 1. spent nuclear fuel stabilization and disposition, including safe shipping, receipt, storage, and disposition of spent nuclear fuel and heavy water; 2. nuclear materials stabilization and disposition, including the management, disposition, safe surveillance, and maintenance of nuclear materials; 3. radioactive liquid waste stabilization and disposition, including treatment, management, and permanent disposal of radioactive liquid waste stored in storage tanks; 4. nuclear facility decontamination and decommissioning, including the deactivation, decontamination, and decommissioning of EM-owned nuclear, radioactive, and industrial buildings and structures; 5. solid waste stabilization and disposition, including receipt, treatment, storage, and disposal of legacy and newly generated low-level waste, mixed low-level waste, transuranic waste, hazardous waste, and sanitary waste; and 6. soil and water remediation, including cleanup of waste regulated under the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act. EM’s Status as a Program EM refers to itself as a program, and EM’s organization and mission fit PMI’s definition of a program. According to PMI, programs include multiple program components, such as sub-programs (in EM’s case, each cleanup site is a sub-program) and projects (in EM’s case, the cleanup work at each site), which are interrelated and managed in a coordinated way to obtain benefits not available from managing them individually. According to PMI officials, organizations often use the terms “program” and “project” interchangeably, but the two terms have different meanings and apply to different levels of management. Programs are a means of executing a strategy and achieving organizational goals and objectives. A program may continue indefinitely. In contrast, a project is a temporary endeavor undertaken to create a unique product, service, or result. Projects are executed to improve the efficient implementation of a program. The relationship between a program and a project is illustrated in figure 2 below. History of EM’s Requirements for Operations Activities In June 2009, EM developed the category of work that EM calls operations activities to differentiate this work from capital asset projects. Until then, EM managed all of its cleanup work as projects under Order 413.3B. EM documentation from that time explained that EM decided to differentiate its cleanup work so that it could quickly make use of an infusion of $6 billion for EM under the American Recovery and Reinvestment Act of 2009 (Recovery Act). EM officials stated that EM could not use the funds quickly at that time if the work had to follow the project management requirements in Order 413.3B. In 2010, shortly after the initiation of the Recovery Act work, EM decided to make the approach of managing part of its work as operations activities permanent. EM officials could not provide any documentation from the time supporting this decision, which was not consistent with EM findings from 2009. In particular, according to EM documentation from 2009, executing all cleanup work under Order 413.3B had served EM well in defining and controlling the technical scope, project and life-cycle costs, completion dates, and risks of its cleanup work, and had helped EM improve its overall performance and become more efficient. EM began managing operations activities based on a memorandum developed by EM leadership. In 2012, EM developed the operations activities protocol, which superseded the 2010 memorandum for managing operations activities. This protocol stated that although operations activities are not subject to DOE’s Order 413.3B requirements, EM will apply the appropriate project management principles from this order using a “graded approach.” We reviewed the 2012 operations activities protocol in October 2012 and found that it contained less stringent requirements for operation activities than Order 413.3B for capital asset projects. We also found that EM did not have a clear classification policy that set out under what conditions EM should consider particular cleanup work to be an operations activity or a capital asset project. In the absence of such a policy, EM classified as operations activities certain cleanup work that DOE’s Office of Project Management considered to be capital asset projects. We recommended that EM provide DOE’s Office of Project Management with information on EM’s classification decisions. In 2012, DOE agreed with our recommendation, and EM officials stated in August 2018 that they are developing guidance. In July 2017, EM developed a cleanup policy that applies to both operations activities and capital asset projects. For managing capital asset projects, this policy supplements Order 413.3B. For managing operations activities, this policy supersedes the 2012 operations activities protocol. The 2017 cleanup policy states that EM will apply DOE’s project management principles described in Order 413.3B to its operations activities in a tailored way. At the time of our review, EM had developed 11 standard operating policies and procedures that are associated with the 2017 cleanup policy and that provide guidance on areas such as program performance reporting, assessing contractors’ performance against contract requirements, and what officials have approval authority at major steps in the contract process. However, according to EM officials, the standard operating policies and procedures are not requirements. Key EM Offices and DOE Oversight Bodies for EM’s Cleanup Work The EM program is executed by two main components: EM headquarters, which serves as the program manager for the EM program, and 16 cleanup sites, which serve as sub-programs. The following EM headquarters and site officials are key to managing and overseeing EM’s operations activities, according to the 2017 cleanup policy: The Assistant Secretary for Environmental Management serves as the head of EM and is responsible for the execution of EM’s mission. In December 2017, the Assistant Secretary for EM began reporting to the DOE Undersecretary of Science, who in turn reports to the DOE Deputy Secretary of Energy. The Assistant Secretary for Environmental Management, among other things, provides leadership and develops mission strategies, policy, and guidance for the EM cleanup program. The Principal Deputy Assistant Secretary for Environmental Management serves as the EM management official responsible for operations, including coordination, oversight, and leadership on scope, cost, and schedule elements. Under the 2017 cleanup policy, this official has approval authority for contracts equal to or greater than $200 million. This official is also responsible for conducting periodic contract reviews for contracts with a total estimated cost equal to or greater than $200 million. The Associate Principal Deputy Assistant Secretary for Field Operations provides leadership and develops mission strategies, policy, and guidance for site operations. This official is responsible for, among other things, meeting monthly with each site individually to discuss the status of cleanup work there. The EM Deputy Assistant Secretary for Acquisition and Project Management is responsible for providing independent oversight and reports to the Associate Principal Deputy Assistant Secretary for Corporate Services. Under the 2017 cleanup policy, this official is responsible for programmatic peer reviews that review cleanup activities at each site. This official is also responsible for the implementation of Order 413.3B and review of capital asset projects. At each of the 16 cleanup sites, the EM site manager is responsible and accountable for management and integration of all EM site-level activities. Under the 2017 cleanup policy, site managers have approval authority over contracts under $200 million. The site manager is also required to conduct periodic contract reviews for contracts with a total estimated cost of less than $200 million. Outside of EM, two DOE bodies play a role in the oversight of EM’s capital asset projects, but not of operations activities: DOE’s Office of Project Management has served as DOE’s enterprise project management organization since July 2015, when the Secretary of Energy gave it this responsibility as part of an initiative to improve DOE’s program and project management. As such, DOE states that this office—as an enterprise project management organization—is responsible for providing leadership and assistance in developing and implementing DOE-wide policies, procedures, programs, and management systems pertaining to project management, as well as for independently monitoring, assessing, and reporting on project execution performance. Officials from this office are experts in project management, especially as it relates to capital asset projects, and oversee the implementation of DOE’s Order 413.3B. This office also validates project performance baselines— scope, cost, and schedule—for the department’s capital asset projects, including EM’s. The Project Management Risk Committee reviews and provides advice on capital asset projects with a total project cost of $100 million or more. The Risk Committee’s purpose is to assess the risks associated with projects across DOE and advise DOE senior leaders on project management, including on cost, schedule, and technical issues. The committee includes nine senior DOE officials from across the department, including top project management officials from the National Nuclear Security Administration, the Office of Science, and EM. DOE’s EM Program Manages Most of Its Multibillion-Dollar Cleanup Work as Operations Activities, Posing Cost and Schedule Risks DOE’s EM program manages most of its cleanup work as operations activities, posing cost and schedule risks. These risks stem from EM’s management of such work using less stringent requirements than for capital asset projects even though EM spends billions of dollars annually on operations activities. Site managers have the discretion to classify cleanup work as operations activities, even if the work has characteristics of capital asset projects, because DOE and EM have not established requirements for classifying EM’s cleanup work. In addition, EM has not addressed concerns raised by DOE project management experts that some operations activities should be classified as capital asset projects. DOE’s EM Program Manages Most of Its Cleanup Work as Operations Activities, under Less Stringent Requirements Than Capital Asset Projects EM manages its cleanup work under different requirements, depending on whether it classifies the work as a capital asset project or an operations activity, with operations activities having less stringent requirements. EM currently manages most of its work as operations activities. EM’s work is divided into 77 operations activities and 20 capital asset projects. In the fiscal year 2019 budget, operations activities accounted for 77 percent of EM’s approximately $7.2 billion budget— about $5.5 billion—while capital asset projects accounted for 18 percent of EM’s budget—about $1.3 billion. Figure 3 illustrates how EM classified and funded its work during fiscal year 2019. For capital asset projects, EM manages the work in accordance with the requirements in DOE’s Order 413.3B, which is DOE’s project management order. This order contains numerous, detailed requirements that describe the steps and project management best practices to follow throughout the life of a project. The DOE Secretary strengthened this order in May 2016 by adding more stringent requirements, based in part on our prior recommendations. Examples of the requirements included in this order include:  A capital asset project with a total project cost over $50 million must undergo rigorous reviews outside the project’s management line. Different types of reviews are to be conducted by an independent body within the program for capital asset projects over $50 million, DOE’s Office of Project Management and the Project Management Risk Committee for capital asset projects over $100 million, and the Energy Systems Acquisition Advisory Board for capital asset projects over $750 million. Review and approval are to be received from the Under Secretary for capital asset projects over $100 million, and the Deputy Secretary for capital asset projects over $750 million. A capital asset project must complete its original scope of work within 110 percent of the original cost baseline to be considered successful. The program must conduct a root cause analysis to determine the underlying contributing causes of cost overruns, schedule delays, and performance shortcomings, if the program, the project manager or independent oversight offices realize a capital asset project can no longer meet its established scope, cost or schedule baseline. Contingency to cover potential risks that might appear during the life of a project must be included as part of the total project cost estimate included in the performance baseline. All cost and schedule estimates developed during the life of the project must follow GAO best practices. For operations activities, EM follows the requirements in its 2017 cleanup policy, which has fewer, less detailed, and less stringent requirements than Order 413.3B. For example, in contrast to the more stringent requirements in Order 413.3B, under EM’s 2017 cleanup policy: The highest level of review an operations activity must receive is by EM’s top management for contracts equal to or greater than $200 million. For an operations activity to be considered successful, it must be completed within 110 percent of the current cost and scope baseline—not the original baseline established at the beginning of cleanup work. There is no requirement to conduct a root cause analysis for operations activities. EM does not fund contingency for operations activities. Cost and schedule estimates made before EM authorizes execution of a contract are to follow GAO best practices, but the policy does not include a requirement to follow best practices for cost estimates developed during contract execution. Figure 4 below illustrates how operations activities are managed under less stringent requirements than capital asset projects. EM project management officials in charge of developing the 2017 cleanup policy stated that EM intentionally wrote this policy at a high level because EM planned to develop standard operating policies and procedures that would establish more detailed steps to implement the policy. As noted earlier, these standard operating policies and procedures provide guidance but are not requirements. DOE and EM Have Not Established Requirements for Classifying EM’s Cleanup Work or Addressed Concerns That Some Operations Activities Should Be Capital Asset Projects Neither DOE nor EM has a policy on how to classify cleanup work as either operations activities or capital asset projects. According to DOE Office of Project Management officials, DOE does not have a department- wide policy on how to classify cleanup work. Instead, these officials stated that DOE’s general management approach is to let its individual programs, such as EM, decide how to classify their work. EM officials explained that EM allows each site manager to determine independently how to classify cleanup work because according to EM’s 2017 cleanup policy, the site manager is responsible and accountable for the planning and execution of all site-level activities. DOE project management experts on the Project Management Risk Committee and in DOE’s Office of Project Management have raised concerns related to EM’s 2017 cleanup policy and the classification of cleanup work since 2015. These officials have stated that some current operations activities should be classified as capital asset projects. Specifically: In November 2015, EM approached DOE’s Project Management Risk Committee with a proposal for a new cleanup policy, which later became EM’s 2017 cleanup policy. In comments on the proposal, the committee’s members expressed concerns that the proposed policy did not address how EM would classify cleanup work, noting that if programs or sites get to decide on what is a capital asset project and what is not—which in turn drives the level of DOE oversight—then this approach was not an appropriate governance model. The committee’s members also questioned why EM chose not to use the already available requirements in Order 413.3B. EM did not respond to the committee’s concerns. Instead, according to the committee’s meeting minutes, the DOE Undersecretary for Management and Performance, who at the time oversaw EM, informed the committee in November 2015 that EM was proceeding with drafting its new cleanup policy. In late 2016, DOE’s Office of Project Management officials drafted an appendix to Order 413.3B that sought to define operations activities and capital asset projects. Under the classification proposal in the draft appendix, some of the work now classified as operations activities would have become capital asset projects and subject to more stringent requirements. For example, under the appendix, the cleanup of radioactive liquid waste tanks and solid waste exhumation and disposition would have been designated as capital asset projects. However, EM officials informed officials from the DOE Office of Project Management that EM would continue to develop its own policy, which it issued in July 2017. This 2017 cleanup policy did not reclassify any of the operations activities that, in the opinion of DOE’s Office of Project Management, should be capital asset projects. Officials from DOE’s Office of Project Management we interviewed said that continuing to classify and manage most of EM’s cleanup work as operations activities poses significant risks to DOE. According to these officials, managing the work this way poses cost and schedule risks for the following reasons, among others: Because the review of operations activities is conducted entirely within EM, DOE does not have information on how EM manages operations activities and cannot hold EM accountable for cost- effective and timely completion of this cleanup work, which represents a $5.5 billion investment by taxpayers in operations activities in fiscal year 2019 (see fig. 3). Operations activities are not required to go through a thorough upfront planning process to determine the scope of work to be completed. Therefore, these activities are more subject to scope creep, cost overruns, and schedule delays, which can detract from EM’s credibility with Congress and other stakeholders. Because EM does not set aside contingency funds to cover risks for its operations activities—a project management best practice and requirement under Order 413.3B—if risks are realized, EM must either reduce or delay scope to later years, which increases costs, causes schedule delays, and undermines EM’s ability to budget for activities across the EM program. Officials from DOE’s Office of Project Management stated that EM did not respond to their concerns that EM’s approach to classification of cleanup work poses unwarranted cost and schedule risks. Officials in EM told us they view the role of DOE’s Office of Project Management and the Project Management Risk Committee as limited to reviewing Order 413.3B requirements and overseeing capital asset projects. However, since July 2015, DOE’s Office of Project Management has served as DOE’s enterprise project management organization, with department-wide responsibilities for overseeing project management. As previously noted, DOE states that this office is responsible for, among other things, independently monitoring, assessing, and reporting on project execution performance. Therefore, review of classification of cleanup work that constitutes projects is within the scope of the office’s responsibilities. Until EM works together with DOE’s Office of Project management to (1) establish requirements for classifying cleanup work as capital asset projects or operations activities and (2) assess EM’s ongoing operations activities to determine if they should be reclassified as capital asset projects based on the newly established requirements, the department may incur more project management risk of cost increases and schedule delays than it should for hundreds of billions of dollars of remaining work. EM’s Cleanup Policy Does Not Follow Most Selected Program and Project Management Leading Practices EM’s 2017 cleanup policy, which governs the EM program and its operations activities, does not follow most selected leading practices for program and project management. More specifically, EM’s 2017 cleanup policy does not follow any of 9 selected program management leading practices related to scope, cost, schedule performance, and independent reviews. Further, EM’s 2017 cleanup policy follows 3 of 12 selected project management leading practices related to these areas; it does not follow the remaining 9. Figure 5 shows the percentage of selected program and project management leading practices that DOE’s Office of Environmental Management’s 2017 cleanup policy follows. EM’s Cleanup Policy Does Not Follow Any of Nine Selected Leading Program Management Practices EM’s 2017 cleanup policy does not follow (i.e., does not meet, minimally meets, or partially meets) the nine leading practices for program management related to scope, cost, schedule performance, and independent reviews that we selected based on PMI’s standards. More specifically, the policy partially met two of the leading practices, minimally met four others, and did not meet three, as discussed below: Having a program management plan and a roadmap that are updated regularly. (Minimally meets.) EM’s policy does not require an overarching program management plan or strategic plan that encompasses the work at all sites. The policy does require that each site maintain a life-cycle baseline based on the scope, cost, and schedule of work, which are components of a program management plan. However, the requirement is specific to each site and not the entire EM program. Having a reliable, integrated, comprehensive life-cycle cost estimate that is updated on a regular basis. (Partially meets.) EM’s policy requires an integrated life-cycle cost estimate for the entire EM program but does not state that the cost estimate must be reliable or updated on a regular basis. Having a reliable, integrated master schedule that is updated on a regular basis. (Does not meet.) EM’s policy does not require an integrated master schedule at the program level. Measuring performance against both a program’s life-cycle cost and integrated master schedule baselines. (Does not meet.) EM’s policy does not require that EM track and monitor all high-level program components against a program’s life-cycle cost and integrated master schedule baselines for the entire EM program. Completing performance reporting and analysis in a way that provides a clear picture of program performance. (Minimally meets.) EM’s policy requires performance reporting to the EM headquarters management level, but it does not require that performance information be analyzed to give a clear picture of program performance. Having a lessons learned database. (Partially meets.) EM’s policy requires that EM collect and disseminate lessons learned, but the policy does not specify a framework, such as a database, for how the lessons learned should be collected and shared. Conducting program risk management throughout the life of the program. (Does not meet.) EM’s policy does not require EM to conduct risk management throughout the life of the program. Monitoring and controlling the program, including conducting root cause analyses and developing corrective action plans. (Minimally meets.) EM’s policy does not have any requirements related to monitoring and controlling activities at a program level when there is evidence that the program’s cost or schedule baseline will not be met. It does require some monitoring and controlling activities at the site level. Having an independent oversight body that conducts periodic reviews of the progress of the program in delivering its expected benefits. (Minimally meets.) EM’s policy does not require any independent entity outside EM to review the performance of the EM program as a whole in delivering its expected benefits. The policy requires EM’s Office of Project Management to conduct a periodic Programmatic Peer Review of cleanup work at each site, but this review is not independent of EM. EM officials stated that even though EM’s policy does not follow these program management leading practices, EM officials may take some actions that address these leading practices. For example, to address the leading practice of having a lessons learned database, EM officials explained that EM’s Office of Project Management generates and distributes across EM a monthly lessons-learned bulletin on a topic of its choosing, and these lessons learned are uploaded on a site accessible to everyone within EM. They also explained that officials across EM could enter lessons learned in a DOE-wide lessons-learned database managed by DOE’s Office of Environment, Health, Safety, and Security. In addition, to address the leading practice of monitoring and controlling the program, including conducting root cause analyses and developing corrective action plans, the new Assistant Secretary for Environmental Management requested the development of a root cause analysis and a corrective action plan for the EM program in August 2018. To address the Assistant Secretary’s request, EM officials stated that in November 2018 they identified nine improvement areas for the EM program, for which they are developing corrective measures. However, when we reviewed the actions EM officials cited they took to address the selected leading practices, we found that they fell short of following leading practices. For example, the lessons learned listed in the bulletins we reviewed were related only to capital asset projects, and the database cited by EM officials is not used often by EM; it contains a total of six entries on EM-related issues from 2005 to 2017. In addition, EM officials stated they do not apply key practices that can be used to identify and apply lessons learned. Further, EM officials in charge of developing a root cause analysis and a corrective action plan stated that EM does not have a process for doing so and that EM has not prepared such an analysis or plan since 2011. They also stated that EM does not intend to publish this document and that EM will not develop a root cause analysis to show the problems these corrective measures are supposed to address. The selected leading practices help ensure that a program achieves its goals and intended benefits and that it optimizes scope, cost, and schedule performance, and independent review of performance. Without documenting such leading practices in policy, EM officials may not be aware of expectations to carry them out and may not do so consistently. Under federal standards for internal control, management should design control activities to achieve objectives and respond to risks, such as by clearly documenting internal control in management directives, administrative policies, or operating manuals. Furthermore, these standards state that management periodically reviews policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or addressing related risks. Until EM reviews and revises its cleanup policy to include program management leading practices related to scope, cost, schedule performance, and independent review, the EM program is at risk of continued uncontrolled changes to the program’s scope, exceeding its cost estimate and schedule, failing to meet its programmatic goals, and increasing DOE’s environmental liabilities. EM’s Cleanup Policy Does Not Follow Most Selected Project Management Leading Practices EM’s 2017 cleanup policy, which applies to operations activities, follows (i.e., substantially or fully meets) 3 and does not follow (i.e., does not meet, minimally meets, or partially meets) 9 of the 12 leading practices for project management related to scope, cost, schedule performance, and independent reviews that we selected based on PMI’s standards. Specifically, the policy follows these three selected leading practices: Establishing a performance baseline and tracking it from the beginning to the end of the project. (Substantially meets.) EM’s policy requires that a contractor must establish a cost baseline and complete key performance measures within 110 percent of the approved, current cost baseline. The policy also requires that managers in charge of the work be responsible for successfully executing work within the approved performance baseline. Conducting monitoring and controlling activities to measure performance at regular intervals. (Fully meets.) EM’s policy requires periodic project reviews from various levels, from the federal cleanup director in charge of the operations activity and site manager, all the way to EM senior leadership. Using an EVM system that is independently certified and continuously monitored to assess project performance. (Substantially meets.) EM’s policy requires the implementation at the contract level of a work control system, either an EVM system or an approved alternative. EM guidance suggests that the EVM system be surveilled regularly, although EM does not require the EVM system to be independently certified. The policy did not follow the other 9 selected project management leading practices; specifically, it partially met 5, while the remaining 4 were minimally or not met, as explained below: Establishing a project execution plan with policies and procedures to manage and control project planning. (Does not meet.) EM’s policy does not require a plan to establish policies and procedures to manage and control project planning. Clearly and completely defining the scope of a project so that its performance can be measured. (Partially meets.) EM’s policy requires that the scope be defined for a segment—typically a 5- to 10- year contract—at the beginning of the work. However, EM’s policy also states that the segment’s scope may be reduced to free up funding to cover risks. When risks occur and the scope is reduced, the segment’s performance may not be accurately and fully measured. Developing a cost estimate using GAO best practices. (Partially meets.) EM’s policy requires that EM follow our best practices for cost estimating prior to starting the execution of a segment. However, once the contractor begins executing the segment, the policy does not require EM to follow our best practices, even when independent cost estimates are developed during a baseline change process. Developing and maintaining an integrated master schedule using GAO best practices. (Minimally meets.) EM’s policy requires that the contract specify the schedule for the segment, which could be an input to an overall integrated master schedule for that segment. The policy does not require that an integrated master schedule be developed and maintained in accordance with GAO best practices. Conducting risk assessments throughout the life cycle of the project; prioritizing risks in a risk register; developing risk mitigation strategies; and determining the appropriate amount of contingency. (Minimally meets.) EM’s policy does not require a risk management plan for projects. In addition, the policy states that EM will not fund contingency to cover risks that may occur for operations activities. Capturing lessons learned throughout the continuum of a project in a database and disseminating them among projects. (Partially meets.) EM’s policy requires the EM Deputy Assistant Secretary for Acquisition and Project Management to collect and disseminate lessons learned, but the policy does not specify that this process should be done throughout the continuum of a project or that lessons learned should be disseminated among operations activities. Developing a root cause analysis and corrective action plan to identify and address the underlying causes of cost overruns, schedule delays, and performance shortcomings when a cost or schedule overrun occurs. (Does not meet.) The policy does not contain any information on the steps that EM will take, such as developing a root cause analysis and corrective action plan, once management becomes aware that a cost or schedule overrun is probable for an operations activity. Conducting a variety of independent reviews throughout the life of a project, including at key decision points, and on multiple aspects of the project, such as the mission need, cost, earned- value management system, and baseline review. (Partially meets.) EM’s policy requires reviews of segments conducted or organized by EM’s Office of Project Management. However, there are no requirements for any independent reviews conducted by DOE offices or other entities outside EM. Establishing project-reporting systems/databases to provide a clear picture of project performance to management and to keep the contractor accountable. (Partially meets.) EM’s policy established a requirement that performance information be reported in the Integrated Planning, Accountability, and Budgeting System database for each operations activity. However, EM’s policy does not address how this performance information will provide a clear picture of performance and how it will be used to keep the contractor accountable. Our findings on the inclusion of project management leading practices in EM’s 2017 cleanup policy are consistent with concerns raised by DOE’s Project Management Risk Committee. According to meeting minutes from December 2015, the committee expressed concerns that EM’s proposed cleanup policy (adopted in July 2017) appeared to run counter to the Secretary’s initiative to apply best practices to oversight of project management. In committee meeting minutes from November 2015, the committee expressed concern with the level of rigor that would be applied to independent cost analysis, project reviews, general oversight, and risk mitigation under the new cleanup policy. According to PMI, effective project management is key to implementing an organization’s strategy, and has a dramatic impact on the bottom line; organizations that invest in proven project management practices—such as these selected leading practices—continue to experience greater success than their underperforming counterparts. In addition, under federal standards for internal control, management periodically reviews policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or addressing related risks. Until EM reviews and revises its policy to include project management leading practices related to scope, cost, and schedule performance, and independent reviews, EM’s operations activities are at risk of scope creep or uncontrolled changes to scope, exceeding their initial budget and schedule, and failing to meet their goals. EM’s Performance Measures for Operations Activities Do Not Provide a Clear Picture of Overall Performance EM uses three tools to measure the overall performance of operations activities, but these tools do not provide a clear picture of overall performance. These tools are earned value management, performance metrics, and milestones, according to EM documentation and officials. However, EM has not followed best practices for its contractors’ EVM systems; EM’s performance metrics do not link performance to cost; and EM postpones milestones when they are at risk of missing them and does not consistently track or report those milestone changes over time. Figure 6 summarizes our findings on these three performance measures and how they affect EM’s ability to effectively manage the cleanup effort. EM Relies on Three Tools to Measure Performance of Its Operations Activities To measure the overall performance of its operations activities, EM relies primarily on EVM data, supplemented by program-wide performance metrics and cleanup milestones, according to EM documentation and officials. EVM is a management tool used to measure the value of work accomplished in a given period and compare it with the planned value of work scheduled for the same period and with the actual cost of the work accomplished. EVM data can alert project managers to potential problems sooner than expenditures alone can. The use of EVM as a management tool is considered a best practice for conducting cost and schedule performance analysis for projects. EM’s 2017 cleanup policy requires that contractors use an EVM system or an approved alternative for monitoring and controlling work at the contract level. We reviewed all 20 EM contracts covering operations activities and found that EM requires its contractors to maintain EVM systems for 17 of all 20 contracts. EM paid contractors for maintaining these systems and providing EVM reports to EM. For example, EM has paid one contractor $1 million annually to maintain its EVM system, and EM has paid contractors anywhere from $10,000 to $235,000 annually to receive their EVM reports, according to EM responses to our information request. EVM by itself may not be sufficient to measure the progress of operations activities, according to EM’s 2012 operations activities protocol. The second tool EM uses to measure performance is performance metrics. EM developed 17 program-wide performance metrics for its cleanup work. The goal of these metrics is to measure progress toward completing the scope of work for the contract and the entire life of an operations activity. EM headquarters collects information from the sites monthly to measure how each activity has performed against a goal set at the beginning of each year. Examples of EM’s performance metrics include the number of cleanup sites being eliminated, the cubic meters of transuranic waste being disposed of, the number of containers of high-level waste packaged for final disposition, and the number of closed radioactive liquid waste tanks. The EM cleanup sites set targets for these metrics annually. According to EM officials, many operations activities have one or more of these performance metrics associated with them, but some do not. Appendix II contains the full list of EM’s performance metrics. The third tool EM uses to measure performance are cleanup milestones. Cleanup milestones represent deadlines for various cleanup-related activities derived from agreements DOE enters into with its regulators, including the Environmental Protection Agency and states. There are many different types of milestones, including enforceable and planning milestones. Generally, an enforceable milestone has a fixed, mandatory due date that is subject to the availability of appropriated funds while a planning milestone is not enforceable and usually represents a placeholder for shorter term work. EM collects program-wide performance information from the three performance measures tools in a centralized database known as the Integrated Planning, Accountability, and Budgeting System. These performance data are used by EM to manage its program and to provide information to DOE management, Congress, and other stakeholders. According to DOE’s Office of Inspector General and EM officials, this database was developed as a program management tool to provide information to EM headquarters officials, to ensure effective overall program performance; DOE’s Chief Financial Officer, for inclusion in DOE-wide reports; Congress and taxpayers, to identify the remaining environmental cleanup liability and to provide transparency regarding contractor performance; and stakeholders, to make sure the work reported is accurate, timely, complete, and in accordance with agreements. EM Has Not Ensured That EVM Systems Are Comprehensive, Provide Reliable Data, or Are Used by Leadership for Decision-Making EM relies on contractors’ EVM systems to measure the performance of its contractors’ operations activities, but EM has not followed (i.e., has not met, has minimally met, or has partially met) best practices to ensure that these systems are (1) comprehensive, (2) provide reliable data, and (3) are used by EM leadership for decision-making—which are the three characteristics of a reliable EVM system. Moreover, EM has allowed the contractors to categorize a large portion of their work in a way that limits the usefulness of the EVM data. EM Has Not Followed Best Practices for Its Contractors’ EVM Systems Our analysis of EM contractors’ EVM systems for operations activities found that EM has not followed (i.e., has not met, has minimally met, or has partially met) best practices, as discussed below. As a result, EM has not ensured that these systems are: (1) comprehensive, (2) provide reliable data, and (3) used by EM leadership for decision-making—which are the three characteristics of a reliable EVM system. (See app. III for more specific information on EM’s performance on each best practice considered and app. IV for information on how each contract followed each best practice.) Comprehensive: Best practices to ensure EVM systems are comprehensive are: (1) requiring the contractor’s EVM systems be certified to meet guidelines established by the Earned Value Management Systems EIA-748-D Intent Guide; (2) conducting an integrated baseline review to ensure that all work is accurately captured in the performance measurement baseline; and (3) performing regular surveillance to ensure the contractors continue to maintain their EVM systems in a way to meet the EIA-748-D guidelines. We found that 17 out of 20 contractors’ EVM systems were certified to be compliant with the EIA-748-D guidelines, but of these 17, 4 contractors had self-certified their EVM systems. However, only about half of the EVM systems met the best practices for conducting integrated baseline reviews and performing ongoing surveillance. Among those, many of the reviews were not rigorous enough to ensure that the performance measurement baseline captured all of the work. In November 2017, EM issued a standard operating policy and procedure, which suggests that EVM systems be surveilled regularly. However, we discovered that EM officials were not performing thorough surveillance reviews to ensure that EVM systems were in alignment with the EIA-748-D guidelines and that the data being reported by the EVM systems were reliable. Provide reliable data: Best practices to ensure that the contractors’ EVM systems provide reliable data are (1) the EVM data do not contain any anomalies and (2) estimates at completion— the expected total cost of completing all work based on the contractor’s performance to date—are realistic. The EVM data for contracts covering operations activities contained numerous, unexplained anomalies in all the months we reviewed, including missing or negative values for some of the completed work to date. Negative values should occur rarely, if ever, in EVM reporting because they imply the undoing of previously scheduled or performed work. In addition, we found problems with the estimate at completion listed in all 20 contractors’ EVM systems. More specifically, we found (1) many instances where the actual costs exceeded the estimates at completion even though there was still a lot of work remaining; (2) several occasions where the estimates at completion were less than half of the original budget at the beginning of the project; and (3) several contractors reported estimates at completion of zero dollars when their original budgets were for hundreds of millions of dollars. These problems indicated that the EVM systems were not being updated in a timely manner or were not well monitored since the estimate at completion values were too optimistic and highly unlikely. Used by EM leadership for decision-making. Best practices to ensure that the data from the contractors’ EVM systems are used by EM leadership for decision-making are: (1) reviewing EVM data, including cost and schedule variances, on a regular basis; (2) ensuring that EM management use EVM data to develop corrective action plans; and (3) ensuring that the performance measurement baseline is updated to reflect changes. We reviewed monthly reports EM sites present to EM headquarters management for review. We found that none of the sites adequately reported EVM variances to EM headquarters management; they were all missing some EVM information such as trend data or the estimate at completion. In addition, many of the sites’ monthly reports did not include corrective action plans for addressing variances, if any, between planned and actual performance. We also reviewed monthly reports that the EM Office of Project Management started to present to EM headquarters senior leadership in October 2017, and found that these reports included most of the EVM indicators for all 15 contracts on which EM Office of Project Management reported. However, EM Office of Project Management officials stated that they have only started suggesting corrective action to EM headquarters senior leadership since early 2018; it is too soon to tell how EM headquarters senior leadership is using this information to determine which contracts need the most attention and which corrective actions management will develop and take. Moreover, this monthly report uses unreliable EVM data, as we found in the prior characteristic. Finally, regarding the third best practice, EM provided evidence that 17 out of 20 contractors had a formal process in place for updating the budget baseline. However, the extent to which contractors followed their processes was questionable given the problems we found with the estimates at completion, as discussed in the prior characteristic. Even though EM requires most of its contractors for operations activities to maintain EVM systems and pays them for doing so, EM’s 2017 policy generally does not require that EVM systems be maintained and used in a way that follow EVM best practices. Until EM updates its cleanup policy to require that EVM systems be maintained and used in a way that follow EVM best practices, EM leadership may not have access to reliable performance data to make informed decisions in managing its cleanup work and to provide to Congress and other stakeholders on billions of dollars’ worth of cleanup work every year. Much of the Cleanup Work Is Categorized in a Way That Limits the Usefulness of the EVM Data Compounding the limitations with the EVM systems currently in place, EM has categorized a large portion of its work in a way that limits the usefulness of the EVM data. Specifically, a sizable amount of the work is categorized as level of effort for all 14 contracts for which we could identify the percentage of the level-of-effort work (in dollars). Work that is categorized as level of effort does not have defined deliverables or physical products. Progress for level-of-effort work is measured by the passage of time, but is not measured against a scheduled amount, so no schedule variance occurs. The effectiveness of EVM systems, which are designed to measure performance against cost and schedule targets, will be limited if there is a high amount of level-of-effort work, according to our best practices. Thus, according to best practices, categorizing work as level of effort should be minimized to the extent possible if EVM is being used to measure performance, and contracts with level-of-effort work over 15 percent should be subject to additional scrutiny. As shown in figure 7 below, the range for EM’s contracts on operations activities is between 36 and 83 percent. (We used letters for each contract, rather than identifying the site or contractor). According to EM officials, at least half of the level-of-effort work conducted under the cleanup contracts consists of recurring activities necessary to maintain the sites, which EM refers to as “minimum safety” work. According to EM officials, examples of such work include physical security, health and radiation protection and services, or critical facility and infrastructure maintenance for safe conditions. These officials said that minimum safety work makes up 30 to 60 percent of individual sites’ budgets, for a total of at least $2.7 billion, or 42 percent, of EM’s $6.4 billion fiscal year 2018 budget. The Assistant Secretary for EM noted in September 2018 that much of DOE’s environmental cost liability has to do with the management of the minimum safety work. The Assistant Secretary also noted that significant potential cost savings could result from reducing minimum safety work and planned to start an initiative in fiscal year 2019 to examine how EM can reduce this work. EM officials agreed that some of the contractor’s work currently categorized as level of effort could in fact be measured discretely. According to an ANSI guideline, only work not measurable or for which measurement is impractical may be categorized as level of effort. EM officials we interviewed stated that EM relies on its contractors to categorize work as discrete or as level of effort, and EM approves these decisions during the integrated baseline review. According to EM officials, there is no EM policy or guidance on what circumstances justify categorizing work as level of effort. Federal standards for internal controls state that management should design control activities to achieve objectives and respond to risks, such as by clearly documenting internal control in management directives, administrative policies, or operating manuals. Until EM develops a policy that ensures that work is categorized as level of effort only in appropriate, specified circumstances, such as when work is not measurable or when measurement is impractical, it may not have reliable performance data to help it achieve its objective of reducing risks and costs associated with billions of dollars’ worth of cleanup work every year. Performance Metrics and Milestones for EM Cleanup Work Do Not Provide a Clear Picture of Performance We found that EM’s 17 performance metrics for its cleanup work measure the scope of work accomplished in a specific year but do not link that work to the cost of completing it. For example, EM reported in the Integrated Planning, Accountability, and Budgeting System database eliminating 72,000 gallons of radioactive liquid waste out of a target of 342,000 gallons for fiscal year 2017 at the Savannah River Site, and disposing of 1,734 cubic meters of low-level waste out of a target of 360 cubic meters at the Idaho site. However, in neither case did EM indicate how much that work cost to accomplish. According to officials from DOE’s Office of Project Management, the scope of work accomplished is not a good indicator of performance by itself because it does not allow the project manager to know whether EM received good value from the contractor. In contrast, EVM systems allow managers to measure the value of work accomplished in a given period. As discussed above, EM collects EVM data, but EM’s performance metrics do not link to the EVM data. According to federal standards for internal control, management should use quality information to achieve an entity’s objectives and the quality information must be complete, among other things. In EM’s case, its objective, as stated in its mission, includes completing its cleanup work in a way that reduces associated risks and costs. By integrating reliable EVM data into EM’s performance metrics for operations activities, EM could provide a clearer picture of performance and better indicate whether EM is achieving its objective of reducing risks and costs. With regard to cleanup milestones, we found in February 2019 that EM has hundreds of milestones, but the exact number cannot be determined because of inconsistencies in tracking and defining milestones between sites and EM headquarters, and sites have the discretion to send updated milestone data to EM headquarters when they choose. As a result, some sites track milestones differently than EM headquarters does. We also found that EM does not consistently define or track met, missed, or postponed cleanup-related milestones at selected sites, and EM’s milestone reporting to Congress is inconsistent. EM sites renegotiate milestone dates with their regulators before they are missed, and EM does not track the history of these changes. This is because once milestones are changed, sites are not required to maintain or track the original milestone dates. As a result, the new milestones become the new agreed-upon time frame, essentially resetting the deadline. Further, in its report to Congress on enforceable milestones’ status, EM reports the most recently renegotiated milestone dates with no indication of whether or how often those milestones have been missed or postponed. Thus, the EM program is unable to use milestone data to provide a clear, reliable picture of its performance. Furthermore, EM officials at headquarters and selected sites said they had not conducted root cause analyses on missed or postponed milestones. Thus, EM cannot address systemic problems and consider them when renegotiating milestones with regulators. In addition, without such analysis, EM and its cleanup regulators lack information to set more realistic and achievable milestones. As a result, future milestones are likely to continue to be pushed back, further delaying the cleanup work and likely increasing cleanup costs. In this same report, we recommended, among other things, that EM should establish a standard definition of milestones across the cleanup sites, track changes to the milestones, report annually to Congress on the status of its milestones, and conduct root cause analyses of performance shortcomings that lead to missed or postponed milestones. Conclusions DOE’s EM program has the challenging mission of safely cleaning up radioactive waste, spent nuclear fuel, and environmental contamination from 50 years of federal nuclear weapons production and energy research, while working to reduce associated risks and costs within the established regulatory framework. Since its mission began in 1989, EM has spent more than $164 billion on its cleanup work, and it faces future cleanup costs of more than $377 billion—the federal government’s single largest environmental liability. To improve management of projects undertaken within the department, including EM, DOE established its Office of Project Management and strengthened project management requirements in Order 413.3B for managing capital asset projects. However, since 2009, when EM created a new category of cleanup work called operations activities, EM has opted not to apply DOE’s project management requirements to almost 80 percent of its cleanup work. From fiscal years 2011 to 2018, EM’s environmental liability increased by about $214 billion. DOE’s Office of Project Management officials have raised concerns about how EM classifies this work. Until EM works together with DOE’s Office of Project management (1) to establish requirements for classifying cleanup work as capital asset projects or operations activities and (2) to assess EM’s ongoing operations activities to determine if they should be reclassified as capital asset projects based on the newly established requirements, the department may incur more project management risk of cost increases and schedule delays than it should for hundreds of billions of dollars of remaining work. In July 2017, EM released a new cleanup policy containing requirements for managing its program and its operations activities, but this policy does not follow most of the selected program and project management leading practices we identified related to management of scope, cost, and schedule performance, and independent review of performance. Until EM reviews and revises its cleanup policy to include program and project management leading practices related to scope, cost, schedule performance, and independent reviews, the EM program is at risk of uncontrolled changes to scope, exceeding its cost estimates and schedule, failing to meet its goals, and increasing DOE’s environmental liabilities. The new Assistant Secretary for the Office of Environmental Management has acknowledged the importance of improving EM’s performance in addressing the department’s large and growing environmental liabilities. However, the three tools that EM uses to measure its overall program performance and contractors’ performance on operations activities— earned value management, performance metrics, and cleanup milestones—do not provide a clear, reliable picture of performance for EM leadership, Congress, and other stakeholders. In particular, EM’s EVM systems for operations activities are not comprehensive, do not provide reliable data, and are not used by EM leadership to measure overall performance of the EM program. Furthermore, a large portion of the work performed by contractors is categorized as level of effort, limiting the usefulness of the EVM data. In addition, EM’s performance metrics are not linked to the costs of the work performed. Until EM updates its cleanup policy to require that EVM systems be maintained and used in a way that follows EVM best practices, EM leadership may not have access to reliable performance data to make informed decisions in managing its cleanup work and to provide to Congress and other stakeholders on billions of dollars’ worth of cleanup work every year. Moreover, until EM develops a policy that ensures that work is categorized as level of effort only in appropriate, specified circumstances, such as when work is not measurable or when measurement is impractical, it may not have reliable performance data to help it achieve its objective of reducing risks and costs associated with billions of dollars’ worth of cleanup work every year. Finally, by integrating reliable EVM data into EM’s performance metrics for operations activities, EM could provide a clearer picture of performance and better indicate whether EM is achieving its objective of reducing risks and costs. Recommendations for Executive Action We are making the following seven recommendations to DOE: The Secretary of Energy should direct the Director of the Office of Project Management and the Assistant Secretary of the Office of Environmental Management to work together to establish requirements for classifying cleanup work as capital asset projects or operations activities. (Recommendation 1) The Secretary of Energy should direct the Director of the Office of Project Management and the Assistant Secretary of the Office of Environmental Management to work together to asses EM’s ongoing operations activities to determine if they should be reclassified as capital asset projects based on the newly established requirements. (Recommendation 2) The Secretary of Energy should direct the Assistant Secretary of the Office of Environmental Management to review and revise EM’s 2017 cleanup policy to include program management leading practices related to scope, cost, schedule performance, and independent reviews. (Recommendation 3) The Secretary of Energy should direct the Assistant Secretary of the Office of Environmental Management to review and revise EM’s 2017 cleanup policy to include project management leading practices related to scope, cost, schedule performance, and independent reviews. (Recommendation 4) The Secretary of Energy should direct the Assistant Secretary of the Office of Environmental Management to update its cleanup policy to require that EVM systems be maintained and used in a way that follows EVM best practices. (Recommendation 5) The Secretary of Energy should direct the Assistant Secretary of the Office of Environmental Management to develop a policy to ensure that work is categorized as level of effort only in appropriate, specified circumstances, such as when work is not measurable or when measurement is impractical. (Recommendation 6) The Secretary of Energy should direct the Assistant Secretary of the Office of Environmental Management to integrate EVM data into EM’s performance metrics for operations activities. (Recommendation 7) Agency Comments and Our Evaluation We provided DOE with a draft of this report for its review and comment. In its written comments, reproduced in appendix V, DOE generally agreed with the findings in the report and its recommendations and described actions that it intends to take in response to our recommendations. More specifically, of the seven recommendations, DOE concurred with four and partially concurred with three. DOE partially concurred with our recommendations that the Director of the Office of Project Management and the Assistant Secretary for the Office of Environmental Management (EM) work together to (1) establish requirements for classifying cleanup work as capital asset projects or operations activities, and (2) assess EM’s ongoing operations activities to determine if they should be reclassified as capital asset projects based on the newly established requirements. DOE stated that the department commits (1) to reviewing its methodology for categorizing work and revising it, as appropriate, as well as (2) to determining the appropriate application of any revisions to the work classification methodology to new and existing work. DOE also stated that the Assistant Secretary for EM is ultimately responsible for the proper classification of work and will consult with the Office of Project Management. We appreciate DOE’s commitment to addressing these two recommendations. As we stated in our report, in July 2015, the Secretary of Energy gave DOE’s Office of Project Management responsibility to serve as DOE’s enterprise project management organization. As such, DOE states that this office is responsible for providing leadership and assistance in developing and implementing DOE-wide policies, procedures, programs, and management systems pertaining to project management, as well as for independently monitoring, assessing, and reporting on project execution performance. Officials from this office are experts in project management, especially as it relates to capital asset projects. Given (1) the high-risk posed by EM’s cleanup work and the high environmental liability, which may continue to grow; (2) the difference in the stringency of requirements between managing and overseeing operations activities and capital asset projects; and (3) the concerns raised by DOE top project management experts that some current operations activities should be classified as capital asset projects, we encourage the Secretary to direct EM not only to consult with DOE’s Office of Project Management but to take advantage of the office’s role and expertise and direct EM to work with this office to come to an agreement about proper classification requirements and classification of current and future cleanup work. It is in DOE’s interest to ensure its cleanup work is classified and managed appropriately, regardless of which office is ultimately responsible for the proper classification of work. DOE concurred with our recommendations to review and revise EM’s 2017 cleanup policy to include program and project management leading practices related to scope, cost, schedule performance, and independent reviews and to require that EVM systems be maintained and used in a way that follows EVM best practices. DOE also concurred with our recommendation to develop a policy to ensure that work is categorized as level of effort only in appropriate, specified circumstances, such as when work is not measurable or when measurement is impractical. DOE also partially concurred with our recommendation to integrate EVM data into EM’s performance metrics for operations activities. For all these recommendations, DOE stated that EM is already in the process of reviewing the EM cleanup policy for necessary updates, revisions, and modifications. DOE further stated that EM will consider and incorporate changes relative to these recommendations, as appropriate, during this process, and EM will also consider any necessary changes to related guidance or policies and procedures. DOE also provided technical comments, which we incorporated in our report as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 14 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology Our report examined: (1) how the EM program manages its cleanup work, (2) the extent to which EM’s cleanup policy follows selected program and project management leading practices, and (3) how EM measures the overall performance of its operations activities. To examine how the EM program manages its cleanup work, we reviewed various DOE documents, including DOE’s Order 413.3B, EM’s 2012 operations activities protocol, EM’s 2017 cleanup policy, standard operating policies and procedures associated with this cleanup policy, EM’s mission and functions document, EM’s draft 45-day review documentation, meeting minutes from the Project Management Risk Committee, draft appendix to Order 413.3B developed by DOE’s Office of Project Management, and documents received from cleanup sites. We also interviewed DOE officials from the Office of Project Management and members of the Project Management Risk Committee, and EM officials from headquarters, such as the Associate Principal Deputy Assistant Secretary for Field Operations, the Deputy Assistant Secretary for Acquisition and Project Management, officials from EM’s Office of Project Management, Office of Budget and Planning, Office of Program Planning, officials in charge of managing the Integrated Planning, Accountability, and Budgeting System database that collects monthly performance information from the sites, and officials from 5 of EM’s 16 cleanup sites. (We contacted all sites and interviewed 5 sites over the phone that responded to our request for an interview.) We then decided to conduct site visits. We visited two of these sites—Savannah River and Idaho— because they are among the sites with the highest number of operations activities and the most diverse types of and highest-cost cleanup work remaining. Our findings from these 5 sites are not generalizable to all EM sites, but they help explain the delineation of roles between the site managers and EM headquarters in managing and classifying cleanup work. We also attended an EM internal training session in which EM headquarters officials introduced the 2017 cleanup policy to officials at the Hanford site and attended EM cleanup public conferences. Moreover, we reviewed the role of DOE’s Office of Project Management in EM’s cleanup work. More specifically, we examined whether this office played a role in the development of EM’s 2017 cleanup policy and classification of EM’s cleanup work, consistent with its designation as DOE’s enterprise project management organization. To assess the reliability of EM’s fiscal year 2019 budget data, we requested information about EM’s Financial Integration System module of the Integrated Planning, Accountability, and Budgeting System database, from which these data were provided. Based on the responses from officials in charge of this database, we determined the data to be sufficiently reliable for our purposes. To examine the extent to which EM’s cleanup policy follows selected program and project management leading practices, we selected two sets of criteria for program and project management leading practices using leading practices from the Project Management Institute, which are generally recognized as the top leading practices for program and project management. To select program management leading practices, we first reviewed the Project Management Institute’s The Standard for Program Management—Third Edition (2013). We identified 9 program management leading practices based on PMI’s standards related to a program’s management of scope, cost, schedule performance, and independent review of performance. To select project management leading practices, we first identified 12 project management leading practices listed in DOE’s Order 413.3B related to a project’s management of scope, cost, schedule performance, and independent review of performance. We then compared these 12 project management leading practices to PMI’s A Guide to the Project Management Body of Knowledge–Fifth Edition, which includes PMI’s standards for project management, to make sure these leading practices align with PMI’s standards for project management. To select these leading practices, (1) two GAO analysts separately examined the PMI and DOE documentation, then, (2) a GAO specialist independent of the team producing this report reviewed the leading practices we selected. All three GAO staff agreed on these selected leading practices. To validate our selection of program and project management leading practices, we shared these selected leading practices with PMI representatives and incorporated their feedback, as appropriate. PMI representatives agreed with the program and project management leading practices that we selected. We then compared EM’s 2017 cleanup policy and the 11 associated standard operating policies and procedures developed by EM by the time of our analysis (by May 2018) with the 9 program management and 12 project management leading practices we selected. We included these standard operating policies and procedures in our analysis because EM officials stated that EM intentionally wrote this policy at a high level because EM planned to develop standard operating policies and procedures that would establish more detailed steps to implement the policy. We analyzed the extent to which the policy and the 11 standard operating policies and procedures follow these leading practices. We also interviewed EM headquarters and site officials to learn more about the 2017 cleanup policy. We used a 5-point scoring system to determine the extent to which EM’s cleanup policy follows selected program and project management leading practices. We used the following 5-point scoring system: “fully met” means that complete evidence was provided that satisfied the leading practice; “substantially met” means that evidence was provided that satisfied a large portion of the leading practice; “partially met” means that evidence was provided that satisfied about half of the leading practice; “minimally met” means that evidence was provided that satisfied a small portion of the leading practice; and “did not meet” means that no evidence was provided that satisfied the leading practice. If the score for each leading practice was “fully met” or “substantially met,” we concluded that EM’s cleanup policy and its associated standard operating policies and procedures followed the leading practice. In contrast, if the score was “partially met,” “minimally met,” or “not met,” we concluded that EM’s policy did not follow the leading practice. To determine this score, two GAO analysts separately examined EM’s policy document and then agreed on a final score for each of the leading practices. To examine how EM measures the performance of its operations activities, we analyzed EM’s use of the three measures of performance that EM policy identified: earned value management (EVM); performance metrics; and cleanup milestones. To evaluate EM’s EVM systems, we compared EM’s use of EVM with 8 of the 10 best practices for earned value management found in our Cost Estimating and Assessment Guide, which draws best practices from federal cost-estimating organizations and industry. Specifically, we reviewed the use of EVM systems in the 21 contracts EM uses to execute its operations activities and compared this review’s results with EVM best practices. To gather this information, we submitted a data collection instrument to all 16 sites to ascertain whether or not they follow these best practices for each contract containing operations activities. We also requested documentation, such as EVM system certification information or surveillance reports, supporting their answers. We relied mainly on the sites’ responses but, when available, also reviewed the documentation we received to check the sites’ answers for accuracy and completeness. To determine whether information on EVM is reported to EM senior leadership, we also reviewed (1) monthly progress reports EM sites presented to EM headquarters management that ranged from April 2017 to April 2018 depending on the site and (2) monthly reports that EM Office of Project Management presents to EM headquarters senior leadership; specifically the April 2018 Cleanup Program Monthly Performance and the EM Segment Activity Portfolio Summary, or “Quad Chart,” reports, which were the most recent reports available at the time of this analysis. In addition, as part of our analysis, we analyzed EM headquarters’ EVM data on operations activities from October 2016 through September 2017 (the most recent data available at the time of our review) to determine whether or not the EVM data were reliable. We checked for data anomalies, such as missing or negative values for each of those months. We also reviewed DOE and EM documents—such as monthly progress reports submitted by the 16 sites to EM headquarters for review or the monthly reviews prepared by an EM headquarters office for senior management—to see what EVM data senior management used for decision-making. To provide a score for our analysis, we used the following 5-point scoring system to score the answer for each contract for each best practice: “fully met” means that complete evidence was provided that satisfied the best practice; “substantially met” means that evidence was provided that satisfied a large portion of the best practice; “partially met” means that evidence was provided that satisfied about half of the best practice; “minimally met” means that evidence was provided that satisfied a small portion of the best practice; and, “did not meet” means that no evidence was provided that satisfied the best practice. For each best practice, we color-coded the assessment at the contract level. Contracts that fully met or substantially met the criteria were coded green, those that partially met the criteria were coded yellow, and those that did not or minimally meet the criteria were coded red. We then assigned a score for each color: 1 for red, 3 for yellow, and 5 for green. We determined the overall score for each best practice by taking the average across the 20 contracts we reviewed. After scoring each best practice individually, we then used these scores to develop an average score for the three EVM characteristics: whether EM has ensured that these EVM systems are (1) comprehensive, (2) provide reliable data, and (3) are used by EM leadership for decision-making. To examine EM’s use of performance metrics data, we reviewed annual performance metrics collected by EM headquarters for every operations activity from 2010 to 2017. We chose this period because 2010 is the time when EM started classifying work as operations activities while 2017 was the most recent available data at the time of our analysis. We reviewed relevant documentation, and interviewed agency officials knowledgeable about those data, among other things. Specifically, we interviewed DOE and EM officials at headquarters and from the five cleanup sites (including in-person interviews at the Savannah River and Idaho sites). We also reviewed our prior work in GAO-19-207 related to EM’s cleanup agreements and milestones. We conducted this performance audit from April 2017 to February 2019, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: EM’s Program-wide Performance Metrics Presented to Congress, as of the end of Fiscal Year 2017 Appendix II: EM’s Program-wide Performance Metrics Presented to Congress, as of the end of Fiscal Year 2017 The information in this table is from DOE’s fiscal year 2019 budget request, which was the most recent request presented to Congress. DOE, Department of Energy: FY 2019 Congressional Budget Request for Environmental Management, DOE/CF-0142, Vol. 5 (Washington, D.C.: March 2018). Appendix III: GAO Assessment of How Earned Value Management Systems Used for EM’s Operations Activities Met Best Practices GAO assessment of individual best practice Substantially met. Seventeen out of 20 contracts we reviewed had a certified EVM system, of which 4 self- certified. EM officials reported that the remaining three contracts were not certified or were not required to be certified. Partially met. Thirteen out of the 20 contracts we reviewed had conducted or planned to conduct an integrated baseline review to ensure that the performance measurement baseline provides reliable cost and schedule data for managing the program and projecting accurate estimates at completion. However, many of these reviews were not rigorous enough to ensure that the performance measurement baseline captured all of the work. Not assessed. Partially met. Eleven out of the 20 contracts fully met this best practice, and contractors performed self- assessments or conducted annual reviews for 5 additional contracts. However, EM field and headquarters officials were not performing thorough reviews to check whether the EVM systems were in alignment with the EIA-748-D guidelines to ensure that the data being reported by the systems were reliable. Partially met. The EVM data for operations activities contracts contained numerous, unexplained anomalies in all the months we reviewed—including missing or negative values for some of the completed work to date. Having anomalies in the EVM data occurring each month can cause potential distortions resulting in inaccurate projections of estimates at completion. Not assessed. Characteristic / Score Does EM’s use of EVM systems follow characteristic? GAO assessment of individual best practice Minimally met. We found problems with the estimate at completion in all of the 20 contracts we analyzed. For example, we found instances where the estimates at completion were either (1) less than half the original budget, (2) higher than expected, or 3) zero when the original budget was for hundreds of millions of dollars. These problems indicated that the EVM systems were not being updated in a timely manner or were not well monitored since the estimate at completion values were too optimistic and highly unlikely. Partially met. We reviewed two sources of information on earned value management reporting to EM senior leadership for this best practice. 1) When reviewing the monthly reports EM sites present to EM headquarters management, we found that none of the sites adequately reported EVM data. 2) When reviewing the new monthly report format that EM’s Office of Project Management presents to EM headquarters senior leadership since October 2017, we found that EM reported on the performance of 15 out of the 20 contracts. We found that these reports included most of EVM indicators for all 15 contracts on which EM Office of Project Management reported. However, this monthly report uses unreliable EVM data, as we found in the prior characteristic. Partially met. We reviewed two sources of information on earned value management reporting to EM senior leadership for this best practice. 1) When reviewing the monthly reports EM sites present to EM headquarters management, we found that they contained corrective action plans for only 3 contracts. 2) When reviewing the new monthly reports that EM’s Office of Project Management present to EM headquarters senior leadership since October 2017, EM Office of Project Management officials stated that they have only started suggesting corrective action to EM headquarters senior leadership since early 2018; it is too soon to tell how EM headquarters senior leadership is using this information to determine which contracts need the most attention and which corrective actions management will develop and take. Substantially met. EM provided evidence that 17 out of 20 contractors had a formal process in place for updating the budget baseline. However, the extent to which contractors followed their processes was questionable given the problems we found with the estimates at completion, as discussed in the prior characteristic above. Appendix IV: EM’s Earned Value Management Systems Used by Contracts Containing Operations Activities B Not reviewed Assessment for each best practice: Not met—provided no evidence that satisfies any of the best practice; Minimally met—provided evidence that satisfies a small portion of the best practice; Partially met—provided evidence that satisfies about half of the best practice; Substantially met—provided evidence that satisfies a large portion of the best practice; and Met – provided complete evidence that satisfies the entire best practice. We determined the overall score for each best practice by taking the average across the 20 contracts we reviewed. We did not evaluate the following two best practices: (1) the schedule reflects the work breakdown structure, the logical sequencing of activities, and the necessary resources and (2) EVM data are consistent among various reporting formats. We excluded these two best practices because we examined the use of EVM by contractors at a higher program level and did not conduct in-depth analysis of each contractor’s EVM system. EM uses 21 contracts for its operations activities. We reviewed the use of EVM systems in 20 of these contracts because one contract (contract K) is a fixed price contract, which does not require the use of EVM. Appendix V: Comments from the Department of Energy Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Nico Sloss (Assistant Director), Cristian Ion (Analyst in Charge), Nathan Anderson, Margot Bolon, Jenny Chow, Jennifer Echard, Juan Garay, Cindy Gilbert, Katherine Nicole Laubacher, Cynthia Norris, Karen Richey, Dan C. Royer, Kiki Theodoropoulos, and David Wishard made key contributions to this report.

EM's mission is to complete the cleanup of nuclear waste at 16 DOE sites and to work to reduce risks and costs within its established regulatory framework. In December 2018, DOE reported that it faced an estimated $494 billion in future environmental cleanup costs—a liability that roughly tripled during the previous 20 years. GAO was asked to examine EM's operations activities. This report examines, among other objectives, (1) how EM manages its cleanup work and (2) the extent to which EM's cleanup policy follows selected leading practices for program and project management. To do this work, GAO reviewed agency documents and interviewed DOE project management experts and EM officials. GAO compared EM's policy with selected leading practices endorsed by the Project Management Institute for program and project management related to scope, cost, schedule, and independent review. The Department of Energy's (DOE) Office of Environmental Management (EM) manages most of its cleanup of nuclear waste (77 percent of its fiscal year 2019 budget) under a category that EM refers to as operations activities, using less stringent requirements than a category of work, known as capital asset projects. (See figure) Capital asset projects—which involve the acquisition of land and other assets, including through environmental remediation—must undergo a series of reviews by independent experts and DOE's senior leadership. In contrast, operations activities are not reviewed outside of EM. EM's policy defines operations activities as reoccurring facility or environmental operations, as well as activities that are project-like, with defined start and end dates. EM cleanup site managers have discretion on how to classify cleanup work because DOE and EM have not established classification requirements. Since 2015, experts in DOE's Office of Project Management have raised concerns that some operations activities should be classified as capital asset projects, and that managing them under less stringent requirements poses cost and schedule risks. For example, the experts stated the cleanup of tanks of radioactive liquid waste should be designated as capital asset projects. However, these experts also stated that EM did not respond to their concerns, even though the office has department-wide responsibilities for overseeing project management. Until EM works with DOE's Office of Project Management to establish requirements for classifying cleanup work, the department may incur more cost and schedule risks than it should. EM's cleanup policy does not follow any of 9 selected program management leading practices or 9 of 12 selected project management leading practices. For example, EM's 2017 cleanup policy does not follow the program management leading practice of conducting risk management throughout the life of a program or the project management leading practice of requiring independent reviews of operations activities. These leading practices help ensure that a program optimizes scope, cost, and schedule performance and that it achieves its goals and intended benefits. Until EM revises its cleanup policy to follow leading practices, EM's operations activities are at risk of uncontrolled changes to scope, exceeding initial budget and schedule, and failing to meet their original goals.

CRS_R44801

Background Congress has been interested in disaster relief since the earliest days of the republic. On February 19, 1803, the 7 th Congress passed the first known federal disaster assistance legislation, providing debt relief to the residents of Portsmouth, NH, following a December 26, 1802, fire that burned down most of the town ("A Bill for the Relief of the Sufferers by Fire, in the Town of Portsmouth," commonly known as the Congressional Act of 1803). Over the years, Congress has authorized the expansion of federal disaster assistance to individuals, businesses, and places (both for humanitarian reasons and as a means to enhance interstate commerce). For example During the 1930s, Congress passed legislation authorizing the Reconstruction Finance Corporation to make disaster loans for the repair and reconstruction of certain public facilities following an earthquake, and later, other types of disasters; and the Bureau of Public Roads to provide funding for highways and bridges damaged by natural disasters. During the 1950s, Congress passed legislation authorizing the President to respond to major disasters. During the 1960s, Congress passed legislation expanding the U.S. Army Corps of Engineers' authority to implement flood control projects. During the 1970s, Congress passed legislation authorizing federal loans and tax assistance to individuals affected by disasters, as well as federal funding for the repair and replacement of public facilities; and the establishment of the presidential disaster declaration process. During the 1980s, Congress passed legislation authorizing numerous changes to federal disaster assistance programs administered by the Federal Emergency Management Agency (FEMA), which had been created by Executive Order 12127 on March 31, 1979, to, among other activities, coordinate federal disaster relief efforts. Since the 1980s, Congress has focused on the oversight of FEMA's implementation of federal disaster relief efforts and assessing the Robert T. Stafford Disaster Relief and Emergency Assistance Act (of 1988), hereinafter the Stafford Act, as amended (42 U.S.C. 5721 et seq.) to determine if its provisions meet current needs. One such potential need is providing disaster assistance following a terrorist attack. Stafford Act Assistance in Response to Terrorism The Stafford Act authorizes the President to issue two types of declarations that could potentially provide federal assistance to states and localities in response to a terrorist attack: a "major disaster declaration" or an "emergency declaration." Major disaster declarations authorize a wide-range of federal assistance to states, local governments, tribal nations, individuals and households, and certain nonprofit organizations to aid recovery from a catastrophic event. Major disaster declarations must be requested by the state governor or tribal leader. Emergency declarations authorize a more limited range of federal assistance and are issued by the President to protect property and public health and safety and to lessen or avert the threat of a major disaster. In most cases, the state governor or tribal leader must request an emergency declaration; however, under 501(b) of the Stafford Act, the President has authority to issue an emergency declaration without a gubernatorial or tribal request under specified conditions. Examples of these types of emergency declarations with respect to terrorist incidents include the April 19, 1995, bombing of the Alfred P. Murrah Building in Oklahoma City, and the September 11, 2001, attack on the Pentagon. In each instance, the emergency declaration was followed by a major disaster declaration. While the Stafford Act has been used to provide assistance in response to terrorist attacks in the past, recent incidents such as the mass shootings that occurred in 2015 and 2016 in San Bernardino, CA, and Orlando, FL, respectively, and the 2016 vehicular attacks in Nice, France, and Ohio State University may have brought to light some potential shortcomings in the Stafford Act. That is, certain terror attacks may not meet the criteria of a major disaster for two reasons. First, depending on the mechanism used in the attack, certain terror incidents may not meet the legal definition of a major disaster. Of interest here, the Stafford Act defines a major disaster as "any natural catastrophe (including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought), or, regardless of cause, any fire, flood, or explosion, in any part of the United States, which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance." The list of incidents that qualify for a major disaster declaration is specifically limited, and it is not clear if a terror attack would meet the legal definition of a major disaster if the incident involved something other than a fire or explosion. Meeting the definition of a major disaster is a necessary but insufficient condition for the receipt of major disaster assistance. The incident's cost must also be beyond the capacity of the state and local government. When an incident occurs, FEMA meets with the state to assess damage costs to affected homes and public infrastructure. Damages to public infrastructure are particularly important because this amount is compared to the state's population. This comparison is called the "per capita threshold." FEMA uses the threshold to assess state and local government capacity. In general, FEMA will recommend that the President declare a major disaster if the incident meets or exceeds the per capita threshold. It is conceivable that a terrorist incident could cause substantial loss of life but cause little or no damage to homes and public infrastructure. This lack of damage (to public infrastructure) may disqualify these incidents from receiving the wider range of assistance provided under a major disaster declaration. With respect to terrorism, some may view the Stafford Act's current framework adequate and oppose efforts to alter it. Their reasons are twofold. First, while terrorist incidents such as mass shootings can be devastating in terms of loss of life and impact on national morale, some argue that a major disaster should not be declared for terrorist incidents that do not cause enough damage to public infrastructure to warrant federal assistance. State and local governments, as well as insurance coverage, they say, should be the main sources of assistance if damages are limited. Second, they may argue that terror incidents that do not meet the criteria of a major disaster could be eligible for Stafford Act assistance under an emergency declaration. In contrast to the prescribed definition of incidents that qualify as a major disaster, an emergency is defined more broadly to include "any occasion or instance for which, in the determination of the President, federal assistance is needed to supplement State and local efforts and capabilities to save lives and to protect property and public health and safety, or to lessen or avert the threat of a catastrophe in any part of the United States." Some might argue that an emergency declaration would provide adequate assistance to individuals and households after a terrorist incident. For example, as outlined in Section 502 of the Stafford Act, an emergency declaration may include Section 408 assistance. Some examples of Section 408 assistance include FEMA's Individuals and Household Program (IHP), which provides housing and grants to individuals and families; and Other Needs Assistance (ONA) grants, which is part of the IHP program in the form of grants to families and individuals. These grants can cover items including medical and dental expenses caused by the incident as well as funeral expenses. ONA grants may also cover certain necessary expenses such as the replacement of personal property and other expenses. Others may argue that most acts of terrorism warrant the wide range of assistance provided by a major disaster declaration. They would argue that the assistance provided under an emergency declaration is too limited. For example, the Crisis Counseling program is not provided under an emergency declaration. The Crisis Counseling program may seem especially appropriate to a terrorist incident given the assistance it provides for what is likely a wrenching event for those involved. In addition, the type of declaration determines what types of Small Business Administration (SBA) disaster loans are available. In general, homeowners, renters, businesses, and nonprofit organizations become eligible for disaster loans under a major disaster declaration. In contrast, typically only private nonprofit organizations are eligible for disaster loans under an emergency declaration. Finally, beyond the monetary assistance provided by a major disaster declaration, some would argue that major disaster declarations are important symbolic gestures of federal support to states and localities. Declaration Procedure The Stafford Act requires that all major disaster declaration requests be made by state governors or tribal leaders. Such requests must be made on the basis that the incident is of such severity and magnitude that effective response is beyond the capability of the affected state and local government. The request for a declaration begins with a letter to the President from the governor or tribal leader. Included with the letter are supplemental material and any relevant information about the incident. The letter also describes what types of federal assistance is being requested. In the case of a request for a major disaster declaration, a particularly important piece of information accompanying the letter is the Preliminary Damage Assessment (PDA). PDAs provide public infrastructure damage estimates (as well as estimated damage to households). By regulation, FEMA compares this damage estimate against the state's population. In general, FEMA will make a recommendation to the President that a major disaster be declared if public infrastructure damages exceed $1.42 per capita. This formula is known as the "per capita threshold." A request for an emergency declaration follows the same basic regulatory procedures highlighted above for major disasters with some nuances. Similar to a request for a major disaster declaration, the basis for an emergency declaration is that the incident is of such severity and magnitude that effective response is beyond the capability of the affected state and local government. FEMA, however, does not apply any formulas—including the per capita threshold—in regulations to make emergency declaration recommendations to the President. While there are differences between the two types of declarations, the ultimate decision to declare and grant federal assistance for emergencies and major disasters rests solely with the President. Major Disaster Declaration Criteria In general, an incident must meet three criteria to be eligible for a major disaster declaration: (1) definition, (2) unmet need, and (3) state action. Definition The Stafford Act defines a major disaster as any natural catastrophe (including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought), or, regardless of cause, any fire, flood, or explosion, in any part of the United States, which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance under this chapter to supplement the efforts and available resources of states, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby. The definition of a major disaster can be applied in several ways. The definition could be applied prescriptively. In this view, the definition would be considered as an itemized list of incidents eligible for federal assistance under the Stafford Act. As a result, certain incidents are not eligible for assistance because the definition is taken as verbatim and all inclusive. Another approach is to consider the definition as open to interpretation. In this view, the list of incidents is seen as providing examples of some of the incidents that could be considered a major disaster. Alternatively, the definition could be seen as a blend of the two approaches. The list of natural disasters might be seen as open-ended whereas human caused incidents are limited to the itemized list of "fire, flood, or explosion." Depending on the interpretation, the definition may limit certain incidents from receiving federal assistance. The discussion regarding whether an incident would be denied assistance due to definitional limitations is hypothetical. There have been incidents denied for definitional reasons (such as the Flint water contamination incident) but thus far a Governor has not requested a major disaster for a terrorist incident and denied assistance based on the definition of a major disaster. It is unclear if the definition would be fatal to a request for a major disaster declaration. Ultimately, the President has the discretion to determine what incidents that meet this definition are eligible for a major disaster declaration. Unmet Need In addition to meeting the definition of a major disaster, the incident must result in damages significant enough to exceed the capabilities and resources of state and local governments. Exceeding state and local capabilities and resources is generally considered as the state's unmet need. Under the Stafford Act: All requests for a declaration by the President that a major disaster exists shall be made by the Governor of the affected state. Such a request shall be based on a finding that the disaster is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments and that federal assistance is necessary. In general, FEMA assesses the degree of damage for an incident to help determine unmet need. FEMA considers six general areas: estimated cost of the assistance; localized impacts; insurance coverage; hazard mitigation; recent multiple disasters; and other federal assistance programs. While all of these factors are considered when assessing an incident's worthiness for federal assistance, the estimated cost of assistance is perhaps the most critical because it contains the per capita threshold mentioned earlier in this report, as well as the unmet needs of families and individuals. Attacks such as the 2016 Pulse nightclub shooting in Florida and the 2015 San Bernardino, CA, shooting had a high number of fatalities with relatively low damages to public infrastructure. Limited public infrastructure damages may make the per capita threshold difficult to reach—particularly for highly populated states. State Action The state or tribal nation must implement its emergency plan, dedicate sufficient resources to respond to the incident, and agree to cost-sharing requirements, as follows: As part of such request, and as a prerequisite to major disaster assistance under this chapter, the Governor shall take appropriate response action under state law and direct execution of the state's emergency plan. The Governor shall furnish information on the nature and amount of State and local resources which have been or will be committed to alleviating the results of the disaster, and shall certify that, for the current disaster, state and local government obligations and expenditures (of which state commitments must be a significant proportion) will comply with all applicable cost-sharing requirements of this chapter. As conceptualized in Figure 1 , an incident is eligible for a disaster declaration if all three criteria intersect. An incident that does not meet the definition of a major disaster, and/or does not have unmet need would not have intersecting criteria and may have more difficulty receiving a major disaster declaration. Major Disaster Assistance FEMA Assistance The assistance provided for a major disaster declaration generally takes three forms: Public Assistance (PA), Individual Assistance (IA), and Hazard Mitigation Assistance (HMA). PA addresses the state or tribe's essential needs but concentrates on repairing damage to infrastructure (public roads, buildings, etc.). IA helps families and individuals. IA can be in the form of temporary housing assistance and grants to address post-disaster needs (such as replacing furniture, clothing and other items). It may also include crisis counseling and disaster unemployment benefit. HMA provides grant funding to the state for mitigation projects. HMA does not necessarily need to mitigate risks from the type of disaster that was declared. Rather, HMA can be used for mitigation projects identified before the declaration was issued. FEMA, however, does not exclusively perform all disaster response and recovery operations for the federal government. The President has the authority to direct any federal agency to use its authorities and resources to support state and local response and recovery efforts, primarily through Sections 402, 403, and 502 of the Stafford Act. In general, when a declaration is declared, FEMA coordinates federal entities and organizations that are involved in the incident by "assigning" missions to relevant agencies to address a state's request for federal assistance or support overall federal operations pursuant to, or in anticipation of, a Stafford Act declaration. The activities carried out by other agencies through Mission Assignments are generally reimbursed by FEMA through the Disaster Relief Fund (DRF). For example, FEMA may request the Department of Health and Human Services to establish and operate a shelter co-located with a federal medical station to support non-medical caregivers and family members accompanying patients being treated at the station. SBA Disaster Loan Program Major disaster declarations also put the Small Business Administration (SBA) Disaster Loan Program into effect. The loan program provides three main types of loans for disaster-related losses: (1) Home and Personal Property Disaster Loans, (2) Business Physical Disaster Loans, and (3) Economic Injury Disaster Loans (EIDL). Home Physical Disaster Loans provide up to $200,000 to repair or replace disaster-damaged primary residences. Personal Property Loans provide up to $40,000 to replace personal items such as furniture and clothing. Business Physical Disaster Loans provide up to $2 million to help businesses of all sizes and nonprofit organizations repair or replace disaster-damaged property, including inventory and supplies. EIDLs provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred. Loan proceeds can only be used for working capital necessary to enable the business or organization to alleviate the specific economic injury and to resume normal operations. Loan amounts for EIDLs are based on actual economic injury and financial needs, regardless of whether the business suffered any property damage. Major disaster declarations that include both IA and PA make all three loan types available. Only private non-profit organizations are eligible for SBA physical disaster loans and EIDL, if the major disaster declaration only provides PA. It is important to note that SBA disaster loans are usually the only type of federal assistance available to businesses after a terror attack because FEMA does not provide assistance to the private sector. Emergency Declaration Criteria The three criteria for an incident to be eligible for an emergency disaster declaration include (1) definition, (2) unmet need, and (3) state action. Definition The Stafford Act defines an emergency as any occasion or instance for which, in the determination of the President, federal assistance is needed to supplement State and local efforts and capabilities to save lives and to protect property and public health and safety, or to lessen or avert the threat of a catastrophe in any part of the United States. While the definition of a major disaster includes a list of incidents that could be considered a major disaster, emergencies are defined more broadly. Consequently, a terrorist attack such as a mass shooting or other nontraditional attack (such as using a vehicle as a weapon) under consideration as an "emergency" would likely not face the definitional challenge posed by the "major disaster" definition. Federal Responsibility The Stafford Act procedure for an emergency declaration can be particularly useful when a terrorist incident involves federal property or a federal program is Section 501(b) of the act: The President may exercise any authority vested in him by section 502 or section 503 with respect to an emergency when he determines that an emergency exists for which the primary responsibility for response rests with the United States, because the emergency involves a subject area for which, under the Constitution or laws of the United States, the United States exercises exclusive or preeminent responsibility and authority. In determining whether or not such an emergency exists, the President shall consult the Governor of any affected state, if practicable. The President's determination may be made without regard to subsection (a). While Presidents have rarely invoked this authority, it could provide a path for rapid action and certain forms of terrorism might be easily and justly defined as a federal responsibility. And as noted previously, emergency declarations can later be converted to major disaster declarations. The use of Section 501(b) is infrequent and has been invoked on three occasions: (1) the Alfred P. Murrah Federal Building bombing in Oklahoma City in 1995, (2) the 2003 Space Shuttle Columbia explosion, and (3) the terrorist attack on the Pentagon on September 11, 2001. It could be argued that the usefulness of 501(b) would be limited to certain situations that involve areas of federal responsibility (e.g., federal properties or programs). It could be further argued that that the use of Section 501(b) would be inappropriate, if the incident occurred in a business setting or an area of state and local jurisdiction. Others might disagree and argue that all terrorist incidents are a federal responsibility regardless of where they occur in the United States. According to this view, the 501(b) authority could be useful in the initial stages of a terrorist event since it provides the President with the discretion to act quickly without having to wait for a gubernatorial request for assistance. Others might be concerned that Section 501(b) might be invoked too often if applied to any situation that involved terrorism. For example, they may argue that it could lead to an expansion of federal assistance if routinely used in terror-related mass shootings. Unmet Need In general, similar to a major disaster, an incident must result in damages significant enough to exceed the capabilities and resources of state and local governments. Under the Stafford Act All requests for a declaration by the President that an emergency exists shall be made by the Governor of the affected state. Such a request shall be based on a finding that the situation is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments and that federal assistance is necessary. As mentioned previously, the President has the authority to issue an emergency declaration in certain circumstances without a gubernatorial or tribal request. Thus, in certain circumstances, the response does not need to be beyond the capabilities of state and local governments since the response could be considered a uniquely federal responsibility. State Action As with a major disaster, the state or tribal nation must implement its emergency plan, dedicate sufficient resources to respond to the incident, and agree to cost-sharing requirements, as follows: As a part of such request, and as a prerequisite to emergency assistance under this act, the Governor shall take appropriate action under State law and direct execution of the State's emergency plan. The Governor shall furnish information describing the state and local efforts and resources which have been or will be used to alleviate the emergency, and will define the type and extent of federal aid required. Based upon such Governor's request, the President may declare that an emergency exists. As illustrated in Figure 2 , an incident is eligible for an emergency declaration if all three criteria intersect. An incident that does not meet the definition of a major disaster, or does not have unmet need would not have intersecting criteria and may have more difficulty receiving a major disaster declaration. Emergency Declaration Assistance FEMA Assistance Emergency declarations authorize activities that can help states and communities carry out essential services and activities that might reduce the threat of future damage. Emergency declarations authorize less assistance than a major disaster. Emergency declarations do not provide assistance for repairs and replacement of public infrastructure or nonprofit facilities. However, they do provide emergency services under the Stafford Act and other actions that might lessen the threat of a major disaster. As with major disaster declarations, the President has the authority under an emergency declaration to direct any federal agency to use its authorities and resources in support of state and local response and recovery efforts under 502 of the Stafford Act. Also, the emergency authority includes Section 408 which means that housing assistance and grants for individuals and families could be provided under an emergency declaration. SBA Disaster Loan Program Emergency declarations also trigger the SBA Disaster Loan Program, albeit usually on a limited basis. All three SBA disaster loan types are available when the emergency declaration includes IA. Emergency declarations, however, rarely provide IA. Typically, limited PA is provided. For example, 281 emergences were declared from 1990 to 2015. Of these, 18 included IA. SBA disaster loans are generally only available to private, non-profit organizations for "PA-only" declarations. Some may see this as a limitation. For example, if an incident affected a business (e.g., malls, movie theaters, or nightclubs), those businesses would not be eligible for an SBA disaster loan under a PA-only emergency declaration. Selected Examples of Stafford Act Assistance for Terror Incidents The following section provides information on past terror attacks that have received federal assistance under the Stafford Act, including a general description of what types of assistance was provided for the incident. It also provides information on the Orlando Pulse nightclub shooting. It is included in this discussion because the governor requested Stafford Act assistance. The San Bernardino and Ohio State attacks are not included because Stafford Act declarations were not requested. Table 1 provides a comparison of each incident. It is notable that in all but one case, the declaration was issued on the same day as the attack. Oklahoma City Bombing An emergency declaration was issued to Oklahoma for the Alfred P. Murrah Federal Building Bombing on April 19, 1995—the day of the bombing. The emergency declaration permitted FEMA to take vital actions necessary just hours following the tragedy. This principally involved bringing in FEMA's Urban Search and Rescue (USAR) teams. USAR Task Forces began arriving in Oklahoma City the afternoon of April 19, 1995. In addition, the emergency declaration also provided the sources that allowed the debris removal process to begin. Debris removal, however, was a challenging operation since the area to be cleared was also a Federal Bureau of Investigation (FBI) crime scene and new protocols were needed to accomplish response operations in that unique environment. As then-FEMA Director James Lee Witt explained: Here were two earnest, dedicated, well-trained groups working as hard as they could—and yet there was an inherent conflict between them. In clearing out the debris, the search and rescue people needed to proceed slowly, carefully. The FBI wanted to pick up the pace, to get their hands on crime evidence immediately—and they wanted that evidence not to be contaminated. Each group was under tremendous pressure. A major disaster declaration was later issued for the incident on April 26, 1995. This action permitted, at the request of the governor, the activation of the Crisis Counseling program. This program provides funding to state and local mental health authorities to provide service to survivors affected by a disaster incident. Since the great majority of damage was to federal facilities, FEMA's expenditures were limited for this event since FEMA aid under the Stafford Act is directed toward the losses of state, tribal and local governments. Aid to families and individuals (which includes crisis counseling) was the largest program expenditure at $5.5 million. SBA approved 163 disaster loans for $7.3 million. This included 71 approved home disaster loans for $452,700 and 92 business disaster loans for $6.8 million. September 11th Terrorist Attacks Following the attacks on the Twin Towers, a major disaster declaration was issued on September 11, 2001 for the state of New York. The following day an emergency was declared for Virginia, site of the Pentagon attack. Later, on September 21, 2001, a major disaster was declared for Virginia with September 11 th identified as the beginning of the incident period. The scope of the New York attacks, along with the President's declaration, resulted in legislation that appropriated $40 billion to address not only recovery for these events but security concerns, including transportation safety and initiating counter measures against terrorism. Half of the appropriated amount ($20 billion) was devoted by law ( P.L. 107-38 ) to recovery and assistance efforts in New York, Virginia, and Pennsylvania. FEMA's work involved urban search and rescue teams, debris removal, crisis counseling, and housing aid for displaced residents. FEMA's DRF expenditures in New York alone surpassed $8.7 billion. In the case of Virginia, the largest expenditures were for aid to families and individuals. More than $14.5 million was provided for these programs (including crisis counseling), while nearly $5 million was provided for emergency work and debris clearance. The two disaster declarations triggered the SBA Disaster Loan Program. For New York, SBA approved 6,384 loans for roughly $551 million. This included 412 approved home loans for roughly $6.0 million, 566 approved business loans for $37 million, and 5,406 approved EIDL loans for $507 million. For Virginia, SBA approved 256 loans for roughly $31 million. This included one approved business loan for $125,500, and 255 approved EIDL loans for approximately $31 million. Boston Marathon Bombing An emergency declaration was issued to Massachusetts on April 17, 2013, for the Boston Marathon Bombing—two days after the incident. The Boston bombing was a unique situation that resulted in a large man-hunt, the shutdown of a major city, and the eventual capture of one perpetrator and the killing of the other in a shootout with the police. Unlike some other terrorism-related incidents, this event stretched out over several days. In addition to the damage caused at the blast site, it also tested the resources of state and local first responders throughout the area. FEMA's Deputy Administrator explained FEMA's post-incident role: FEMA was authorized to provide Category B emergency protective measures to include items such as police personnel, search and rescue, and removal of health and safety hazards. FEMA also provided Public Assistance to include funding for shelters and emergency care for Norfolk and Suffolk counties, which was primarily used for residents whose homes had been impacted during the blast or could benefit from crisis counseling. Eventually, the incident period was extended, beginning on April 15, 2013, and concluding on April 22, 2013, to capture the eligible costs expended by public safety and other response personnel throughout the region. FEMA's portion of those costs (75% of the eligible amount) totaled just over $6 million. Additionally, FEMA "authorized state and local agencies in Massachusetts to use existing preparedness grant funding to support law enforcement and first responder overtime costs resulting from investigation support activities or heightened security measures." SBA approved four EIDL loans for $214,300 in the aftermath of the Boston Marathon Bombing. Other SBA disaster loan types were not available because the incident was declared an emergency (as opposed to a major disaster). Orlando Pulse Nightclub Shooting On June 13, 2016, Florida Governor Rick Scott made a request to the President to issue an emergency declaration in response to the mass shooting at Pulse nightclub in Orlando, FL, on June 12, 2016. The governor's request is the first known Stafford Act request in response to a mass shooting incident. The governor requested $5 million for emergency protective measures (Category B) under the Public Assistance program. The assistance was intended to address health and safety measures, and assistance for management, control, and reduction of immediate threats to public health and safety. According to FEMA Administrator Craig Fugate, the President denied the request for assistance partly because the Governor could not satisfactorily demonstrate that the response to the incident was beyond the capacity of the state and local governments. According to the denial letter sent by FEMA Administrator Craig Fugate to Governor Rick Scott: a presidential emergency declaration under the Stafford Act applies when federal assistance is needed to supplement state and local efforts and capabilities to save lives and to protect property and public health and safety, or to lessen or avert the threat of a catastrophe. Because your request did not demonstrate how the emergency response associated with this situation is beyond the capability of the state and affected local governments or identify any direct federal assistance needed to save lives or protect property, an emergency declaration is not appropriate for this incident. The request was also denied because other forms of federal assistance would be provided for the incident. The letter further states: although the Stafford Act is not the appropriate source of funding for those activities and this situation, several federal agencies, including the Department of Justice, the Federal Bureau of Investigation, and FEMA have resources that may help support the response to this incident absent an emergency declaration under the Stafford Act. We will work closely with you and your staff to identify these additional capabilities. Although the request for an emergency declaration was denied, FEMA approved a request from Florida to reallocate $253,000 in unspent money from the Homeland Security Grant Program to help pay for overtime costs in the wake of the shooting. SBA only provided EIDL for the attack and related investigation. This included five approved loans for $353,400. Policy Considerations It is generally agreed that the government should help victims of terrorism in times of need, but the proper scope of that assistance with respect to the Stafford Act is subject to debate. Some might question whether the fiscal responsibility resides primarily with the federal or the state government. The debate may be further complicated if the incident does not clearly meet the definition of a major disaster or does not meet certain thresholds, or both. The selected approach will likely be influenced by how policymakers view the role of the federal government in response to terrorism. Some may argue that Stafford Act assistance is warranted for all or most acts of terrorism. Others might argue that Stafford Act assistance should only be provided in cases where the incident meets the existing framework of definitions and unmet need. Major Disaster Definition As mentioned previously, the definition of a major disaster contains a list of incidents that can be considered a major disaster. One hypothetical concern is, as currently defined, certain acts of terror may not meet the definition of a major disaster. The following discussion demonstrates how Congress designed the definition to address natural disasters and human-caused incidents. The term "major disaster" was originally defined in the Federal Disaster Relief Act of 1950 as any flood, drought, fire, hurricane, earthquake, storm, or other catastrophe in any part of the United States which, in the determination of the President, is or threatens to be of sufficient severity and magnitude to warrant disaster assistance by the federal government to supplement the efforts and available resources of states and local governments in alleviating the damage, hardship, or suffering caused thereby, and respecting which the governor of any State (or the Board of Commissioners of the District of Columbia) in which such catastrophe may occur or threaten certifies the need for disaster assistance under this Act, and shall give assurance of expenditure of a reasonable amount of the funds of the government of such state, local governments therein, or other agencies, for the same or similar purposes with respect to such catastrophe. Congress expanded on the list of specific incidents when it amended the definition in the Disaster Relief Act of 1974 which defined a major disaster as any hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought, fire, explosion, or other catastrophe in any part of the United States which, in the determination of the President, causes damage of sufficient severity and magnitude to warrant major disaster assistance under this Act, above and beyond emergency services by the federal government, to supplement the efforts and available resources of States, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby. It is notable that the Senate report on the bill indicated that a major disaster is defined as "any damage caused by these hazard s determined by the President to be of sufficient severity and magnitude to warrant federal assistance" to supplement state and local efforts. To some, this would support the argument that the definition should be prescriptively viewed as a list of eligible incidents. Congress amended the definition again in 1988—the year the Stafford Act was enacted. Congress designed the new definition with a subtle change in wording to limit human-caused incidents from receiving major disaster declarations. As shown in Figure 3 , Congress removed "or other catastrophe" from the definition of a major disaster and inserted "or, regardless of cause." According to the Senate report accompanying the bill, Congress removed "other catastrophe" because it had been broadly interpreted to justify federal assistance to humanly caused incidents. According to the Senate report Congress intended the [the Disaster Relief Act of 1974] to alleviate state and local conditions caused by natural catastrophes. Although non-natural catastrophes are not specifically enumerated by Section 102 of the act, the phrase "other catastrophes" has been broadly interpreted to justify federal assistance in response to humanly caused traumatic events. The expansion of legislative intent in the administration of the Disaster Relief Act has provoked recent congressional concern. The report further states that Broadening the scope of the act to cover both natural and non-natural catastrophes has strained the capacity of programs designed to respond only to natural catastrophes. Within its intended context the act has functioned relatively well. It is comprehensive and flexible legislation, well-suited to handle the full range of natural disasters for which it was designed. It was not written, however, to respond to the occasionally catastrophic consequences of social, economic, or political activity and establishes no administrative or programmatic mechanisms to do so. As demonstrated above, it appears that Congress sought to prevent the Stafford Act from being used to address an array of social issues and the specificity of the amended definition may have precluded some incidents from being declared a major disaster. For example, Michigan Governor Rick Snyder's request for a major disaster declaration for the Flint water contamination incident was denied based on the grounds that it did not meet the definition of a major disaster. The denial letter sent from the FEMA Administrator to the governor (see Appendix ) stated the incident did not meet the legal definition of a major disaster because it was "not a result of a natural disaster, nor was it caused by fire, flood, or explosion." Another potential issue related to the definition's strict enumeration of human-caused incidents is that it is hypothetically conceivable that two incidents with equal damages and loss of life with different mechanisms of destruction would be treated differently in terms of eligibility. For example, an explosion that kills 50 people could be eligible for a major disaster (if there are sufficient damages to public infrastructure) whereas if a vehicle (similar to the 2016 Nice, France, attack) was used to kill 50 people it could arguably be considered ineligible. A similar argument could be made about a sarin gas attack or a cybersecurity attack that do not involve an explosion or result in fire. Others may argue that the definition's specificity would not preclude terror incidents from being declared major disasters if the consequences merited a major disaster declaration—regardless of the mechanism. They may further argue that an incident could be recast with some ingenuity to make the incident conform to the definition. For instance, they may argue that, broadly interpreted, firing a gun or releasing gas involves a type of explosion. An arguable example of recasting incident was attempted in the unsuccessful appeal of Flint water contamination incident. The appeal letter stated that Respectfully, I appeal the determination that the event "does not meet the legal definition of a major disaster under 42 U.S.C. §5122." This unique disaster poses imminent and long-term threat to the citizens of Flint. Its severity warrants special consideration for all categories of the Individual and Public Assistance Programs, as well as the Hazard Mitigation program in order to facilitate recovery. While the definition under 44 C.F.R. §206.2(17) provides examples of what might constitute a natural disaster, I submit that this disaster is analogous to the flood category, given that the qualities within the water, over a long term, flooded and damaged the city's infrastructure in ways that were not immediately or easily detectable. This disaster is a natural catastrophe in the sense that lead contamination into water is a natural process. One concern that could emerge from broad interpretations of the definition is that it could lead to "declaration creep" wherein marginal incidents are increasingly considered major disasters. They may also argue that incidents without fire or explosions would likely not create significant damages and would therefore not warrant a major disaster declaration. An emergency declaration would be more appropriate according to this view. If Congress is concerned that the definition of a major disaster might preclude some incidents from receiving federal assistance, it could consider amending the definition to explicitly include terrorism. Since FEMA is a component agency of the Department of Homeland Security (DHS) it might be assumed that a potential definition would be the one used by DHS. There are, however, multiple definitions used by the federal government and there is no consensus on the definition of terrorism. As demonstrated in Table 2 , several U.S. governmental agencies have different definitions of terrorism. In some definitions, such as the one used by the Department of State, the act must be politically motivated whereas in other definitions it does not need to be a factor (such as the one used by the Federal Bureau of Investigation and DHS). Some might argue that definitions that rely on motivation are problematic if applied to Stafford Act assistance because they are based on the intentionality of the act rather than the act's consequences. For example, a mass shooting that is motivated by hate or brought about by mental illness might not be considered an act of terrorism while a similar incident that is politically motivated might. Perhaps an alternative approach would be expanding the types of assistance available under an emergency declaration rather than amending the definition. For example, Congress could make crisis counseling and SBA disaster loans for businesses and households available under emergency declarations. This would arguably help to address events where there is great loss of life but relatively little damage to public infrastructure. These measures may also provide a boost for public morale in such a situation as well as an assurance to state and local governments that they may receive some supplemental help. Per Capita Threshold Some may be concerned that FEMA might not recommend a major disaster declaration to the President for an act of terrorism because the incident does not meet or exceed the $1.42 per capita threshold. Using this threshold, FEMA may not recommend a declaration for an incident with a high number of casualties but limited damage to public infrastructure. For example, the Orlando Pulse nightclub attack killed 49 people but caused little damage to public property. Almost all of the damage was to the nightclub. In addition, damages to businesses are generally not considered when formulating the per capita threshold which is based on public sector damage. Even if there is substantial damage to public infrastructure, some populous states may have difficulty meeting the per capita threshold. For example, in 2013 Illinois communities were denied federal assistance after a string of tornados devastated rural communities of the state. The storms caused significant damages to the rural communities but, given the state's large population, there was not enough damage to meet the per capita threshold. Some might argue that loss of life should play a larger role when FEMA makes declaration recommendations. Others might question whether terror attacks with limited public infrastructure damage—while devastating in their own right in terms of loss of life and the impact they can have on national morale—cause enough damage to warrant a major disaster declaration. If Congress is concerned that the per capita threshold may prevent state and local governments from receiving a major disaster declaration for a terror attack, Congress could require FEMA to consider factors beyond damages to public infrastructure when formulating its recommendation to the President. One potential assessment tool is the value of statistical life (VSL) which assigns a monetary value to each fatality caused by the given incident. For example, the U.S. Department of Transportation uses $9.1 million as the VSL when evaluating risk reduction. If this VSL amount was applied to the Orlando attack, the 49 fatalities would amount to roughly $446 million in damages. Proponents might argue that evaluating a terror attack with VSL would provide objective criteria for making recommendations as to whether an incident warranted federal assistance. Others might question if altering the per capita threshold is necessary. They may point out that the per capita threshold is used solely by FEMA to make recommendations. Also, FEMA already considers damage to homes and rental properties. As noted previously, the ultimate decision to grant federal assistance for a major disaster rests solely with the President. Furthermore, the per capita threshold is designed to evaluate a state's capacity to respond to an incident. It could be argued that highly populated states should be able to fund their recovery without federal assistance because they have a higher tax base on which to draw. According to this view, adjusting the per capita threshold or applying additional factors would be unnecessary. Emergency Declarations for Acts of Terrorism Whereas Congress sought to limit the President's authority to issue major disaster declarations for human-caused incidents under the Stafford Act, the inverse might be said about emergency declarations. As demonstrated by Figure 4 , the definition of an emergency in the Disaster Relief Act of 1974 included a specific list of incidents eligible for an emergency declaration. The amended definition eliminated the list and defined emergency more broadly. It could be argued that the amended definition provides the President with a great deal of discretion to issue an emergency declaration in response to acts of terrorism. And as mentioned previously, FEMA does not use the per capita threshold formula to make emergency declaration recommendations to the President. To some, the broad definition and lack of a per capita formula make emergency declarations more suitable for certain types of terror attacks such as mass shootings. Consequently, some may argue that there is no need to change the Stafford Act to make it easier for "soft target" attacks to receive a major disaster declaration because it is relatively easier to obtain an emergency declaration. Even so, some might see the decision to issue an emergency declaration as arbitrary and question how state capacity is determined. For example, in a news release in response to the denied emergency declaration for the Orlando shooting, Governor Rick Scott stated It is incredibly disappointing that the Obama Administration denied our request for an emergency declaration. Last week, a terrorist killed 49 people, and wounded many others, which was the deadliest shooting in U.S. history. It is unthinkable that President Obama does not define this as an emergency. We are committing every state resource possible to help the victims and the community heal and we expect the same from the federal government. The press release also provided links to other incidents that were approved for emergency declarations, including President Obama's 2009 inauguration, the 2016 Flint Water crisis, the Massachusetts water main break in 2010, and the 2013 Boston Marathon bombing, among others. Some might question why these incidents warranted emergency declarations but the Pulse nightclub shooting did not. Proponents of changing the Stafford Act may also argue that, even if an incident receives an emergency declaration, the scope of the assistance is limited compared to a major disaster. For one, assistance is primarily provided to governmental entities under an emergency declaration. Individuals may receive some temporary housing assistance (which may not be applicable if the incident does not impact people's homes) and other forms of assistance such as Other Needs Assistance, which is a grant to households for necessary items damaged or destroyed by the incident, under Section 408 of the Stafford Act. But assistance to those experiencing mental health problems, generally addressed by FEMA's Crisis Counseling program, is not available under an emergency declaration. Further, as mentioned previously, SBA disaster loans are generally only available to private non-profit organizations under an emergency declaration. If Congress is concerned that emergency declarations would not provide enough assistance in response to certain types of terror attacks, it could consider expanding the types of assistance potentially available for these incidents. The expanded assistance could be tied to all emergency declarations, or designed exclusively for acts of terror. In addition, Congress could require the SBA to provide the full range of disaster loans if an emergency were declared for an act of terror. SBA Disaster Loans and CDBG Disaster Assistance SBA Disaster Loan Program This section examines how the SBA Disaster Loan programs might be used to assist businesses, individuals, and households following a terrorist attack. The section also examines a potential alternative source of federal funding that has been used to assist businesses negatively impacted by a terror attack. As previously mentioned, SBA disaster loans are usually the only type of federal assistance available to businesses affected by a terror attack. There are potentially four scenarios where the SBA Disaster Loan Program could be used to support business recovery activities following a terror attack. These include two types of presidential declarations as authorized by the Stafford Act, and two types of SBA declarations authorized by the Small Business Act. In addition to providing disaster loans for businesses, some of these declarations also make disaster loans available to individuals and households. As demonstrated below, the type of declaration determines what loans types are made available: Major Disaster or Emergency Declaration Authorizing PA and IA. The President issues a major disaster declaration, or an emergency declaration, and authorizes both IA and PA under the authority of the Stafford Act. When the President issues such declarations, Home and Personal Property Disaster Loans, and Business Physical Disaster Loans become available to homeowners, renters, businesses of all sizes, and nonprofit organizations located within the disaster area. Home and Personal Property Disaster Loans, and Business Physical Disaster Loans can be used to repair and replace items and structures damaged by an attack. EIDL may also be made available under this declaration to provide loans to businesses that suffered substantial economic injury as a result of the incident. Major Disaster or Emergency Declaration Authorizing PA O nly . The President makes a major disaster declaration or emergency declaration that only provides the state with PA. In such a case, a private nonprofit entity located within the disaster area that provides noncritical services may be eligible for a SBA physical disaster loan and EIDL. Disaster loans would not available to renters and homeowners under this type of declaration. In addition, Business Physical Disaster Loans, and EIDLs are generally not made available to businesses (unless they are a private nonprofit entity) when the declaration only provides PA. As mentioned previously, there are two scenarios under which SBA disaster loans could be provided in response to a terror attack without the issuance of presidential disaster declaration: Gubernatorial Request for Assistance . Under this scenario, the SBA Administrator issues a physical disaster declaration in response to a gubernatorial request for assistance. Under this type of declaration, SBA disaster loans would be available to eligible homeowners, renters, businesses of all sizes, and nonprofit organizations within the disaster area or contiguous counties and other political subdivisions. EIDL would also be available under this type of declaration. Gubernatorial Certification of Substantial Economic Injury . The SBA Administrator may issue an EIDL declaration when SBA receives a certification from a governor that at least five small businesses have suffered substantial economic injury as a result of a disaster. This declaration may be offered only when other viable forms of financial assistance are unavailable. Small agricultural cooperatives and most private nonprofit organizations located within the disaster area or contiguous counties and other political subdivisions are eligible for SBA disaster loans when the SBA Administrator issues an EIDL declaration. These types of loans, however, may not be used to repair damages resulting from a terror attack. Rather, loan proceeds can only be used for working capital necessary to enable the business or organization to alleviate the specific economic injury and to resume normal operations. For example, a business may suffer a dramatic decline in its business operations and revenue stream or have difficulty obtaining materials as a result of a terror attack. As illustrated above, the type of loans that are made available to individuals, homeowners, and businesses largely depends on declaration type. Some observers might be concerned that certain disaster loans may not be available following a terrorist attack. In the view of those observers, Congress could consider amending existing programs by making all SBA disaster loan types available following a terror attack for certain declarations. For example, Congress might make EIDL, home and business disaster loans available for major disaster and emergencies that only provide PA. Community Development Block Grants71 Another source of potential assistance to businesses is Department of Housing and Urban Development's (HUD's) Community Development Block Grant (CDBG) program. The CDBG program provides grants to states and localities to assist their recovery efforts following a presidentially declared disaster. Generally, grantees must use at least half of these funds for activities that principally benefit low- and moderate-income persons or areas. The program is designed to help communities and neighborhoods that otherwise might not recover due to limited resources. While the SBA Disaster Loan Program is automatically triggered by a presidential disaster declaration, CDBG is not. Instead, Congress has occasionally addressed unmet disaster needs by providing supplemental disaster-related appropriations for the CDBG program. Consequently, CDBG is not provided for all major disasters, but only at the discretion of Congress. Congress has authorized supplemental appropriations of funds in response to terror attacks through CDBG. For example In 1995, following the Alfred P. Murrah Federal Building attack in Oklahoma City, OK, Congress appropriated $12 million in supplemental CDBG funding to the City of Oklahoma City. Funds were to be used to establish a revolving loan fund only for the purposes of making loans to carry out economic development activities that would primarily benefit a designated area in the city impacted by the bombing. On November 26, 2001, two months following the terror attacks of September 11, 2001, Congress appropriated $700 million in CDBG supplemental funding to the state of New York for assistance to properties and businesses damaged by, and for economic revitalization related to the terror attack. On January 10, 2002, Congress followed that initial appropriation with a second appropriation of $2 billion in CDBG assistance to the Lower Manhattan Development Corporation (LMDC) to be used to, among other things, reimburse businesses and persons for economic losses, including funds to reimburse tourism areas adversely impacted by the attacks. On August 2, 2002, Congress appropriated an additional $783 million to the state of New York through the LMDC in cooperation with the City of New York in support of the city's economic recovery efforts. Funds were used to provide financial assistance to properties and businesses, including the redevelopment of infrastructure, and for economic revitalization activities. Most federal disaster assistance programs are funded through annual appropriations. This generally ensures that the programs have funds available when an incident occurs. As a result, these programs can provide assistance in a relatively short period of time. For example, a July 2015 SBA Office of Inspector General (OIG) study found that SBA's processing time for home disaster loans averaged 18.7 days and application processing times for business disaster loans averaged 43.3 days. CDBG disaster assistance, on the other hand, is funded through supplemental funding. In general, Congress only provides supplemental funding when disaster needs exceed the amount available through annual appropriations. This typically only occurs when a large incident takes place, such as Hurricanes Katrina and Sandy. This is because Congress must debate and pass supplemental funding. Additionally, funding for CDBG disaster assistance is not available for all incidents. Some might argue the necessity for supplemental funding would preclude smaller terror incidents from receiving CDBG disaster assistance. Others might be concerned that assistance is not timely. For example, an appropriation for CDBG disaster assistance was enacted on June 3, 2008. The allocation date for the CDBG disaster assistance was September 11, 2008—three months after the enacted appropriation. One potential option would be to fund CDBG disaster assistance through annual appropriations. Doing so would create an account with funds that could be made immediately available to help expedite CDBG disaster assistance. Congress could examine strategies to make CDBG disaster assistance available to businesses that suffered damage as a result of a terrorist incident. The assistance could be triggered by a major disaster declaration, an emergency declaration, or both. Critics of the above policy option might argue that if this approach were used, it would be necessary to determine under what situations CDBG disaster assistance would be released. Critics may also argue that determinations for CDBG disaster assistance are made by Congress. Changing the process to one based on annual appropriation might shift the determination to a (relevant) federal agency. Similarly, as mentioned previously, CDBG disaster assistance is typically only available for large-scale incidents. Creating a permanent CDBG program for disaster assistance might provide a gateway for smaller incidents to receive CDBG disaster assistance. This, in turn, might lead to increased federal expenditures for disaster assistance. Expanded FEMA Assistance Some may question whether the Stafford Act is the appropriate authority for providing assistance to terror incidents with high number of casualties and limited damage. The assistance provided under the Stafford Act is primarily for recovery purposes (i.e., repairing and replacing damaged buildings and infrastructure). Under the existing Stafford Act authorities the assistance FEMA might provide would be the Other Needs Assistance (ONA) grant program that can be used to pay funeral expenses. And even in those cases, there may be private insurance already meeting those needs. Arguably, ONA could be expanded to begin to cover other costs following a death in the family and an expansion of FEMA coverage of related emergency health care costs might be helpful to the uninsured affected by a terrorist event. Similarly, a terrorist event could also be the trigger for expanded Disaster Unemployment Assistance benefits. But beyond those areas, little of the FEMA catalogue of assistance would apply beyond the programs already being employed. Concluding Observations This report has outlined several different approaches, both definitional and administrative, that could fill in perceived gaps that have been forecast based on possible events juxtaposed against current policy parameters. One view argues that the Stafford Act should be amended to assure that terrorist attacks are eligible for major disaster assistance. Another view is that the Stafford Act is a flexible instrument that has assisted states and families and individuals through a myriad of unanticipated situations. According to this view, the Stafford Act's existing structure is sufficient to meet the potential terrorism challenges that may lie ahead. The selected approach will likely be influenced by two factors: (1) impact on federal costs, and (2) personal views concerning the appropriate nature of the federal government's role in addressing terrorism. Some might be concerned that amending the Stafford Act to assure that soft target and nonconventional terror attacks are eligible for major disaster assistance might, in their view, inappropriately shift the primary financial burden for addressing terrorism costs from the states to the federal government. Others might see these costs as minimal, particularly compared to the costs of natural disasters, such as those from major hurricanes. With respect to the appropriate role for the federal government in addressing terrorism costs, some might argue that the federal government should provide assistance for all instances of terrorism, even if those costs could be adequately handled by the state. Others might argue that federal assistance should be provided only in those cases where state and local government financial capacity is lacking. Appendix. Examples of Request and Denial Letters

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act) authorizes the President to issue two types of declarations that could potentially provide federal assistance to states and localities in response to a terrorist attack: a "major disaster declaration" or an "emergency declaration." Major disaster declarations authorize a wide range of federal assistance to states, local governments, tribal nations, individuals and households, and certain nonprofit organizations to recover from a catastrophic event. Major disaster declarations also make Small Business Administration (SBA) disaster loans available to eligible businesses and households. Emergency declarations authorize a more limited range of federal assistance to protect property and public health and safety, and to lessen or avert the threat of a major disaster. Only private nonprofit organizations are eligible for disaster loans under an emergency declaration. The Stafford Act has been used to provide assistance in response to terrorist attacks in the past including the 1995 bombing of the Alfred P. Murrah Building in Oklahoma City, the September 11, 2001, attacks, and the 2013 Boston Marathon attack. Nevertheless, the tactics used in recent incidents such as the 2015 San Bernardino, CA, and the 2016 Orlando, FL, mass shootings, and the 2016 Ohio State University vehicular and knife attack, have brought to light two main challenges that might prevent certain types of terrorist incidents from receiving the wider assistance provided under a major disaster declaration: the major disaster definition lists specific incident types that are eligible for federal assistance. Past terrorist incidents were considered major disasters, in part, because they resulted in fires and explosions. Incidents without a fire or an explosion may not meet the definition of a major disaster; and the Federal Emergency Management Agency's (FEMA) recommendation to the President to issue a major disaster declaration is mainly based on damage amounts to public infrastructure compared to the state's population. Terrorist incidents with a large loss of life but limited damage to public infrastructure may not meet this criterion. Some may argue that terrorist incidents warrant the wider range of assistance provided by a major disaster declaration, and advocate for changes to the Stafford Act and FEMA policies to make all acts of terrorism eligible for major disaster assistance. Others may disagree and argue that Stafford Act should not be altered for the following reasons: regardless of cause, state and local governments should be the main source of assistance if damages are limited; if the incident does not qualify for major disaster assistance, it could still be eligible for limited assistance under an emergency declaration. Advocates of changing the Stafford Act may argue that emergency declaration assistance is too limited. For example, parts of FEMA's Individual Assistance (IA) program, which provides various forms of help for families and individuals, are not available without a major disaster declaration. Another concern is the limited availability of SBA disaster loans under an emergency declaration. Advocates might therefore argue that changes to the Stafford Act are needed to make it easier for certain terror attacks to qualify for major disaster assistance. These include expanding the major disaster definition to include terror incidents that do not involve fires and explosions; requiring FEMA to use additional metrics when making major disaster recommendations; and/or extending the availability of certain IA programs and SBA disaster loans under an emergency declaration. This report provides an overview of emergency and major disaster declarations and explains how they might be used in the aftermath of a terrorist incident that does not involve a fire or an explosion, such as high casualty mass shootings or chemical gas attacks. This report also provides an overview of Stafford Act assistance provided for past terrorist incidents. This report will be updated as events warrant.

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Experts and Stakeholders Have Proposed Restructuring EOIR’s Immigration Court System As we reported in June 2017, some immigration court experts and stakeholders have recommended restructuring EOIR’s administrative review and appeals functions within the immigration court system— immigration courts and BIA—and the Office of the Chief Administrative Hearing Officer, to improve the effectiveness and efficiency of the system or, among other things, increase the perceived independence of the system and professionalism and credibility of the workforce. We found that the 10 experts and stakeholders we interviewed generally supported one of the following scenarios for restructuring the immigration court system, all of which would require a statutory change to implement: a court system independent (i.e., outside) of the executive branch to replace EOIR’s immigration court system, including both trial and appellate tribunals; a new, independent administrative agency within the executive branch to carry out EOIR’s quasi-judicial functions with both trial-level immigration judges and an appellate level review board; or a hybrid approach, placing trial-level immigration judges in an independent administrative agency within the executive branch, and an appellate-level tribunal outside of the executive branch. Six of the 10 experts and stakeholders we interviewed supported restructuring the immigration court system into a court independent of the executive branch. Two of the experts and stakeholders we contacted supported a new independent administrative agency within the executive branch. One of the experts and stakeholders supported the hybrid scenario, placing trial-level immigration judges in an independent, administrative agency within the executive branch, and an appellate-level tribunal outside of the executive branch. As we reported in June 2017, experts and stakeholders offered several reasons for each of the proposed scenarios, such as potentially increasing judicial autonomy over courtrooms and dockets; as well as provided reasons against restructuring options, such as that restructuring may not resolve existing management challenges. These reasons for and against each of the scenarios are summarized in table 1 and discussed further below. We are not taking a position on any of these restructuring proposals, or on any of the reasons offered for or against them. We present the information we obtained from the experts and stakeholders to inform policymakers about proposals that have been put forth regarding restructuring the immigration court system. We found in our June 2017 report that experts and stakeholders we interviewed cited several reasons for the proposed restructuring scenarios, as described in table 1 and below. Independence: Six of the 10 experts and stakeholders we interviewed stated that establishing a court system independent (i.e., outside) of the executive branch could increase the perceived independence of the system. For example, 1 of the 10 experts and stakeholders we interviewed explained that the public’s perception of the immigration court system’s independence might improve with a restructuring that removes the quasi-judicial functions of the immigration courts and the BIA from DOJ, because DOJ is also responsible for representing the government in appeals to the U.S. Circuit Courts of Appeals by individuals seeking review of final orders of removal. Another 1 of the 10 experts and stakeholders we interviewed explained that under the existing immigration court system, respondents may perceive, due to the number of immigration judges who are former DHS attorneys and the co-location of some immigration courts with DHS U.S. Immigration and Customs Enforcement’s Office of the Principal Legal Advisor offices, that immigration judges and DHS attorneys are working together. Two of the 10 experts and stakeholders we interviewed also proposed that an immigration court system independent of the executive branch would be less susceptible to political pressures within the executive branch. Experts and stakeholders cited similar independence-related reasons for supporting the administrative agency and hybrid scenarios. Judicial autonomy: Four of the 10 experts and stakeholders we interviewed stated that a court system independent of the executive branch might give immigration judges and BIA members more judicial autonomy over their courtrooms and dockets. For example, 1 of the 10 experts and stakeholders we interviewed stated that immigration judges in an independent court system would be able to file complaints against private bar attorneys directly with the state bar authority instead of filing the complaint with DOJ first, as required for immigration judges acting in their official capacity. EOIR officials explained that while immigration judges cannot directly file a complaint with the state bar authority, EOIR’s Disciplinary Counsel, which is charged with investigating these complaints, can file a complaint with the state bar on behalf of the immigration judge. Workforce professionalism or credibility: Experts and stakeholders also stated reasons why a court system independent of the executive branch might also improve the professionalism or credibility of the immigration court system’s workforce. For example, 1 of the 10 experts and stakeholders we interviewed explained that if the judge career path was improved under a restructuring such that immigration judges were able to advance to more prestigious judgeships, this could assist in attracting candidates to the immigration bench. Regarding the hybrid scenario, 1 of the 10 experts and stakeholders we interviewed noted that this proposal may attract a more diverse and balanced pool of candidates for immigration judge positions. Organizational capacity or accountability: Experts and stakeholders who supported a court system independent of the executive branch also cited enhanced organizational capacity or accountability as a reason for adopting this scenario. One of the 10 experts and stakeholders we interviewed explained that this type of restructuring may allow the immigration court system to improve its organizational capacity by changing the way it staffs its managerial and supervisory positions. For example, this individual explained that instead of placing immigration judges in managerial positions, EOIR could, as an independent court system, more easily attract and fill managerial positions with individuals who have experience in court management and public administration instead of placing immigration judges in these positions. Similarly, this same individual also noted that if the restructured immigration court system was placed within the purview of the Administrative Office of the U.S. Courts, which provides a wide range of support services to the federal judiciary (including administrative, technological and legal services), it could use its expertise in court management to assist with managing the system. In terms of enhancing organizational accountability, 1 of the 10 experts and stakeholders we interviewed explained that an independent court system could also increase the transparency of the performance evaluation system for immigration judges by incorporating feedback from court stakeholders, such as DHS and private bar attorneys, on the judges’ performance as well as increasing the transparency of the process for making complaints against immigration judges. According to this individual, the complaint process for other federal judges is more transparent and the judges are given an opportunity to address the complaint and appeal any decisions that resulted from the complaint. We also found in our June 2017 report that the experts and stakeholders we interviewed cited several reasons against the proposed restructuring scenarios, as described in table 1 and below. Appointment of immigration judges: Two of the 10 experts and stakeholders we interviewed noted that requiring the presidential nomination and Senate confirmation of immigration judges under an independent court system could further complicate and delay the hiring of new judges by making the appointment of additional judges more dependent on external parties. Administrative challenges: Two of the 10 experts and stakeholders we interviewed stated that it may be difficult to establish and administer a court system independent of the executive branch. Specifically, these experts and stakeholders expressed concern that the Administrative Office of the U.S. Courts may be reluctant to assume the vast responsibility of administering a newly created court system. Regarding administrative challenges associated with the establishment of an independent administrative agency, 1 of the 10 experts and stakeholders we interviewed explained that this scenario might be overly complicated to implement since EOIR would need to develop its own administrative functions outside of DOJ. According to another 1 of the 10 experts and stakeholders we interviewed, creating a hybrid court system may further complicate the administration of the immigration court system and potentially result in difficulties for respondents. Procurement of resources: Five of the 10 experts and stakeholders we interviewed expressed the concern that a restructured immigration court system, regardless of the scenario, would not be able to procure sufficient resources outside of DOJ. For example, 1 of the 10 experts and stakeholders noted that a restructured independent court or administrative agency might have less leverage outside of DOJ to compete for resources. Trial level disconnection from the appellate level: One of the 10 experts and stakeholders we interviewed stated that if the hybrid scenario were to be adopted, the trial level may become more disconnected from the appellate level, due to the placement of the immigration courts within the executive branch and the appellate body outside of the executive branch. Resolution of existing management challenges or case backlog: Two of the 10 experts and stakeholders we contacted stated that a court system independent of the executive branch may not address the immigration courts’ management challenges, such as the case backlog. For example, 1 of the 10 experts and stakeholders stated that the immigration court system would likely have a large caseload regardless of how it is structured. EOIR Has Initiated Actions to Improve Its Management of the Immigration Courts, but Additional Steps Are Needed to Address Long- Standing Challenges We also reported in June 2017 that EOIR could take several actions to address long-standing management and operational challenges and reduce the case backlog. In particular, we identified challenges related to, and made 11 recommendations to improve, EOIR’s workforce planning, hiring, performance assessment, and technology utilization. EOIR generally concurred with our recommendations, and, has initiated actions to address them. Overall, EOIR has fully implemented 1 recommendation but needs to take additional steps to fully implement the remaining 10 recommendations to help strengthen the agency’s management and help reduce the case backlog. Workforce Planning. In June 2017, we reported that EOIR could help address its case backlog and staffing challenges, such as by hiring more immigration judges to meet its authorized number of judges and through better workforce planning and hiring practices. During the course of our review we found that EOIR estimated staffing needs using an informal approach that did not account for long-term staffing needs, reflect EOIR’s performance goals, or account for differences in the complexity of court cases. For example, in developing its staffing estimate, EOIR did not calculate staffing needs beyond the next fiscal year or take into account resources needed to achieve the agency’s case completion goals. Furthermore, we found that, according to EOIR data, approximately 39 percent of all immigration judges were eligible to retire as of June 2017, but EOIR had not systematically accounted for these impending retirements in its staffing estimate. At the time of our review, EOIR had begun to take steps to account for long-term staffing needs, such as by initiating a workforce planning report and a study on the time it takes court staff to complete key activities. However, we found that these efforts did not align with key principles of strategic workforce planning that would help EOIR better address current and future staffing needs. EOIR officials also stated that the agency had begun to develop a strategic plan for fiscal years 2018 through 2023 that could address its human capital needs. We recommended that EOIR develop and implement a strategic workforce plan that addresses key principles of strategic workforce planning. EOIR agreed with our recommendation. In February 2018, EOIR officials told us that they had established a committee and working group to examine the agency’s workforce needs and would include workforce planning as a key component in EOIR’s forthcoming strategic plan. Specifically, EOIR officials stated that the agency had established the Immigration Court Staffing Committee in April 2017 to examine how to best leverage its existing judicial and court staff workload model to address its short- and long-term staffing needs, assess the critical skills and competencies needed to achieve future programmatic results, and develop strategies to address human capital gaps, among other things. In February 2018, EOIR officials stated that the agency replaced this committee, which had completed its work, with a smaller working group of human resource employees charged with addressing the agency’s strategic workforce planning. Additionally, EOIR officials stated that the agency was developing a strategic plan that includes human capital planning as a critical component, which will be used to guide workforce planning for the agency. These are positive steps, but to fully address our recommendation, EOIR needs to continue to develop, and then implement a strategic workforce plan that: (1) addresses the agency’s short- and long-term staffing needs; (2) identifies the critical skills and competencies needed to achieve future programmatic results; and (3) includes strategies to address human capital gaps. Once this strategic workforce plan is completed, EOIR needs to monitor and evaluate the agency’s progress toward its human capital goals. Hiring. Additionally, in our June 2017 report, we found that EOIR did not have efficient practices for hiring new immigration judges, which has contributed to immigration judges being staffed below authorized levels and to staffing shortfalls. For example, in fiscal year 2016, EOIR was allocated 374 immigration judge positions and had 289 judges on board at the end of the fiscal year. EOIR officials attributed these gaps to delays in the hiring process. Our analysis of EOIR hiring data supported their conclusion. Specifically, we found that from February 2014 through August 2016, EOIR took an average of 647 days to hire an immigration judge—more than 21 months. As a result, we recommended that EOIR (1) assess the immigration judge hiring process to identify opportunities for efficiency; (2) use the assessment results to develop a hiring strategy that targets short- and long-term human capital needs; and (3) implement any corrective actions related to the hiring process resulting from this assessment. In response to our report, EOIR stated that it concurred with our recommendation and was implementing a new hiring plan as announced by the Attorney General in April 2017 intended to streamline hiring. Among other things, EOIR stated that the new hiring plan sets clear deadlines for assessing applicants moving through different stages of the process and for making decisions on advancing applicants to the next stage, and allows for temporary appointments for selected judges pending full background investigations. In February 2018, EOIR indicated to us that it had begun to use the process outlined in its hiring plan to fill judge vacancies. The Attorney General also announced in April 2017 that the agency would commit to hire an additional 50 judges in 2018 and 75 additional judges in 2019. In January 2018, EOIR officials told us that the agency had a total of 330 immigration judges, an increase of 41 judges since September 2016. Hiring these additional judges is a positive step; however, EOIR remains below its fiscal year 2017 authorized level of 384 immigration judges based on funding provided in fiscal years 2016 and 2017. Additionally, the Consolidated Appropriations Act, 2018 provided funding for EOIR to hire at least 100 additional immigration judge teams, including judges and supporting staff, with a goal of fielding 484 immigration judge teams nationwide by 2019. To fully address our recommendation, EOIR will need to continue to improve its hiring process by (1) assessing the prior hiring process to identify opportunities for efficiency; (2) developing a hiring strategy targeting short- and long-term human capital needs; and (3) implementing corrective actions in response to the results of its assessment of the hiring process. Performance Assessment. Regarding EOIR’s performance assessment, we reported in June 2017 that EOIR had previously established performance monitoring activities and measures to assess aspects of the immigration courts, but it had eliminated several of these performance assessment mechanisms. EOIR also had goals for some cases it adjudicated, such as respondents in detention, but no longer had goals for most cases, including some cases it had prioritized for adjudication. For example, we found that EOIR did not have performance measures or goals for completing cases in which the respondent is not detained (non- detained cases), which comprised 83 percent of immigration courts’ total caseload from fiscal year 2010 through fiscal year 2015. To help EOIR more effectively monitor its performance and fully evaluate whether the immigration courts are achieving EOIR’s mission, we recommended that EOIR establish and monitor comprehensive case completion goals, including a goal for completing non-detained cases not captured by performance measures, and goals for cases it considers a priority. EOIR agreed with this recommendation and has taken steps to address it. For example, EOIR issued guidance in January 2018 to all immigration court staff that established the agency’s goals for each immigration court in adjudicating cases. In particular, EOIR identified in this guidance a case completion goal for non-detained cases: courts must complete 85 percent of all non-detained removal cases that do not qualify as a “status case” within 1 year of filing of the Notice to Appear (NTA) in court, reopening or recalendaring of the case, remand from the Board of Immigration Appeals, or notification of release from custody. According to this guidance, EOIR has also retained case completion goals for other categories it considers a priority, such as cases in which the respondent is detained and credible fear reviews. In its January 2018 guidance, EOIR stated that it will track these measures and the courts’ performance in meeting them as well as regularly auditing these measures. To fully address this recommendation, EOIR needs to monitor courts’ performance in meeting these goals. In June 2017, we also reported that EOIR collected information on the extent and reasons why immigration judges issue continuances— temporary adjournments of case proceedings until a different day or time—but did not systematically assess these data to identify and address potential operational challenges affecting the immigration courts or areas where immigration judges could benefit from additional guidance or training. An immigration judge may continue a case for good cause shown, such as to allow respondents to obtain legal representation or DHS to complete required background investigations and security checks. Our analysis of continuance records from fiscal year 2006 through fiscal year 2015 showed that the use of continuances had grown over time. Specifically, all types of continuances increased by 23 percent from fiscal year 2006 through fiscal year 2015 and operational continuances, such as those caused by a lack of foreign language interpretation or a video-teleconference (VTC) malfunction, increased by 33 percent over this same time period. We recommended that EOIR systematically analyze immigration court continuance data to identify and address any operational challenges faced by courts or areas for additional guidance or training. EOIR agreed with this recommendation and, in July 2017, issued updated guidance for immigration judges on fair and efficient docket management relating to the use of continuances. For instance, according to this guidance, judges must annotate the case worksheet on disposition of the case with a continuance code describing the reason for the continuance and court staff must ensure that each continuance code is accurately entered into the agency’s case management system for all cases. EOIR also issued guidance in October 2017 updating case continuance codes and their definitions to assist immigration judges in recording this information on the case worksheet. These are positive steps, and analyzing the use of continuances on a systematic basis would give EOIR greater insight into more widespread operational issues that the courts may be facing. To fully address our recommendation, EOIR will need to systematically analyze immigration court continuance data to identify and address any operational challenges faced by courts or areas for additional guidance or training. We also reported in June 2017 that EOIR could improve the reliability of its case management data and reports on case completion times by ensuring that court staff accurately record NTAs in a timely manner. We found that EOIR did not have guidance or data integrity efforts to ensure the timely and accurate recording of NTAs in its case management system, and that at least 16 percent of NTA dates were unreliable. EOIR uses NTA dates to calculate case completion times, which are used to assess court performance. The agency reports this information publicly in DOJ’s Annual Performance Report. We concluded that improving the reliability of NTA data would allow EOIR to provide more accurate information on case completion times to Congress and the public. We recommended that EOIR update its policies and procedures to promote the timely and accurate recording of NTAs. In response to our report, EOIR stated that it partially concurred with our recommendation and stated that it would continue to monitor the timeliness and accuracy of NTA recording, and implement corrective actions as needed. In January 2018, as part of its policy on case completion goals, EOIR also created a goal that 100 percent of all electronic and paper records be accurate and complete. This goal is a positive step, and updating policies and procedures to remind staff about the importance of timely and accurate recording of all NTAs would provide EOIR greater assurance that this goal could be consistently met. To fully address our recommendation, EOIR will need to update its policies and procedures to ensure the timely and accurate recording of NTAs. Technology Utilization. We also made several recommendations to EOIR in our June 2017 report to improve its technology utilization, including the agency’s oversight of the ongoing development of a comprehensive electronic-filing (e-filing) capability—a means of transmitting documents and other information to immigration courts through an electronic medium, rather than on paper. EOIR identified the implementation of an e-filing system as a goal in 2001, but has not, as of April 2018, fully implemented this system. In 2001, EOIR issued an executive staff briefing for an e-filing system that stated that only through a fully electronic case management and filing system would the agency be able to accomplish its goals. This briefing also cited several benefits of an e-filing system, including, among other things, reducing the data- entry, filing, and other administrative tasks associated with processing paper case files; and improving communication with external court stakeholders, such as respondents and attorneys, providing the ability to file court documents from private home and office computers. As we reported in June 2017, EOIR initiated a comprehensive e-filing effort in 2016—the EOIR Court and Appeals System (ECAS)—for which EOIR had documented policies and procedures governing how its primary ECAS oversight body—the ECAS Executive Committee—would oversee ECAS through the development of a proposed ECAS solution. However, we found that EOIR had not yet designated an entity to oversee ECAS after selection of a proposed solution during critical stages of its development and implementation. In our June 2017 report, we recommended that in order to help ensure EOIR meets its cost and schedule expectations for ECAS, the agency identify and establish the appropriate entity to oversee ECAS through full implementation. EOIR concurred and stated that it had selected and convened the EOIR Investment Review Board to serve as the ECAS oversight body with the Office of Information Technology directly responsible for the management of the ECAS program. EOIR officials told us in February 2018 that the board convened in October 2017 and January 2018 to discuss, among other things, the ECAS program. However, as we reported in June 2017, EOIR officials previously told us that the EOIR Investment Review Board was never intended to oversee ECAS implementation due to the detailed nature of this system’s implementation. EOIR has recently provided us with documentation related to its oversight of ECAS, which we are reviewing to help determine the extent to which EOIR has met the intent of our recommendation. Additionally, we recommended in June 2017 EOIR develop and implement a plan that is consistent with best practices for overseeing ECAS to better position the agency to identify and address any risks and implement ECAS in accordance with its cost, schedule, and operational expectations. As of April 2018, EOIR has not indicated that it has developed such a plan. In June 2017 we also reported on ways EOIR could enhance its VTC program. EOIR is authorized by statute to hold immigration removal proceedings through VTC. According to EOIR officials, EOIR largely uses VTC for hearings for detained individuals, including both master calendar and individual merits hearings. We reported in June 2017 that officials from all six of the immigration courts we visited identified challenges related to VTC hearings, including difficulties maintaining connectivity, hearing respondents, exchanging paper documents, conducting accurate foreign language interpretation, and assessing the demeanor and credibility of respondents and witnesses. We further found that EOIR had not, in accordance with best practices, (1) evaluated its VTC program to ensure that it is outcome-neutral, or (2) established a mechanism to solicit feedback and comments about VTC from those who use it regularly to assess whether it meets user needs. Therefore, we recommended that EOIR take three actions to provide further assurances that its use of VTC in immigration hearings is outcome-neutral, including that it collect more complete and reliable data related to its VTC use (e.g., the number of hearings it conducts by VTC) and use the data to assess any effects of VTC on immigration hearings. EOIR partially concurred with these actions and has since taken some steps to implement these recommendations, such as piloting a project to collect data on respondent appeals related to the use of VTC in their cases. Additionally, EOIR officials told us in August 2017 that the agency is studying how to collect more complete and reliable data on the number and type of hearings it conducts through VTC and use these and other data to assess any effects of VTC on immigration hearings. We also recommended that EOIR develop and implement a mechanism to solicit and monitor feedback from respondents regarding their satisfaction and experiences with VTC hearings. EOIR concurred and implemented this recommendation in December 2017 by establishing a mechanism on its public website to solicit open-ended feedback from respondents regarding their satisfaction with VTC hearings, including the audio and visual quality of the hearing. According to EOIR officials, a group of individuals within EOIR’s Office of the Chief Immigration Judge is responsible for monitoring and addressing feedback received through this portal. These efforts should help EOIR ensure VTC hearings it conducts meet all user needs and identify and address technical issues with VTC hearings. Chairman Cornyn and Ranking Member Durbin, this completes my prepared statement. I would be happy to respond to any questions you or the members of the committee may have. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Rebecca Gambler at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Taylor Matheson (Assistant Director), Kathleen Donovan, Sasan J. “Jon” Najmi, Robin Nye, and Erin O’Brien. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

DOJ's EOIR is responsible for conducting immigration court proceedings, appellate reviews, and administrative hearings to fairly, expeditiously, and uniformly administer and interpret U.S. immigration laws and regulations. This statement addresses (1) scenarios that experts and stakeholders have proposed for restructuring EOIR's immigration court system and the reasons they offered for or against these proposals; and (2) how EOIR manages and oversees the immigration courts, including hiring and performance assessment, among other things. This statement is based on a report GAO issued in June 2017, with selected updates conducted through April 2018 to obtain information from EOIR on actions it has taken to address the report's recommendations. GAO's report incorporated information obtained by reviewing EOIR documentation, analyzing EOIR data, and interviewing agency officials and immigration court experts and stakeholders. For the selected updates, GAO reviewed EOIR documentation. In June 2017, GAO reported that some immigration court experts and stakeholders have recommended restructuring the Executive Office for Immigration Review's (EOIR) administrative review and appeals functions within the immigration court system—immigration courts and Board of Immigration Appeals—to improve its effectiveness and efficiency. The 10 experts and stakeholders GAO interviewed stated that they generally supported one of the following scenarios for restructuring the immigration court system, all of which would require a statutory change to implement: a court system outside of the executive branch to replace EOIR's immigration court system, including both trial and appellate tribunals; a new, independent administrative agency within the executive branch to carry out EOIR's quasi-judicial functions with both trial-level immigration judges and an appellate level review board; or a hybrid approach, placing trial-level immigration judges in an independent administrative agency within the executive branch, and an appellate-level tribunal outside of the executive branch. Six of the 10 experts and stakeholders GAO interviewed supported restructuring the immigration court system into a court independent of the executive branch. Experts and stakeholders offered several reasons for each of the proposed scenarios, such as potentially improving workforce professionalism and credibility. They also provided reasons against restructuring options, including that restructuring may not resolve existing management challenges, such as difficulties related to hiring immigration judges. GAO also reported in June 2017 that EOIR could take several actions to address management challenges. EOIR has since taken some steps to address these challenges, but additional actions are needed. For example, GAO found that EOIR did not have efficient practices for hiring immigration judges, which contributed to judges being staffed below authorized levels. EOIR hiring data showed that on average from February 2014 through August 2016, EOIR took more than 21 months to hire an immigration judge. GAO recommended that EOIR assess the immigration judge hiring process to identify opportunities for efficiency. As of January 2018, EOIR had increased the number of its judges but remained below its authorized level for fiscal year 2017. Hiring additional judges is a positive step; however, to fully address GAO's recommendation, EOIR needs to assess its hiring process to identify opportunities for efficiency. In June 2017, GAO also reported on ways EOIR could enhance its video teleconferencing (VTC) program, through which judges conduct hearings by VTC. GAO found that EOIR had not, in accordance with best practices, established a mechanism to solicit feedback and comments about VTC from those who use it regularly to assess whether it meets user needs. GAO recommended EOIR develop and implement such a mechanism. EOIR concurred and implemented this recommendation in December 2017 by establishing a mechanism on its public website to solicit feedback from respondents regarding their satisfaction with VTC hearings. This effort should help EOIR ensure VTC hearings it conducts meet all user needs.

CRS_R41146

Small Business Administration Loan Guaranty Programs The Small Business Administration (SBA) administers programs to support small businesses, including loan guaranty programs to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 7(a) loan guaranty program is considered the agency's flagship loan program. Its name is derived from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorizes the SBA to provide and guarantee business loans to American small businesses. The SBA also administers several 7(a) subprograms that offer streamlined and expedited loan procedures for particular groups of borrowers, including the SBAExpress, Export Express, and Community Advantage Pilot programs (see the Appendix for additional details). Although these subprograms have their own distinguishing eligibility requirements, terms, and benefits, they operate under the 7(a) program's authorization. Proceeds from 7(a) loans may be used to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. Specific uses include to acquire land (by purchase or lease); improve a site (e.g., grading, streets, parking lots, and landscaping); purchase, convert, expand, or renovate one or more existing buildings; construct one or more new buildings; acquire (by purchase or lease) and install fixed assets; purchase inventory, supplies, and raw materials; finance working capital; and refinance certain outstanding debts. In FY2018, the SBA approved 60,353 7(a) loans totaling nearly $25.4 billion. The average approved 7(a) loan amount was $420,401. As will be discussed, the total number and amount of SBA 7(a) loans approved (and actually disbursed) declined in FY2008 and FY2009, increased during FY2010 and FY2011, declined somewhat in FY2012, and have increased since then. Historically, one of the justifications presented for funding the SBA's loan guaranty programs has been that small businesses can be at a disadvantage, compared with other businesses, when trying to obtain access to sufficient capital and credit. Congressional interest in the 7(a) loan program has increased in recent years because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to grow and create jobs. Some Members of Congress have argued that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations with the expectation that in so doing small businesses will create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to help small businesses further economic growth and job creation. This report discusses the rationale provided for the 7(a) program; the program's borrower and lender eligibility standards and program requirements; and program statistics, including loan volume, loss rates, use of the proceeds, borrower satisfaction, and borrower demographics. It also examines issues raised concerning the SBA's administration of the 7(a) program, including the oversight of 7(a) lenders and the program's lack of outcome-based performance measures. This report also surveys congressional and presidential actions taken in recent years to help small businesses gain greater access to capital. For example, during the 111 th Congress P.L. 111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), provided the SBA an additional $730 million, including $375 million to temporarily subsidize the 7(a) and 504/Certified Development Companies (504/CDC) loan guaranty programs' fees ($299 million) and to temporarily increase the 7(a) program's maximum loan guaranty percentage to 90% ($76 million). P.L. 111-240 , the Small Business Jobs Act of 2010, provided $505 million (plus $5 million for administrative expenses) to extend the fee subsidies and 90% loan guaranty percentage through December 31, 2010; increased the 7(a) program's gross loan limit from $2 million to $5 million; and established an alternative size standard for the 7(a) and 504/CDC loan programs to enable more small businesses to qualify for assistance. P.L. 111-322 , the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through March 4, 2011, or until available funding was exhausted (which occurred on January 3, 2011). During the 112 th Congress, several bills were introduced to expand the 7(a) program: S. 1828 , a bill to increase small business lending (and for other purposes), would have reinstated for one year following the date of its enactment the fee subsidies for the 7(a) and 504/CDC loan guaranty programs and the 90% loan guaranty percentage for the 7(a) program, which were originally authorized by ARRA. H.R. 2936 , the Small Business Administration Express Loan Extension Act of 2011, would have extended a one-year increase in the maximum loan amount for the SBAExpress program from $350,000 to $1 million for an additional year. That temporary increase was authorized by P.L. 111-240 and expired on September 27, 2011. S. 532 , the Patriot Express Authorization Act of 2011, would have provided statutory authorization for the Patriot Express Pilot Program and increased its loan guaranty percentages and its maximum loan amount from $500,000 to $1 million. The Patriot Express Pilot Program was subsequently discontinued by the SBA on December 31, 2013. During the 113 th Congress, the SBA waived the up-front, one-time loan guaranty fee and ongoing servicing fee for 7(a) loans of $150,000 or less approved in FY2014 and FY2015 as a means to encourage the demand for smaller 7(a) loans. H.R. 2462 , the Small Business Opportunity Acceleration Act of 2013, would have made the fee waiver for smaller 7(a) loans permanent. waived the up-front, one-time loan guaranty fee for a loan to a veteran or to a veteran's spouse under the SBAExpress program (up to $350,000) from January 1, 2014, through the end of FY2015 (called the SBA Veterans Advantage Program). waived 50% of the up-front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $150,001 up to and including $5 million in FY2015. In addition, P.L. 113-235 , the Consolidated and Further Continuing Appropriations Act, 2015, provided statutory authorization for the Veterans Advantage fee waiver in FY2015. During the 114 th Congress, the SBA waived the up-front, one-time loan guaranty fee for 7(a) loans of $150,000 or less approved in FY2016 and FY2017 as a means to encourage the demand for smaller 7(a) loans. waived the annual service fee for 7(a) loans of $150,000 or less approved in FY2016 (increased to 0.546% in FY2017). waived 50% of the up-front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $150,001 to $5 million in FY2016; and 50% of the up-front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $150,001 to $500,000 in FY2017. In addition P.L. 114-38 , the Veterans Entrepreneurship Act of 2015, provided statutory authorization and made permanent the veteran's fee waiver under the SBAExpress program, except during any upcoming fiscal year for which the President's budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. The SBA waived this fee in FY2016, FY2017, FY2018, and is waiving this fee in FY2019. The act also increased the 7(a) program's FY2015 authorization limit of $18.75 billion (on disbursements) to $23.5 billion. P.L. 114-113 , the Consolidated Appropriations Act, 2016, increased the 7(a) program's authorization limit to $26.5 billion in FY2016. P.L. 114-223 , the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, authorized the SBA to use funds from its business loan program account "to accommodate increased demand for commitments for [7(a)] general business loans" for the duration of the continuing resolution (initially December 9, 2016, later extended by P.L. 114-254 , the Further Continuing and Security Assistance Appropriations Act, 2017, to April 28, 2017). During the 115 th Congress, the SBA waived the up-front, one-time loan guaranty fee for 7(a) loans of $125,000 or less approved in FY2018 as a means to encourage the demand for smaller 7(a) loans. waived 50% of the up-front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $125,001 to $350,000 in FY2018. is waiving the annual service fee for 7(a) loans of $150,000 or less made to small businesses located in a rural area or a HUBZone and reducing the up-front one-time guaranty fee for these loans from 2.0% to 0.6667% of the guaranteed portion of the loan in FY2019. In addition P.L. 115-31 , the Consolidated Appropriations Act, 2017, increased the 7(a) program's authorization limit to $27.5 billion in FY2017 and P.L. 115-141 , the Consolidated Appropriations Act, 2018, increased the 7(a) program's authorization limit to $29.0 billion in FY2018. P.L. 115-189 , the Small Business 7(a) Lending Oversight Reform Act of 2018, among other provisions, codified the SBA's Office of Credit Risk Management; required that office to annually undertake and report the findings of a risk analysis of the 7(a) program's loan portfolio; created a lender oversight committee within the SBA; authorized the Director of the Office of Credit Risk Management to undertake informal and formal enforcement actions against 7(a) lenders under specified conditions; redefined the credit elsewhere requirement; and authorized the SBA Administrator to increase the amount of 7(a) loans not more than once during any fiscal year to not more than 115% of the 7(a) program's authorization limit. The SBA is required to provide at least 30 days' notice of its intent to exceed the 7(a) loan program's authorization limit to the House and Senate Committees on Small Business and the House and Senate Committees on Appropriations' Subcommittees on Financial Services and General Government and may exercise this option only once per fiscal year. P.L. 115-232 , the John S. McCain National Defense Authorization Act for Fiscal Year 2019, included provisions originally in H.R. 5236 , the Main Street Employee Ownership Act of 2018, to make 7(a) loans more accessible to employee-owned small businesses (ESOPs) and cooperatives. The act clarified that 7(a) loans to ESOPs may be made under the Preferred Lenders Program; allows the seller to remain involved as an officer, director, or key employee when the ESOP or cooperative has acquired 100% ownership of the small business; and authorizes the SBA to finance transition costs to employee ownership and waive any mandatory equity injection by the ESOP or cooperative to help finance the change of ownership. The act also directs the SBA to create outreach programs and an interagency working group to promote lending to ESOPs and cooperatives. President Trump's FY2019 budget request included proposals to offset SBA business loan administrative costs by, among other provisions, (1) allowing the SBA to set the 7(a) program's annual servicing fee at rates below zero credit subsidy; (2) increasing the 7(a) loan program's FY2019 annual servicing fee's cap from 0.55% to 0.625%; and (3) increasing the FY2019 upfront loan guarantee fee on 7(a) loans over $1 million by 0.25%. The Trump Administration estimated that these changes would raise $93 million in additional revenue. The Trump Administration also requested that the 7(a) loan program's authorization limit be increased to $30.0 million in FY2019; that the SBA be allowed to further increase the 7(a) loan program's authorization amount in FY2019 by 15% under specified circumstances "to better equip the SBA to meet peaks in demand while continuing to operate at zero subsidies"; and that the SBAExpress program's loan limit be increased from $350,000 to $1 million. During the 116 th Congress P.L. 116-6 , the Consolidated Appropriations Act, 2019, increased the 7(a) program's authorization limit to $30.0 billion in FY2019. This report's Appendix provides a brief description of the 7(a) program's SBAExpress, Export Express, and Community Advantage programs. Borrower Eligibility Standards and Program Requirements Borrower Eligibility Standards To be eligible for an SBA business loan, a small business applicant must be located in the United States; be a for-profit operating business (except for loans to eligible passive companies and businesses engaged in specified industries, such as insurance companies and financial institutions primarily engaged in lending); qualify as small under the SBA's size requirements; demonstrate a need for the desired credit; and be certified by a lender that the desired credit is unavailable to the applicant on reasonable terms and conditions from nonfederal sources without SBA assistance. To qualify for an SBA 7(a) loan, applicants must be creditworthy and able to reasonably assure repayment. SBA requires lenders to consider the strength of the business and the applicant's character, reputation, and credit history; experience and depth of management; past earnings, projected cash flow, and future prospects; ability to repay the loan with earnings from the business; sufficient invested equity to operate on a sound financial basis; potential for long-term success; nature and value of collateral (although inadequate collateral will not be the sole reason for denial of a loan request); and affiliates' effect on the applicant's repayment ability. Borrower Program Requirements Use of Proceeds Borrowers may use 7(a) loan proceeds to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. 7(a) loan proceeds may be used to acquire land (by purchase or lease); improve a site (e.g., grading, streets, parking lots, landscaping), including up to 5% for community improvements such as curbs and sidewalks; purchase one or more existing buildings; convert, expand, or renovate one or more existing buildings; construct one or more new buildings; acquire (by purchase or lease) and install fixed assets; purchase inventory, supplies, and raw materials; finance working capital; and refinance certain outstanding debts. Borrowers are prohibited from using 7(a) loan proceeds to refinance existing debt where the lender is in a position to sustain a loss and the SBA would take over that loss through refinancing; effect a partial change of business ownership or a change that will not benefit the business; permit the reimbursement of funds owed to any owner, including any equity injection or injection of capital for the business's continuance until the loan supported by the SBA is disbursed; repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow; or pay for a nonsound business purpose. Loan Amounts As mentioned previously, P.L. 111-240 increased the 7(a) program's maximum gross loan amount for any one 7(a) loan from $2 million to $5 million (up to $3.75 million maximum guaranty). In FY2018, the average approved 7(a) loan amount was $420,401, and about 36% of all 7(a) loans exceeded $2 million. Loan Terms, Interest Rate, and Collateral Loan Terms A 7(a) loan is required to have the shortest appropriate term, depending upon the borrower's ability to repay. The maximum term is 10 years, unless the loan finances or refinances real estate or equipment with a useful life exceeding 10 years. In that case, the loan term can be up to 25 years, including extensions. Interest Rate Lenders are allowed to charge borrowers "a reasonable fixed interest rate" or, with the SBA's approval, a variable interest rate. The SBA uses a multistep formula to determine the maximum allowable fixed interest rate for all 7(a) loans (with the exception of the Export Working Capital Program and Community Advantage loans) and periodically publishes that rate and the maximum allowable variable interest rate in the Federal Register . The maximum allowable fixed interest rates in February 2019 are 13.50% for 7(a) loans of $25,000 or less; 12.50% for loans over $25,000 but not exceeding $50,000; 11.50% for loans over $50,000 up to and including $250,000; and 10.50% loans greater than $250,000. The 7(a) program's maximum allowable variable interest rate may be pegged to the lowest prime rate (5.50% in February 2019), the 30-day LIBOR rate plus 300 basis points (5.51% in February 2019), or the SBA optional peg rate (3.13% in the second quarter of FY2019). The optional peg rate is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan. Collateral For 7(a) loans of $25,000 or less, the SBA does not require lenders to take collateral. For 7(a) loans exceeding $25,000 to $350,000, the lender must follow the collateral policies and procedures that it has established and implemented for its similarly sized non-SBA-guaranteed commercial loans. However, the lender must, at a minimum, obtain a first lien on assets financed with loan proceeds, and a lien on all of the applicant's fixed assets, including real estate, up to the point that the loan is fully secured. For 7(a) loans exceeding $350,000, the SBA requires lenders to collateralize the loan to the maximum extent possible up to the loan amount. If business assets do not fully secure the loan, the lender must take available equity in the principal's personal real estate (residential and investment) as collateral. 7(a) loans are considered "fully secured" if the lender has taken security interests in all available fixed assets with a combined "net book value" up to the loan amount. The SBA directs lenders to not decline a loan solely on the basis of inadequate collateral because "one of the primary reasons lenders use the SBA-guaranteed program is for those Applicants that demonstrate repayment ability but lack adequate collateral to repay the loan in full in the event of a default." Lender Eligibility Standards and Program Requirements Lender Eligibility Standards Lenders must have a continuing ability to evaluate, process, close, disburse, service, and liquidate small business loans; be open to the public for the making of such loans (and not be a financing subsidiary, engaged primarily in financing the operations of an affiliate); have continuing good character and reputation; and be supervised and examined by a state or federal regulatory authority, satisfactory to the SBA. They must also maintain satisfactory performance, as determined by the SBA through on-site review/examination assessments, historical performance measures (such as default rate, purchase rate, and loss rate), and loan volume to the extent that it affects performance measures. In FY2017, 1,978 lenders provided 7(a) loans. PLP Lenders The SBA started the Preferred Lenders Program (PLP) on March 1, 1983, initially on a pilot basis. It is designed to streamline the procedures necessary to provide financial assistance to small businesses by delegating the final credit decision and most servicing and liquidation authority and responsibility to carefully selected PLP lenders. PLP loan approvals are subject only to a brief eligibility review and the assignment of a loan number by SBA. PLP lenders draft the SBA Authorization (of loan guaranty approval) without the SBA's review, and execute it on behalf of the SBA. In FY2018, PLP lenders approved 26,497 7(a) loans (43.9% of all 7(a) loans), amounting to $18.8 billion (74.2% of the total amount approved). PLP lenders must comply with all of the SBA's business loan eligibility requirements, credit policies, and procedures. The PLP lender is required to stay informed on, and apply, all of the SBA's loan program requirements. They must also complete and retain in the lender's file all forms and documents required of standard 7(a) loan packages. Lender Program Requirements The Application Process Borrowers submit applications for a 7(a) business loan to private lenders. The lender reviews the application and decides if it merits a loan on its own or if it has some weaknesses which, in the lender's opinion, do not meet standard, conventional underwriting guidelines and require additional support in the form of an SBA guaranty. The SBA guaranty assures the lender that if the borrower does not repay the loan and the lender has adhered to all applicable regulations concerning the loan, the SBA will reimburse the lender for its loss, up to the percentage of the SBA's guaranty. The small business borrowing the money remains obligated for the full amount due. If the lender determines that it is willing to provide the loan, but only with an SBA guaranty, it submits the application for approval to the SBA's Loan Guaranty Processing Center (LGPC) through the SBA's E-Tran (Electronic Loan Processing/Servicing) website (which is available through SBA One, the SBA's automated lending platform) or, if attachments to the application are too large for E-Tran, by secured electronic file transfer. The LGPC has two physical locations: Citrus Heights, CA, and Hazard, KY. This center has responsibility for processing 7(a) loan guaranty applications for lenders who do not have delegated authority to make 7(a) loans without the SBA's final approval. The SBA has authorized PLP and express lenders to make credit decisions without SBA review prior to loan approval. However, the PLP and express lender's analysis is subject to the SBA's review and determination of adequacy when the lender requests the SBA to purchase its guaranty and when the SBA is conducting a review of the lender. As an additional safeguard against the potential for loan defaults, the SBA now requires all non-express 7(a) loans of $350,000 or less to be SBA credit scored through E-Tran prior to submission/approval. If the credit score is below the minimum set by the SBA (currently 140 for 7(a) loans of $350,000 or less, including Community Advantage loans), the loan must be submitted to the SBA for approval with a full credit write-up for consideration. The loan cannot be processed under delegated authority. If the credit score is acceptable to the SBA, the lender is a PLP lender, and the loan is eligible to be processed under the PLP lender's delegated authority, the lender will receive an SBA loan number indicating that the loan is approved. The PLP lender's documentation, including underwriting, closing, and servicing, must be maintained in their files, and can be reviewed by the SBA at any time. If the lender is not a PLP lender or if the loan is not eligible to be submitted under the PLP lender's delegated authority, the lender must refer the loan to the LGPC for review. The application materials required for a SBA guaranty vary depending on the size of the loan ($350,000 or less versus exceeding $350,000) and the method of processing used by the lender (standard versus expedited/express). The following SBA documentation is required for all 7(a) standard loans of $350,000 or less: Form 191 9: Borrower Information Form . SBA form 1919 provides information about the borrower (name, name of business, social security number, date and place of birth, gender, race, veteran, etc.); the loan request; any indebtedness; the principals and affiliates; current or previous government financing; the applicant's eligibility (e.g., criminal information, citizenship status); the loan's eligibility for delegated or expedited processing (e.g., the borrower is not more than 60 days delinquent in child support payments, not proposed or presently excluded from participation in this transaction by any federal department or agency, has no potential for a conflict of interest due to an owner being a current or former SBA employee, a Member of Congress, or a SCORE volunteer); and, among other disclosures, the firm's existing number of employees, the number of jobs to be created as a result of the loan, and the number of jobs that will be retained as a result of the loan that would have otherwise been lost. Form 912 : Statement of Personal History . SBA form 912 is required if the borrower reports on Form 1919 an arrest in the past six months for a criminal offense or had ever been convicted, plead guilty, plead nolo contendere, been placed on pretrial diversion, or been placed on any form of parole or probation (including probation before judgment) of any criminal offense. Form 912 requires the borrower to furnish details concerning his or her offense(s) and authorizes the SBA's Office of Inspector General to request criminal record information about the applicant from criminal justice agencies for determining program eligibility. It must be dated within 90 days of the application's submission to the SBA. Form 159 : Fee Disclosure and Compensation Agreement . SBA form 159 is required if the borrower reports on Form 1919 that he or she used (or intends to use) a packager, broker, accountant, lawyer, etc. to assist in preparing the loan application or any related materials. SBA form 159 is also required if the lender retains the services of a packager, broker, accountant, lawyer, etc. to assist in preparing the loan application or any related materials. Form 159 provides identifying information about the packager, broker, accountant, lawyer, etc. and the fees paid to any such person. Form 601 : Agreement of Compliance (prohibiting discrimination). SBA form 601 is required if the borrower reports on Form 1919 that more than $10,000 of the loan proceeds will be used for construction. Form 601 certifies that the borrower will cooperate actively in obtaining compliance with Executive Order 11246, which prohibits discrimination on the basis of race, color, religion, sex, or national origin and requires affirmative action to ensure equality of opportunity in all aspects of employment related to federally assisted construction projects in excess of $10,000. Form 1920 : Lenders Application for Guaranty for all 7(a) Programs . SBA form 1920 provides identifying information about the lender; the loan type (standard, SBAExpress, Export Express, etc.); loan terms; use of proceeds; the business's size and information about affiliates, if any; the applicant's character; if credit is reasonably available elsewhere; the type of business; potential conflicts of interest; and other information such the number of jobs created or retained. PLP lenders complete the form and retain it in the loan file. Other lenders must submit this form electronically to the LGPC. Verification of Alien Status . Documentation of the U.S. Citizenship and Immigration Services (USCIS) status of each alien is required prior to submission of the application to the SBA. Lender's Credit Memo randum . For loans up to and including $350,000, the Lender's Credit Memorandum includes a brief description of the history of the business and its management; the debt service coverage ratio (net operating income compared to total debt service must be at least 1:1); statement that the lender has reconciled financial data (including seller's financial data) against IRS transcripts; an owner/guarantor analysis (including personal financial condition); lender's discussion of life insurance requirements; explanation and justification for any refinancing; analysis of credit, including lender's rationale for recommending approval; for a change of ownership, discussion/analysis of business valuation and how the change benefits the business; discussion of any liens, judgments, or bankruptcy filings; and discussion of any other relevant information. For loans exceeding $350,000, the Lender's Credit Memorandum must also include an analysis of collateral and a financial analysis which includes an analysis of the historical financial statements; defining assumptions supporting projected cash flow; and, when used, spread of pro forma balance sheet, ratio calculations, and working capital analysis. Cash Flow Projections . A projection of the borrower's cash flow, month-by-month for one year, is required for all new businesses, and when otherwise applicable. The following forms and documentation are also required for 7(a) standard loans exceeding $350,000: Form 413 : Personal Financial Statement . SBA form 413 provides detailed information concerning the applicant's assets and liabilities and must be dated within 90 days of submission to the SBA, on all owners of 20% or more (including the assets of the owner's spouse and any minor children), and proposed guarantors. Lenders may substitute their own Personal Financial Statement form. Form 1846 : Statement Regarding Lobbying . SBA Form 1846 must be signed and dated by lender. It indicates that if any funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an officer or employee of a Member of Congress in connection with this commitment, the lender will complete and submit a Standard Form LLL "Disclosure of Lobbying Activities." A copy of Internal Revenue Service (IRS) Form 4506-T, Request for Copy of Tax Return . Lenders must identify the date IRS Form 4506-T was sent to the IRS. For nondelegated lenders, verification of IRS Form 4506-T is required prior to submission of the application to the SBA. For PLP and express lenders, verification of IRS Form 4506-T is required prior the first disbursement. Business Financial Statements or tax returns dated within 180 days of the application's submission to the SBA, consisting of (1) year-end balance sheets for the last three years, (2) year-end profit and loss statements for the last three years, (3) reconciliation of net worth, (4) interim balance sheet, and (5) interim profit and loss statements. Affiliate and Subsidiary Financial Statements or tax returns dated within 180 days of the application's submission to the SBA, consisting of (1) year-end balance sheets for the last three years, (2) year-end profit and loss statements for the last three years, (3) reconciliation of net worth, (4) interim balance sheet, and (5) interim profit and loss statements. A copy of the Le ase Agreement , if applicable. A detailed Schedule of C ollateral . A detailed List of M&E (machinery and equipment) being purchased with SBA loan proceeds, including cost quotes. If real estate is to be purchased with the loan proceeds, a Real Estate Appraisal , Environmental Investigation Report questionnaire, a cost breakdown, and copy of any Real Estate Purchase Agreements . If purchasing an existing business with loan proceeds, a (1) copy of buy-sell agreement, (2) copy of business valuation, (3) pro forma balance sheet for the business being purchased as of the date of transfer, (4) copy of the seller's financial statements for the last three complete fiscal years or for the number of years in business if less than three years, (5) interim statements no older than 180 days from date of submission to the SBA, and (6) if the seller's financial statements are not available, the seller must provide an alternate source of verifying revenues. An explanation of the type and source of applicant's equity injection. Proper evidence of a borrower's equity injection may include the copy of a check together with proof it was processed, or a copy of an escrow settlement sheet with a bank account statement showing the injection into the business prior to disbursement. A promissory note, "gift letter," or financial statement is generally not sufficient evidence. SBA Guaranty and Servicing Fees To offset its costs, the SBA is authorized to charge lenders an up-front, one-time guaranty fee and an annual, ongoing service fee for each 7(a) loan approved and disbursed. The SBA's fees vary depending on loan amount and loan maturity. The maximum guaranty fee for 7(a) loans with maturities exceeding 12 months is set by statute and varies depending on the loan amount. The fee is a percentage of the SBA guaranteed portion of the loan. On short-term loans (maturities of less than 12 months), the lender must pay the guaranty fee to the SBA electronically through www.pay.gov within 10 days from the date the SBA loan number is assigned. If the fee is not received within the specified time frame, the SBA will cancel the guaranty. On loans with maturities in excess of 12 months, the lender must pay the guaranty fee to the SBA within 90 days of the date of loan approval. For short-term loans, the lender may charge the guaranty fee to the borrower only after the lender has paid the guaranty fee. For loans with maturities in excess of 12 months, the lender may charge the guaranty fee to the borrower after initial disbursement. Lenders are permitted to retain 25% of the guaranty fee on loans with a gross amount of $150,000 or less. The annual service fee cannot exceed 0.55% of the outstanding balance of the SBA's share of the loan and is required to be no more than the "rate necessary to reduce to zero the cost to the Administration" of making guaranties. The lender's annual service fee to the SBA cannot be charged to the borrower. In an effort to assist small business owners, the SBA waived its annual service fee for all 7(a) loans of $150,000 or less approved from FY2014 through FY2016 (the annual service fee for other small businesses was 0.52% in FY2014, 0.519% in FY2015, and 0.473% in FY2016); is waiving the annual service fee for 7(a) loans of $150,000 or less made to small businesses located in a rural area or a HUBZone in FY2019 (the annual service fee for other small businesses is 0.55% in FY2019); waived the up-front, one-time guaranty fee for all 7(a) loans of $150,000 or less approved from FY2014 through FY2017; waived the up-front, one-time guaranty fee for all 7(a) loans of $125,000 or less approved in FY2018; and is reducing the up-front one-time guaranty fee for loans made small businesses located in a rural area or a HUBZone from 2.0% to 0.6667% of the guaranteed portion of the loan in FY2019. Table 1 shows the annual service fee and guaranty fee for 7(a) loans in FY2019. The annual service fee is a percentage of the outstanding balance of the SBA's share of the loan. The guaranty fee is a percentage of the SBA guaranteed portion of the loan. As mentioned previously, the SBA waived its up-front, one-time guaranty fee for all veteran loans under the 7(a) SBAExpress program (up to $350,000) from January 1, 2014, through the end of FY2015. P.L. 114-38 , the Veterans Entrepreneurship Act of 2015, made this fee waiver permanent, except during any upcoming fiscal year for which the President's budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. The SBA waived this fee in FY2016, FY2017, and FY2018 and is waiving it in FY2019. The SBA also waived 50% of the up-front, one-time guaranty fee on all non-SBAExpress 7(a) loans of $150,001 to $5 million for veterans in FY2015 and FY2016; 50% of the up-front, one-time guaranty fee on all non-SBAExpress 7(a) loans of $150,001 to $500,000 for veterans in FY2017; and 50% of the up-front, one-time guaranty fee on all non-SBAExpress 7(a) loans of $125,001 to $350,000 for veterans in FY2018. The Obama Administration argued that fee waivers for 7(a) loans of $150,000 or less were necessary because the demand for smaller 7(a) loans had fallen and the waiver reduction "can be achieved with zero credit subsidy appropriations" because the "annual fees for larger 7(a) loans will cover the cost for those smaller loans." The Administration also contended that waiving the fees on smaller SBA loans would "promote lending to small businesses that face the most constraints on credit access." For context, 7(a) loans of $150,000 or less accounted for about 11.8% of the total amount of 7(a) loan approvals in FY2010 ($1.46 billion of $12.41 billion); 8.3% in FY2011 ($1.63 billion of $19.64 billion); 9.5% in FY2012 ($1.44 billion of $15.15 billion); 8.1% in FY2013 ($1.45 billion of $17.87 billion); 9.7% in FY2014 ($1.86 billion of $19.19 billion); 9.7% in FY2015 ($2.28 billion of $23.58 billion); 9.4% in FY2016 ($2.75 billion of $24.13 billion), and 9.2% in FY2017 ($2.33 billion of $25.45 billion). The SBA also announced that eliminating guaranty fees for 7(a) loans of $150,000 or less ($125,000 or less in FY2018) was part of its broader effort to "reduce barriers, attract new lenders, grow loan volumes of existing lenders and improve access to capital for small businesses and entrepreneurs." Some in Congress questioned whether it is appropriate to require borrowers of larger 7(a) loans to, in effect, subsidize borrowers of smaller 7(a) loans, who might be direct competitors. They have suggested that it might be more appropriate to reduce fees across-the-board without regard to loan size. Lender Packaging, Servicing, and Other Fees The lender may charge an applicant "reasonable fees" customary for similar lenders in the geographic area where the loan is being made for packaging and other services. The lender must advise the applicant in writing that the applicant is not required to obtain or pay for unwanted services. These fees are subject to SBA review at any time, and the lender must refund any such fee considered unreasonable by the SBA. The lender may also charge an applicant an additional fee if, subject to prior written SBA approval, all or part of a loan will have extraordinary servicing needs. The additional fee cannot exceed 2% per year on the outstanding balance of the part requiring special servicing (e.g., field inspections for construction projects). The lender may also collect from the applicant necessary out-of-pocket expenses, including filing or recording fees, photocopying, delivery charges, collateral appraisals, environmental impact reports that are obtained in compliance with SBA policy, and other direct charges related to loan closing. The lender is prohibited from requiring the borrower to pay any fees for goods and services, including insurance, as a condition for obtaining an SBA guaranteed loan, and from imposing on SBA loan applicants processing fees, origination fees, application fees, points, brokerage fees, bonus points, and referral or similar fees. The lender is also allowed to charge the borrower a late payment fee not to exceed 5% of the regular loan payment when the borrower is more than 10 days delinquent on its regularly scheduled payment. The lender may not charge a fee for full or partial prepayment of a loan. For loans with a maturity of 15 years or longer, the borrower must pay to the SBA a subsidy recoupment fee when the borrower voluntarily prepays 25% or more of its loan in any one year during the first three years after first disbursement. The fee is 5% of the prepayment amount during the first year, 3% in the second year, and 1% in the third year. Program Statistics Loan Volume As shown in Table 2 , the total number and amount of SBA 7(a) loans approved (before and after cancellations and modifications) declined in FY2008 and FY2009, increased during FY2010 and FY2011, declined somewhat in FY2012, and have increased since then. The number and amount of 7(a) loans approved annually is higher than the number and amount of loans disbursed because some borrowers decide not to accept the loan for a variety of reasons, such as financing was secured elsewhere, the funds are no longer needed, or there was a change in business ownership. The SBA attributed the decreased number and amount of 7(a) loans approved in FY2008 and FY2009 to a reduction in the demand for small business loans resulting from the economic uncertainty of the recession (December 2007-June 2009) and to tightened loan standards imposed by lenders concerned about the possibility of higher loan default rates resulting from the economic slowdown. The SBA attributed the increased number of loans approved in FY2010 and FY2011 to legislation that provided funding to temporarily reduce the 7(a) program's loan fees and temporarily increase the 7(a) program's loan guaranty percentage to 90% for all standard 7(a) loans from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000. The fee subsidies and 90% loan guaranty percentage were in place during most of FY2010 and the first quarter of FY2011. The increased number and amount of 7(a) loans approved since FY2012 are generally attributed to improving economic conditions. Table 2 also provides the 7(a) program's unpaid principal balance by fiscal year. Precise measurements of the small business credit market are not available. However, the SBA has estimated that the small business credit market (outstanding bank loans of $1 million or less, plus credit extended by finance companies and other sources) is roughly $1.2 trillion. The 7(a) program's unpaid principal balance of $92.41 billion at the end of FY2018 was about 7.7% of that amount. Appropriations for Loan Subsidy Costs One of the SBA's goals is to achieve a zero subsidy rate for its loan guaranty programs. A zero subsidy rate occurs when the SBA's loan guaranty programs generate sufficient revenue through fee collections and recoveries of collateral on purchased (defaulted) loans to not require appropriations to issue new loan guarantees. From 2005 to 2009, the SBA did not request appropriations to subsidize the cost of any of its loan guaranty programs, including the 7(a) program. However, as indicated in Table 3 , loan guaranty fees and loan liquidation recoveries did not generate enough revenue to cover loan losses in the 7(a) loan guaranty program from FY2010 through FY2013 and in the 504/CDC loan guaranty program from FY2012 through FY2015. Appropriations were provided to address the shortfalls. Congress did not approve appropriations for 7(a) and 504/CDC loan guaranty program credit subsidies for FY2016 through FY2019 because the President's budget request indicated that those programs did not require appropriations for credit subsidies in those fiscal years. Administrative Expenses In FY2017, the SBA spent $82.2 million on the 7(a) program for administrative expenses, including $63.0 million for loan making, $4.1 million for loan servicing, and $15.1 million for loan liquidation. Also, the SBA spent $36.9 million on lender oversight, including oversight of 7(a) lenders. The SBA anticipated that 7(a) program administrative expenses will be about $82.2 million in FY2018 and $84.5 million in FY2019. In addition, the SBA anticipated that it will spend about $36.9 million in FY2018 and $36.6 million in FY2019 for lender oversight of the SBA's various lending programs. Use of Proceeds and Borrower Satisfaction In FY2017, borrowers used 7(a) loan proceeds to purchase land or make land improvements (26.62%); purchase a business (17.06%); finance working capital (15.59%); pay off loans, accounts payable or notes payable (13.23%); construct new buildings (6.06%); purchase equipment (5.76%); make leasehold improvements (3.25%); expand or renovate current buildings (2.39%); refinance existing debt (1.40%); and cover other expenses (8.64%). In 2008, the Urban Institute released the results of an SBA-commissioned study of the SBA's loan guaranty programs. As part of its analysis, the Urban Institute surveyed a random sample of SBA loan guaranty borrowers. The survey indicated that most of the 7(a) borrowers responding to the survey rated their overall satisfaction with their 7(a) loan and loan terms as either excellent (18%) or good (50%). One out of every five 7(a) borrowers (20%) rated their overall satisfaction with their 7(a) loan and loan terms as fair, and 6% rated their overall satisfaction with their 7(a) loan and loan terms as poor (7% reported don't know or did not respond). In addition, 90% of the survey's respondents reported that the 7(a) loan was either very important (62%) or somewhat important (28%) to their business success (2% reported somewhat unimportant, 3% reported very unimportant, and 4% reported don't know or did not respond). Borrower Demographics The Urban Institute found that about 9.9% of conventional small business loans are issued to minority-owned small businesses, and about 16% of conventional small business loans are issued to women-owned businesses. In FY2018, 32.8% of 7(a) loan approvals ($8.32 billion of $25.37 billion) were to minority-owned businesses (23.0% Asian, 6.0% Hispanic, 3.1% African-American, and 0.7% American Indian) and 13.6% ($3.46 billion of $25.37 billion) were to women-owned businesses. From its comparative analysis of conventional small business loans and the SBA's loan guaranty programs, the Urban Institute concluded the following: SBA's loan programs are designed to enable private lenders to make loans to creditworthy borrowers who would otherwise not be able to qualify for a loan. As a result, there should be differences in the types of borrowers and loan terms associated with SBA-guaranteed and conventional small business loans. Our comparative analysis shows such differences. Overall, loans under the 7(a) and 504 programs were more likely to be made to minority-owned, women-owned, and start-up businesses (firms that have historically faced capital gaps) as compared to conventional small business loans. Moreover, the average amounts for loans made under the 7(a) and 504 programs to these types of firms were substantially greater than conventional small business loans to such firms. These findings suggest that the 7(a) and 504 programs are being used by lenders in a manner that is consistent with SBA's objective of making credit available to firms that face a capital opportunity gap. Congressional Issues Access to Capital Congressional interest in the 7(a) loan program has increased in recent years largely because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to assist in the economic recovery. During the 110 th and 111 th Congresses, several laws were enacted to increase the supply and demand for capital for both large and small businesses. For example, in 2008, Congress adopted P.L. 110-343 , the Emergency Economic Stabilization Act of 2008, which authorized the Troubled Asset Relief Program (TARP). Under TARP, the U.S. Department of the Treasury was authorized to purchase or insure up to $700 billion in troubled assets, including small business loans, from banks and other financial institutions. The law's intent was "to restore liquidity and stability to the financial system of the United States." P.L. 111-203 , the Dodd-Frank Wall Street Reform and Consumer Protection Act, reduced total TARP purchase authority from $700 billion to $475 billion. The Department of the Treasury's authority to make new financial commitments under TARP ended on October 3, 2010. The Department of the Treasury has disbursed approximately $430 billion in TARP funds, including $370 million to purchase SBA 7(a) loan guaranty program securities. In addition, as mentioned previously, in 2009, ARRA provided an additional $730 million for SBA programs, including $375 million to temporarily reduce fees in the SBA's 7(a) and 504/CDC loan guaranty programs and increase the 7(a) program's maximum loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all standard 7(a) loans. Congress subsequently provided another $265 million, and authorized the SBA to reprogram another $40 million, to extend the fee reductions and loan modification through May 31, 2010, and the Small Business Jobs Act of 2010 provided another $505 million (plus $5 million for administrative expenses) to extend the fee reductions and loan modification from September 27, 2010, through December 31, 2010. Also, P.L. 111-322 , the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the use of any funding remaining from the Small Business Jobs Act of 2010 to extend the fee subsidies and 90% maximum loan guaranty percentage through March 4, 2011, or until the available funding was exhausted. Funding for these purposes was exhausted on January 3, 2011. The Obama Administration argued that TARP and the additional funding for the SBA's loan guaranty programs helped to improve the small business lending environment and supported "the retention and creation of hundreds of thousands of jobs." Critics argued that small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint are the best means to assist small business economic growth and job creation. Program Administration Over the years, the SBA's Office of Inspector General (OIG) and the U.S. Government Accountability Office (GAO) have independently reviewed the SBA's administration of the SBA's loan guaranty programs. Although improvements have been noted, both agencies have reported deficiencies in the SBA's administration of its loan guaranty programs that they argue need to be addressed, including issues involving the oversight of 7(a) lenders and the lack of outcome-based performance measures. Oversight of 7(a) Lenders On December 1, 2000, the OIG released its FY2001 list of the most serious management challenges facing the SBA and included, for the first time, the oversight of SBA lenders. Since then, the OIG has determined that the SBA has made significant progress in improving its oversight of SBA lenders. For example The SBA established an Office of Lender Oversight (renamed the Office of Credit Risk Management in 2007), led by an Associate Administrator, which, in October 2000, drafted a strategic plan to serve as a basis for developing a Standard Operating Procedure (SOP) for lender oversight and, among other activities, initiated "steps to develop and implement a comprehensive loan monitoring system to evaluate lender performance. The system will collect data on lenders such as delinquency default rates, liquidations, loan payments, and loan originations." In 2004, the SBA's National Guaranty Purchase Center developed a quality control plan "to review the quality of the guaranty purchase process." In 2006, the SBA issued an SOP that established procedures for on-site, risk-based lender reviews and safety and soundness examinations for 7(a) lenders and Certified Development Companies (CDCs) participating the SBA's 504/CDC loan guaranty program. In 2007, the SBA completed the centralization of all 7(a) loan processing activities and, with very limited exception, ended loan making, servicing, liquidation, and guaranty purchase activity at district offices. In 2008, the SBA issued an SOP for 7(a) lender oversight which included uniform policies and procedures for the evaluation of lender performance and the SBA's Office of Financial Program Operations (OFPO) began designing "a comprehensive quality control program across all of its centers." Previously, quality control was conducted within each loan center (Standard 7(a) Loan Guaranty Processing Center, Commercial Loan Service Center, and National Guaranty Purchase Center) "at various levels of sophistication." The SBA issued an interim final rule in the Federal Register on December 1, 2008, incorporating the SBA's risk-based lender oversight program into the SBA's regulations. In 2010, the SBA's OFPO established its agency-wide quality control program, which is designed to improve service and "reduce waste, fraud, and abuse" by ensuring "that centers accurately and consistently apply statutory, regulatory, and procedural loan program requirements." The SBA also developed a "risk-based, off-site analysis of lending partners through its Loan/Lender Monitoring System (L/LMS), a state-of-the-art portfolio monitoring system that incorporates credit scoring metrics for portfolio management purposes." In 2012-2013, the SBA "(1) developed risk profiles and lender performance thresholds, (2) developed a select analytical review process to allow for virtual risk-based reviews, (3) updated its lender risk rating model to better stratify and predict risk, and (4) conducted test reviews under the new risk-based review protocol." In 2013-2014, the SBA "improved its monitoring and verification of corrective actions by lenders by: (1) developing corrective action assessment procedures, (2) finalizing a system to facilitate the corrective action process, and (3) populating the system with lender oversight results requiring corrective action." In 2015, the SBA's Office of Credit Risk Management (OCRM) "engaged contractor support to expand on its corrective action follow-up process. Additionally, OCRM issued its FY2015 Risk Management Oversight Plan, which included plans to conduct 170 corrective action reviews between 7(a) and 504 lenders." In 2016, OCRM reported that it conducted 147 corrective action follow-up assessments, established performance measures and risk mitigation goals for the SBA's entire lending portfolio, and "conducted portfolio analyses of problem lenders with heavy concentrations in SBA 7(a) lending and sales on the secondary market." Despite these improvements, the OIG continues to list lender oversight as one of the most serious management challenges facing the SBA because it argues that several issues that it has identified in audits have not been fully addressed. Specifically, the OIG reports that the SBA needs to show that the portfolio risk management program is used to support risk based decisions, implement additional controls to mitigate risks, develop an effective method for tracking loan agents, and update regulations on loan agents. Outcome-Oriented Performance Measures GAO has argued that the 7(a) program's performance measures (e.g., number of loans approved, loans funded, and firms assisted across the subgroups of small businesses) provide limited information about the impact of the loans on participating small businesses: The program's performance measures focus on indicators that are primarily output measures–for instance, they report on the number of loans approved and funded. But none of the measures looks at how well firms do after receiving 7(a) loans, so no information is available on outcomes. As a result, the current measures do not indicate how well the agency is meeting its strategic goal of helping small businesses succeed. The SBA's OIG has made a similar argument concerning the SBA's Microloan program's performance measures. Because the SBA uses similar program performance measures for its Microloan and 7(a) programs, the OIG's recommendations could also be applied to the SBA's 7(a) program. Specifically, as part of its audit of the SBA Microloan program's use of ARRA funds, the OIG found that the SBA's performance measures for the Microloan program are based on the number of microloans funded, the number of small businesses assisted, and program's loan loss rate. It argued that these "performance metrics ... do not ensure the ultimate program beneficiaries, the microloan borrowers, are truly assisted by the program" and "without appropriate metrics, SBA cannot ensure the Microloan program is meeting policy goals." It noted that the SBA does not track the number of microloan borrowers who remain in business after receiving a microloan to measure the extent to which the loans contributed to the success of borrowers and does not determine the effect that technical training assistance may have on the success of microloan borrowers and their ability to repay loans. It recommended that the SBA "develop additional performance metrics to measure the program's achievement in assisting microloan borrowers in establishing and maintaining successful small businesses." In its response to GAO's recommendation to develop additional performance measures for the 7(a) program, the SBA formed, in July 2014, an impact evaluation working group to develop a methodology for conducting impact evaluations of the agency's programs using administrative data sources residing at the SBA and in other federal agencies, such as the U.S. Census Bureau and the Bureau of Labor Statistics. Numerous SBA program offices participated in this working group and each office developed its own program evaluation methodology or established program evaluation frameworks. More recently, the SBA indicated in its FY2017 congressional budget justification document that although it "continues to face barriers gathering outcome rich evaluation data with current restrictions in collecting personal identification information (PII) and business identification information (BII)" it "plans to further develop its analytical capabilities, enhance collaboration across its programs, provide evaluation-specific trainings, and broaden use of impact evaluations to support senior leaders and institutionalize the evidence-based process across programs." To encourage evidence-based evaluations across its programs, the SBA has created an annual Enterprise Learning Agenda designed to "help program managers continue to build and use evidence and to foster an environment of continuous learning." As part of this agenda building process, the SBA identifies programs for evidence-based evaluation and undertakes both internal evaluations using available data or contracts with third parties to conduct the evaluations. Legislative Activity During the 111th Congress Congress authorized several changes to the 7(a) program during the 111 th Congress in an effort to increase the number and amount of 7(a) loans. The Obama Administration's Proposals During the 111 th Congress, the Obama Administration supported congressional efforts to temporarily subsidize fees for the 7(a) and 504/CDC loan guaranty programs and to increase the 7(a) program's loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90%. Congress subsequently provided nearly $1.1 billion to temporarily subsidize fees for the 7(a) and 504/CDC loan guaranty programs and to increase the 7(a) program's maximum loan guaranty percentage to 90% for all standard 7(a) loans. The Obama Administration also proposed the following modifications to several SBA programs, including the 7(a) program: increase the maximum loan size for 7(a) loans from $2 million to $5 million; increase the maximum loan size for the 504/CDC program from $2 million to $5 million for regular projects and from $4 million to $5.5 million for manufacturing projects; increase the maximum loan size for microloans to small business concerns from $35,000 to $50,000; increase the maximum loan limits for lenders in their first year of participation in the Microloan program, from $750,000 to $1 million, and from $3.5 million to $5 million in the subsequent years; temporarily increase the cap on SBAExpress loans from $350,000 to $1 million; and temporarily allow in FY2010 and FY2011, with an option to extend into FY2012, the refinancing of loans for owner-occupied commercial real estate that are within one year of maturity under the SBA's 504/CDC program. Arguments for Increasing the SBA's Maximum Loan Limits The Obama Administration argued that increasing the maximum loan limits for the 7(a), 504/CDC, Microloan, and SBAExpress programs would allow the SBA to "support larger projects," which would "allow the SBA to help America's small businesses drive long-term economic growth and the creation of jobs in communities across the country." The Administration also argued that increasing the maximum loan limits for these programs would be "budget neutral" over the long run and "help improve the availability of smaller loans." Arguments Against Increasing the SBA's Maximum Loan Limits Critics of the Obama Administration's proposals to increase the SBA's maximum loan limits argued that higher loan limits might increase the risk of defaults, resulting in higher guaranty fees or the need to provide the SBA additional funding, especially for the SBAExpress program, which has experienced somewhat higher default rates than other SBA loan guaranty programs. Others advocated a more modest increase in the maximum loan limits to ensure that the 7(a) program "remains focused on startup and early-stage small firms, businesses that have historically encountered the greatest difficulties in accessing credit," and "avoids making small borrowers carry a disproportionate share of the risk associated with larger loans." Others argued that creating a small business direct lending program within the SBA would reduce paperwork requirements and be more efficient in providing small businesses access to capital than modifying existing SBA programs that rely on private lenders to determine if they will issue the loans. Also, as mentioned previously, others argued that providing additional resources to the SBA or modifying the SBA's loan programs as a means to augment small business access to capital is ill-advised. In their view, the SBA has limited impact on small businesses' access to capital. They argued that the best means to assist small business economic growth and job creation is to focus on small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint. P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA) As mentioned previously, in 2009, ARRA provided an additional $730 million for SBA programs, including $375 million to temporarily reduce fees in the SBA's 7(a) and 504/CDC loan guaranty programs ($299 million) and increase the 7(a) program's maximum loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all standard 7(a) loans ($76 million). P.L. 111-240, the Small Business Jobs Act of 2010 P.L. 111-240 provided $505 million (plus $5 million for administrative expenses) to extend the 7(a) program's 90% maximum loan guaranty percentage and 7(a) and 504/CDC loan guaranty programs' fee subsidies through December 31, 2010 (later extended to March 4, 2011), or until available funding was exhausted (which occurred on January 3, 2011). The act also made the following changes to the SBA's programs: increased the maximum loan size for 7(a) loans from $2 million to $5 million; temporarily increased for one year (through September 27, 2011) the cap on SBAExpress loans from $350,000 to $1 million; increased the maximum loan size for the 504/CDC loans from $1.5 million to $5 million for regular projects, from $2 million to $5 million for projects meeting one of the program's specified public policy goals, and from $4 million to $5.5 million for manufacturers; increased the maximum loan size for the Microloan program from $35,000 to $50,000; authorized the SBA to establish an alternative size standard for the 7(a) and 504/CDC programs that uses maximum tangible net worth and average net income as an alternative to the use of industry standards and established an interim size standard of a maximum tangible net worth of not more than $15 million and an average net income after federal taxes (excluding any carryover losses) for the preceding two fiscal years of not more than $5 million; and allowed 504/CDC loans to be used to refinance up to $7.5 billion in short-term commercial real estate debt each fiscal year for two years after enactment (through September 27, 2012) into long-term fixed rate loans. The act also authorized the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF) to encourage community banks to provide small business loans ($4 billion was issued), a $1.5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs, and about $12 billion in tax relief for small businesses. It also contained revenue raising provisions to offset the act's cost and authorized a number of changes to other SBA loan and contracting programs. Legislative Activity During the 112th Congress Congress did not approve any changes to the 7(a) program during the 112 th Congress. However, several bills were introduced during the 112 th Congress that would have changed the program. S. 1828 , a bill to increase small business lending, and for other purposes, was introduced on November 8, 2011, and referred to the Senate Committee on Small Business and Entrepreneurship. The bill would have reinstated for a year following the date of its enactment the temporary fee subsidies for the 7(a) and 504/CDC loan guaranty programs and the 90% loan guaranty for standard 7(a) loans, which were originally authorized by ARRA and later extended by several laws, including the Small Business Jobs Act of 2010. H.R. 2936 , the Small Business Administration Express Loan Extension Act of 2011, introduced on September 15, 2011, and referred to the House Committee on Small Business, would have extended a one-year increase in the maximum loan amount for the SBAExpress program from $350,000 to $1 million for an additional year. The temporary increase in that program's maximum loan amount was authorized by P.L. 111-240 , the Small Business Jobs Act of 2010, and expired on September 27, 2011 (see Appendix ). S. 532 , the Patriot Express Authorization Act of 2011, introduced on March 9, 2011, and referred to the Senate Committee on Small Business and Entrepreneurship, would have provided statutory authorization for the Patriot Express Pilot Program. This program was subsequently discontinued by the SBA on December 31, 2013. The bill would have increased the program's maximum loan amount from $500,000 to $1 million, and it would have increased the guaranty percentages from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to up to 85% of loans of $500,000 or less and up to 80% of loans exceeding $500,000. Legislative Activity During the 113th Congress H.R. 2451 , the Strengthening Entrepreneurs' Economic Development Act of 2013, was introduced on June 20, 2013, and referred to the House Committee on Small Business. It would have authorized the SBA to make direct loans of up to $150,000 to businesses with fewer than 20 employees. It would have also required the SBA to assess, collect, and retain a fee with respect to the outstanding balance of the deferred participation share of each 7(a) loan in excess of $2 million that is no more than is necessary to reduce to zero the SBA's cost of making the loan. H.R. 2461 , the SBA Loan Paperwork Reduction Act of 2013, was introduced on June 20, 2013, and referred to the House Committee on Small Business. It would have provided statutory authorization for the Small Loan Advantage (SLA) pilot program. The SBA started that program on February 15, 2011. It provided a streamlined application process for 7(a) loans of up to $350,000 if the loan received an acceptable credit score from the SBA prior to the loan being submitted for processing. The SBA adopted the SLA application process as the model for processing all non-express 7(a) loans of $350,000 or less, effective January 1, 2014. As mentioned previously, the Obama Administration waived the up-front, one time loan guaranty fee and ongoing servicing fee for 7(a) loans of $150,000 or less approved in FY2014 (and later extended the fee waiver in FY2015 and FY2016). H.R. 2462 , the Small Business Opportunity Acceleration Act of 2013, introduced on June 20, 2013, and referred to the House Committee on Small Business, would have made the fee waiver permanent. Also, the Obama Administration waived the up-front, one-time loan guaranty fee for veteran loans under the SBAExpress program (up to $350,000) from January 1, 2014, through the end of FY2015 (called the Veterans Advantage Program). S. 2143 , the Veterans Entrepreneurship Act, would have authorized this fee waiver and made it permanent. Also, P.L. 113-235 provided statutory authorization to waive the 7(a) SBAExpress program's guarantee fee for veterans (and their spouse) in FY2015. Legislative Activity During the 114th Congress P.L. 114-38 , the Veterans Entrepreneurship Act of 2015, authorized and made permanent the waiver of the up-front, one-time loan guaranty fee for veterans (and their spouse) in the SBAExpress program beginning on or after October 1, 2015, except during any upcoming fiscal year for which the President's budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. The act also increased the 7(a) program's authorization limit from $18.75 billion in FY2015 to $23.5 billion. On June 25, 2015, the SBA informed Congress that the 7(a) program "is on track to hit its authorization ceiling of $18.75 billion well before the end of FY2015." The SBA indicated that "our activity and trend analysis reveal a strong uptick that, if sustained, would exceed our lending authority ceiling by late August." If that were to occur, and in the absence of statutory authority to do otherwise, the SBA reported that it would have to suspend 7(a) loan making for the remainder of the fiscal year. The SBA requested an increase in the 7(a) loan program's authorization limit to $22.5 billion in FY2015. On July 23, 2015, citing "unprecedented demand," the SBA suspended 7(a) program lending. The SBA indicated that it would continue to process loan applications "up to the point of approval" and then place approved loans "into a queue awaiting the availability of program authority." Loans would be released "once program authority became available due to Congressional action or as a result of cancellations of loans previously approved this fiscal year." Applications would then "be funded in the order they were approved by SBA, with the exception that requests for increases to previously approved loans will be funded before applications for new loans." The SBA resumed 7(a) lending on July 28, 2015, following P.L. 114-38 's enactment. In addition to increasing the 7(a) program's authorization limit for FY2015, the act added requirements designed to ensure that SBA loans do not displace private sector loans (e.g., the SBA Administrator may not guarantee a 7(a) loan if the lender determines that the borrower is unable to obtain credit elsewhere solely because the liquidity of the lender depends upon the guarantied portion of the loan being sold on the secondary market, or if the sole purpose for requesting the guarantee is to allow the lender to exceed the lender's legal lending limit), and requires the SBA to report, on a quarterly basis, specified 7(a) program statistics to the House and Senate Committees on Appropriations and Small Business. These required statistics are designed to inform the committees of the SBA's pace of 7(a) lending, provide estimates concerning the date on which the program's authorization limit may be reached, and present information concerning early defaults and actions taken by the SBA to combat early defaults. As mentioned previously, P.L. 114-113 increased the 7(a) program's authorization limit from $23.5 billion in FY2015 to $26.5 billion for FY2016. In addition, P.L. 114-223 , the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, authorized the SBA to use funds from its business loan program account "to accommodate increased demand for commitments for [7(a)] general business loans" for the duration of the continuing resolution (initially December 9, 2016, later extended by P.L. 114-254 , the Further Continuing and Security Assistance Appropriations Act, 2017, to April 28, 2017). In a related development, S. 2496 , the Help Small Businesses Access Affordable Credit Act, introduced on February 2, 2016, would have authorized the SBA Administrator, with prior approval of the House and Senate Committees on Appropriations, to make loans in an amount equal to not more than 110% of the 7(a) program's authorization limit if the demand for 7(a) loans should exceed that limit. The Obama Administration also requested authorization to allow the SBA Administrator to continue to issue loans should the demand for 7(a) loans exceed the program's authorization limit. Also. S. 2992 , the Small Business Lending Oversight Act of 2016, would have required the Director of the SBA's Office of Credit Risk Management (OCRM) to impose penalties on 7(a) lenders who "knowingly and repeatedly" undertake specified activities; required the SBA to annually undertake and report the findings of a risk analysis of the 7(a) program's loan portfolio; redefined the credit elsewhere requirement; authorized fees to be used to support OCRM operations; required the SBA to identify potential loan risks by lenders participating in the Preferred Lenders Program by requiring the SBA, at the end of each year, to "calculate the percentage of loans in a lender's portfolio made without a contribution of borrower equity when the loan's purpose was to establish a new small business concern, to effectuate a change of small business ownership, or to purchase real estate"; and, among other provisions, prohibited the SBA from approving any loan if its financing is more than 100% of project costs. Legislation was also introduced ( S. 2125 , the Small Business Lending and Economic Inequality Reduction Act of 2015) to provide permanent, statutory authorization for the Community Advantage Pilot program (see Appendix ). The SBA announced on December 28, 2015, that it was extending the Community Advantage Pilot program through March 31, 2020. It had been set to expire on March 15, 2017. Legislative Activity During the 115th Congress Recognizing that 7(a) loan approvals during the first half of FY2017 were about 9% higher than during the first half of FY2016, Congress included a provision in P.L. 115-31 , the Consolidated Appropriations Act, 2017, that increased the 7(a) program's authorization limit to $27.5 billion in FY2017 from $26.5 billion in FY2016. Congress also approved legislation ( P.L. 115-141 , the Consolidated Appropriations Act, 2018) that increased the 7(a) program's authorization limit to $29.0 billion in FY2018. In addition, as mentioned earlier, P.L. 115-189 , the Small Business 7(a) Lending Oversight Reform Act of 2018, among other provisions, codified the SBA's Office of Credit Risk Management; required that office to annually undertake and report the findings of a risk analysis of the 7(a) program's loan portfolio; created a lender oversight committee within the SBA; authorized the Director of the Office of Credit Risk Management to undertake informal and formal enforcement actions against 7(a) lenders under specified conditions; redefined the credit elsewhere requirement; and authorized the SBA Administrator to increase the amount of 7(a) loans not more than once during any fiscal year to not more than 115% of the 7(a) program's authorization limit. The SBA is required to provide at least 30 days' notice of its intent to exceed the 7(a) loan program's authorization limit to the House and Senate Committees on Small Business and the House and Senate Committees on Appropriations' Subcommittees on Financial Services and General Government and may exercise this option only once per fiscal year. Also, P.L. 115-232 , the John S. McCain National Defense Authorization Act for Fiscal Year 2019, included provisions to make 7(a) loans more accessible to employee-owned small businesses (ESOPs) and cooperatives. The act authorizes the SBA to make "back-to-back" loans to ESOPs to better align with industry practices (the loan proceeds must only be used to make a loan to a qualified employee trust); clarifies that 7(a) loans to ESOPs may be made under the Preferred Lenders Program; allows the seller to remain involved as an officer, director, or key employee when the ESOP or cooperative has acquired 100% ownership of the small business; and authorizes the SBA to finance transition costs to employee ownership and waive any mandatory equity injection by the ESOP or cooperative to help finance the change of ownership. The act also directs the SBA to create outreach programs with Small Business Investment Companies and Microloan intermediaries to make their lending programs more accessible to all eligible ESOPs and cooperatives, an interagency working group to promote lending to ESOPs and cooperatives, and a Small Business Employee Ownership and Cooperatives Promotion Program, administered by Small Business Development Centers, to offer technical assistance and training to small businesses on the transition to employee ownership through cooperatives and ESOPs. Congress did not focus much attention on the Trump Administration's proposal in its FY2019 budget request to "introduce counter-cyclical policies in SBA's business guaranty loan programs and update certain fees structures to offset $155 million in business loan administration." As mentioned earlier, the proposal included raising $93 million in additional revenue by allowing the SBA to set the 7(a) program's annual servicing fee at rates below zero credit subsidy; increasing the 7(a) loan program's FY2019 annual servicing fee's cap from 0.55% to 0.625%; and increasing the FY2019 upfront loan guarantee fee on 7(a) loans over $1 million by 0.25%. The Administration also requested that the 7(a) loan program's authorization limit be increased to $30.0 million in FY2019; that the SBA be allowed to further increase the 7(a) loan program's authorization amount in FY2019 by 15% under specified circumstances "to better equip the SBA to meet peaks in demand while continuing to operate at zero subsidies;" that the SBA be allowed to impose an annual fee, not to exceed 0.05% per year, of the outstanding balance on 7(a) secondary market trust certificates to help offset administrative costs; and that the SBAExpress program's loan limit be increased from $350,000 to $1 million. Legislative Activity During the 116th Congress P.L. 116-6 , the Consolidated Appropriations Act, 2019, increased the 7(a) program's authorization limit to $30.0 billion in FY2019. Concluding Observations The congressional debate concerning the SBA's 7(a) program during the 111 th Congress was not whether the federal government should act, but which federal policies would most likely enhance small businesses' access to capital and result in job retention and creation. As a general proposition, some Members of Congress argued that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations with the expectation that in so doing small businesses will create jobs. Others worried about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocated business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to help small businesses further economic growth and job creation. In terms of specific program changes, increasing the 7(a) program's loan limit, extending the 7(a) program's temporary fee subsidies and 90% maximum loan guaranty percentage, and establishing an alternative size standard for the 7(a) program were all designed to achieve the same goal: to enhance job creation by increasing the ability of 7(a) borrowers to access credit at affordable rates. However, determining how specific changes in federal policy are most likely to enhance job creation is a challenging task. For example, a 2008 Urban Institute study concluded that differences in the term, interest rate, and amount of SBA financing were "not significantly associated with increasing sales or employment among firms receiving SBA financing." The study also reported that the analysis accounted for less than 10% of the variation in firm performance. The Urban Institute suggested that local economic conditions, local zoning regulations, state and local tax rates, state and local business assistance programs, and the business owner's charisma or business acumen also "may play a role in determining how well a business performs after receipt of SBA financing." As the Urban Institute study suggests, because many factors influence business success, measuring the 7(a) program's effect on job retention and creation is complicated. That task is made even more challenging by the absence of performance-oriented measures that could serve as a guide. Both GAO and the SBA's OIG have recommended that the SBA adopt outcome performance-oriented measures for its loan guaranty programs, such as tracking the number of borrowers who remain in business after receiving a loan to measure the extent to which the program contributed to their ability to stay in business. Other performance-oriented measures that Congress might also consider include requiring the SBA to survey 7(a) borrowers to measure the difficulty they experienced in obtaining a loan from the private sector and the extent to which the 7(a) loan or technical assistance received contributed to their ability to create jobs or expand their scope of operations. Appendix. 7(a) Specialized Programs The 7(a) program has several specialized programs that offer streamlined and expedited loan procedures for particular groups of borrowers, including the SBAExpress, Export Express, and Community Advantage programs. Lenders must be approved by the SBA for participation in these programs. SBAExpress Program The SBAExpress program was established as a pilot program by the SBA on February 27, 1995, and made permanent through legislation, subject to reauthorization, in 2004 ( P.L. 108-447 , the Consolidated Appropriations Act, 2005). The program is designed to increase the availability of credit to small businesses by permitting lenders to use their existing documentation and procedures in return for receiving a reduced SBA guaranty on loans. It provides a 50% loan guaranty on loan amounts up to $350,000. As shown in Table A-1 , the SBA approved 27,794 SBAExpress loans (46.1% of total 7(a) program loan approvals), totaling $1.98 billion (7.8% of total 7(a) program amount approvals) in FY2018. The program's higher loan amount in FY2011 was due, at least in part, to a provision in P.L. 111-240 , the Small Business Jobs Act of 2010, which temporarily increased the SBAExpress program's loan limit to $1 million for one year following enactment (through September 27, 2011). During the 112 th Congress, H.R. 2936 , the Small Business Administration Express Loan Extension Act of 2011, would have extended the SBAExpress program's higher loan limit for an additional year (through September 27, 2012). SBAExpress loan proceeds can be used for the same purposes as those of the 7(a) program (expansion, renovation, new construction, the purchase of land or buildings, the purchase of equipment, fixtures, and lease-hold improvements, working capital, to refinance debt for compelling reasons, seasonal line of credit, and inventory); except that participant debt restructure cannot exceed 50% of the project and may be used for revolving credit. The program's loan terms are the same as those of the 7(a) program (the loan maturity for working capital, machinery, and equipment (not to exceed the life of the equipment) is typically 5 years to 10 years; and the loan maturity for real estate is up to 25 years, except that the term for a revolving line of credit cannot exceed 7 years. The SBAExpress loan's interest rates and fees are the same as those used for the 7(a) program. To account for the program's lower guaranty rate of 50%, lenders are allowed to perform their own loan analysis and procedures and receive SBA approval with a targeted 36-hour maximum turnaround time. Also, collateral is not required for loans of $25,000 or less. Lenders are allowed to use their own established collateral policy for loans over $25,000. As mentioned earlier, the SBA waived the up-front, one-time loan guaranty fee for 7(a) loans of $125,000 or less approved in FY2018. The SBA also waived 50% of the up-front, one-time loan guaranty fee on all non-SBAExpress 7(a) loans to veterans of $125,001 to $350,000 in FY2018. In addition, P.L. 114-38 , the Veterans Entrepreneurship Act of 2015, provided statutory authorization and made permanent the veteran's fee waiver in the SBAExpress program, except during any upcoming fiscal year for which the President's budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. The SBA waived this fee in FY2016, FY2017, and FY2018 and is waiving it in FY2019. The SBA indicated that its fee waivers for veterans are part "of SBA's broader efforts to make sure that veterans have the tools they need to start and grow a business." In a related development, the SBA discontinued the Patriot Express Pilot Program on December 31, 2013. It provided loans of up to $500,000 (with a guaranty of up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000) to veterans and their spouses. It had been in operation since 2007, and, like the SBAExpress program, featured streamlined documentation requirements and expedited loan processing. Over its history, the Patriot Express Pilot Program disbursed 9,414 loans amounting to more than $791 million. Export Express The Export Express program was established as a subprogram of the SBAExpress program in 1998, and made a separate pilot program in 2000. It was made permanent through legislation, subject to reauthorization, in 2010 ( P.L. 111-240 , the Small Business Jobs Act of 2010). The Export Express program is designed to increase the availability of credit to current and prospective small business exporters that have been in business, though not necessarily in exporting, for at least 12 full months, particularly those small businesses needing revolving lines of credit. Export Express loans may not be used to finance overseas operations, except for the marketing or distribution of products or services exported from the United States. The program is generally subject to the same loan processing, making, closing, servicing, and liquidation requirements as well as the same maturity terms, interest rates, and applicable fees as the SBAExpress program. Two key differences between the two programs is that the Export Express program's maximum loan amount is up to $500,000, and its guaranty rate is 90% for loans of $350,000 or less, and 75% for loans exceeding $350,000. There were 215 lenders with approved SBA Export Express loan guaranties at the end of FY2017. These lenders are located in 46 states, Guam, and Puerto Rico. As shown in Table A-2 , the SBA approved 59 Export Express loans totaling $15.45 million in FY2018. Community Advantage 7(a) Loan Initiative The SBA's Community Advantage (CA) 7(a) loan initiative became operational on February 15, 2011. Originally announced as a three-year pilot program (through March 15, 2014), it subsequently was extended through March 15, 2017; March 31, 2020; and September 30, 2022. As of September 12, 2018, there were 113 approved CA lenders, 99 of which were actively making and servicing CA loans. The CA loan initiative is designed to increase lending to underserved low- and moderate-income communities. It, along with the now-discontinued Small Loan Advantage program, replaced the Community Express Pilot Program, which also was designed to increase lending to underserved communities. The CA loan initiative provides the same loan terms, guaranty fees, and guaranty as that of the 7(a) program on loan amounts up to $250,000 (85% for loans up to $150,000 and 75% for those greater than $150,000). Loan proceeds can be used for the same purposes as those of the 7(a) program. The loan's maximum interest rate is prime, plus 6%. The program has an expedited approval process, which includes a two-page application for borrowers and a goal of completing the approval process within 5 to 10 days. The CA loan initiative is designed to increase "the number of SBA 7(a) lenders who reach underserved communities, targeting community-based, mission-focused financial institutions which were previously not able to offer SBA loans." These mission-focused financial institutions include the following: nonfederally regulated Community Development Financial Institutions certified by the U.S. Department of the Treasury, SBA's Certified Development Companies, SBA's nonprofit microlending intermediaries, and, added in December 2015, SBA's Intermediary Lending Pilot Program intermediaries. They are expected to maintain at least 60% of their SBA loan portfolio in underserved markets, including loans to small businesses in, or that have more than 50% of their full-time workforce residing in, low-to-moderate income (LMI) communities; Empowerment Zones and Enterprise Communities; HUBZones; start-ups (firms in business less than two years); businesses eligible for the SBA's Veterans Advantage program; Promise Zones (added in December 2015); and Opportunity Zones and Rural Areas (added in October 2018). The SBA placed a moratorium, effective October 1, 2018, on accepting new CA lender applications, primarily as a means to mitigate the risk of future loan defaults. The SBA also increased the minimum acceptable credit score for CA loans "that satisfies the need to consider several required underwriting criteria" from 120 to 140; increased the wait time for CA lenders ineligible for delegated lender status at the time of approval as a CA lender from 6 months to 12 months and increased the number of CA loans that must be initially dispersed before a CA lender may process applications under delegated authority from five to seven loans; increased the loan loss reserve requirement for CA loans sold in the secondary market from 3% to 5% of the outstanding amount of the guaranteed portion of each loan; modified requirements related to the refinancing of debts with a CA loan; limited fees that can be charged by a CA lender for assistance in obtaining a CA loan to no more than $2,500, with the exception of necessary out-of-pocket costs such as filing or recording fees; and as mentioned previously, added Opportunity Zones and Rural Areas to the list of economically distressed communities that are eligible for a CA loan. As shown in Table A-3 , the SBA approved 1,118 CA loans amounting to $157.5 million in FY2018 and 4,906 CA loans amounting to $643.72 million from the time the program became operational to the end of FY2018. As mentioned previously, legislation was introduced during the 114 th Congress ( S. 2125 , the Small Business Lending and Economic Inequality Reduction Act of 2015) to provide the Community Advantage Pilot program permanent, statutory authorization.

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 7(a) loan guaranty program is considered the agency's flagship loan program. Its name is derived from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorizes the SBA to provide business loans and loan guaranties to American small businesses. In FY2018, the SBA approved 60,353 7(a) loans totaling nearly $25.4 billion. The average approved 7(a) loan amount was $420,401. Proceeds from 7(a) loans may be used to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. This report discusses the rationale provided for the 7(a) program; the program's borrower and lender eligibility standards and program requirements; and program statistics, including loan volume, loss rates, use of proceeds, borrower satisfaction, and borrower demographics. It also examines issues raised concerning the SBA's administration of the 7(a) program, including the oversight of 7(a) lenders and the program's lack of outcome-based performance measures. The report also surveys congressional and presidential actions taken in recent years to enhance small businesses' access to capital. For example, Congress approved legislation during the 111th Congress to provide more than $1.1 billion to temporarily subsidize the 7(a) and 504/Certified Development Companies (504/CDC) loan guaranty programs' fees and temporarily increase the 7(a) program's maximum loan guaranty percentage to 90% (funding was exhausted on January 3, 2011); raise the 7(a) program's gross loan limit from $2 million to $5 million; and establish an alternative size standard for the 7(a) and 504/CDC loan programs. The SBA waived the up-front, one-time loan guaranty fee for smaller 7(a) loans from FY2014 through FY2018; and is waiving the annual service fee for 7(a) loans of $150,000 or less made to small businesses located in a rural area or a HUBZone and reducing the up-front one-time guaranty fee for these loans from 2.0% to 0.6667% of the guaranteed portion of the loan in FY2019. The SBA has also waived the up-front, one-time loan guaranty fee for veteran loans under the SBAExpress program (up to $350,000) since January 1, 2014; and reduced the up-front, one-time loan guaranty fee on non-SBAExpress 7(a) loans to veterans from FY2015 through FY2018. P.L. 114-38, the Veterans Entrepreneurship Act of 2015, provided statutory authorization and made permanent the veteran's fee waiver under the SBAExpress program, except during any upcoming fiscal year for which the President's budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. Congress also approved legislation that increased the 7(a) program's authorization limit from $18.75 billion (on disbursements) in FY2014 to $23.5 billion in FY2015, $26.5 billion in FY2016, $27.5 billion in FY2017, $29.0 billion in FY2018, and $30 billion in FY2019. P.L. 115-189, the Small Business 7(a) Lending Oversight Reform Act of 2018, among other provisions, codified the SBA's Office of Credit Risk Management; required that office to annually undertake and report the findings of a risk analysis of the 7(a) program's loan portfolio; created a lender oversight committee within the SBA; authorized the Director of the Office of Credit Risk Management to undertake informal and formal enforcement actions against 7(a) lenders under specified conditions; redefined the credit elsewhere requirement; and authorized the SBA Administrator, starting in FY2019 and after providing at least 30 days' notice to specified congressional committees, to increase the amount of 7(a) loans not more than once during any fiscal year to not more than 115% of the 7(a) program's authorization limit. The Appendix provides a brief description of the 7(a) program's SBAExpress, Export Express, and Community Advantage programs.

GAO_GAO-18-611T

The Number of SFSP Meals Served Generally Increased from 2007 through 2016, but Estimates of Children Participating Were Unreliable The total number of SFSP meals served nationwide during the summer— one indicator of program participation—increased from 113 million meals in fiscal year 2007 to 149 million meals in fiscal year 2016, or by 32 percent. Although almost half of the total increase in meals served in the summer months was due to increases in lunches, when comparing across each of the meal types, supper and breakfast had the largest percentage increases over the 10-year period, 50 and 48 percent, respectively (see table 1). The increase in SFSP meals over this time period was generally consistent with increases in the number of meals served in the National School Lunch Program (NSLP), the largest child nutrition assistance program, during this period. Although states reported the actual number of SFSP meals served to FNS for reimbursement purposes, they estimated the number of children participating in SFSP, and these participation estimates have been calculated inconsistently, impairing FNS’s ability to inform program implementation and facilitate strategic planning and outreach to areas with low participation. Specifically, state agencies calculated a statewide estimate of children’s participation in the SFSP, referred to as average daily attendance (ADA), using sponsor-reported information on the number of meals served and days of operation in July of each year. However, according to our review of states’ survey responses and FNS documents, states’ methods for calculating ADA have differed from state to state and from year to year. For example, although FNS directed states to include the number of meals served in each site’s primary meal service—which may or may not be lunch—some states calculated ADA using only meals served at lunch. In addition, five states reported in our survey that the method they used to calculate ADA in fiscal year 2016 differed from the one they used previously. While FNS clarified its instructions in May 2017 to help improve the consistency of states’ ADA calculations moving forward, ADA, even if consistently calculated, remained an unreliable estimate of children’s daily participation in SFSP for at least two reasons. First, ADA did not account for existing variation in the number of days that each site serves meals to children. Specifically, because FNS’s instructions indicated that sites’ ADAs were to be combined to provide a statewide ADA estimate, differences in the number of days of meal service at each site were disregarded. As a result, ADA did not reflect the average number of children served SFSP meals daily throughout the month. Second, ADA was an unreliable estimate of children’s participation in SFSP because it did not account for state variation in the month with the greatest number of SFSP meals served. According to FNS officials, the agency instructed states to calculate ADA for July because officials identified this as the month with the largest number of meals served nationwide. However, according to our analysis of nationwide FNS data, in summer 2016, 26 states served more SFSP meals in June or August than in July. Although FNS had taken some steps to identify other data that states collect on the SFSP, at the time of our May 2018 report, FNS had not yet used this information to help improve its estimate of children’s participation in the program. In 2015, FNS published a Request for Information, asking whether states or sponsors collected any SFSP data that were not reported to FNS, and received responses from 15 states. The responses suggested some states collected additional data, such as site-level data, that may allow for an improved estimate of children’s SFSP participation, potentially addressing the issues identified in our analysis. FNS also followed up with several of these states in 2016 and 2017 to explore the feasibility of collecting additional data and improving estimates of children’s SFSP participation. FNS stated in a May 2017 memo to states that it is critical that the agency’s means of estimating children’s participation in the SFSP is as accurate as possible because it helps inform program implementation at the national level and facilitates strategic planning and outreach to areas with low participation. Yet, at the time of our report, FNS had not taken further action to improve the estimate. In our May 2018 report, we concluded that FNS’s limited understanding of children’s participation in the SFSP impaired its ability to both inform program implementation and facilitate strategic planning and outreach to areas with low participation. To improve FNS’s estimate of children’s participation in the SFSP, we recommended that FNS focus on addressing, at a minimum, data reliability issues caused by variations in the number of operating days of meal sites and in the months in which states see the greatest number of meals served. FNS generally agreed with this recommendation. Other Federal and Nonfederal Programs Helped Feed Low- Income Children over the Summer to Some Extent Other federal and nonfederal programs that operate solely in the summer, as well as those operating year-round, helped feed low-income children in the summer months. For example, in 2016, FNS data indicated about 26 million meals were served through the NSLP’s Seamless Summer Option, a separate federal program that streamlines administrative requirements for school meal providers serving summer meals. Some children also received summer meals through nonfederal programs operated by entities such as faith-based organizations and foodbanks, though the reach of these efforts was limited, according to our state survey and interviews with providers and national organizations at the time of our report. For example, of the 27 states that reported in our survey awareness of the geographic coverage of these nonfederal programs, 11 states indicated that they operated in some portions of the state—the most common state response. States and SFSP Providers Faced Challenges with Meal Sites, Participation, and Program Administration, and FNS Actions Had Addressed Some, but Not All Areas States and SFSP providers reported challenges with issues related to meal site availability, children’s participation, and program administration, though federal, state, and local entities had taken steps to improve these areas. For example, a lack of available transportation, low population density, and limited meal sites posed challenges for SFSP implementation in rural areas, according to states we surveyed, selected national organizations, and state and local officials in the three states we visited. In response, state and local entities took steps, such as transporting meals to children by bus, to address these issues—efforts that FNS supported through information sharing and grants. States and SFSP providers also reported challenges with meal site safety, and FNS’s efforts to address this area were limited. Seventeen states reported in our survey that ensuring summer meal sites are in safe locations was moderately to very challenging. Some states and sponsors took steps to help address this issue, and FNS also used its available authorities to grant some states and sponsors flexibility with respect to the requirement that children consume summer meals on site, such as when safety at the site is a concern. However, our review of FNS documentation showed FNS had not clearly communicated to all states and sponsors the circumstances it considers when deciding whether to grant this flexibility. These circumstances—described in letters the agency sent to requesting states—generally included verification that violent crime activities occurred within both a 6-block radius of the meal site and 72 hours prior to the meal service. Although FNS officials explained that they reviewed state and sponsor requests for flexibility due to safety concerns on a case-by-case basis, they also acknowledged that the set of circumstances they used to approve state and sponsor requests for flexibility, which we identified in their letters to states, had been used repeatedly. Further, states and sponsors reported challenges obtaining the specific data needed for approval of a site for this type of flexibility, including inconsistent availability of timely data, which hampered some providers’ efforts to ensure safe delivery of meals. We concluded that unless FNS shared information with all states and sponsors on the circumstances it considered when deciding whether to grant flexibility with respect to the requirement that children consume summer meals on site, states and sponsors would likely continue to be challenged to use this flexibility, hindering its usefulness in ensuring safe summer meal delivery to children. We therefore recommended that FNS communicate to all SFSP stakeholders the circumstances it considers in approving requests for flexibility with respect to the requirement that children consume SFSP meals on-site in areas that have experienced crime and violence, taking into account the feasibility of accessing data needed for approval, to ensure safe delivery of meals to children. FNS generally agreed with this recommendation. We also found that while FNS had issued reports to Congress evaluating some of its demonstration projects, as required under its statutory authorities, the agency had not issued any such reports to Congress specifically on the use of flexibilities with respect to the on-site requirement in areas where safety was a concern. As previously discussed, the agency is required to annually submit certain reports to Congress regarding the use of waivers and evaluations of projects carried out under its demonstration authority. FNS officials told us that they had not evaluated or reported on these flexibilities, in part, because they had limited information on their outcomes. We concluded that without understanding the impact of its use of these flexibilities, neither FNS nor Congress knew whether these flexibilities were helping provide meals to children—the goal of the program. Accordingly, we recommended that FNS evaluate and annually report to Congress, as required by statute, on its use of waivers and demonstration projects to grant states and sponsors flexibility with respect to the requirement that children consume SFSP meals on-site in areas experiencing crime or violence, to improve understanding of the use and impact of granting these flexibilities on meeting program goals. FNS generally agreed with this recommendation. Although FNS had established program and policy simplifications to help lessen the administrative burden on sponsors participating in multiple child nutrition programs, challenges in this area persisted, indicating that information had not reached all relevant state agencies. According to officials we spoke with from a national organization involved in summer meals, management of each child nutrition program and the processes related to applications, funding, and oversight were fragmented in many states. For example, in one of the states we visited, a sponsor that provided school meals during the school year told us they had to fill out 60 additional pages of paperwork to provide summer meals, which they described as significant burden. FNS officials told us that some of the duplicative requirements might have been a function of differences in statute, and although FNS provided guidance to states on simplified procedures for sponsors participating in more than one child nutrition program, some states might have chosen not to implement them. We concluded that without further efforts from FNS to disseminate information on current options for streamlining administrative requirements across multiple child nutrition programs, overlapping and duplicative administrative requirements may limit children’s access to meals by discouraging sponsor participation in child nutrition programs. We recommended that FNS disseminate information about the existing streamlining options, and FNS generally agreed with this recommendation. Chairman Rokita, Ranking Member Polis, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Kathryn A. Larin at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony include Rachel Frisk, Melissa Jaynes, and Claudine Pauselli. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

This testimony summarizes information contained in GAO's May 2018 report entitled Summer Meals: Actions Needed to Improve Participation Estimates and Address Program Challenges , GAO-18-369 . It addresses (1) what is known about SFSP participation, (2) other programs that help feed low-income children over the summer, and (3) challenges in providing summer meals to children and the extent to which USDA provides assistance to address these challenges. For its May 2018 report, GAO reviewed relevant federal laws, regulations, and guidance; analyzed USDA's SFSP data for fiscal years 2007 through 2016; and surveyed state agencies responsible for administering the SFSP in 50 states and the District of Columbia. GAO also visited a nongeneralizable group of 3 states and 30 meal sites, selected based on Census data on child poverty rates and urban and rural locations, and analyzed meal site data from these 3 states. In addition, GAO interviewed USDA, state, and national organization officials, as well as SFSP providers, including sponsors and site operators. Nationwide, the total number of meals served to children in low-income areas through the Summer Food Service Program (SFSP) increased from 113 to 149 million (about 32 percent) from fiscal year 2007 through 2016, according to GAO's May 2018 report. GAO noted that the U.S. Department of Agriculture (USDA) directed states to use the number of meals served, along with other data, to estimate the number of children participating in the SFSP. However, GAO found that participation estimates had been calculated inconsistently from state to state and year to year. In 2017, USDA took steps to improve the consistency of participation estimates, noting they are critical for informing program implementation and strategic planning. However, GAO determined that the method USDA directed states to use would continue to provide unreliable estimates of participation, hindering USDA's ability to use them for these purposes. Other federal and nonfederal programs helped feed low-income children over the summer to some extent, according to states GAO surveyed and SFSP providers and others GAO interviewed for its May 2018 report. For example, GAO found that in July 2016, about 26 million meals were served through a separate federal program that allowed school meal providers to serve summer meals, according to USDA data. Some children also received summer meals through nonfederal programs operated by faith-based organizations and foodbanks, though GAO's state survey and interviews with SFSP meal providers and national organizations indicated the reach of such efforts was limited. In GAO's May 2018 report, states and SFSP meal providers reported challenges with issues related to meal sites, participation, and program administration, though USDA, state, and local officials had taken some steps to address these issues. Seventeen states in GAO's survey and several providers in the states GAO visited reported a challenge with ensuring meal sites were in safe locations. To address this issue, USDA granted some states and providers flexibility from the requirement that children consume meals on-site. However, GAO found that USDA had not broadly communicated the circumstances it considered when granting this flexibility or reported to Congress on the use of flexibilities with respect to the on-site requirement in areas where safety was a concern, per requirements. As a result, neither USDA nor Congress knew whether these flexibilities were helping provide meals to children and meeting program goals. Further, officials from national and regional organizations GAO interviewed, as well as providers GAO visited, reported challenges related to the administrative burden associated with participating in multiple child nutrition programs. Although USDA had established program and policy simplifications to help lessen related burdens, the persistence of challenges in this area suggested that information had not reached all relevant state agencies, potentially limiting children's access to meals by discouraging provider participation.

GAO_GAO-18-46

Background As we have previously reported, transportation systems and facilities are vulnerable and difficult to secure given their size, easy accessibility, large number of potential targets, and proximity to urban areas. TSA’s mission is to protect the nation’s transportation systems by providing effective and efficient security to ensure freedom of movement for people and commerce. Accordingly, TSA is responsible for managing vetting and credentialing programs to ensure that individuals that transport hazardous materials or have unescorted access to secure or restricted areas of transportation facilities at maritime ports and TSA-regulated airports do not pose a security threat. In order to carry out this responsibility, TSA conducts background checks—known as security threat assessments— on individuals seeking an endorsement, credential, access, and/or privilege (hereafter called a credential). Specifically, TSA reviews applicant information and searches government databases, such as criminal history records from federal, state, and local sources in the Federal Bureau of Investigation’s National Crime Information Center database and Terrorist Screening Database, which is the federal government’s consolidated terrorist watchlist. This information is used to determine whether the applicant has known ties to terrorism and whether the applicant may be otherwise precluded from obtaining a credential based on his or her immigration status and criminal history, among other factors. If TSA determines that an applicant does not pose a security threat, a credential may be supplied by an issuing entity. If it determines an applicant should be denied, the agency issues a preliminary determination of ineligibility letter to the applicant. The applicant may seek redress by appealing the determination or requesting a waiver. TSA’s security threat assessments support over 30 credentialing programs in the maritime, surface, and aviation transportation segments. The largest programs include the Transportation Worker Identification Credential program for maritime workers, Hazardous Materials Endorsement program for commercially licensed drivers, the Aviation Worker program, and TSA Pre® for travelers at airport checkpoints. According to TIM program officials, these transportation programs are collectively estimated to have processed about 12.8 million enrollments by October 2017. Table 1 describes the largest transportation credentialing programs, by segment, and purpose of each. TSA Established the TIM Program to Address Shortcomings with Security Threat Assessments and Credentialing Systems TSA’s legacy IT systems that are currently used to help conduct its security threat assessment and credentialing functions are an aggregation of stove-piped solutions that were developed over a period of time to support individual transportation screening programs. These systems are duplicative and lack needed sophistication to effectively detect, for example, if an individual is attempting to gain access to multiple facilities across different transportation programs in an effort to find any successful entry point. Early detection of this type of threat is difficult and time consuming because many aspects of the current systems are not fully automated. Additionally, we and the DHS Office of Inspector General (OIG) have previously reported numerous shortfalls with TSA’s security threat assessment and credentialing systems. We reported in 2011 that the demand for security threat assessments is expected to continue to grow and the existing credentialing systems will not be able to accommodate this growing enrollment demand. In July 2013, we reported on functional limitations and technical problems with TSA’s legacy credentialing systems that were to be addressed by the TIM system. These limitations included the inability to run reports to measure TSA response times to applicants, track adjudication of cases, and address case workload backlogs. We also reported on delays in processing new cases. We made recommendations to address these issues and DHS agreed with our recommendations. DHS has taken several actions to implement the recommendations, such as establishing a process for developing accurate workload projections and hiring additional adjudicators. In June 2015, DHS’s OIG reported on issues with TSA’s lack of continuous vetting once a credential was issued, referred to as recurrent vetting. For example, the OIG reported on the need for recurrent vetting of aviation workers. Specifically, it found that TSA did not have effective controls in place for ensuring that aviation workers had not committed crimes that would disqualify them from having unescorted access to secure areas of airports, and that they had lawful immigration status and were authorized to work in the United States. Instead, TSA depended on the commercial airports and air carriers to verify criminal histories of workers who already hold credentials, and on the credential holders themselves to report disqualifying crimes to the airports where they worked. The DHS OIG recommended that TSA pilot the Federal Bureau of Investigation’s Rap Back program and take steps to institute recurrent vetting of criminal histories at all commercial airports. TSA concurred with the recommendation and stated that it planned to initiate a pilot Rap Back program to help ensure full implementation across all eligible TSA- regulated populations in the future. In September 2016, DHS’s OIG reported that, although TSA required Transportation Worker Identification Credential cardholders to self- report to the administration and surrender their card when charged with a disqualifying offense, this self-reporting occurred only once between 2007 and 2016. The report also stated that TSA was testing two methods to implement recurrent vetting into its credentialing programs—the Federal Bureau of Investigation’s Rap Back program to check for criminal violations and the use of DHS’s Automated Biometric Identification System to check for both criminal and immigration violations. However, TSA’s plans did not include a method for determining the best approach, and the OIG reported that this would impede TSA’s ability to implement recurrent vetting successfully and efficiently. Accordingly, the OIG recommended that TSA establish measurable and comparable criteria to use in evaluating and selecting the best criminal and immigration recurrent vetting option, and TSA concurred with this recommendation. Also, in September 2016, the DHS OIG reported that the background checks for the Transportation Worker Identification Credential program were not as reliable as they could be. For example, the OIG found that TSA did not have processes in place to ensure the proper separation of duties for adjudicators, who had the ability to assign, review, and perform quality assurance on the same case. The OIG also found missing supervisory review controls in the terrorism vetting process. Accordingly, the OIG recommended that TSA identify and implement additional internal controls and quality assurance procedures; TSA agreed with the recommendation. In response, TSA planned to make improvements to the TIM system to include an additional quality assurance component in which the system would automatically select cases for senior adjudicators to review and to incorporate into the overall reporting and monitoring activities. The TIM system is intended to address the shortfalls identified in these prior reports by providing a modern and centralized end-to-end credentialing system. The system is also intended to provide counter- terrorism and trend analytic capabilities to help identify unusual activities (e.g., credential shopping and using multiple aliases) across the entire credentialing process and all transportation populations supported by TSA’s security threat assessments. In addition, the system is expected to enable automated recurrent vetting of individuals against criminal and immigration databases to ensure that a credential or endorsement is revoked if an individual commits a disqualifying act. The planned credentialing process that is to be supported by the TIM system includes: Registration and enrollment: Individuals seeking a credential or endorsement under one of the transportation programs supported by the system are expected to be able to apply for a security threat assessment at a Universal Enrollment Center or via the system’s online portal. The biographic and biometric information collected from the applicant is to be received and processed by the system. Eligibility vetting and risk assessment: The system is to conduct automated vetting of the applicant’s information against criminal, immigration, and terrorism watchlists to determine the security risk associated with allowing access privileges based on the criteria for the credential or endorsement that the individual is seeking to obtain. If the results return a flag for a potentially disqualifying factor, the applicant’s case is to be sent for adjudication. TSA adjudicators are to use the system to review and adjudicate cases that did not pass automated vetting by comparing the applicant’s information to the criteria for the credential or endorsement that the individual is seeking to obtain. The adjudicators are to determine the applicant’s eligibility for the credential or endorsement, and approve or deny the individual’s application. Issuance: When an applicant is approved through eligibility vetting or adjudication, the system is to notify the applicant of approval and provide instructions on how to receive the credential, which is to be activated by the system and supplied by the issuing entity. The applicant also is to be able to login to the online portal to view the status of the application. Verification and use: Use of the credential in secured areas is to be verified, including determining that the credential is authentic, that the individual is the correct recipient of the credential, and that the credential’s status is valid (not revoked or expired). Revocation and expiration: The system is expected to conduct subsequent automated recurrent vetting of individuals who previously had been approved against criminal, immigration, and terrorist databases on an ongoing basis. If, as a result of recurrent vetting or self-reporting, there is new information indicating that an applicant’s credential should be revoked, the system is to alert the adjudicators who are then to determine if revocation is needed. The system is to prompt credential expiration at the end of a specified period of time. Redress or waiver: An applicant that is denied a credential is to be able to apply to TSA to either appeal the decision, to include providing documentation to prove that he/she is eligible, or request a waiver from having to meet the eligibility criteria. Trend analytics: The system is to allow TSA’s Office of Intelligence and Analysis users to select from a standardized suite of analysis tools that would allow them to identify unusual activities across transportation populations. A key objective would be to identify through analysis those adversaries and terrorists who may attempt to hide behind multiple personas and aliases. Figure 1 provides an overview of the intended future credentialing process which the TIM system is expected to support. Agile Software Development TIM program officials decided to adopt an Agile software development approach—a type of incremental development—which calls for the rapid delivery of software in small, short increments rather than in the typically long, sequential phases of a traditional waterfall software development approach. This decision is consistent with OMB’s guidance as specified in its IT Reform Plan, as well as the legislation commonly referred to as the Federal Information Technology Acquisition Reform Act. Agile emphasizes early and continuous software delivery, as well as using collaborative teams and measuring progress with working software. Figure 2 provides a depiction of software development using the Agile approach compared to a waterfall approach. The Agile approach significantly differs in several ways from traditional waterfall software development. Table 2 highlights major differences between the Agile and waterfall software development approaches. Additionally, Agile practices integrate planning continuously throughout the life-cycle. Although Agile requires some high-level, up front planning, in general, planning in Agile focuses on the near term of the next few software releases. Planning sessions are conducted to support each release, iteration, and every work day. For example, development teams have daily meetings, where the team members discuss what they did yesterday and what they plan to do that day. Frequent planning is aimed at ensuring the program is delivering the needed capabilities to the end users. As we have previously reported, numerous frameworks are available to Agile practitioners to guide their Agile software development activities. Scrum is one common framework, which is widely used in the public and private sectors and its terminology is often used in Agile discussions. The following are key Scrum terminology and concepts: Product owners represent the end user community and have the authority to set business priorities, make decisions, and accept completed work. Scrum iterations (also called sprints) are where development teams build a piece of working software during a short, set period of time (e.g., 2 weeks). A collective set of sprints is bundled into a software release. Sprint teams (or development teams) conduct the Agile software development and testing work. These teams collaborate with minimal management direction, often co-located in work rooms. They meet daily and post their task status visibly, such as on wall charts. Scrum masters, similar to project managers, are responsible for removing impediments to the sprint teams’ ability to deliver the product goals and deliverables. User stories convey the customers’ requirements at the smallest and most discrete unit of work that must be done to create working software. Each user story is assigned a level of effort, called story points, which is a relative unit of measure used to communicate complexity and progress between the business and development sides of the project. To ensure that the product is usable at the end of every iteration, teams adhere to an agreed-upon definition of what constitutes acceptable, completed work. Backlogs are lists of requirements, such as user stories, to be addressed by working software. If new requirements or defects are discovered, these can be stored in the backlog to be addressed in future iterations. Velocity is a metric which is used to track the rate of work completed using the number of story points completed or expected to be completed in an iteration (i.e., sprint), or release. For example, if a team completed 100 story points during a 4-week iteration, the velocity for the team would be 100 story points every 4 weeks. Another framework, referred to as the Scaled Agile Framework (SAFe), is a governance model for organizations to use to align and collaborate the product delivery for modest to large numbers of Agile software development teams. The framework is intended to be applied to several organizational levels, including the development team level, the program level, and the portfolio level. It is also intended to provide a scalable and flexible governance framework that defines roles, artifacts, and processes for Agile software development across all levels of an organization. DHS has sought to establish Agile software development as the preferred method for acquiring and delivering IT capabilities. Specifically, in February 2016, the DHS Under Secretary for Management initiated an Agile software development pilot to improve the execution and oversight of the department’s IT acquisitions. The Under Secretary for Management selected five DHS programs that were in various stages of the acquisition life-cycle, including the TIM program, to be part of the pilot. As part of this pilot initiative, DHS established integrated product teams designed to support each of the five programs in their efforts to adopt Agile practices. These teams were directed to focus on effectively planning and executing the pilot programs, as well as developing appropriate documentation to support program execution. According to the Under Secretary for Management, the department plans to use lessons learned from the pilots to develop and update policies and procedures for executing the pilot programs and future IT acquisitions. As of May 2017, department officials had not determined a completion date for the pilot. Additionally, DHS established a headquarters-level Agile team intended to collaborate across the department on improvements to policy, governance, and acquisition guidance. This group is intended to support Agile delivery; codify and publicize process improvement artifacts generated by the program-level integrated product teams; and eliminate redundancies and conflicting guidance so that oversight groups speak with one voice, reducing time through the acquisition process. DHS Oversight Framework In addition to the use of Agile software development principles, the TIM program is subject to the department’s oversight framework. Specifically, the program is to adhere to DHS’s acquisition policy, including its systems engineering life-cycle framework, which is intended to support efficient and effective delivery of IT capabilities. The Under Secretary for Management serves as the decision authority for the program, and is responsible for overseeing adherence to DHS’s acquisition policies for the department’s largest acquisition programs (i.e., those with life-cycle cost estimates of $1 billion or more). The Under Secretary for Management is supported by two offices within the department. The first of these offices—the Office of Program Accountability and Risk Management (PARM)—is responsible for DHS’s overall acquisition governance process. PARM is responsible for, among other things, periodically conducting program health assessments to evaluate acquisition programs, in terms of a program’s management, resources, planning and execution activities, requirements, cost and schedule, and how these factors are impacting a program’s ability to deliver a capability. The other key supporting office—the DHS Chief Information Officer (CIO)—is responsible for, among other things, setting departmental IT policies, processes, and standards. The CIO is also responsible for ensuring that acquisitions comply with the department’s IT management processes, technical requirements, and the approved enterprise architecture. Within the Office of the Chief Information Officer (OCIO), the Enterprise Business Management Office is to ensure that the department’s IT investments align with its missions and objectives. As part of its responsibilities, this office periodically assesses investments to gauge how well they are performing through a review of program risk, human capital, cost and schedule, and requirements—referred to as the CIO’s program health assessment. According to the CIO, the Chief Technology Officer, which is responsible for leading the development of IT and standards across the department, and for management of the Agile pilot initiative, offers guidance and assistance to programs to help improve their execution. In addition, the Director of the Office of Test and Evaluation is to provide oversight of components’ independent test and evaluation activities. The DHS Acquisition Review Board is chaired by the Under Secretary for Management and is made up of many executive level members including the CIO, the Executive Director of the Office of PARM, and the Chief Procurement Officer. The board is to meet periodically to oversee programs’ business strategies, resources, management, accountability, and alignment to strategic initiatives. Additionally, the department has established executive steering committees, which generally are comprised of component and DHS executive-level members, such as the component CIO and Chief Financial Officer, as well as the DHS Chief Technology Officer and the Executive Director of the Office of PARM. The committees are to provide governance, oversight, and guidance to programs and their related projects and initiatives to help ensure successful development and operations. Figure 3 shows the organizational structure of the key DHS organizations with IT acquisition management responsibilities. TSA Organizations Involved with the TIM Program The TIM program office resides within the Mission Operations component of TSA’s Office of Information Technology. The expected users of the TIM system come from multiple offices under the Office of Intelligence and Analysis, including the Security Threat Assessment Operations office, which is responsible for conducting the security threat assessments, and the Program Management office, which is responsible for managing TSA’s maritime, surface, and aviation credentialing programs. The TIM program’s Executive Steering Committee is chaired by the TSA CIO, who is the head of the Office of Information Technology, and the TSA Deputy Component Acquisition Executive, and meets quarterly. In addition, the TSA Operational Test Agent is to perform operational testing and evaluation of the TIM system’s operational effectiveness, interoperability, cybersecurity, and suitability. As previously mentioned, the DHS Director of the Office of Test and Evaluation is to provide oversight of these test and evaluation activities. Figure 4 shows the key TSA organizations involved with the TIM program. After Experiencing Significant Cost, Schedule, and Performance Issues with the Initial TIM System Deployment, TSA Implemented a New Strategy The TIM program experienced significant cost, schedule, and performance issues during its initial implementation efforts. Specifically, in May 2014, TSA launched an initial version of a commercial-off-the-shelf (COTS) system for the maritime transportation segment of TIM that was to support the Transportation Worker Identification Credential program. However, as we previously reported, in September 2014, TSA reported to DHS that the program had breached its baseline because it had significant cost, schedule, and performance issues due to, among other things, the addition of newly created credentialing programs that were added to the program’s scope, such as TSA Pre® and Chemical Facility Anti-Terrorism Standards. TIM program officials also reported in the breach remediation plan other issues that led to the breach, including different expectations between TSA officials and the contractor regarding the extent of reuse of system functionality among the different transportation segments. Specifically, TSA expected that it would be able to reuse more of the maritime functionality for the surface and aviation populations, while the contractor expected there to be less reuse. In January 2015, the Acting Under Secretary for Management directed program officials to suspend all planning and development efforts related to the other two segments of the program—surface and aviation—until the issues with the maritime segment could be resolved. In August 2015, program officials prepared a revised life-cycle cost estimate which increased costs to approximately $1.34 billion (about $713 million more than the original 2011 estimate), and delayed full deployment of the TIM system (to include all three transportation segments) to fiscal year 2022 (7 years later than originally planned). Also, in September 2015, the Director of the Office of Test and Evaluation issued a letter of assessment which concluded that initial operational testing of the COTS system for the maritime segment had determined that the system was not operationally effective and not operationally suitable. The Under Secretary for Management directed the DHS CIO to conduct a thorough review of the proposed plans for moving forward with the TIM program. After conducting the review, the CIO did not support the program’s proposal. As a result, in November 2015, the Under Secretary for Management continued the suspension of all developmental efforts for the surface and aviation transportation segments, but authorized the program to continue resolving problems that were identified during initial operational testing for the COTS system being used by the maritime segment. The Under Secretary for Management also directed the CIO to form and lead an integrated product team with senior TSA representatives and the TIM program office to develop a new strategy for the program. In March 2016, DHS and TSA officials completed a new strategy for delivering TIM capabilities. This strategy included the following changes: replace proprietary COTS applications with custom-developed applications using open source code; transition traditional, large development teams using a waterfall system development methodology to an Agile software development framework to enable rapid, incremental development and deployment; and migrate from a defined, fixed data center environment to a scalable Federal Risk and Authorization Management Program (FedRAMP) certified cloud computing environment. Also, according to the new strategy, the move from the COTS product to an open source solution is to include replacing the COTS product that had already been deployed to the maritime segment with the open source solution. It is also to include replacing the legacy systems that support the credentialing programs from the other two transportation segments (surface and aviation) with the open source solution. TSA plans to incrementally transition the program from these legacy systems between fiscal years 2018 and 2021. Additionally, the system is expected to interface with at least 19 other information systems, including the following key systems: TSA’s Transportation Vetting System, which conducts initial and recurrent name-based matching against defined terrorist related data sets. The Federal of Bureau of Investigation’s National Crime Information Center, which is an electronic clearinghouse of crime data. DHS’s Automated Biometric Identification System, also referred to as IDENT, which is the central DHS-wide system for storage and processing of biometric and associated biographic information for national security, law enforcement, immigration and border management, intelligence, and other background investigative purposes. TSA’s Secure Flight, which identifies individuals who may pose a threat to aviation or national security and designates them for enhanced screening or prohibition from boarding an aircraft, as appropriate. The U.S. Citizenship and Immigration Service’s Systematic Alien Verification for Entitlements, which is the primary data source for government agencies to verify legal entry and presence in the United States of a non-U.S. citizen or naturalized U.S. citizen. In April 2016, the Under Secretary for Management approved the TIM program’s new strategy and, in September 2016—almost 2 years after the program was initially suspended—the program was rebaselined to reflect the new strategy. As we previously reported, the estimated cost and schedule in the revised baseline was significantly different than the initial baseline. The revised baseline estimate was for about $1.27 billion (a $74 million decrease from the previous 2015 cost estimate and an overall increase of $639 million from the original 2011 estimate), with full deployment planned for 2021 (a 1-year acceleration from the previous 2015 schedule and an overall delay of 6 years from the original 2011 schedule). Table 3 shows the estimated costs and schedules reflected in the initial and revised estimates. According to TIM officials, in the program’s first 8 years (between October 2008 and September 2016), TSA spent over $280 million to deploy the initial COTS solution to the maritime segment and address critical fixes in the solution (i.e., the solution that TSA determined it needs to replace). Also during 2016, TSA began transitioning to an Agile software development framework. In September 2016, TSA issued two task orders to a contractor to provide Agile software development services. The orders were issued to the same design and development contractor that had assisted with the initial deployment of the TIM COTS solution. From October 2016 to June 2017, the program deployed four software releases using Agile software development practices. These releases were focused on, for example, deploying new functionality to the COTS system to enhance the criminal and immigration vetting data provided to adjudicators. In December 2016, between the first and second Agile releases, the program suspended new development for 1 month while officials reconsidered the order in which they would deliver functionality. Also during this period, the program developed and deployed a smaller release which program officials refer to as a “half release.” According to program officials, this release did not produce any new capabilities and instead addressed operations and maintenance-related fixes to the deployed COTS system. After development of the second software release, at the end of March 2017, the program was reviewed by DHS’s Acquisition Review Board. The purpose was to review the results of follow-on operational testing that was performed to determine whether the program had adequately addressed the prior system and usability issues and implementation of the program’s new strategy. The meeting was also intended to discuss the status of several action items from a prior review board meeting that occurred in September 2016, such as finalizing a test and evaluation master plan, conducting a cybersecurity threat assessment, updating the program’s mission needs statement and concept of operations, and establishing software development cost metrics. Implementation of the new strategy continues to be monitored by DHS and TSA oversight bodies. The New Strategy for the TIM Program Has Addressed Selected Prior Challenges, but Concerns Remain The new strategy for the TIM program addressed a number of major challenges that the program faced during earlier efforts to develop and deploy the system; nevertheless, key challenges remain. Specifically, of the seven major challenges that the program faced during its initial implementation of a COTS solution for the maritime segment, four challenges have been addressed related to (1) system performance and usability issues, (2) data migration issues, (3) information security testing, and (4) the inadequacy of the program’s previous hosting facility. However, the remaining three challenges regarding constraints with COTS product, significant addition of new transportation programs (e.g., TSA Pre®), and insufficient stakeholder coordination and communication have not been fully addressed. Fixes Have Been Implemented to Address Critical System Performance and Usability Issues According to DHS guidance, among other things, an operational test and evaluation examines systems for operational effectiveness. Specifically, it tests for the ability of a system to accomplish a mission when used by representative users in the expected environment. The 2015 initial operational testing of the maritime segment (supporting the Transportation Worker Identification Credential program) found that the COTS system was extremely unreliable due to frequent critical failures, and had several system performance and usability issues that limited users’ ability to execute tasks in a timely and accurate manner. These issues included lags, freezes, the need for excessive refreshes, inadequate reporting and case management functionalities, as well as an interface that was not user-friendly. For example, the system was unable to produce accurate reports on case workload and status, so users expended significant effort creating spreadsheets to manually assign cases and manage their progress. The system was also unable to perform certain waiver functions in a timely and complete manner, which resulted in a significant backlog. The program office has addressed the issues identified in the initial operational test report by first identifying a list of over 900 action items. According to TIM officials, they validated this list with the operational test agent and prioritized the action items with the product owners (i.e., end users) to identify which were the most critical to complete. For example, critical items included addressing issues with the waiver functions, assigning cases, and issuing credentials. The program implemented the critical fixes by developing seven software releases from September 2015 to October 2016. In January 2017, the TSA operational test agent reported that follow-on operational testing of the COTS system confirmed that the program had adequately addressed the prior system and usability issues. As a result, according to the test agent, the program’s previously deployed maritime segment of the system performed as intended. Actions Have Been Taken to Better Account for the TIM Program’s Future Data Migration Efforts According to leading practices, IT programs should identify potential problems before they occur. This allows programs to plan and execute activities to mitigate the risk of such problems having adverse impacts on the program. When the TIM program transitioned maritime users from the legacy system to the COTS system, according to TSA’s breach remediation plan, program officials found that cleaning and properly migrating data was very difficult and time consuming because the legacy systems were old and the data mapping information was not readily evident. Program officials stated that the data migration efforts were also difficult because of the proprietary nature of the COTS product, which impacted the ability to effectively migrate data from legacy systems. The additional time needed for data migration resulted in higher than anticipated costs for the maritime transportation segment. Program officials have taken action to better account for the TIM program’s future data migration efforts. Specifically, as part of the new strategy, the officials plan to defer legacy data migration until after system deployment efforts are complete to avoid disrupting deployment efforts. The strategy focuses on the program migrating only closed case data from the legacy systems to the new system. As such, adjudicators are to continue to complete and close any security threat assessment cases opened in the legacy system even after the new system is deployed, and the new system is to only handle newly opened security threat assessment cases. Once final disposition of the cases in the legacy system is complete, those cases would then be included in the closed case data migration effort, which is planned to occur at the end of development, around fiscal years 2020 to 2021. In addition, the new strategy includes streamlining the data migration by using the open source solutions to help simplify the migration of data on transportation populations from the legacy systems. As a result of the new approach, the program should be better positioned to more effectively migrate data during future transitions between the legacy systems and new system. Prior Information Security Weaknesses in the TIM System Have Been Addressed, and Deferred Cybersecurity Threat Testing Is Planned According to DHS guidance, the operational test and evaluation also should examine the department’s systems for operational suitability, which is the degree to which a system is deployable and sustainable. The evaluation is to take into account factors such as reliability, maintainability, availability, and interoperability. The 2015 initial operational testing of the COTS system found that it was not suitable because the system had significant information security weaknesses. Specifically, the system inappropriately provided users with greater access than was necessary to do their jobs, which undermined the security benefits of controlling what different users were able to do in the system based on their role. The COTS system also contained critical and high-risk system security vulnerabilities which could result in the compromise of sensitive system information, such as passwords, and could hinder TSA officials’ ability to effectively respond to incidents. Program officials took actions to address the security weaknesses previously identified. For example, in response to the findings from the initial operational testing, between September 2015 and October 2016, they developed and released fixes to the significant security weaknesses. In April 2017, the results of the follow-on operational testing confirmed that the COTS system was free of critical or high-risk system security vulnerabilities and that it appropriately restricted access to the system by only allowing users to access areas of the system needed to support their specific business tasks. In addition, critical steps to evaluate the system’s cybersecurity have been planned, but not yet completed. Specifically, testing for realistic cybersecurity threats which is used to help categorize the system’s risk- level in terms of confidentiality, integrity, and availability, was deferred until March 2018. Program officials decided to defer this test until new hosting environments for TIM are implemented, rather than testing TIM in an environment that will soon be retired. These environments are intended to enable the development, testing, and production of the system. However, implementation of those environments has been delayed until December 2017, and as a result, the cybersecurity vulnerability assessment has been deferred to March 2018. The identification of a time frame in which the program plans to conduct this important cybersecurity test is a step in the right direction, and avoiding additional delays will be important. TSA Decided to Discontinue Use of a DHS-Provided Cloud, and Recently Took Actions to Address Delays in Implementing Interim Hosting Environments According to OMB, a hosting facility or data center is to process or store data and must meet stringent availability requirements. Additionally, cloud computing can be used as a means for enabling on-demand access to shared and scalable pools of computing resources. During the initial implementation of TIM, the system was hosted in a cloud that operated out of a DHS data center (referred to as DHS Data Center 1). However, the DHS cloud was higher in operations and maintenance costs than the program originally planned, which presented a challenge for the program. To address this challenge, in 2016, TIM program officials decided to move the COTS system that was previously deployed (the maritime segment) out of the DHS cloud and set it up in a public cloud environment. They also planned to use the public cloud environment to develop, test, and operate the future TIM open-source based system. The officials planned to use a phased migration that consisted of first establishing hosting environments at two data centers—DHS Data Center 1 and TSA Colorado Springs Operations Center. The officials planned to use the data centers for the development, testing, and production of the future TIM open-source based system, and then eventually transition to a public or hybrid cloud once the system reaches full operational capability in fiscal year 2021. As part of this approach, officials planned to establish 10 development, testing, and production environments at these data centers from January to July 2017, so that TIM’s development teams did not have to compete for the same environments during Agile software development and testing efforts. While the program experienced delays in setting up its production environment, officials recently took actions to address these delays. Specifically, the program was expected to have a new production environment available at the TSA Colorado Springs Operations Center by March 2017; however, it was delayed until May 2017. Additionally, while migration of the TIM system to the new hosting environments was planned to occur by September 2017, it has been delayed. These delays have contributed, in part, to delays in other aspects of the program, including the execution of the cybersecurity vulnerability assessment, as well as delays in the implementation of automated testing and deployment tools (discussed later in this report). In response to these delays, program officials recently established a revised schedule in May 2017 for setting up the new environments by December 2017. Effectively executing against this updated schedule should help to keep the program on track with delivering these important environments and fully addressing the related challenge that the program experienced during its prior implementation efforts. TSA Decided to Move the TIM System from COTS to Open Source, but Implementation Plans Continue to Significantly Change According to leading practices and guidance, technology decisions should seek to enable services to scale easily and cost-effectively and to avoid vendor lock-in by, for example, using open source solutions. The benefits of using open source solutions can include improved software reliability and security through the identification and elimination of defects from continuous and broad peer review of publicly available source code that might otherwise go unrecognized by a more limited core development team; unrestricted ability to modify software source code; no reliance on a particular software vendor due to proprietary restrictions; reduced software licensing costs; and the ability to “test drive” the software with minimal costs and administrative delays in a rapid prototyping and experimentation environment. Also, according to leading practices, IT programs should ensure that their plans include how they will transition from the current state to the final state of system operations. Such planning provides a mutual understanding to relevant stakeholders of how programs are to accomplish the transition. According to TSA’s breach remediation plan, the TIM program’s use of a COTS solution led to several challenges. For example, program officials reported that the COTS product restricted their ability to make changes to the product to improve system usability and, as previously discussed, impacted the ability to effectively migrate data from legacy systems because of the proprietary COTS product. Program officials also reported that they were highly dependent on the COTS vendor to remediate compatibility issues and resolve problems, which required additional time. The plan also stated that the COTS product required a complex system architecture which prevented the program from implementing modern software development and testing tools. Finally, use of the COTS product resulted in higher software licensing costs. The TIM program’s new strategy is intended to address these challenges by moving away from using a COTS product to a custom-developed open source solution. However, the program’s approach for developing and delivering this new solution has been in a continual state of fluctuation and implementation plans have not been defined. As such, this challenge has yet to be fully addressed. Specifically, In September 2016—after the 2-year pause in the program and completion of its extensive rebaselining effort—DHS and TSA officials decided that TSA would incrementally retire legacy systems as the transportation programs that use those systems are migrated to the open source solution; they also decided to eventually replace the COTS system that was previously deployed to support the maritime Transportation Worker Identification Credential program and migrate to the open source solution. This was to be completed using a staged approach between the migrations, and also by using two versions of the COTS system as well as the open source system. However, the program lacked a plan detailing how it was going to migrate from the current legacy state, to the interim environment (with the two versions of COTS plus an open source system), to the final state. As previously mentioned, in December 2016, new development for the TIM system was paused once again to, among other things, further evaluate the transitioning approach that was agreed to 3 months prior. Four months later (in mid-March 2017), program officials decided to continue pursuing the approach that was agreed to in September. Subsequently, the high-level implementation schedule was revised to adjust for delays that this most recent replanning effort contributed to (other contributing factors for the delay are discussed later in this report). The revised schedule delayed deployment of the initial Pre® capabilities by 6 months and other key functionality up to 12 months. Further adding to the fluctuation in the program, at the end of March 2017, the DHS Acquisition Review Board requested that the program’s implementation approach be revised to accelerate the delivery of the TIM program’s front-end interface for adjudication and redress functions. However, it is unclear how the acceleration of the development and implementation of these functions will impact the delivery of the other planned functionality, and what tradeoffs the program will need to make. Program officials were expected to develop an overview of the acceleration efforts associated with cost, schedule, risk, and impacts on the program and deliver it to PARM and the Office of the Chief Technology Officer in August 2017. As a result, while it has been 8 months since the TIM program was rebaselined, the details of how the program will transition from its current state, to an interim state, then to the final state of full open source, have yet to be determined. This is contrary to leading practices that we have previously identified, which state that when pursuing an IT modernization effort, organizations should develop a plan for transitioning from the current to the target environment. In response to our concerns, program officials stated that after they determine how they will adjust to incorporate the Acquisition Review Board’s recent acceleration request, they will determine the details of how the program will achieve the desired final state. However, until the program establishes and implements specific time frames for determining key implementation details, including how it will transition the program from its current state to an interim state and to the final state, the TIM program office, and TSA and DHS oversight bodies cannot be certain about how the program will ultimately deliver its complete open source solution. New Transportation Programs Have Been Incorporated in TIM’s Rebaselined Schedule, but the Program Is Experiencing Significant Delays According to leading practices, programs should manage changes to requirements as they evolve during the project. Programs should also ensure that planned schedules provide a realistic forecast for completion of activities, including providing reasonable slack (i.e., flexibility in the schedule). After the TIM program was initiated in 2008, it experienced significant increases in scope, such as the addition of TSA Pre® and Chemical Facility Anti-Terrorism Standards populations in 2012, which required more functionality and considerably more processing demands than originally planned. The TIM program was challenged to accommodate the additional work needed to incorporate these new transportation populations and capabilities, and, in part, contributed to a significant breach in its original cost and schedule estimates. To address the challenge, the TIM program incorporated the additional functionality and processing requirements into its cost and schedule rebaseline that was approved in September 2016. In addition, the program’s new strategy addressed the need to be adaptable to accommodate any new transportation populations and capabilities that could be added in the future by taking an enterprise-level approach to providing capabilities. Nevertheless, while the TIM program incorporated TSA Pre® into its new plans, the implementation schedule for the program was very compressed and program officials did not establish a schedule that realistically forecasted when activities would be completed. Specifically, program officials planned to deploy initial TSA Pre® capabilities by May 2017 without any slack in the schedule. According to program officials, the reason for this approach, was because TSA Pre® was considered a high priority for migrating from its legacy system in order to accommodate an expected influx of applicants during the summer months. However, slack was not incorporated in the implementation schedule; therefore, when the program experienced schedule delays, it resulted in the program missing the May 2017 implementation deadline and being rescheduled to November 2017. The 6-month delay in delivering initial Pre® capabilities was due to the delays discussed in the prior section associated with replanning the strategy for transitioning to the open source system, as well as delays in onboarding additional development team members and setting up new development and production environments. The delay in delivering Pre® capabilities is especially problematic because program officials have reported that the legacy system is at risk of exceeding its processing capacity. Additionally, as previously mentioned, the program’s revised schedule shows the delivery dates for almost all (8 of 10) capabilities being significantly pushed back—with 2 capabilities being delayed up to 12 months. Moreover, not only were the implementation dates delayed for these efforts, the time to complete a number of these efforts was reduced by about 1 to 12 months—thus further exacerbating our concerns about unrealistic schedules. Without a schedule that realistically forecasts when activities will be completed, TIM program officials cannot ensure that they will meet the dates that they have committed to, such as when key capabilities for TSA Pre® are to be deployed. Efforts to Improve Stakeholder Coordination and Communication for the TIM Program Have Begun, but Key Actions Have Not Been Implemented According to leading practices, programs should coordinate and collaborate with relevant stakeholders (i.e., those that are affected by or in some way accountable for the outcome of the program, such as program or work group members, suppliers, and end users). Stakeholder coordination includes, for example, involving stakeholders in reviewing and committing to program plans, agreeing on revisions to the plans, and identifying risks. Programs should also identify the needs and expectations of stakeholders and translate them into end user requirements. However, during prior implementation efforts with the COTS solution, the program experienced challenges with effectively coordinating and communicating with end-users. For example, according to program documentation, it had not adequately collaborated with end users in developing and implementing business requirements and conducting post-deployment user satisfaction assessments. This led to frustration among end users who felt inadequately informed and prepared for the new COTS system. To address this challenge, the TIM program’s new strategy includes establishing a product owner role, which, as previously mentioned, is intended to represent the end user community and have the authority to set business priorities, make decisions, and accept completed work. The program’s adoption of the Agile software development approach has also significantly increased the frequency of the program’s engagement with stakeholders to define, test, and implement software releases. In addition, program officials established an organizational change management strategy in October 2016 that is intended to, among other things, focus broadly on establishing overall communication processes for program stakeholders. This strategy identifies key steps such as, establishing a communication team and hiring a communication lead to oversee the development and execution of the communication action plans, establishing a communication working group, and serving as chair of the communication working group. This group is to be responsible for developing four communication action plans for key stakeholder groups (e.g., new transportation populations, existing transportation populations, and management). These particular steps were to be completed from November 2016 through January 2017. However, while as of May 2017, the TIM program had implemented certain steps from the organizational change management strategy, such as establishing a communication team, the program has been delayed in implementing other steps. Specifically, the communication lead position was to be filled in November 2016. However, in March 2017 TIM program officials stated that the position had not yet been filled due to the federal hiring freeze. Additionally, because of the vacancy in the communication lead position, other key actions have been delayed, such as the development and execution of the communication action plans. Program officials have not established new time frames for completing the remaining steps outlined in the organizational change management strategy. Until these time frames are established and effectively executed, program officials will have less assurance that there will be effective communication with stakeholders and customers to ensure that the program is meeting their needs. The TIM Program Has Not Fully Implemented Leading Practices for Transitioning to Agile Software Development As discussed previously, transitioning a program from waterfall development to Agile software development is a significant effort, and requires the implementation of fundamental practices to ensure that the transition is successful. According to leading guidance, an organization transitioning to Agile software development should establish critical practices to help ensure successful adoption of the Agile approach, such as obtaining full support from leadership to adopt Agile processes, enhancing Agile knowledge, ensuring product owners are engaged with the development teams and have clearly defined roles, establishing a clear product vision, prioritizing backlogs of requirements, and implementing automated tools to enable rapid system development and deployment. While the TIM program has fully implemented the first two of these leading practices necessary to ensure the successful adoption of Agile, the remaining four practices have not been fully implemented. The gaps we have identified with the program’s implementation of Agile are concerning given that it did not follow key IT acquisition best practices when using its waterfall development approach during the program’s first 8 years and spent over $280 million on a system that TSA has determined it needs to replace. The TIM Program Has Received and Maintained Support from TSA and DHS Leadership to Adopt Agile Practices According to leading practices and guidance, an organization transitioning to Agile software development should get and maintain full support from the organization’s leadership to adopt Agile processes. Leadership support helps empower employees to continuously improve the use of Agile software development practices. DHS and TSA leadership have approved the TIM program’s adoption of Agile software development, and continue to support the transition. For example, the DHS OCIO worked closely with TSA officials in 2015 and 2016 to develop the new strategy for the program which included moving away from a waterfall development approach to Agile software development. As previously mentioned, the Under Secretary for Management selected the TIM program to be part of the DHS Agile pilot initiative in February 2016 and approved the program’s new strategy in April 2016. Moreover, the DHS Office of the Chief Technology Officer has continued to provide guidance and resources to the program since it adopted Agile. For example, TIM program officials stated that the DHS Chief Technology Officer added two of the office’s full-time and one part-time staff members to the TIM program. DHS and TSA officials stated that the Chief Technology Officer also provided an Agile coach to assist the TIM Program Manager about 3 days per week with establishing an Agile governance framework. Finally, DHS established an Agile Integrated Product Team that is co-chaired by PARM and the TIM Program Manager. The team meets bi-weekly to provide guidance on adopting Agile processes. As a result of the sustained leadership commitment, the program is better positioned to continuously improve its Agile practices. Key TIM Program Staff Have Received Agile Training to Enhance Knowledge According to leading practices and guidance, an organization transitioning to Agile software development should ensure that the entire program team receives Agile training. This allows organizations to achieve a faster shift away from the previous culture and processes and toward a more agile culture. Toward this end, the TIM program requires its Agile contractor to ensure that development teams are trained and skilled in Agile methods, as well as in the specific Agile frameworks the program has adopted, which include the Scrum and SAFe frameworks. Additionally, the program provided initial Agile training for key program staff when it began transitioning to Agile software development. Specifically, the program provided a mandatory 2-day Agile workshop in October and December 2016 which covered basic Agile principles and the Scrum and SAFe frameworks. This training was provided to many key staff members, including contractor support staff, a contracting officer representative, and product owners. Further, in December 2016, the program began providing training on the SAFe framework to its government employees. This training was tailored based on different roles, such as Agile practitioner, program manager or product owner, and scrum master. The training courses were provided to key staff members, including TIM program leadership, team leads, branch managers, and scrum masters. As a result of providing Agile training, the program’s staff should be able to more effectively adopt and apply Agile software development processes. TIM Program Product Owners Frequently Engage with Development Teams, but Roles and Responsibilities Are Not Clearly Defined According to leading practices and guidance, an organization transitioning to Agile software development should designate a product owner who represents the user community and establishes priorities based on business needs, approves user stories and their acceptance criteria, and decides whether completed work meets the acceptance criteria and can be considered done. The product owner should also maintain close collaboration with the development teams by, among other things, providing daily support to help clarify requirements and attending key Agile meetings, such as sprint- and release-level planning sessions and system demonstrations. Additionally, roles and responsibilities among relevant stakeholders, such as the product owner, should be clearly defined and documented by the organization that is transitioning to Agile software development, so that the stakeholders are aware of their responsibilities and given the authority to perform their roles. The TIM program has two different groups of individuals that collectively share the responsibilities of product owner, and while these groups frequently engage with the development teams, program officials have not yet clearly defined the groups’ roles and responsibilities. Specifically, according to program officials, the first group consists of five product owners that represent end users and are collectively responsible for supporting all development teams, attending all Agile meetings, and prioritizing and approving planned and completed work. In addition, according to program officials, these five individuals are also responsible for approving user stories associated with new system functionality. The other group is referred to as the solutions team, which includes, for example, the TIM Chief Architect and Chief Engineer. According to program officials, the technical work (which is to help enable the system functionality, such as ensuring network connectivity and proper software licenses) is approved by the solutions team. Nevertheless, while program officials told us about these high-level roles and responsibilities, the program’s documentation does not clearly define them among the five product owners and the solutions team. Moreover, program officials have not defined the rules of engagement for these product owners, such as how competing priorities among different product owners should be handled. According to program officials, the lack of clearly defined roles and responsibilities has not been a problem for the program because the product owners and the solutions team regularly communicate and coordinate with each other, and thus far, have been in agreement on the priorities for the program. However, the program recently scaled up the amount of work being conducted simultaneously, which adds to the volume of the decisions that need to be made and the coordination that has to occur among the five product owners and solutions team. Thus, even if the program has not yet experienced issues with coordination, without more clarity in the roles and responsibilities among the groups that are responsible for prioritizing and accepting work, the program risks facing challenges in establishing priorities, approving user stories, and deciding whether completed work meets the acceptance criteria. The TIM Program Established a Vision, but It Does Not Always Align to the Requirements; Recent Corrective Actions Should Yield Improvements According to leading practices and guidance, a program transitioning to Agile software development should have a clearly defined vision. This can be in the form of a product roadmap, to guide the development of the product and to help inform the planning and requirements development of Agile software development releases. Consistent with leading practices, TSA established a vision for the TIM program. This vision is articulated in multiple documents—including the Mission Needs Statement, Concept of Operations, and Operational Requirements Document. Officials also use a strategic roadmap to articulate the program’s vision, which specifies the high-level system capabilities that are to be deployed over the life-cycle of the program through 2021. However, the program’s vision has not always informed the planning of requirements for the software releases, as intended by leading practices. Specifically, the capabilities outlined in the program vision documents, such as the strategic roadmap, do not consistently map to program requirements. While 5 of the 10 capabilities in the strategic roadmap align to the high-level and large scope requirements, referred to as epics, the other half of the capabilities do not clearly align to the epics. For example, the adjudication and redress capabilities that are in the strategic roadmap do not align to any epic. In addition, the capability for public-facing portals does not clearly track to any epic. TIM officials recognized the alignment issues, and in August 2017, stated that they are in the process of establishing alignment from the program’s vision down to the lowest level of requirements, by refining the program’s vision and requirements. Officials also stated that they expected this effort to be completed by 2018. Effective execution of this effort should help ensure the program’s vision is informing requirements planning. Requirements for the TIM System Have Not Been Fully Prioritized According to leading practices and guidance, a program transitioning to Agile software development should have a prioritized list of the requirements that are to be delivered—referred to as the backlog. This backlog should be maintained so that the program can ensure it is always working on the highest priority requirements that will deliver the most value to the users. In addition, according to TIM Agile management documentation and program officials, the program’s backlog of features (i.e., mid-sized requirements) is expected to represent the features that are to be delivered over the next several software releases. These features are to be assigned priority levels to help determine which should be selected for development when planning the next release. According to TIM Agile management documentation, the TIM program is expected to manage a backlog for each software release, which is to identify the features and their derived user stories (i.e., the smallest and most detailed requirements) that are to be delivered in a specific release. The documentation also indicates that each feature and user story is to be assigned priority levels to determine which should be included in the development of the next release and associated sprint. Figure 5 illustrates the intended prioritization in the features, releases, and user stories backlogs. However, as of July 2017, the program’s backlogs did not contain specific prioritization levels for each of the features and user stories, as called for in DHS guidance. According to program officials, instead of assigning specific prioritization levels, they had more generally identified which features should be developed within the near-term (e.g., in the next several Agile releases). Program officials recognized that they still needed to prioritize their backlogs by assigning priority levels to all features and user stories, but they did not have a time frame for completing this effort. Without ensuring full prioritization of current and future features and user stories, the program is at risk of delivering functionality that is not aligned with the highest needs of those that are responsible for conducting security threat assessments to protect the nation’s critical transportation infrastructure. The TIM Program Has Been Delayed in Implementing Many of the Planned Automated System Development and Deployment Tools According to leading practices and guidance, automating system development and deployment work and avoiding manual work is especially important for Agile programs, as it enhances the ability for rapid development and delivery of high quality software. Specifically, a program transitioning to Agile software development should use an automated tool for managing Agile activities, such as maintaining the product backlog and tracking the status of completed work. The program should also establish automated testing and deployment capabilities to improve the quality of the system. For example, according a DHS’s Agile development instruction manual, the vast majority of software defects are discovered during system integration testing, and—if automated—this testing can be run multiple times on a sprint or release in order to identify more defects sooner. In addition, automated tools can enable more efficient processes for frequently integrating computer code that is developed by different team members (e.g., hourly or daily), in order to quickly detect any code integration errors. Automation of testing can also help decrease the risk of introducing security flaws due to human error. However, program officials deferred implementation of an automated Agile program management tool and many other testing and deployment tools. Specifically, while the program had been using Agile software development practices since October 2016, the program has not used an automated management tool for tracking the status of completed work for its first three Agile software releases. Instead the program has used spreadsheets that require TIM program officials to manually populate and track large amounts of program status information. Program officials had planned to implement an automated management tool by October 2016, but did not do so until the end of April 2017. According to the officials, the delay occurred because they were in the process of tailoring the SAFe governance framework and the management tool needed to be customized to reflect the tailored approach. Regarding tools for testing and deployment, as of May 2017, the program was only using 4 of the16 automated tools that program officials planned to use. These included tools that enable the management of software code development, defect tracking, and components of automated functional testing. However, the remaining 12 testing and deployment tools had not yet been implemented. These include, among others, tools that enable the automated building of software code, frequent merging of an individual piece of software code with the main code repository so that new changes are tested continuously (referred to as continuous integration), small automated tests to verify that each individual unit of code written by the developer works as intended, and installation of application patches to protect against known vulnerabilities. TIM program officials stated that these testing and deployment tools are not expected to be implemented until the new development, testing, and production environments are set up. However, as previously mentioned, the program has experienced challenges in implementing these environments. As a result, the program’s use of manual processes have been time consuming, impeded visibility into the process, and hindered software testing. In addition, without automated tools, program performance metrics were being manually calculated and this increases the risk for incomplete and inaccurate data. While the automated Agile management tool has just been implemented, until the remainder of the automated Agile testing and deployment tools are implemented, the program is likely to continue to operate at reduced efficiency levels, and be limited in its ability to ensure product quality. TSA and DHS Have Not Fully Implemented Most Key Practices for Overseeing the TIM Program’s Cost, Schedule, and Performance According to leading practices, to ensure effective program oversight of cost, schedule, and performance, organizations should: ensure that corrective actions are identified and tracked until the desired outcomes are achieved, document relevant governance and oversight policies and monitor program performance and progress, and rely on complete and accurate data to review performance against expectations. While TSA fully implemented the first practice, the remaining three practices were not fully implemented by DHS and TSA. As a result, the effectiveness with which the governance bodies oversee and monitor the program has been limited. TSA Established a Process for Ensuring Corrective Actions Are Identified and Tracked for the TIM Program According to leading practices, effective program oversight includes ensuring that corrective actions are identified and tracked until the desired outcomes are achieved. In this regard, governance bodies should collect and analyze data on program risks and issues and determine corrective actions to address them and track them to completion. TSA has established a process for ensuring that corrective actions are identified and tracked. Specifically, the program has a process for identifying corrective actions and monitoring the status of these actions in its weekly program status reviews. The program also uses an automated tool to track and maintain a complete list of all actions that have been identified. As of February 2017, the list contained 89 actions and included the status of the actions—83 of which had been tracked to completion. As a result of the program having a process that can identify and track corrective actions, it is better positioned to address significant deviations in cost, schedule, and performance parameters. TSA and DHS Have Documented Selected Oversight and Governance Processes for the TIM Program, but Other Key Processes Are Underdeveloped According to leading practices, effective program oversight includes the use of documented policies and procedures for program governance and oversight, such as reporting and control processes. These processes may include, among others, requiring programs to report on the status and progress of activities; expected or incurred program resource requirements; known risks, risk response plans, and escalation criteria; and benefits realized. Oversight and governance documentation may also include threshold criteria to use when analyzing performance, and the conditions under which a program or project would be terminated. TSA and DHS have documented selected policies and procedures for governance and oversight of the TIM program. Specifically, DHS documented procedures for its Acquisition Review Board and its Executive Steering Committee for the TIM program on how these governance bodies are to review the cost, schedule, and performance of the program. For example, according to the Committee’s charter, it is responsible for assessing the health of the program and identifying major issues and risks, utilizing a standard reporting format at oversight meetings. TSA has also documented processes for the program’s Agile milestone reviews, such as conducting workshops at the end of the release cycle to perform a system demonstration, review qualitative metrics, and promote continuous quality improvement. TSA also developed a risk management plan tailored for the Agile approach to guide TIM staff members in identifying, managing, and mitigating risks and issues impacting cost, schedule, and performance of the program. The agency also developed a test and evaluation master plan that outlines how it and DHS will conduct and oversee testing and evaluation of the program’s capabilities under the new Agile software development approach. However, TSA and DHS have not developed or finalized other key oversight and governance documents. Specifically, three oversight and governance policies have not been finalized and/or appropriately updated: the TIM program’s tailoring plan for SAFe, a DHS-level oversight policy for Agile programs, and DHS Office of the Chief Technology Officer’s guidance for Agile programs to use for collecting and reporting on performance metrics. The TIM program has not updated its Systems Engineering Life Cycle Tailoring Plan (which outlines the Agile governance process and all milestone reviews that are required for planning and deploying Agile releases), to reflect changes in the way officials have reported using the SAFe governance framework. As a result, there are inconsistencies in the governance documentation. For example, the Systems Engineering Life Cycle Tailoring Plan describes four levels of governance—portfolio, value stream, program, and team—while program officials have reported omitting the value stream level from the governance framework. According to TSA officials in May 2017, they planned to update the Systems Engineering Life Cycle Tailoring Plan to reflect the revised governance framework, but they did not have a specific time frame for completing the revision. Until the TIM program fully updates its Systems Engineering Life Cycle Tailoring Plan to reflect the revised governance framework, the program lacks a clearly documented and repeatable governance process to effectively oversee the program. DHS officials stated that they plan to conduct biannual oversight reviews of the five Agile pilot programs (including TIM), instead of the annual reviews that are typically conducted for traditional waterfall development programs. According to the officials, the purpose of moving to biannual reviews is to better ensure cost, schedule, and performance remain on track for these Agile programs. However, officials in the Office of the Chief Technology Officer stated that DHS- level Agile governance and oversight policies and procedures have not been revised to reflect this new oversight approach because consensus among DHS leadership on related changes needs to be established before this new oversight approach can be documented in the department’s guidance. As of May 2017, officials had not specified a time frame for reaching such consensus. Until DHS leadership reaches consensus on needed oversight and governance changes, and then documents and implements associated changes, the program continues to plan as though it is undergoing annual oversight reviews, versus biannual reviews. As of early May 2017, officials in the Office of the Chief Technology Officer were also in the process of drafting guidance for Agile programs to use for collecting and reporting on performance metrics, but did not know when this guidance will be finalized. According to TSA officials, in the absence of complete Agile guidance, the TIM program receives support from DHS’s Agile team supporting the pilot initiative, which, as specified in the team’s charter, is intended to help the program (as well as the other four pilot programs) facilitate Agile software development. However, this team is not intended to perform oversight functions to ensure that the program is meeting cost, schedule, and performance targets. Thus, until the Office of the Chief Technology Officer completes guidance for Agile programs to use for collecting and reporting on performance metrics, TIM program officials may not report the most informative Agile performance metrics to oversight entities. TSA and DHS Consistently Conduct Program Performance Reviews, but Lack Insights from Key Performance Metrics According to leading practices, effective program oversight includes monitoring program performance and progress by comparing actual cost, schedule, and performance data with estimates in the plan and identifying significant deviations from established targets or thresholds for acceptable performance levels. Program reviews are to be conducted at predetermined checkpoints or milestones in order to determine progress by measuring programs against cost, schedule, and performance metrics. In addition, Agile programs should be measured on, among other things, velocity (i.e., number of story points completed per sprint or release), development progression (e.g., the number of features and user stories planned and accepted), product quality (e.g., number of defects and unit test coverage), and user satisfaction. The TIM program management office conducts frequent and regular performance reviews and focuses on several important Agile release- level metrics. Specifically, program management officials monitor TIM’s performance and progress during weekly program status review meetings and in periodic Agile reviews that are conducted at the end of each release. These reviews also include officials from the development teams and program stakeholders. The reviews focus on, among other things, velocity, progress, and product quality. They also include the status of key activities and risks impacting cost, schedule, and performance. Nevertheless, while the program management office uses performance metrics, the program has not established thresholds or targets for acceptable performance levels for these metrics. For example, program status reports showed that about 47 percent of the work that was planned to be completed in the first Agile release was accepted by the product owners. While the program appears to have been improving in this metric—74 percent was accepted in the second Agile release and 94 percent in the third Agile release—program officials have not established the thresholds or targets to determine the acceptable level of performance. Program officials stated that they considered the performance in the first Agile release to be low, but they have not yet established targets or thresholds. According to program officials, they planned to establish targets based on the capacity of work that development teams are expected to complete in a release, which can be better predicted as the teams spend more time together. However, the program has since developed three releases and continues to lack performance thresholds and targets. Until program officials establish performance thresholds or targets, oversight bodies may lack important information to ensure the program is meeting acceptable performance levels. In addition, the program management office’s performance reviews have included limited information on program cost. According to TIM officials, the program manager holds weekly meetings with the contract, finance, and budget groups to review costs associated with TIM’s contracts. However, management does not review or produce reports on overall life- cycle cost performance for the program or Agile software development cost performance. Program officials said they have not yet determined how best to measure cost performance in an Agile software development environment. In September 2016, the Under Secretary for Management instructed the program to collaborate with DHS’s Cost Analysis Division and the headquarters-level Agile integrated product team to establish agreed-upon software development cost metrics as well as a method for collecting and reporting on those metrics by the end of the March 2017. However, as of May 2017, this effort was still in progress. Until the TIM program begins collecting and reporting on Agile-related cost, oversight bodies will have limited information by which to monitor TIM costs. Department-level oversight bodies have focused on reviewing certain program life-cycle metrics for the TIM program. Specifically, the DHS Acquisition Review Board conducts periodic reviews of the program to monitor the program’s performance and hold the program accountable. Since the program was rebaselined in September 2016 and transitioned to Agile software development, the Acquisition Review Board has conducted one review. In addition, the Executive Steering Committee, which is chaired by the TSA CIO and Deputy Component Acquisition Executive, and includes representatives from the DHS Chief Technology Officer and PARM, reviews the program quarterly. As of July 2017, the Executive Steering Committee had conducted three reviews of the TIM program since implementing its new development approach. These oversight bodies reviewed, for example, performance information such as comparisons of the dates that milestones were actually achieved, against the planned schedule, and the burnup charts for the program (i.e., graphical representations of accumulated story points planned and completed per release). However, the Acquisition Review Board and the Executive Steering Committee have not been measuring the program against the rebaselined life-cycle costs, or important Agile release-level metrics, which are essential for providing early indicators of issues with the program. For example, these oversight bodies did not review the program’s velocity, number of features/user stories planned and accepted, product quality, or Agile software development cost metrics. In addition, while we have previously reported that there was overlap in the DHS OCIO’s and the PARM office’s assessments of certain IT programs, neither of these offices assessed the TIM program’s progress against key Agile performance metrics or cost performance. Specifically, the DHS OCIO and the PARM office conducted periodic (monthly or quarterly health assessments) of the program that included, among other things, schedule and system performance indicators for the entire life- cycle of the program (similar to what is used to review traditional waterfall programs). While these metrics are useful for understanding the program’s progress against the full schedule (60 months to full operational capability, or 30 Agile releases), they do not offer insight into the progress of individual Agile releases, which are deploying high-priority capabilities for the TIM program every 2 months. For example, as of April 2017, these two oversight bodies did not include Agile performance metrics which would have offered important insights into the progress of individual releases, such as velocity, progress metrics, quality metrics, post-deployment user satisfaction, or Agile software development costs. Thus, until DHS-level oversight bodies review key Agile performance and cost metrics and use them to inform management oversight decisions, the oversight bodies will be limited in their ability to obtain early indicators of any issues with the program, and to call for course correction, if needed. Recently, the TIM program also began measuring user satisfaction. Specifically, in April 2017, the DHS Acting Under Secretary for Management directed TSA’s Operational Test Agent to implement a continuous evaluation dashboard based on the results from the program’s third Agile release by the end of June 2017. This dashboard was to measure, among other things, post-deployment user satisfaction. TSA subsequently implemented the continuous evaluation dashboard in June 2017. Table 4 summarizes the extent to which performance metrics are reviewed by various oversight bodies. TSA and DHS Do Not Always Rely on Complete and Accurate TIM Performance Data According to leading practices, effective program oversight includes relying on complete and accurate data to review program performance against stated expectations. Complete and accurate data allow oversight bodies to have transparency into the performance of programs and helps them identify when course correction is needed. However, TIM’s reported performance data were not always complete and accurate. Specifically, when reporting on the velocity (i.e., total number of story points completed per sprint and/or release across the development teams) of TIM’s first release after it was deployed, program officials inconsistently reported velocity among the program’s performance reports, thus calling into question the accuracy and completeness of the information. Since the data were being reported on a completed release, the velocity should have been reported as one consistent number that did not change. According to program officials, the reason for inconsistent reporting was that, despite best practices, the program’s methodology for measuring velocity was not consistent and was calculated differently each time. For example, table 5 shows three different numbers that were to represent the collective velocity across the development teams, and that officials reported to program management after the deployment of the first software release. While there was less variation in the velocity data reported after the second software release was deployed, discrepancies were still present. For example, table 6 shows the different numbers that officials reported to TIM program management after the deployment of the second software release. Program officials stated that the reason for the inconsistencies in reported velocity data was that during the first release they were still in the process of adapting Agile and were working to determine how best to calculate velocity. However, as shown in table 6 inconsistent data continued to occur beyond that first release. These inconsistencies in reported data call into question the completeness and accuracy of the velocity numbers reported, and the potential impact on oversight bodies’ ability to hold the program accountable. For example, velocity is most useful when tracked over time to ensure consistent performance and for forecasting how quickly development teams can work through the items in a backlog. However, without a complete and accurate velocity number from each release, it is difficult for oversight bodies to ensure the program is producing work at an acceptable pace to enable the program to meet its cost, schedule, and performance targets. In addition, the program had been reporting inaccurate unit test coverage data using a manual measurement approach. Specifically, from December 2016 to March 2017, program officials were reporting that, for each release, they tested every line of code, based on a manual estimate (i.e., 100 percent). However, testing each line of code manually is unrealistic because with manual tests, it is difficult to determine which function, line of code, or logic decision is executed, and which is not. As such, program officials were reporting that they were testing every line of code, even though they were unable to confirm that they were actually doing so, thus calling into question the reliability and accuracy of the data reported. In response to our concerns, program officials acknowledged that they could not confirm whether they had tested every line of code. Accordingly, program officials stopped estimating this metric manually and stated that they planned to begin measuring unit test coverage again once lines of code could be tracked using automated tools. As previously discussed, program officials stated that the testing and deployment tools are not expected to be implemented until the new development, testing, and production environments are set up. However, until the program has complete and accurate unit test code coverage data, program officials will not know if portions of its code are going untested, which could lead to undetected issues and impact the quality of the product. Conclusion TSA’s TIM program has taken notable steps to address several of the major issues it faced during prior system development and deployment efforts, such as implementing system fixes to address critical performance and usability issues found in the maritime segment. Nonetheless, a number of significant challenges have not been fully addressed. In particular, until the TIM program establishes specific time frames for determining key implementation details, ensures its schedule provides planned completion dates based on realistic estimates, and establishes new time frames for implementing the actions identified in the strategy, it is at significant risk of repeating past mistakes and experiencing the same pitfalls as it did during its initial implementation attempts. An indication of concern is that the program is currently experiencing a delay of at least 6 months in the rebaselined schedule for delivering TSA Pre® capabilities. While the program has also taken certain steps to successfully make the transition from a waterfall development approach to Agile software development—a substantial and complex effort—TIM has not defined key roles and responsibilities, prioritized features and user stories, or implemented automated capabilities that are essential to ensuring effective adoption of Agile. The gaps we identified with the program’s implementation of Agile are concerning given that it did not follow key IT acquisition best practices when using its waterfall development approach, in which the program spent approximately 8 years and over $280 million on a system that TSA has determined it needs to replace. While selected corrective actions have been taken, until the TIM program is implemented in accordance with leading practices, the program will be putting at risk its ability to deliver a quality system that strengthens and enhances the sophistication of TSA’s security threat assessment and credentialing programs. In addition, while TSA and DHS have implemented certain practices for overseeing and governing the program, the lack of other practices has impeded their oversight effectiveness, including the lack of thresholds or targets for acceptable performance levels, the lack of reporting on Agile- related cost metrics, and inconsistent measuring and reporting of program velocity and unit test coverage for software releases. These gaps limit the ability of DHS oversight bodies to obtain early indicators of any issues with the program, and to call for course corrections, if needed. Further, until DHS leadership reaches consensus on needed oversight and governance changes related to Agile programs, and then documents and implements associated changes to align oversight reviews with the timing of Agile software releases, the department will not be well positioned to hold the program accountable. Moreover, until the Office of the Chief Technology Officer completes guidance for Agile programs to use for collecting and reporting on performance metrics, and DHS-level oversight bodies require the TIM program to report on key Agile performance and cost metrics and use them to inform management oversight decisions, the department will also be limited in its ability to hold the TIM program accountable and ensure that it is meeting its cost, schedule, and performance targets. Recommendations for Executive Action We are making the following 14 recommendations to DHS: The TSA Administrator should ensure that the TIM program management office establishes and implements specific time frames for determining key strategic implementation details, including how the program will transition from the current state to the final TIM state. (Recommendation 1) The TSA Administrator should ensure that the TIM program management office establishes a schedule that provides planned completion dates based on realistic estimates of how long it will take to deliver capabilities. (Recommendation 2) The TSA Administrator should ensure that the TIM program management office establishes new time frames for implementing the actions identified in the organizational change management strategy and effectively executes against these time frames. (Recommendation 3) The TSA Administrator should ensure that the TIM program management office defines and documents the roles and responsibilities among product owners, the solution team, and any other relevant stakeholders for prioritizing and approving Agile software development work. (Recommendation 4) The TSA Administrator should ensure that the TIM program management office establishes specific prioritization levels for current and future features and user stories. (Recommendation 5) The TSA Administrator should ensure that the TIM program management office implements automated Agile management testing and deployment tools, as soon as possible. (Recommendation 6) The TSA Administrator should ensure that the TIM program management office updates the Systems Engineering Life Cycle Tailoring Plan to reflect the current governance framework and milestone review processes. (Recommendation 7) The TSA Administrator should ensure that the TIM program management office establishes thresholds or targets for acceptable performance-levels. (Recommendation 8) The TSA Administrator should ensure that the TIM program management office begins collecting and reporting on Agile-related cost metrics. (Recommendation 9) The TSA Administrator should ensure that the TIM program management office ensures that program velocity is measured and reported consistently. (Recommendation 10) The TSA Administrator should ensure that the TIM program management office ensures that unit test coverage for software releases is measured and reported accurately. (Recommendation 11) The Secretary of Homeland Security should direct the Under Secretary for Management to ensure that appropriate DHS leadership reaches consensus on needed oversight and governance changes related to the frequency of reviewing Agile programs, and then documents and implements associated changes. (Recommendation 12) The Secretary of Homeland Security should direct the Under Secretary for Management to ensure that the Office of the Chief Technology Officer completes guidance for Agile programs to use for collecting and reporting on performance metrics. (Recommendation 13) The Secretary of Homeland Security should direct the Under Secretary for Management to ensure that DHS-level oversight bodies review key Agile performance and cost metrics for the TIM program and use them to inform management oversight decisions. (Recommendation 14) Agency Comments and Our Evaluation DHS provided written comments on a draft of this report, which are reprinted in appendix II. In its comments, the department concurred with all 14 of our recommendations and described actions it has planned or taken to address them. For example, with regard to recommendation 6, which calls for DHS to implement automated Agile management testing and deployment tools, the department stated that TSA plans to implement such tools by June 30, 2018. Additionally, for recommendation 14, the department stated that DHS intends to ensure that oversight bodies review key Agile performance and cost metrics for the TIM program by June 30, 2018. If implemented effectively, these actions should address the weaknesses we identified. The department also described recent actions that it and TSA had taken to address three of the recommendations, and requested that we consider these recommendations resolved. Specifically, in response to recommendation 9, calling for TSA to ensure that the TIM program management office begins collecting and reporting on Agile-related cost metrics, the department stated that the program is now reporting these metrics on a monthly basis. In response to recommendation 10, calling for TSA to ensure that the program’s velocity is measured and reported consistently, the department stated that velocity is now being reported consistently and in accordance with DHS guidelines. Further, in response to recommendation 13, which calls for DHS to complete guidance for Agile programs to use for collecting and reporting on performance metrics, the department stated that the guidance had recently been published and provided to us. However, to date, we have received only draft versions of the guidance. We will work with the department to obtain finalized documentation related to the three recommendations, to determine if the recent actions fully address the recommendations. In addition to the aforementioned comments, we received technical comments from DHS and TSA officials, which we incorporated, as appropriate. We are sending copies of this report to the Secretary of Homeland Security and interested congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4456 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology Our objectives were to (1) describe the Transportation Security Administration’s (TSA) past implementation efforts for the Technology Infrastructure Modernization (TIM) program and its new implementation strategy; (2) determine the extent to which TSA’s new strategy for the program addresses the challenges encountered during earlier implementation attempts; (3) determine the extent to which TSA has implemented selected key practices for transitioning to an Agile software development framework for the program; and (4) determine the extent to which the TSA and the Department of Homeland Security (DHS) are effectively overseeing and governing the TIM program to ensure that it is meeting cost, schedule, and performance requirements. To address our first objective, we reviewed program documentation, such as initial and current acquisition program baselines, initial and current life- cycle cost estimates, acquisition decision memorandums, and program plans documenting a new strategy for implementing the program. We used the information in this documentation to summarize the program’s earlier attempts to implement TIM capabilities and its new implementation strategy for delivering the program, including estimated costs, schedule, and key decisions made. We also interviewed TSA officials, including the TIM Director and Deputy Director, on the status of TIM program office efforts. To determine the extent to which the TIM program’s new strategy addresses the challenges encountered during earlier implementation attempts, we reviewed documentation on the challenges the TIM program faced when it breached cost and schedule thresholds and experienced system performance issues, such as those described in initial operational test reports, the breach remediation plan, and the results of a technical evaluation of program challenges. We synthesized the information in these documents to identify a consolidated list of key challenges the program had faced. We did not include challenges that were already being evaluated as part of other objectives, such as the use of the waterfall software development approach. We then reviewed documentation on the program’s new strategy, such as plans documenting the new strategy, follow-on operational test reports, program schedules, program status reports, and identified risks. We assessed the extent to which the new strategy outlined in these documents addressed the prior challenges by comparing them against criteria identified in leading practices and guidance, such as DHS’s Systems Engineering Lifecycle Guide and the Software Engineering Institute’s Capability Maturity Model® Integration for Development. In addition, we conducted a site visit at the TSA Adjudication Center in Reston, Virginia. During this site visit, we observed demonstrations of the current commercial-off-the- shelf system and legacy systems for TSA Pre® and Aviation Workers, and we interviewed adjudicators and supervisors on current security threat assessment processes and limitations. Further, we interviewed TSA officials, including the TIM Director and Deputy Director, on the program office’s efforts to address prior challenges. To determine the extent to which the program has implemented selected key practices for transitioning to an Agile software development framework, we identified leading practices and guidance outlined in the following sources: GAO, Software Development: Effective Practices and Federal Challenges in Applying Agile Methods Software Engineering Institute, Agile Readiness and Fit TechFAR handbook TSA Agile Scrum guidance CMMI® for Development, version 1.3 Software Engineering Institute, Agile Metrics After reviewing the sources listed, in consultation with our internal expert, we grouped practices that were identified as being critical to establish when transitioning to an Agile software development framework, and selected the practices that were most relevant based on the status of the program’s transition and we discussed the practice areas with TSA officials. The practices included: full support from leadership to adopt Agile processes, enhancing Agile knowledge, ensuring product owners are engaged with the development teams and have clearly defined roles, establishing a clear product vision, prioritized backlogs of requirements, and implementing automated tools to enable rapid system development and deployment. We reviewed program management documentation against these practices, such as Agile training records, Agile contracts, program roadmaps, backlogs, test plans, Agile release artifacts, program status reports, and identified risks. Additionally, we observed Agile release and sprint development activities at TSA facilities in Annapolis Junction, Maryland, and at a contractor’s facilities in Beltsville, Maryland, and we observed a demonstration of how user stories map from high-level capabilities and tracked through development and testing. We also interviewed TSA officials, including the TIM Director and Deputy Director and the five TIM product owners, on their efforts to transition the program to an Agile software development framework. Further, we interviewed DHS officials, including the Chief Technology Officer, on their efforts to conduct an Agile pilot to assist programs like TIM in adopting Agile software development processes. We assessed the evidence against leading practices to determine the extent to which TSA met the practices. To determine the extent to which TSA and DHS are effectively overseeing and governing the program to ensure that it is meeting cost, schedule, and performance requirements, we identified leading practices and guidance outlined in the following sources: TSA Agile Scrum guidance CMMI for Development, version 1.3 Software Engineering Institute, Agile Metrics After reviewing the sources listed, we grouped practices related to oversight and governance for programs using Agile software development into four key practice areas and we discussed the practices with DHS and TSA officials. These areas included: Document relevant governance and oversight policies and procedures. Monitor program performance and progress. Rely on complete and accurate data to review performance against expectations. Ensure that corrective actions are identified and tracked until the desired outcomes are achieved. To assess the extent that TSA and DHS had addressed these key practices, we reviewed the most current program management and governance documentation as of April 2017. Specifically, we analyzed documentation on program management processes, such as TIM’s Systems Engineering Life Cycle Tailoring Plan, TIM Agile and Technical Strategy, TIM Agile software development contract, and draft DHS Agile Acquisition Program Delivery Metrics Playbook; and artifacts from TIM’s program execution and review, such as Agile release artifacts, program status reports, contractor status reports, program schedules, life-cycle cost estimates, risk registers, TSA Executive Steering Committee reviews, DHS program health assessments, DHS Agile pilot integrated product team meetings, DHS Office of the Chief Technology Officer Agile pilot reviews, and DHS Acquisition Review Board reviews. Additionally, we interviewed TSA officials, including the TIM Director and Deputy Director, on their efforts to oversee TIM’s development. Further, we interviewed DHS officials, including the Chief Technology Officer, on their efforts to oversee the program’s Agile software development activities. We compared this evidence against leading practices to determine the extent to which TSA and DHS met the practices. To assess the reliability of the data that we used to support the findings in this report, we reviewed relevant program documentation to substantiate evidence obtained through interviews with agency officials. We determined that the data used in this report were sufficiently reliable for the purposes of our reporting objectives. We made appropriate attribution indicating the sources of the data. We conducted this performance audit from September 2016 to October 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, the following staff made key contributions to this report: Shannin G. O’Neill (Assistant Director), Jeanne Sung (Analyst in Charge), Jennifer Beddor, Rebecca Eyler, Bruce Rackliff, and Dwayne Staten.

TSA conducts security threat assessment screening and credentialing activities for millions of workers and travelers in the maritime, surface, and aviation transportation industries that are seeking access to transportation systems. In 2008, TSA initiated the TIM program to enhance the sophistication of its security threat assessments and to improve the capacity of its supporting systems. However, the program experienced significant cost and schedule overruns, and performance issues, and was suspended in January 2015 while TSA established a new strategy. The program was rebaselined in September 2016 and is estimated to cost approximately $1.27 billion and be fully operational by 2021 (about $639 million more and 6 years later than originally planned). GAO was asked to review the TIM program's new strategy. This report determined, among other things, the extent to which (1) TSA implemented selected key practices for transitioning to Agile software development for the program; and (2) TSA and DHS are effectively overseeing the program's cost, schedule, and performance. GAO compared program documentation to key practices identified by the Software Engineering Institute and the Office of Management and Budget, as being critical to transitioning to Agile and for overseeing and governing programs. The Transportation Security Administration's (TSA) new strategy for the Technology Infrastructure Modernization (TIM) program includes using Agile software development, but the program only fully implemented two of six leading practices necessary to ensure successful Agile adoption. Specifically, the Department of Homeland Security (DHS) and TSA leadership fully committed to adopt Agile and TSA provided Agile training. Nonetheless, the program had not defined key roles and responsibilities, prioritized system requirements, or implemented automated capabilities that are essential to ensuring effective adoption of Agile. Until TSA adheres to all leading practices for Agile implementation, the program will be putting at risk its ability to deliver a quality system that strengthens and enhances the sophistication of TSA's security threat assessments and credentialing programs. TSA and DHS fully implemented one of the key practices for overseeing the TIM program, by establishing a process for ensuring corrective actions are identified and tracked. However, TSA and DHS did not fully implement the remaining three key practices, which impede the effectiveness of their oversight. Specifically, TSA and DHS documented selected policies and procedures for governance and oversight of the TIM program, but they did not develop or finalize other key oversight and governance documents. For example, TSA officials developed a risk management plan tailored for Agile; however, they did not update the TIM system life-cycle plan to reflect the Agile governance framework they were using. The TIM program management office conducted frequent performance reviews, but did not establish thresholds or targets for oversight bodies to use to ensure that the program was meeting acceptable levels of performance. In addition, department-level oversight bodies have focused on reviewing selected program life-cycle metrics for the TIM program; however, they did not measure the program against the rebaselined cost, or important Agile release-level metrics. TIM's reported performance data were not always complete and accurate. For example, program officials reported that they were testing every line of code, even though they were unable to confirm that they were actually doing so, thus calling into question the accuracy of the data reported. These gaps in oversight and governance of the TIM program were due to, among other things, TSA officials not updating key program management documentation and DHS leadership not obtaining consensus on needed oversight and governance changes related to Agile programs. Given that TIM is a historically troubled program and is at least 6 months behind its rebaselined schedule, it is especially concerning that TSA and DHS have not fully implemented oversight and governance practices for this program. Until TSA and DHS fully implement these practices to ensure the TIM program meets its cost, schedule, and performance targets, the program is at risk of repeating past mistakes and not delivering the capabilities that were initiated 9 years ago to protect the nation's transportation infrastructure.

CRS_R45723

T he federal government has two major tools for affecting the macroeconomy: fiscal policy and monetary policy. These policy interventions are generally used to either increase or decrease economic activity to counter the business cycle's impact on unemployment, income, and inflation. This report focuses on fiscal policy; for more information related to monetary policy, refer to CRS Report RL30354, Monetary Policy and the Federal Reserve: Current Policy and Conditions , by Marc Labonte. What is Fiscal Policy? Fiscal policy is the means by which the government adjusts its budget balance through spending and revenue changes to influence broader economic conditions. According to mainstream economics, the government can impact the level of economic activity, generally measured by gross domestic product (GDP), in the short term by changing its level of spending and tax revenue. Expansionary fiscal policy—an increase in government spending, a decrease in tax revenue, or a combination of the two—is expected to spur economic activity, whereas contractionary fiscal policy—a decrease in government spending, an increase in tax revenue, or a combination of the two—is expected to slow economic activity. When the government's budget is running a deficit, fiscal policy is said to be expansionary: when it is running a surplus, fiscal policy is said to be contractionary. From a policymaker's perspective, expansionary fiscal policy is generally used to boost GDP growth and the economic indicators that tend to move with GDP, such as employment and individual incomes. However, expansionary fiscal policy also tends to affect interest rates and investment, exchange rates and the trade balance, and the inflation rate in undesirable ways, limiting the long-term effectiveness of persistent fiscal stimulus. Contractionary fiscal policy can be used to slow economic activity if policymakers are concerned that the economy may be overheating, which can cause a recession. The magnitude of fiscal policy's effect on GDP will also differ based on where the economy is within the business cycle—whether it is in a recession or an expansion. Expansionary Fiscal Policy During a recession, aggregate demand (overall spending) in the economy falls, which generally results in slower wage growth, decreased employment, lower business revenue, and lower business investment. Recessions occur for a number of reasons, but as seen during the most recent recession from 2007 to 2009, they can result in serious negative consequences for both individuals and businesses. However, the government can replace some of the lost aggregate demand and limit the negative impacts of a recession on individuals and businesses with the use of fiscal stimulus by increasing government spending, decreasing tax revenue, or a combination of the two. Government spending takes the form of both purchases of goods and services by the government, which directly increase economic activity, and transfers to individuals, which indirectly increase economic activity as individuals spend those funds. Decreased tax revenue via tax cuts indirectly increases aggregate demand in the economy. For example, an individual income tax cut increases the amount of disposable income available to individuals, enabling them to purchase more goods and services. Standard economic theory suggests that in the short term, fiscal stimulus can lessen the negative impacts of a recession or hasten a recovery. However, the ability of fiscal stimulus to boost aggregate demand may be limited due to its interaction with other economic processes, including interest rates and investment, exchange rates and the trade balance, and the rate of inflation. Potential Offsetting Effects to Expansionary Fiscal Policy Investment and Interest Rates To engage in fiscal stimulus by either increasing spending or decreasing tax revenue, the government must increase the size of its deficit and borrow money to finance that stimulus. This can lead to an increase in interest rates and subsequent decreases in investment and some consumer spending. This rise in interest rates may therefore offset some portion of the increase in economic activity spurred by fiscal stimulus. At any given time, there is a limited supply of loanable funds available for the government and private parties to borrow from—a global pool of savings. If the government begins to borrow a larger portion of this pool of savings, it increases the demand for these funds. As demand for loanable funds increases, without any corresponding increase in the supply of these funds, the price to borrow these funds, also known as interest rates, increases. Rising interest rates generally depress economic activity, as they make it more expensive for businesses to borrow money and invest in their firms. Similarly, individuals tend to decrease so-called interest-sensitive spending—spending on goods and services that require a loan, such as cars, homes, and large appliances—when interest rates are relatively higher. The process through which rising interest rates diminish private-sector spending is often referred to as crowding out . However, the degree to which crowding out occurs is partially dependent on where the economy is within the business cycle, either in a recession or in a healthy expansion. During a recession, crowding out tends to be smaller than during a healthy economic expansion due to already depressed demand for investment and interest-sensitive spending. Because demand for loanable funds is already depressed during a recession, the additional demand created by government borrowing does not increase interest rates as much, and therefore does not crowd out as much private spending as it would during an economic expansion. In addition to fiscal policy, the government can influence the business cycle through the use of monetary policy, which is implemented by the Federal Reserve. The Federal Reserve is an independent government agency charged with maintaining stable prices and maximum employment through its monetary policy. The Federal Reserve can influence interest rates throughout the economy by adjusting the federal funds rate, a very short-term interest rate faced by banks. Decreasing interest rates reduces the cost to businesses and individuals of borrowing funds to make new investments and purchases. Conversely, increasing interest rates raises the cost to businesses and individuals of borrowing funds to make new investments and purchases. The Federal Reserve can conduct monetary policy in a complementary nature to fiscal policy, offsetting the rise in interest rates by decreasing the federal funds rate. Alternatively, the Federal Reserve can pursue a policy that offsets stimulus, pushing interest rates up by increasing the federal funds rate. Exchange Rates and the Trade Balance Another potential consequence of government fiscal stimulus is an increase in the value of the U.S. dollar and a subsequent increase in the trade deficit, which mitigates some portion of the rise in economic activity resulting from the fiscal stimulus. As discussed above, fiscal stimulus can cause interest rates to rise. In a global context where interest rates are rising in the United States relative to the rest of the world, demand for investment inside the United States is likely to increase among investors around the world as they seek out higher rates of return. The greater demand for investment in the United States is likely to temper the increase in interest rates resulting from fiscal stimulus. However, foreign investors must first exchange their own currency for U.S. dollars to invest in the United States. The increased demand for U.S. dollars increases the value of a U.S. dollar relative to other foreign currencies. As the U.S. dollar appreciates in value, domestic demand for imported goods increases because a U.S. dollar can now buy more goods and services abroad, but foreign demand for U.S. goods and services decreases because they are now relatively more expensive for foreigners. The end result is generally an increase in the U.S. trade deficit, as exports decrease and imports from abroad increase in the United States. An increasing trade deficit, all else equal, means that consumption and production of domestic goods and services are falling, partly offsetting the increase in aggregate demand caused by the stimulus. As discussed above, however, during a recession interest rates are less likely to rise, or are likely to increase to a lesser degree, due to an already depressed demand for investment and spending within the economy. Without rising interest rates, or if they increase to a lesser degree, the associated increase in the trade deficit is also likely to be smaller. In addition, if the Federal Reserve engages in similarly stimulative monetary policy, it may be able to mitigate some of the anticipated increase in the trade deficit by further preventing an increase in interest rates. Inflation As discussed above, the goal of fiscal stimulus is to increase aggregate demand within the economy. However, if fiscal stimulus is applied too aggressively, or is implemented when the economy is already operating near full capacity, it can result in an unsustainably large demand for goods and services that the economy is unable to supply. When the demand for goods and services is greater than the available supply, prices tend to rise, a scenario known as inflation. A rising inflation rate can introduce distortions into the economy and impose unnecessary costs on individuals and businesses, although economists generally view low and stable inflation as a sign of a well-managed economy. As such, rising inflation rates can hinder the effectiveness of fiscal stimulus on economic activity by imposing additional costs on individuals and interfering with the efficient allocation of resources in the economy. The Federal Reserve has some ability to limit inflation by implementing contractionary monetary policy. If the Federal Reserve observes accelerating inflation as a result of additional fiscal stimulus, it can counteract this by increasing interest rates. The rise in interest rates results in a slowing of economic activity, neutralizing the fiscal stimulus, and may help to slow inflation as well. Fiscal Expansion Multipliers Economists attempt to evaluate the overall impact of fiscal stimulus on the economy by estimating fiscal multipliers , which measure the ratio of a change in economic output to the change in government spending or revenue that causes the change in output. A fiscal multiplier greater than one suggests that for each dollar the government spends, the economy grows by more than one dollar. A multiplier may be larger than one if the initial government stimulus results in further spending by private actors. For example, if the government increases spending on infrastructure projects as part of its stimulus, directly increasing aggregate demand, numerous contractors and construction workers will likely receive additional income as a consequence. If those workers then spend a portion of their new income within the economy, it further increases aggregate demand. Alternatively, a fiscal multiplier of less than one suggests that for each dollar the government spends, the economy grows by less than one dollar, suggesting the expansionary power of the fiscal stimulus is being offset by the contractionary pressures discussed above. Estimates of fiscal multipliers vary depending on the form of the fiscal stimulus and on which economic model the economist uses to measure the multiplier. For example, a 2012 academic research article estimated fiscal multipliers for various forms of stimulus utilizing several different prominent economic models from the Federal Reserve Board, the European Central Bank, the International Monetary Fund (IMF), the European Commission, the Organisation for Economic Co-operation and Development (OECD), the Bank of Canada, and two models developed by academic economists. The authors found varying estimates (see Table 1 ) for different forms of fiscal stimulus ranging from 1.59 for cash transfers to low-income individuals to 0.23 for reduced labor income taxes. Based on these estimates, increasing government spending on consumption by 1% of GDP would result in a 1.55% increase in GDP, and decreasing labor income taxes by 1% of GDP would result in a 0.23% increase in GDP. The magnitude of fiscal multipliers likely depends on where the economy is in the business cycle. As discussed above, during a recession fiscal stimulus is less likely to result in offsetting contractionary effects—such as rising interest rates, trade deficits, and inflation—resulting in a larger increase in economic activity from fiscal stimulus. Accordingly, another academic research article attempted to estimate fiscal multipliers depending on whether the economy was in an expansion or a recession, and found that the multiplier for government spending was between 0 and 0.5 during expansions and between 1.0 and 1.5 during recessions. Long-Term Considerations Regarding Fiscal Stimulus Persistently applying fiscal stimulus can negatively affect the economy through three main avenues. First, persistent large budget deficits can result in a rising debt-to-GDP ratio and lead to an unsustainable level of debt. Second, persistent fiscal stimulus—particularly during economic expansions—can limit long-term economic growth by crowding out private investment. Third, rising public debt will require a growing portion of the federal budget to be directed toward interest payments on the debt, potentially crowding out other, more worthwhile sources of government spending. Some economic research has suggested that relatively high public debt negatively impacts economic growth. For example, one academic research paper suggested that for developed countries, a 10-percentage-point increase in the debt-to-GDP ratio is associated with a 0.15- to 0.20-percentage-point decrease in per capita real GDP growth. Unsustainable Public Debt As noted, persistent fiscal stimulus can result in a rising debt-to-GDP ratio and lead to an unsustainable level of public debt. A rising debt-to-GDP ratio can be problematic if the perceived or real risk of the government defaulting on that debt begins to rise. As the perceived risk of default begins to increase, investors will demand higher interest rates to compensate themselves. The tipping point at which public debt becomes unsustainable is difficult to predict. A continually rising debt-to-GDP ratio is likely to lead to an unsustainable level of debt over time. The threshold at which a nation's debt becomes unsustainable depends on a number of factors, such as the denomination of the debt, political circumstances, and, potentially most importantly, underlying economic conditions. A change in these circumstances may shift a nation's debt to unsustainable without the underlying amount of debt changing at all. To date, it does not appear that the United States has an immediate concern with respect to unsustainability; however, the U.S. debt-to-GDP ratio is projected to continually rise under current policy. Decreased Business Investment Persistent fiscal stimulus, and the associated budget deficits, can decrease the size of the economy in the long term as a result of decreased investment in physical capital. As discussed previously, the government's deficit spending can result in higher interest rates, which generally lead to lower levels of business investment. Business investment—spending on physical capital such as factories, computers, software, and machines—is an important determinant of the long-term size of the economy. Physical capital investment allows businesses to produce more goods and services with the same amount of labor and raw materials. As such, government deficits that lead to lower levels of business investment can result in lower quantities of physical capital, and therefore may reduce the productive capacity of the economy in the long term. As discussed earlier, some of the increase in interest rates and decline in domestic investment resulting from fiscal stimulus will likely be offset by additional investment in the United States from abroad. The inflow of capital from abroad is beneficial, as it allows for additional investment in the United States economy. However, in exchange for these investment flows, the United States is now sending a portion of its national income to foreigners in the form of interest payments. With a larger portion of investment flows coming from abroad, rather than from within the United States, a larger portion of the U.S. national income will be sent abroad. Crowding Out Government Spending Rising public debt may also be of concern due to its associated interest payments. All else equal, an increase in the level of public debt will result in an increase in interest payments that the government must make each year. Rising interest payments may displace government spending on more worthwhile programs. In 2019, interest payments on the debt are projected to be about 1.8% of GDP, or about $382 billion. By 2029 interest payments on the debt are expected to increase significantly, rising to about 3.0% of GDP or about $921 billion. Withdrawing Fiscal Stimulus As the economy shifts from a recession and into an expansion, broader economic conditions will generally improve, whereby unemployment falls and wages and private spending increase. With improving economic conditions, policymakers may choose to begin withdrawing fiscal stimulus by decreasing the size of the deficit or potentially by applying contractionary fiscal policy and running a budget surplus. As discussed in the previous section, policymakers may choose to withdraw fiscal stimulus for a number of reasons. First, persistent fiscal stimulus when the economy is near full capacity can exacerbate the negative consequences of fiscal stimulus, such as decreasing investment, rising trade deficits, and accelerating inflation. Second, decreasing the size of the budget deficit slows the accumulation of public debt. The government can withdraw fiscal stimulus by increasing taxes, decreasing spending, or a combination of the two. When the government raises individual income taxes, for example, individuals have less disposable income and decrease their spending on goods and services in response. The decrease in spending reduces aggregate demand for goods and services, slowing economic growth temporarily. Alternatively, when the government reduces spending, it reduces aggregate demand in the economy, which again temporarily slows economic growth. As such, when the government reduces the deficit, regardless of the mix of fiscal policy choices used to do so, aggregate demand is expected to decrease in the near term. However, withdrawing fiscal stimulus is expected to result in lower interest rates and more investment; a depreciation of the U.S. dollar and a shrinking trade deficit; and a slowing inflation rate. These effects tend to spur additional economic activity, partly offsetting the decline resulting from withdrawing fiscal stimulus. Whether the decrease in aggregate demand is problematic for overall economic performance depends on the state of the overall economy at that time. Potential Offsetting Effects to Withdrawing Fiscal Stimulus Investment and Interest Rates Withdrawing fiscal stimulus is likely to put downward pressure on domestic interest rates, which encourages additional spending and investment, increasing economic activity. When the government decreases its budget deficit, the demand for loanable funds decreases because the government reduces the amount of those funds it is borrowing. The decrease in demand for loanable funds decreases the price to borrow those funds (i.e., interest rates decline). Declining interest rates encourage increased business investment into new capital projects and consumer spending into durable goods by reducing the cost of borrowing. Exchange Rates and the Trade Balance Withdrawing fiscal stimulus is also expected to result in a depreciation of the U.S. dollar and an improved trade balance with the rest of the world. Assuming the shrinking deficit causes a decline in U.S. interest rates relative to interest rates abroad, individuals in the United States and abroad would rather make investments outside of the United States to benefit from those higher interest rates. Individuals shifting their investments outside the United States must first exchange their U.S. dollars for foreign currency, which decreases the value of the U.S. dollar relative to foreign currencies. As the U.S. dollar depreciates, foreign goods and services become relatively more expensive for U.S. residents and U.S. goods and services become relatively less expensive for foreign individuals. This generally results in an improved trade balance as foreign demand for U.S. goods and services (exports) increases and domestic demand for foreign goods and services (imports) decreases. Inflation When fiscal stimulus is withdrawn, aggregate demand for goods and services in the economy also tends to shrink, which is expected to slow inflation. Economists generally view relatively low and stable inflation as beneficial for economic growth, because businesses and consumers are relatively certain about the future price of goods and can make efficient decisions with respect to investment and consumption over time. Fiscal Contraction Multipliers The ultimate impact on the economy of withdrawing fiscal stimulus depends on the relative magnitude of its effects on aggregate demand, interest rates and investment, exchange rates and the trade deficit, and inflation. The same fiscal multipliers discussed earlier in the " Fiscal Expansion Multiplier " section can be used to estimate the impact of withdrawing fiscal stimulus by simply reversing the sign for each multiplier. As shown in Table 1 , decreasing government spending on consumption by 1% of GDP is expected to reduce real GDP by 1.55% after the first year, compared to no change in fiscal policy. Alternatively, increasing labor income taxes by 1% of GDP is expected to reduce real GDP by 0.23% after the first year. Again, monetary policy can be used alongside fiscal policy to affect the overall impact on the economy. For example, the Federal Reserve could lower interest rates to spur aggregate demand as the federal government withdraws fiscal stimulus in an effort to offset the decline in aggregate demand resulting from the shrinking deficit. This could allow the government to withdraw fiscal stimulus without decreasing aggregate demand or economic activity. Fiscal Policy Stance As shown in Figure 1 , the federal government has generally been running a budget deficit for much of the past 30 years—save for two short periods in the 1960s and 1990s. This suggests that the federal government has been applying some level of fiscal stimulus to the economy for much of the past three decades, although the level of stimulus has increased and decreased over time. However, simply examining the overall budget deficit to judge the level of fiscal stimulus can be misleading, as the levels of federal spending and revenue differ over time automatically due to changes in the state of the economy, rather than deliberate choices made each year by Congress. During economic expansions, tax revenue tends to increase and spending tends to decrease automatically, as rising incomes and employment result in higher average incomes and therefore greater individual and corporate income tax revenues. Federal spending on income support programs, such as food stamps and unemployment insurance, tends to fall as fewer people need financial assistance and unemployment claims fall during economic expansions. The combination of rising tax revenue and falling federal spending tends to improve the government's budget deficit. The opposite is true during recessions, when federal spending rises and revenue shrinks. These cyclical fluctuations in revenue and spending are often referred to as automatic stabilizers. Therefore, when examining fiscal policy, it is often beneficial to estimate the budget deficit excluding these automatic stabilizers, referred to as the structural deficit , to get a sense of the affirmative fiscal policy decisions made each year by Congress. As shown in Figure 1 , budget deficits tend to increase during and shortly after recessions (denoted by grey bars) as policymakers attempt to buoy the economy by applying fiscal stimulus. This can be seen explicitly by viewing the structural deficit/surplus, as this only shows affirmative changes in fiscal policy made by Congress. The budget deficit then tends to shrink as the economy enters into recovery and fiscal stimulus is less necessary to support economic growth. However, in recent years, the federal budget has bucked this trend. After the structural deficit peaked in 2009 at roughly 7.5% of GDP, it began to decline through 2014, falling to about 2.0% of GDP. Beginning in 2016, in spite of relatively strong economic conditions, the structural deficit has started to rise again, nearing 4.0% of GDP in 2018. Given that the economy is arguably at or exceeding full employment currently, the increase in fiscal stimulus since 2016 is notable. As discussed earlier, expanding fiscal stimulus when the economy is not depressed can result in rising interest rates, a growing trade deficit, and higher inflation. As of publication of this report, interest rates and inflation do not appear to have been affected by the additional fiscal stimulus; interest rates are at historic lows and inflation shows no signs of acceleration. The trade deficit has been growing in recent years; however, it is not clear that this growth in the trade deficit is a result of increased fiscal stimulus.

Fiscal policy is the means by which the government adjusts its spending and revenue to influence the broader economy. By adjusting its level of spending and tax revenue, the government can affect the economy by either increasing or decreasing economic activity in the short term. For example, when the government runs a budget deficit, it is said to be engaging in fiscal stimulus, spurring economic activity, and when the government runs a budget surplus, it is said to be engaging in a fiscal contraction, slowing economic activity. The government can use fiscal stimulus to spur economic activity by increasing government spending, decreasing tax revenue, or a combination of the two. Increasing government spending tends to encourage economic activity either directly through purchasing additional goods and services from the private sector or indirectly by transferring funds to individuals who may then spend that money. Decreasing tax revenue tends to encourage economic activity indirectly by increasing individuals' disposable income, which tends to lead to those individuals consuming more goods and services. This sort of expansionary fiscal policy can be beneficial when the economy is in recession, as it lessens the negative impacts of a recession, such as elevated unemployment and stagnant wages. However, expansionary fiscal policy can result in rising interest rates, growing trade deficits, and accelerating inflation, particularly if applied during healthy economic expansions. These side effects from expansionary fiscal policy tend to partly offset its stimulative effects. The government can use contractionary fiscal policy to slow economic activity by decreasing government spending, increasing tax revenue, or a combination of the two. Decreasing government spending tends to slow economic activity as the government purchases fewer goods and services from the private sector. Increasing tax revenue tends to slow economic activity by decreasing individuals' disposable income, likely causing them to decrease spending on goods and services. As the economy exits a recession and begins to grow at a healthy pace, policymakers may choose to reduce fiscal stimulus to avoid some of the negative consequences of expansionary fiscal policy, such as rising interest rates, growing trade deficits, and accelerating inflation, or to manage the level of public debt. In recent history, the federal government has generally followed a pattern of increasing fiscal stimulus during a recession, then decreasing fiscal stimulus during the economic recovery. Prior to the "Great Recession" of 2007-2009 the federal budget deficit was about 1% of gross domestic product (GDP) in 2007. During the recession, the budget deficit grew to nearly 10% of GDP in part due to additional fiscal stimulus applied to the economy. The budget deficit began shrinking in 2010, falling to about 2% of GDP by 2015. In contrast to the typical pattern of fiscal policy, the budget deficit began growing again in 2016, rising to nearly 4% of GDP in 2018 despite relatively strong economic conditions. This change in fiscal policy is notable, as expanding fiscal stimulus when the economy is not depressed can result in rising interest rates, a growing trade deficit, and accelerating inflation. As of publication of this report, interest rates have not risen discernibly and are still near historic lows, and inflation rates show no sign of acceleration. The trade deficit has been growing in recent years; however, it is not clear that this growth in the trade deficit is a result of increased fiscal stimulus.

GAO_GAO-19-38

Background HUD established DEC in 1998 to consolidate enforcement activities of PIH, CPD, the Office of Fair Housing and Equal Opportunity (for non-civil rights violations), and MFH into one new organization. The HUD 2020 management reform plan envisioned that DEC would take enforcement action against: (1) public housing agencies that do not pass annual assessments; (2) owners of private, HUD-assisted housing that do not pass physical or financial audit inspections; and (3) local and state governments and non-profit organizations that do not comply with the requirements of grants they received from CPD and the Office of Fair Housing and Equal Opportunity (for non-civil rights violations). In addition, as part of the plan, HUD created the Real Estate Assessment Center (REAC) to help monitor public housing and HUD-insured multifamily housing projects by providing independent assessments of the physical quality and financial condition of public housing and multifamily developments. DEC’s current mission is to provide independent oversight of the administration of HUD programs and its external partners. According to HUD, DEC’s primary goal is to bring owners to full compliance so that there is no compromise in the quality of HUD-assisted housing. In instances where owners do not bring properties up to standard, and where physical and financial deficiencies persist, DEC can take appropriate enforcement action. This includes administrative sanctions, such as civil money penalties, suspension or debarment, as well as possible referral to HUD OIG when criminal activity is suspected, or to the Department of Justice for civil action. DEC also conducts more targeted oversight reviews for some program offices. These reviews are intended to provide program offices with an independent means to analyze and evaluate the efficiency or vulnerability of their programs and operations. DEC has staff in HUD headquarters and five field offices. In general, headquarters staff develops policy and coordinates the reviews of the referrals DEC receives from the HUD program offices while field office staff conducts the reviews. DEC works primarily with MFH and conducts more targeted oversight reviews for PIH and CPD. (See Appendix II for a breakdown of DEC referrals by program office and the state where the property is located.) These program offices have staff in headquarters and field offices, which are organized into 10 regions. There is at least one field office or regional office in each state, and the number of field offices varies by region. PIH further combines these regions into six networks. These program offices oversee different areas within HUD: MFH oversees the Federal Housing Administration’s multifamily mortgage insurance on loan originations, manages HUD’s portfolio of multifamily housing, provides rental assistance, and helps preserve affordable housing. Additionally, MFH administers project-based rental assistance, supportive housing for the elderly, and programs for persons with disabilities. Collectively, the properties MFH oversees provided affordable rental housing to more than 1.2 million low- income households in 2017. PIH helps low-income families through a number of programs. PIH provides assistance to state and local public housing agencies that generally own and administer units for eligible tenants. The Housing Choice Voucher program provides tenant-based rental assistance that eligible individuals and families can use to rent houses or apartments in the private housing market. Native American programs provide block grants and loan guarantees to tribal entities for housing development and assistance. PIH is supporting 2.2 million vouchers and 1.1 million public housing units in 2018. CPD provides financial and technical assistance to states and localities through the Community Development Block Grant and HOME Investment Partnerships programs—the federal government’s largest block grant programs for community development and affordable housing production, respectively. CPD also leads a number of HUD’s efforts to combat homelessness. Additionally, Congress appropriated about $36 billion in new Community Development Block Grant-Disaster Recovery funds in fiscal years 2017 and 2018 to states and local governments that experienced major disasters in 2015, 2016 and 2017. CPD oversaw more than 37,000 grants in 2017. DEC uses an internal database to manage the referrals it receives from HUD program offices. DEC’s system is designed to capture various data, including the date DEC received the referral, name of the property owner or grantee being referred, cause of the referral, status of the referral, final action to close the referral, and corrections made related to the referral, among other things. Two of Three HUD Program Offices We Examined Lack Guidance for Making Referrals and Targets Based on Program Risk DEC and the three HUD program offices we examined have agreements in place that generally describe the process the offices follow to make referrals to DEC and the responsibilities of the parties. However, two of the three program offices (PIH and CPD) do not provide their staff with specific guidance for making referrals, and the target number of referrals these two offices have established to send to DEC does not address the risk of noncompliance. Multifamily Housing Office Makes Referrals to DEC Based on Defined Thresholds MFH makes automatic and elective referrals to DEC based on specific thresholds for program noncompliance defined in its agreement with DEC. MFH properties are automatically referred to DEC if: (1) the property scores below a certain threshold on a REAC physical inspection; (2) the owner fails to submit audited financial statements to HUD within 60 days following the end of the owner’s fiscal year; or (3) REAC’s automated compliance review of the property’s financial statements identifies unauthorized uses of project funds greater than an agreed-to threshold (see figure 1). MFH also may make an elective referral to DEC based in part on specific situations of program noncompliance defined in their agreement, such as the failure to comply with program regulations or use agreements. MFH officials told us that they make these referrals on a case-by-case basis if they believe that DEC’s expertise could help resolve the concerns. In addition, MFH officials distributed a 2017 DEC notice that clarified the procedures for making an elective referral to DEC. Whereas automatic referrals are system-generated, MFH can use its discretion whether to make an elective referral to DEC. From fiscal years 2014 through 2017, the total number of referrals DEC received on MFH properties increased by 23 percent. However, as seen in figure 2, the composition of those referrals varied. Referrals related to failure to submit timely financial statements increased by about 59 percent, while referrals related to other instances of financial noncompliance decreased by about 6 percent. Referrals for physical noncompliance, while relatively few overall, increased by 113 percent. MFH officials told us that the increase in referrals for failure to file timely financial statements was due, in part, to new program participants from 2011 to 2013 who did not understand the requirements. In addition, according to MFH officials, MFH changed certain thresholds of financial noncompliance from automatic to elective referrals in 2013, which officials believe resulted in fewer referrals for those types of financial noncompliance. MFH officials also noted that the increase in physical noncompliance referrals in fiscal year 2016 likely resulted from the informal encouragement given to field offices to make more elective referrals. In addition, during this period HUD’s inspection process came under additional scrutiny due to concerns about a multifamily property in Florida. The property had received a passing REAC inspection score in August 2015 but city code inspectors subsequently found multiple and serious deficiencies. The case attracted attention from the media and Congress and culminated in a Senate hearing in September 2016. Subsequently HUD reviewed the integrity of the REAC inspection and DEC referral processes. DEC officials told us that one reason there are fewer referrals for physical noncompliance compared to financial noncompliance is that a relatively small number of properties reach the threshold for an automatic referral based on physical noncompliance (inspection score less than or equal to 30 out of 100). According to HUD data, REAC conducted approximately 8,700 physical inspections in 2017. Of these inspections, our analysis of DEC data showed that DEC received 64 referrals (0.7 percent of the inspections conducted) for physical noncompliance. PIH and CPD Program Offices Lack Specific Guidance for Making Referrals PIH and CPD do not provide specific guidance to staff on when a referral should be made to DEC. This stands in contrast to MFH, whose agreement with DEC includes a more detailed discussion of what problems should result in a risk-based referral. PIH. A PIH official told us that they periodically send an email to field offices requesting potential candidates for referrals to DEC, and that the email cites factors that might warrant such referrals—such as potential violations of statute, regulation, or agreement. However, beyond that, there is no guidance to help field staff decide when to make a referral. In addition, PIH does not provide direction to field offices on how to use the results of their quarterly risk assessment to identify high-risk PHAs for potential DEC referrals. According to PIH officials, PIH has not issued more detailed guidance because it did not want to be too prescriptive in telling field office staff when to refer a public housing agency to DEC, as a DEC referral may not always be appropriate. CPD. An official from a CPD field office told us that they may refer a grantee to DEC for an oversight review—for example, if they identify a complex financial issue requiring an in-depth financial investigation beyond the capacity of the field office. However, beyond that, neither DEC nor CPD have developed guidance to help field offices determine when to refer a grantee to DEC. In addition, CPD does not provide direction to field offices on how to use the results of their risk-based assessment of grantees to identify potential DEC referrals. CPD officials told us that they do not provide guidance because they believe that their current approach where field offices make referrals to DEC on a case-by- case basis is better and more effective. As shown in figure 3, in recent years, the number of referrals has declined slightly for PIH and varied for CPD. DEC has agreed with PIH and CPD on a target number of elective referrals they should aim to make to DEC each fiscal year. However, neither program office met their targets for referrals to DEC in fiscal years 2016 and 2017: PIH made 25 and 12 referrals, respectively, but had an annual target of 40, while CPD referred 6 each year but had a target of 10. A number of factors may help explain the decline in referrals and failure to meet targets. For example, PIH officials told us that a new requirement that PIH field offices make every attempt to satisfy oversight review recommendations may have resulted in hesitation to make referrals among some field staff. However, the lack of formal guidance for field staff may also play a role in the number of referrals made. According to officials from two CPD field offices, many field offices do not understand the role of DEC or the assistance it can provide, and officials from one field office told us that providing formal guidance would be helpful in this regard. Our analysis found that half of the CPD field offices had not made a referral to DEC during the previous two fiscal years and, according to PIH officials, the number of PIH referrals varied for reasons not related to noncompliance risks. The 2016 HUD OIG report noted that when program field offices requested DEC services, they did so largely because of personal relationships and trust between DEC and some field office managers, an observation reiterated by officials from one field office we interviewed. According to the Office of Management and Budget, a ‘‘guidance document’’ is an agency statement of general applicability and future effect, other than a regulatory action, that sets forth a policy on a statutory, regulatory or technical issue or an interpretation of a statutory or regulatory issue. The office notes that guidance documents, used properly, can channel the discretion of agency employees, increase efficiency, and enhance fairness by ensuring equal treatment of similarly situated parties. In addition, federal internal control standards state that agencies should design control activities to achieve objectives and respond to risks, such as by documenting the responsibilities for these activities through policies and procedures. Because two of the program offices (PIH and CPD) we examined have not developed specific guidance for making referrals for oversight reviews, these offices cannot ensure that field staff are identifying and making referrals on a well- supported, risk-based, and consistent basis, and this may limit DEC’s effectiveness in fulfilling its mission of providing independent oversight of HUD’s programs. Such additional guidance could include information on how the field offices should incorporate the results from their risk assessments, more detailed criteria on when the field office should make a referral, and examples of potential noncompliance that could be referred. Target Number of Referrals for Two HUD Program Offices Are Not Based on Program Risk The target number of referrals for two program offices, PIH and CPD, appears to have been selected somewhat arbitrarily, rather than based on the risks to the programs. As noted earlier, DEC, PIH and CPD have agreed to set targets annually for the number of elective referrals they will make. PIH’s quarterly target of 10 public housing agency referrals represents less than 2 percent of the total number of agencies PIH designates as very high-risk and high risk each quarter. In addition, CPD’s target of 10 referrals per year represents about .03 percent of the grantees overseen by CPD and about 1 percent of the grantees monitored by CPD each year. However, PIH and CPD officials could not explain the basis for selecting these targets, nor is it clear how these targets are related to the overall risk these program offices face. Both program offices’ agreements with DEC state that they will review the agreements each year. PIH officials said this review typically has included a general discussion of the appropriate number of referrals to set as the target. DEC officials told us that future reviews will take a more risk-based approach to selecting that number, but they could not tell us when this would occur. In addition, according to a HUD official, program offices such as CPD are reviewing their processes for managing risk, which could impact the target number of referrals to DEC needed for them to adequately manage their risk. According to federal internal control standards, management should identify, analyze, and respond to risks related to achieving the defined objectives, and management should design control activities in response to the entity’s objectives and risks to achieve an effective internal control system. Without a target number of referrals based on the risks to the programs, PIH and CPD offices cannot be confident that DEC resources are being used most efficiently to address the risks of noncompliance by housing agencies and grantees. DEC Lacks Measures Needed to Fully Assess Its Performance While DEC currently tracks some measures related to its performance, its performance measurement system is lacking in key respects that limit DEC’s ability to fully assess its performance. DEC’s performance measures include the number of work assignments completed, reduction in number of aged referrals (2 or more years old), and the number of families impacted by its enforcement activities. DEC officials told us that they also track other measures, such as the dollar amounts of recoveries, and the numbers of suspensions and debarments. These measures are contextual indicators—measures intended to provide a broader perspective on the conditions that may influence an agency’s ability to achieve its performance goals. As shown in table 1, HUD data shows that for these contextual indicators DEC has recovered millions of dollars in inappropriately used HUD program funds and suspended or debarred some individuals. HUD data shows that DEC generally exceeded its targets for the performance measures. Federal internal control standards state that agency management should define objectives in measurable terms so that performance toward those objectives can be assessed. Consistent with those standards, we identified several challenges with DEC’s system of performance measurement. Lack of Outcome Measures DEC’s performance measures do not include outcome measures, which track the results of products and services. Instead, the performance measures track outputs, which are the direct products and services delivered by a program. Prior work and guidance that we have issued stress that performance measurement should evaluate outcomes related to program activities to judge program effectiveness. Previously, DEC tracked some outcome measures, such as the increase in the percentage of residents living in acceptable insured or assisted multifamily housing as a result of civil or administrative enforcement actions. However, DEC no longer tracks those measures, and officials were unable to explain why they stopped tracking them. Similarly, the 2014 agreement between DEC and PIH included examples of outcome measures for program offices– such as financial performance improvements and early detection or prevention of fraud—but these measures are not in the current agreement. Measuring outcomes can help assess a program’s activities and operations, identify areas that need improvement, and ensure accountability for results. DEC officials told us that outcome measurement is challenging because it can be difficult to establish a direct correlation with DEC’s work. We attempted to independently examine the outcome of DEC’s work. Specifically, we tried to measure the extent to which referrals to DEC resulted in suspensions or debarments of multifamily owners, but, in general, DEC’s data did not readily allow for this type of assessment. Outcome measures such as timeliness and monetary outcomes can still be used to capture essential program information and help assess program effectiveness. By not measuring and reporting on outcomes, DEC cannot fully assess the effectiveness or impact of its activities, or determine where improvement is needed. Lack of Recommendation Tracking DEC does not track the status of its recommendations. DEC’s oversight reviews sometimes result in recommendations to program offices to ensure program compliance with regulatory and policy requirements; streamline operations; improve customer service; and reduce program vulnerabilities to fraud, waste, abuse, or mismanagement. According to PIH and CPD’s agreements, the program offices will make every attempt to satisfy the recommendations, but the program offices are not required to implement them. However, according to DEC officials, DEC does not gather information on the status of its recommendations or assess program offices’ progress in implementing them. OGC officials told us that they were concerned about the burden that would be placed on program staff for providing such information, but PIH and CPD officials told us it would not require much additional work. We have previously reported that successful performance measures demonstrate results and provide useful information for decision makers. Without tracking the status of its recommendations and the extent to which program offices are implementing its recommendations, DEC is limited in its ability to assess its effectiveness in improving program operations, such as better program compliance. Lack of Measure of Timeliness DEC does not have a performance measure to assess the timeliness of its reviews for the referrals it receives. DEC does not measure how much time it takes to complete a referral from MFH, PIH, or CPD. DEC’s guidance and its agreements with CPD and PIH state that DEC will complete oversight reviews and issue a final report to program offices within 90 business days of the referral. These reviews are intended to be completed within this timeframe so that CPD and PIH program offices will have prompt feedback to address any areas of concern. According to HUD officials, DEC tracks the timeliness of its oversight work. However, DEC has not created a performance measure to track the extent that it is meeting its goals. In addition, DEC has no target timeframe for MFH referrals because, according to DEC officials, these referrals require varying strategies for fact gathering, analysis, and determining a course of action. Our analysis of HUD data showed that from fiscal years 2014-2017, DEC took an average of 168 days to complete its review after receiving a referral from MFH for failure to file financial statements, and an average of 254 days to complete its review for referrals related to financial noncompliance. We have previously reported that one attribute of a successful performance measure was whether the measure covered a government-wide priority, such as timeliness. Because it does not have a measure related to its timeliness in completing its reviews nor report on that information, DEC cannot ensure accountability or evaluate its efficiency for completing the reviews. Lack of Consistent Recording of Dates and Corrective Actions Taken DEC did not consistently record two pieces of information that could be relevant in assessing its performance—date of referral and corrective action taken. We analyzed an internal spreadsheet DEC uses to track the referrals it received from CPD and PIH to conduct oversight reviews of grantees and housing agencies. DEC did not record the date that the referral was assigned a DEC lead analyst (the point DEC begins tracking the referrals) or the date DEC signed the final report for 36 percent of the CPD referrals and 20 percent of the PIH referrals DEC completed from fiscal years 2015-2017. Consequently, we could not reliably evaluate DEC’s average timeframes for completing an oversight review referral. In addition, DEC did not consistently record information on the corrective actions taken by DEC or MFH following a DEC review. DEC’s MFH referral-tracking database includes an “Outcomes” module with a “Corrections Made” field where DEC analysts can choose a description of the corrections made as a result of the review by either MFH or by the owner of the property, such as filing an annual financial statement. However, based on our review of this database, DEC analysts are not regularly using the “Corrections Made” field. According to DEC officials, the inconsistent recording of dates and corrective actions was likely due to human error. This may suggest the lack of a process or controls to ensure accurate and complete recording of this information. Federal internal control standards state that an agency’s managers should use quality information, such as the accurate and timely recording of transactions, to achieve the agency’s objectives and manage risk. Without such controls, DEC will continue to have unreliable data to measure its timeliness in completing reviews and will not be able to reliably track the status of its recommendations to MFH and hold that office accountable for their implementation. Information Technology Challenges Have Affected DEC’s Ability to Achieve Its Mission Information technology challenges have affected the ability of DEC to achieve its mission. Although DEC has experienced staffing declines over time, there is disagreement about the extent to which these declines have impacted DEC’s ability to achieve its mission. Further, disagreement exists over DEC’s placement within HUD and the impact on DEC’s ability to achieve its mission. Information Technology DEC has experienced various information technology challenges that have affected its ability to achieve its mission. For example, the system does not allow DEC to easily determine the basis for a financial referral it receives from REAC on MFH properties. Instead, according to HUD, to determine the issues that triggered the referral, DEC staff must review each property’s financial statements—a labor-intensive process. In addition, DEC’s information technology system is designed to share information among staff but not to analyze or track information. Its referral data are stored in databases that generally cover one fiscal year each, according to OGC officials, which makes it challenging to identify trends. Further, DEC officials told us that the system has experienced continuing outages and breaks in service. HUD has acknowledged that DEC needs more robust information technology to carry out its enforcement and tracking functions. The HUD Enforcement Management System is part of the department’s efforts to streamline, consolidate, and automate its enforcement business processes. According to HUD, the system will consolidate six enforcement-related systems into one and automate the monitoring and compliance review processes for several offices within HUD. Officials said this will help DEC manage its workflow and reviews and enable it to more easily track the focus of a review and any monetary findings. OGC officials noted that the department implemented the first phase of the HUD Enforcement Management System in December 2015, initially focusing on HUD’s Office of Fair Housing. However, HUD’s development contract expired in March 2017. Due to funding constraints, as of June 2018, HUD had not awarded a new contract that would incorporate DEC, and such funding is not expected to be allocated until at least fiscal year 2020, according to OGC officials. Staff Resources Although DEC has experienced staffing declines over time, disagreement exists within HUD about the impact of these staffing declines on DEC’s ability to achieve its mission. DEC’s staff level in fiscal year 2017 (an estimated 95 full-time equivalents) represented its lowest staff level since fiscal year 1999. HUD OIG reported in 2016 that limits on DEC resources resulted in lost opportunities to improve program effectiveness and strengthen conditions that discouraged waste, fraud, and abuse. The report also noted that these limits had prevented DEC from extending comprehensive enforcement activities to all program offices, which had reduced its effectiveness. OIG’s report further noted that DEC said it would need additional staff to perform financial analysis and enforcement if DEC were to expand its efforts with PIH and CPD. OIG recommended that OGC provide DEC with the resources and support to strengthen enforcement across HUD programs. HUD disagreed with the OIG’s conclusion that staffing declines limited DEC’s ability to achieve its mission. HUD noted that DEC’s decrease in workload over time mitigated the effect of reduced staffing. In addition, HUD said that despite its reduced resources, DEC had succeeded in preventing some individuals from participating in MFH programs through suspension or debarment, and in encouraging compliance. HUD stated that DEC had sufficient staffing to handle MFH referrals under current protocols and serve as HUD’s troubleshooter by conducting oversight reviews for CPD and PIH. As of August 2018, HUD had not provided the department’s status of actions taken or planned related to OIG’s recommendation to the OIG. Organizational Structure Disagreement also exists regarding the placement of DEC within HUD. At its creation in 1998, DEC was located within HUD’s Office of the Deputy Secretary, but in 2002 it was moved to OGC. HUD OIG and DEC officials have stated that DEC’s placement within OGC limits DEC’s ability to achieve its mission. OIG reported in its 2016 report that DEC’s initial placement within the Deputy Secretary’s office provided DEC with independent enforcement authority. In addition, DEC officials told us that DEC’s initial placement highlighted HUD’s commitment to enforcement and that its current placement limits its authority to oversee program areas and hold them accountable for corrections. In a December 2017 internal paper, DEC proposed returning to the Deputy Secretary’s office. It noted that DEC’s oversight of programmatic operations began to decline in 2016, and that PIH referrals to DEC through December 2017 represented less than one-half of the goal of one percent of PIH’s inventory. DEC’s paper also noted that a return to the Deputy Secretary’s office would highlight HUD’s responsibility to develop and maintain effective internal controls, independent of the program areas. Finally, DEC stated that its placement within the Deputy Secretary’s office would provide an opportunity to consolidate the department’s enterprise risk management functions. According to HUD officials, as of August 2018, the department had no plans to move DEC and did not request funding for such a move in HUD’s fiscal year 2019 budget. In response to the 2016 OIG report, HUD stated that DEC’s current location within OGC had not affected DEC’s ability to make referrals for enforcement or initiate suspension or debarment actions. HUD added that placing DEC within OGC achieved significant efficiencies by consolidating DEC’s administrative, information technology, and legal functions without affecting the ability of either office to carry out its mission. OGC officials told us that DEC’s current placement within OGC is similar to the Federal Bureau of Investigation’s placement within the Department of Justice. They also noted that DEC’s enforcement and compliance analysts and attorneys coordinate enforcement activities and that DEC field office directors routinely seek legal advice from OGC attorneys. According to OGC, returning DEC to the Deputy Secretary’s office would have adverse effects on the administrative efficiencies achieved. It is unclear whether DEC’s placement within OGC has adversely affected DEC’s ability to fulfill its mission. We asked DEC staff for documentation that would support a move to the Deputy Secretary’s office, but the information we received did not provide specific examples of how DEC’s current placement limited its ability to achieve its mission. Furthermore, as part of their 2017 paper discussing a proposed relocation, DEC officials did not identify how DEC’s placement in OGC adversely impacted it. Other factors besides DEC’s current location may explain why DEC may not be utilized more effectively. For example, we previously identified findings related to the lack of guidance that might contribute to program offices’ underutilization of DEC. In addition, as we note above, the absence of guidance on when program offices should make referrals may limit DEC’s ability to assess its enforcement efforts. These findings generally are independent of DEC’s organizational location. Conclusions DEC has recovered millions of dollars in inappropriately used HUD program funds, suspended or debarred some individuals, and helped strengthen program offices’ monitoring efforts. However, our review identified opportunities for DEC to better achieve its mission and assess its impact: Guidance. PIH and CPD field office staff use their discretion in deciding which cases to refer to DEC, but these decisions do not appear to always be based on well-supported assessments of risk. Without specific guidance to help staff direct their decision making, DEC and the program offices cannot ensure that referrals are made using a consistent and risk-based approach, limiting DEC’s effectiveness in fulfilling its mission of providing independent oversight of HUD’s programs. Target number of referrals. The target number of referrals that PIH and CPD aim to make to DEC has not been chosen based on a risk- based process and it is not clear how these targets related to the programs’ overall risks. Without a determination of appropriate risk- based target numbers, PIH and CPD cannot ensure that they are using DEC resources efficiently to address the risks of noncompliance by housing agencies and grantees. Performance measurement. Although DEC reports on some aspects of its performance, it lacks measures that assess outcomes rather than outputs and does not report on the timeliness of its reviews or track program offices’ implementation of its recommendations. Without improvements in its performance measurement, it will be difficult for DEC to fully assess and demonstrate its effectiveness, ensure accountability, and identify and prioritize potential improvements. Data recording. Controls to ensure that analysts consistently record referral dates and corrective actions taken would give DEC more reliable data with which to assess its timeliness and the impact of its enforcement activities. Recommendations for Executive Action We are making the following eight recommendations to HUD: The Director of the Departmental Enforcement Center and the Assistant Secretary for Community Planning and Development should develop written guidance for CPD’s field offices to use when determining whether to make a referral to the Departmental Enforcement Center. (Recommendation 1) The Director of the Departmental Enforcement Center and the Assistant Secretary for Public and Indian Housing should develop written guidance for PIH’s field offices to use when determining whether to make a referral to the Departmental Enforcement Center. (Recommendation 2) The Director of the Departmental Enforcement Center and the Assistant Secretary for Community Planning and Development should develop targets for the number of referrals that CPD should make to DEC that are based on program risk. (Recommendation 3) The Director of the Departmental Enforcement Center and the Assistant Secretary for Public and Indian Housing should develop targets for the number of referrals that PIH should make to DEC that are based on program risk. (Recommendation 4) The Director of the Departmental Enforcement Center should develop and implement performance measures that assess the outcomes, or desired results, of its enforcement activities. (Recommendation 5) The Director of the Departmental Enforcement Center should develop and implement performance measures of its timeliness in completing oversight reviews. (Recommendation 6) The Director of the Departmental Enforcement Center should track the implementation of the recommendations that it makes to program offices as a result of its oversight reviews. (Recommendation 7) The Director of the Departmental Enforcement Center should develop controls to ensure that analysts consistently and reliably record dates related to referral activity, corrective action taken, and other key information used to determine DEC’s impact. (Recommendation 8) Agency Comments We provided a draft of this report to HUD for review and comment. HUD provided written comments that are reprinted in appendix III. HUD disagreed with three of the eight recommendations and agreed with the other five. In its general comments, HUD indicated that it planned to use DEC to address the most egregious violators of HUD’s programs. HUD also anticipated assessing the current agreements between DEC and HUD program offices and, where appropriate, revising those agreements to incorporate current agency goals and priorities, among other things. HUD further noted that DEC’s work would continue to be a part of HUD’s agency-wide risk and fraud management mitigation activities. HUD disagreed with the third and fourth recommendations that DEC should work with CPD and PIH to develop targets for the number of referrals that the program offices should make to DEC that are based on program risk. In its written comments, HUD said that developing “targets” for the number of referrals made to DEC could potentially be inconsistent with the methodology of basing referrals on program risk and that a single measure of risk-based referrals would be a more effective strategy. As discussed in the report, the current target numbers of referrals for the program offices to make to DEC appear to have been selected somewhat arbitrarily and the officials could not explain the basis for selecting these targets. By identifying a target number of referrals based on the anticipated need for DEC reviews, the program offices can more efficiently plan the use of their resources. Setting the targets will also allow DEC and the program offices to better assess whether they are achieving their goals and objectives, and may encourage program offices to refer entities to DEC. HUD also disagreed with our sixth recommendation that DEC should develop and implement performance measures that measure its timeliness in completing reviews, noting that DEC has tracked the timeliness of its oversight work since 2014. However, as we discuss in the report, DEC has not included performance measures related to the timeliness of its reviews, which is separate from tracking the information. We revised the language in the final report to note that DEC tracks this information, but has not created a related performance measure. HUD agreed with our remaining five recommendations and provided information about planned steps to implement them. HUD noted in its response to our first and second recommendations that CPD and PIH would establish parameters for when a referral will be made to DEC. With respect to our fifth recommendation, HUD stated that DEC would work with relevant offices in fiscal year 2019 to develop performance measures that assess outcomes of enforcement activities and would consult with federal enforcement agencies to understand how they measure outcomes. In response to our seventh recommendation, HUD stated that DEC would make improvements to its information system to track the implementation of the oversight review recommendations. Finally, HUD noted that it anticipates incorporating quality control components into DEC’s data collection efforts to ensure that dates, corrective actions taken, and other key information are captured consistently and reliably to address our eighth recommendation. We are sending copies of this report to the appropriate congressional committees and the Secretary of Housing and Urban Development. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix IV. Appendix I: Objectives, Scope, and Methodology Our objectives were to examine (1) the processes that selected Department of Housing and Urban Development (HUD) program offices have in place to make referrals to the Departmental Enforcement Center (DEC), (2) how DEC assesses its performance, and (3) challenges that may affect the ability of DEC to achieve its mission. We focused our review on DEC and three HUD program offices: Community Planning and Development (CPD), Multifamily Housing (MFH), and Public and Indian Housing (PIH). Collectively, these three program offices accounted for 73 percent of the total referrals DEC received from fiscal years 2014 through 2017 (6,724 of the 9,258 total referrals). To address the first objective, we reviewed DEC’s formal agreements with CPD, MFH, and PIH to determine the roles and responsibilities of the parties, any criteria for making referrals, and any goals on number of reviews. In addition, we reviewed guidance developed by program offices for monitoring multifamily properties, public housing agencies, and grantees to determine what, if any, criteria existed for making referrals to DEC. We also observed demonstrations of the system DEC uses to manage referrals and the risk assessment tool PIH uses in its reviews of public housing agencies. We compared the guidance and the processes for determining the role DEC should play against federal internal control standards. We analyzed data from DEC’s system for managing referrals from program offices (extracted as of March 2018) and a spreadsheet DEC maintains to track referrals from CPD and PIH (as of March 2018). We used the data extract to compute the number and type of referrals DEC received from the program offices from fiscal years 2014 through 2017. We interviewed DEC and program office staff about the number of referrals that program offices made during this time period. To assess the reliability of the data, we performed various tests—including searching for missing data and dates, and checking for completeness of the data. We concluded that the data from DEC were sufficiently reliable for purposes of describing general trends. We interviewed DEC and program office officials at HUD headquarters to discuss how program offices make referrals to DEC and any guidance or training DEC or program offices provide regarding the referral process. We also conducted interviews with staff in each of HUD’s six PIH networks and in CPD field offices in Atlanta, Georgia; Denver, Colorado; Fort Worth, Texas; and Los Angeles, California. We selected the Fort Worth and Los Angeles CPD field offices because they had made referrals to DEC between fiscal years 2016 and 2017, and selected Atlanta and Denver because they had not. To address the second objective, we reviewed the current and previous performance measures used by DEC. We compared DEC’s practices against federal internal control standards and against practices GAO has previously identified as being associated with agencies that were successful in measuring their performance. We used the data extract discussed above to compute the average number of days DEC took to complete referrals on multifamily properties and the extent that information was not recorded. We also interviewed DEC and OGC officials regarding the performance information DEC collects and reports. To address the third objective, we reviewed prior reports from GAO and from the HUD Office of Inspector General that identified and discussed challenges DEC faces in achieving its mission. We also reviewed internal HUD documents related to these challenges, including plans for a new information technology system, historical staff levels, and a proposal DEC officials created to relocate DEC back to the Deputy Secretary’s Office. We also interviewed officials from various HUD headquarters and field offices, HUD’s Office of Inspector General, and DEC about challenges DEC may face in achieving its mission. We conducted this performance audit from July 2017 to October 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Location of Entities That Were Referred to the Departmental Enforcement Center, Fiscal Years 2014-2017 From fiscal year 2014 through 2017, the Department of Housing and Urban Development’s Departmental Enforcement Center received about 8,000 referrals from the agency’s program offices. Table 3 provides details on the number of referrals by program and state from fiscal years 2014 through 2017. Appendix III: Comments from Department of Housing and Urban Development Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, GAO staff who made key contributions to this report include Marshall Hamlett (Assistant Director), Daniel Newman (Analyst-in-Charge), William R. Chatlos, Laura Gibbons, John McGrail, Marc Molino, and Tovah Rom.

HUD established DEC in 1998 to consolidate enforcement functions. In fiscal year 2017, DEC received about 2,800 referrals from program offices for oversight of and enforcement actions against property owners, public housing agencies, and state and local grantees that do not comply with requirements. The Joint Explanatory Statement accompanying the Consolidated Appropriations Act, 2017, included a provision for GAO to assess DEC's effectiveness addressing noncompliance. GAO examined (1) the processes selected program offices have in place to make referrals, (2) how DEC assesses its performance, and (3) challenges that may affect the ability of DEC to achieve its mission. GAO reviewed agreements and referral data between DEC and three of the nine HUD program offices that made referrals to DEC from fiscal years 2014 to 2017 (accounting for 73 percent of the total referrals during that period), and interviewed HUD staff in headquarters and field offices. The three program offices of the Department of Housing and Urban Development (HUD) that GAO examined have a process in place for referring cases of potential noncompliance to the Departmental Enforcement Center (DEC), but two of the offices do not provide their staff with specific guidance on when to make referrals. The Office of Multifamily Housing makes referrals to DEC based on defined thresholds for noncompliance, such as for properties that do not pass physical inspections. In contrast, the Offices of Public and Indian Housing (PIH) and Community Planning and Development (CPD) have broad guidelines but not specific thresholds for when to refer an entity to DEC. These two offices do not provide field staff with specific guidance to help determine which housing agencies or grantees to refer to DEC for possible enforcement action. As a result, the offices cannot ensure that decisions on whether to make referrals are made on a well-supported and consistent basis, potentially limiting DEC's effectiveness in fulfilling its mission of providing independent oversight of HUD's programs. In addition, PIH and CPD have targets for how many annual referrals the program office will make to DEC, but the targets are not based on program risk. According to federal internal control standards, management should identify, analyze, and respond to risks related to achieving the defined objectives. Without a target number of referrals based on program risk, PIH and CPD cannot be confident that the number of cases referred to DEC is appropriate and that DEC resources are being used efficiently. DEC tracks some performance measures, but it largely measures outputs, such as number of work assignments completed, rather than outcomes, such as financial performance improvements resulting from its work, that would help assess the impact of its activities. DEC also does not track the status of recommendations it makes to program offices or measure indicators of its timeliness in completing its reviews for the referrals it receives. In addition, GAO found that DEC staff did not consistently record two key data elements (including the corrective action taken) in the spreadsheet used to track referrals. Improving DEC's performance measurement system and data recording would be consistent with federal internal control standards and allow DEC to better assess its effectiveness, ensure accountability, and identify potential improvements. DEC has experienced various information technology challenges that have affected its ability to carry out its mission. For example, DEC's current system is not designed to allow staff to easily determine the basis for certain referrals or identify and analyze trends in referrals over multiple years. In addition, DEC has experienced continuing outages and breaks in service. HUD has developed plans for a replacement system, but funding constraints have delayed the implementation of the new system. DEC staff also noted that the organizational location of DEC within the Office of General Counsel was a challenge to carrying out its mission because it limited DEC's ability to hold program offices accountable for corrections. HUD disagreed and also stated that the department has no plans to relocate DEC. Based on GAO's review, other factors, such as the lack of guidance for making referrals (discussed above), may better explain why DEC may not be utilized more effectively.

CRS_R42072

Introduction The leaders of the eight legislative branch agencies and entities—the Government Accountability Office, the Library of Congress, the Government Publishing Office (formerly Government Printing Office), the Office of the Architect of the Capitol, the U.S. Capitol Police, the Congressional Budget Office, the Congressional Research Service, and the Office of Compliance—are appointed in a variety of manners. The first four agencies are led by a person appointed by the President, with the advice and consent of the Senate. The next two are appointed by Congress, the next by the Librarian of Congress, and the last by a board of directors. Congress has periodically examined the procedures used to appoint legislative branch officers with the aim of protecting the prerogatives of, and ensuring accountability to, Congress within the framework of the advice and consent appointment process established in Article II, Section 2 of the Constitution. Legislation to alter the appointment process for legislative branch agencies and entities has periodically been introduced for many years. Questions remain about various reform proposals, including the ability of Congress to remove the President from the appointment process for some of these positions. These may depend upon the implication or interpretation of the Appointments Clause of the Constitution, the definition of an "officer of the United States," the specific office or agency in question, and whether or not a change in appointing authority would require any revision in the powers and duties of legislative branch agency leaders. Some previous reforms and proposals have also attempted to find a role for the House of Representatives, which does not play a formal role in the confirmation of presidential nominees, in the search for legislative branch officials. The report also briefly addresses legislation considered, but not enacted, in the 115 th Congress to change the appointment process for the Register of Copyrights. Overview by Legislative Branch Agency or Entity The following sections contain information on the legislative branch agency heads' appointment processes, length of tenures (if terms are set), reappointment or removal provisions (if any), salaries and benefi ts, and most recent appointments. Information is provided on each agency and summarized in Table 1 . Architect of the Capitol Pursuant to the Legislative Branch Appropriations Act, 1990, the Architect is "appointed by the President by and with the advice and consent of the Senate for a term of 10 years." The act also established a congressional commission responsible for recommending individuals to the President for the position of Architect of the Capitol. The commission, originally consisting of the Speaker of the House of Representatives, the President pro tempore of the Senate, the majority and minority leaders of the House of Representatives and the Senate, and the chairs and the ranking minority Members of the Committee on House Administration and the Senate Committee on Rules and Administration, was expanded in 1995 to include the chairs and ranking minority Members of the House and Senate Appropriations Committees. Prior to 1989, the Architect was selected by the President for an unlimited term without any formal involvement of Congress. The FY1990 act, however, followed numerous attempts dating at least to the 1950s to alter the appointment procedure to provide a role for Congress. The proposals included requiring the advice and consent of the Senate, establishing a commission to recommend names to the President, and removing the appointment process from the President and instead making the Architect appointed solely by Congress. In the 111 th Congress, two measures ( H.R. 2185 and H.R. 2843 ) were introduced to remove the President from the Architect appointment process and shift it to congressional leaders and chairs and ranking Members of specific congressional committees. Under both measures, the Architect would still serve a 10-year term. Under H.R. 2843 , as reported, the Architect would have been appointed jointly by the same 14-member panel, equally divided between the House and Senate, that currently is responsible for recommending candidates to the President. This bill was reported by the Committee on House Administration ( H.Rept. 111-372 ) on December 10, 2009. The Committee on Transportation and Infrastructure was discharged from further consideration the same day. The House agreed to the bill, as amended to include an 18-member panel, also equally divided between the House and Senate, by voice vote on February 3, 2010. H.R. 2843 was received in the Senate and referred to the Committee on Rules and Administration, although no further action was taken. Under the earlier bill ( H.R. 2185 , 111 th Congress), which was introduced on April 30, 2009, the Architect would have been appointed jointly by the Speaker of the House, the Senate majority leader, the minority leaders in the House and Senate, the chairs and ranking minority Members of the House and Senate Committees on Appropriations, and the chairs and ranking minority Members of the Committee on House Administration and Senate Committee on Rules and Administration. This bill followed similar legislation ( H.R. 6656 , 110 th Congress), with the same 12-member appointing panel, introduced on July 30, 2008. Both bills were referred to two committees, but no further action was taken. The Architect of the Capitol is compensated at an "annual rate which is equal to the lesser of the annual salary for the Sergeant at Arms of the House of Representatives or the annual salary for the Sergeant at Arms and Doorkeeper of the Senate." Most Recent Appointment Stephen T. Ayers was nominated by President Obama for a 10-year term on February 24, 2010. He was the second Architect nominated pursuant to the new commission procedure. The nomination was referred to the Senate Committee on Rules and Administration. The committee held a hearing on April 15, 2010, and Ayers was confirmed by unanimous consent in the Senate on May 12, 2010. Ayers was previously the Deputy Architect/Chief Operating Officer and had served as Acting Architect of the Capitol following the February 4, 2007, retirement of former Architect of the Capitol Alan Hantman. Upon the retirement of Ayers on November 23, 2018, Christine Merdon, the Deputy Architect of the Capitol/Chief Operating Officer, became the Acting Architect of the Capitol. Government Accountability Office Pursuant to 31 U.S.C. 703(a)(1), the Comptroller General shall be "appointed by the President, by and with the advice and consent of the Senate." This procedure dates to the establishment of the agency in 1921. Additionally, a commission procedure established in 1980 recommends individuals to the President in the event of a vacancy. The commission consists of the Speaker of the House, the President pro tempore of the Senate, the majority and minority leaders of the House and Senate, the chairs and ranking minority Members of the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform. The commission is to recommend at least three individuals for this position to the President, although the President may request additional names. The Comptroller General is appointed to a 15-year term and may not be reappointed. The Comptroller General may be removed by "(A) impeachment; or (B) joint resolution of Congress, after notice and an opportunity for a hearing" and only by reason of permanent disability; inefficiency; neglect of duty; malfeasance; or a felony or conduct involving moral turpitude. The salary of the Comptroller General is equal to Level II of the Executive Schedule. Additionally, a law enacted in 1953 established a separate retirement system for the Comptroller General. Most Recent Appointment Gene L. Dodaro, then-Chief Operating Officer at GAO, became the acting Comptroller General on March 13, 2008, upon the resignation of David M. Walker, who had previously been confirmed on October 21, 1998. The White House announced Dodaro's nomination to a 15-year term as Comptroller General on September 22, 2010. The Senate Committee on Homeland Security and Governmental Affairs held a hearing on the nomination on November 18, 2010, and Dodaro was confirmed by the Senate by unanimous consent on December 22, 2010. Government Publishing Office The Government Publishing Office (formerly Government Printing Office) was established in 1861. The U.S. Code , at 44 U.S.C. 301, states that the President "shall nominate and, by and with the advice and consent of the Senate, appoint a suitable person to take charge of and manage the Government Publishing Office. The title shall be Director of the Government Publishing Office." The current appointment language was enacted in 2014, although the use of the advice and consent procedure for this position can be traced back much further. There is no set term of office for the Director. The Director's pay is equivalent to Level II of the Executive Schedule. Most Recent Appointment Robert C. Tapella was nominated to be Director of the Government Publishing on June 18, 2018. The nomination was referred to the Committee on Rules and Administration. No further action was taken prior to the end of the 115 th Congress, and the nomination was returned to the President pursuant to Senate Rule XXXI. President Trump renominated Tapella on January 16, 2019. The nomination was referred to the Committee on Rules and Administration. Previously, Tapella served in this role from October 4, 2007 (confirmed by the Senate by voice vote) until December 28, 2010. GPO's Chief Administrative Officer, Herbert H. Jackson Jr., has served as Acting Deputy Director since July 1, 2018, following the retirement of Andrew M. Sherman. Sherman, formerly GPO's Chief of Staff, had been serving as Acting Deputy Director since the retirement of Acting GPO Director Jim Bradley on March 6, 2018. Bradley, previously the GPO Deputy Director, had assumed this role following the departure of the previous Director, Davita Vance-Cooks, in November 2017. Vance-Cooks had been nominated by President Obama on May 9, 2013, to be Public Printer, as the head of the GPO was then known, and confirmed by the Senate by voice vote on August 1, 2013. Library of Congress The Library of Congress was established in 1800. The U.S. Code , at 2 U.S.C. 136, states: "The Librarian of Congress shall make rules and regulations for the government of the Library." Until an act of February 19, 1897, which made the appointment subject to the advice and consent of the Senate, the Librarian was appointed solely by the President. Recent changes to the appointment statute, at 2 U.S.C. 136-1, amended the tenure of the Librarian. The Librarian of Congress Succession Modernization Act of 2015, S. 2162 , was introduced in the Senate on October 7, 2015, and agreed to the same day by unanimous consent. It was agreed to in the House without objection on October 20 and signed by President Obama on November 5, 2015 ( P.L. 114-86 ). The act establishes a term limit of 10 years, with the possibility of reappointment by the President, by and with the advice and consent of the Senate. Previously, there was no set term of office for the Librarian. The U.S. Code , at 2 U.S.C. 136a-2, states: "the Librarian of Congress shall be compensated at an annual rate of pay which is equal to the annual rate of basic pay payable for positions at Level II of the Executive Schedule under section 5313 of title 5." Most Recent Appointment Carla D. Hayden was nominated to a 10-year term as Librarian of Congress by President Obama on February 24, 2016. The Senate Committee on Rules and Administration held a hearing on the nomination on April 20, 2016, and ordered the nomination favorably reported on June 9. Hayden was confirmed as the 14 th Librarian of Congress on July 13, 2016 (74-18, record vote number 128). Hayden succeeded James H. Billington who retired effective September 30, 2015. Billington had been confirmed as Librarian of Congress by the Senate on July 24, 1987. Congressional Research Service The Legislative Reorganization Act of 1970 provides that the Librarian of Congress appoint the Director of the Congressional Research Service (CRS) "after consultation with the Joint Committee on the Library." The basic rate of pay for the director is equivalent to Level III of the Executive Schedule. There is no set term of office. Most Recent Appointment Mary B. Mazanec, who served as Acting Director of CRS following the retirement of former Director Daniel P. Mulhollan on April 2, 2011, was appointed Director by the Librarian of Congress on December 5, 2011. U.S. Capitol Police 2 U.S.C. 1901 states: "There shall be a captain of the Capitol police and such other members with such rates of compensation, respectively, as may be appropriated for by Congress from year to year. The Capitol Police shall be headed by a Chief who shall be appointed by the Capitol Police Board and shall serve at the pleasure of the Board." The last sentence was inserted in 1979, struck by the FY2003 Consolidated Appropriations Resolution, and restored in 2010 by the U.S. Capitol Police Administrative Technical Corrections Act. Pursuant to the FY2003 act, the chief of the Capitol Police receives compensation "equal to $1,000 less than the lower of the annual rate of pay in effect for the Sergeant-at-Arms of the House of Representatives or the annual rate of pay in effect for the Sergeant-at-Arms and Doorkeeper of the Senate." Pay for the chief has been adjusted multiple times in recent years: it formerly was (1) equal to Level IV of the Executive Schedule under 1979 legislation, (2) linked to the Senior Executive Service under an act from 2000, and (3) equal to $2,500 less than these officers pursuant to a 2002 law. Most Recent Appointment On February 24, 2016, the Capitol Police Board announced the appointment of Matthew R. Verderosa as the new Chief of the U.S. Capitol Police, effective March 20, 2016. Previously, Chief Kim Dine was sworn in on December 17, 2012. Congressional Budget Office The director of the Congressional Budget Office (CBO) has been appointed wholly by Congress since the creation of the post with the passage of the Congressional Budget Act in 1974. The act stipulates that the director is appointed for a four-year term "by the Speaker of the House of Representatives and the President pro tempore of the Senate after considering recommendations received from the Committees on the Budget of the House and the Senate, without regard to political affiliation and solely on the basis of his fitness to perform his duties." The director may be reappointed, and either chamber can remove the director by simple resolution. Additionally, a director appointed "to fill a vacancy prior to the expiration of a term shall serve only for the unexpired portion of that term" and an "individual serving as Director at the expiration of a term may continue to serve until his successor is appointed." The director of CBO receives compensation at an annual rate that is equal to the lower of the highest annual rate of compensation of any officer of the House or any officer of the Senate. Most Recent Appointment Keith Hall, the current director of CBO, began his service on April 1, 2015. He follows Douglas W. Elmendorf, who began his term on January 22, 2009. Office of Compliance 2 U.S.C. 1382 states that the chair of the board of directors of the Office of Compliance, "subject to the approval of the Board, shall appoint and may remove an Executive Director. Selection and appointment of the Executive Director shall be without regard to political affiliation and solely on the basis of fitness to perform the duties of the Office." The executive director must be "an individual with training or expertise in the application of laws referred to in section 1302(a)" of Title II of the U.S. Code . The FY2008 Consolidated Appropriations Act altered the compensation for the Office's statutorily established positions, including that of the executive director. The chair of the board may fix the annual rate of pay for the executive director, although the level may not exceed the lesser of House or Senate officers. Prior to the FY2008 act, the maximum pay for this position had been Level V of the Executive Schedule. Separate legislation, P.L. 110-164 , amended the Congressional Accountability Act and altered eligibility and tenure restrictions for the executive director by allowing current or former Office of Compliance employees to serve in this capacity. The legislation also permits the executive director, deputy executive directors, and general counsel, who formerly were limited to one five-year term in their positions, to serve up to two terms. Most Recent Appointment Susan Tsui Grundmann was appointed to a five-year term as executive director commencing January 2017. She succeeded Barbara J. Sapin, who was appointed in 2013. Proposals Related to the Register of Copyrights in the 115th Congress During the 115 th Congress, the House and Senate considered legislation that would alter the appointment of one position within one of these agencies—the Register of Copyrights. Under current law pertaining to the copyright office (17 U.S.C. 701): All administrative functions and duties ... are the responsibility of the Register of Copyrights as director of the Copyright Office of the Library of Congress. The Register of Copyrights, together with the subordinate officers and employees of the Copyright Office, shall be appointed by the Librarian of Congress, and shall act under the Librarian's general direction and supervision. H.R. 1695 and S. 1010 , the Register of Copyrights Selection and Accountability Act, would have made the Register of Copyrights a presidential appointment, subject to the advice and consent of the Senate. The legislation would have established a seven-person panel to recommend at least three candidates for this position to the President. The panel would consist of the Speaker of the House, President pro tempore of the Senate, majority and minority leaders in the House and Senate, and Librarian of Congress. The bills would have established a 10-year term of office for the Register. H.R. 1695 was reported by the House Judiciary Committee on April 20, 2017 ( H.R. 1695 , H.Rept. 115-91 ), and passed in the House, as amended, on April 26 (378–48, Roll no. 227). The Senate Committee on Rules and Administration held a hearing on September 26, 2018. A Senate committee markup of S. 1010 initially scheduled for December 12, 2018, was postponed. No further action was taken during the 115 th Congress. The office is currently led by Acting Register of Copyrights Karyn A. Temple, who was named to the position by Librarian of Congress Carla Hayden on October 21, 2016.

The leaders of the legislative branch agencies and entities—the Government Accountability Office (GAO), the Library of Congress (LOC), the Congressional Research Service (CRS), the Government Publishing Office (GPO, formerly Government Printing Office), the Office of the Architect of the Capitol (AOC), the U.S. Capitol Police (USCP), the Congressional Budget Office (CBO), and the Office of Compliance—are appointed in a variety of manners. Four agencies are led by a person appointed by the President, with the advice and consent of the Senate; two are appointed by Congress; one is appointed by the Librarian of Congress; and one is appointed by a board of directors. Congress has periodically examined the procedures used to appoint these officers with the aim of protecting the prerogatives of, and ensuring accountability to, Congress within the framework of the advice and consent appointment process established in Article II, Section 2 of the Constitution. This report contains information on the legislative branch agency heads' appointment processes, length of tenures (if terms are set), reappointment or removal provisions (if any), salaries and benefits, and most recent appointments. This report also briefly addresses legislation considered, but not enacted, in the 115th Congress to change the appointment process for the Register of Copyrights.

GAO_GAO-19-201

Background Economic, Security, and Illicit Drug Trafficking Challenges in the Caribbean The countries of the Caribbean are diverse in size, culture, and level of development, and face various interrelated economic and security challenges. According to a recent International Monetary Fund report, Caribbean countries have recently fallen into a pattern of low growth and high debt, and those with tourism-intensive economies are characterized by high rates of unemployment. They have endured frequent natural disasters that reduced economic output and imposed reconstruction costs, as well as deep macroeconomic, financial, and structural challenges that have resulted in lower-than anticipated rates of economic growth, according to the same report. Recent reports emphasize that crime and violence in the Caribbean have inflicted widespread costs, generating a climate of fear for citizens and diminishing economic growth. These reports note that Caribbean countries have some of the highest per-capita murder rates in the world, with assault rates that are significantly above the world average, and high crime rates have stretched the capacity of their criminal justice systems, which are small and largely characterized as weak and ineffective. Because of their location between drug production sources in South America and consumer markets in North America and Europe, Caribbean countries have become a major transit zone for illicit drugs, particularly drugs destined for the United States. With long coastlines that are difficult to comprehensively patrol, and limited air and sea capabilities to support interdictions, the Caribbean countries often struggle to control territorial waters and stem the flow of drugs northwards. Establishment of CBSI Over the years, the United States has created several initiatives to engage with the countries of the Caribbean Basin region to address economic and political issues. In May 2010, the United States, Caribbean Community member states, and the Dominican Republic formally launched CBSI to strengthen regional cooperation on security. At its inception in 2010, CBSI’s aim was to increase citizen safety through provision of U.S. foreign assistance to CBSI partner countries to reduce illicit trafficking, improve public safety and security, and promote social justice; these three “pillars” remain the overall goals of CBSI. There are thirteen CBSI partner countries—Antigua and Barbuda, Bahamas, Barbados, Dominica, the Dominican Republic, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago (see fig. 1). U.S. Government Agencies Involved in Funding and Implementing CBSI Activities The U.S. agencies and offices currently funding CBSI activities are State’s Bureau of International Narcotics and Law Enforcement Affairs (INL), State’s Bureau of Political-Military Affairs (PM), and USAID (see fig. 2). State’s Bureau of Western Hemisphere Affairs (WHA) plays a coordinating role for CBSI. To implement CBSI activities, State and USAID partner with nongovernmental and multilateral organizations as well as other government agencies, such as DOD and the Departments of Homeland Security, Justice, and Treasury. U.S. Government Agencies Have Allocated More Than $560 Million in CBSI Funds from Fiscal Years 2010 through 2018 to Support Various Security Activities From fiscal years 2010 through 2018, U.S. agencies have allocated more than $560 million in funding for CBSI activities. Since fiscal year 2012, annual allocations have remained relatively constant, ranging between $56.6 million and $63.5 million. Of the 13 CBSI partner countries, U.S. agencies have provided the most CBSI funding to the Dominican Republic, Jamaica, and the countries covered by the Eastern Caribbean embassy. State and USAID disbursed funds to support activities in partner countries that improve law enforcement and maritime interdiction capabilities, support activities to train and otherwise improve the capabilities of national security institutions, prevent crime and violence, and deter and detect border criminal activity. These activities are generally aligned with the three pillars of CBSI. State and USAID Allocated More Than $560 Million to CBSI from Various Foreign Assistance Accounts From fiscal years 2010 through 2018, State and USAID allocated more than $560 million in funding for CBSI activities. Of that amount, U.S. agencies have disbursed or committed approximately $361 million for CBSI activities in the 13 CBSI partner countries and for region-wide activities. Funding for CBSI activities comes from a combination of U.S. foreign assistance accounts—mostly through INCLE, ESF, and FMF, with a small amount of funding provided through NADR and DA (see textbox). U.S. Foreign Assistance Accounts That Have Been Used to Fund Caribbean Basin Security Initiative (CBSI) Activities International Narcotics Control and Law Enforcement (INCLE): The Department of State (State)’s Bureau of International Narcotics and Law Enforcement Affairs (INL) manages the INCLE account, which provides assistance to foreign countries and international organizations to develop and implement policies and programs that maintain the rule of law and strengthen institutional law enforcement and judicial capabilities, including countering drug flows and combatting transnational crime. Generally, INCLE funds are available for obligation for 2 fiscal years and must be disbursed within 5 years of the end of the period of availability for new obligations. Economic Support Fund (ESF): State and the U.S. Agency for International Development (USAID) share responsibility for managing the ESF account. For CBSI activities, it is primarily USAID who uses ESF funds to assist foreign countries in meeting their political, economic, and security needs. Generally, ESF funds are available for obligation for 2 fiscal years and must be disbursed within 5 years of the end of the period of availability for new obligations. Foreign Military Financing (FMF): State’s Bureau of Political-Military Affairs manages the FMF account, which provides grants and loans to foreign governments and international organizations for the acquisition of U.S. defense equipment, services, and training. The Department of Defense is the main implementer of this funding. Previous acts appropriating funds for FMF have generally provided that such funds are available for obligation for 1 year, and deem such funds to be obligated upon apportionment. Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR): State manages the NADR account, which funds contributions to organizations supporting nonproliferation and provides assistance to foreign countries for nonproliferation, antiterrorism, demining, export control assistance, and other related activities. Generally, NADR funds are available for obligation for 2 fiscal years and must be disbursed within 5 years of the end of the period of availability for new obligations. Development Assistance (DA): USAID manages the DA account, which responds to long-term challenges to human and economic security by funding activities in areas such as economic growth and education. Generally, DA funds are available for obligation for 2 fiscal years and must be disbursed within 5 years of the end of the period of availability for new obligations. Since 2012, allocations have remained relatively constant each year, ranging between $56.6 million and $63.5 million. Table 1 summarizes the INCLE, ESF, NADR, and DA allocations and disbursements and the FMF allocations and commitments by year of appropriation. Appendix II includes a breakdown of allocated, obligated, and disbursed funds for INCLE, ESF, NADR, and DA accounts; appendix III includes a breakdown of FMF funding that State has allocated and committed to CBSI. Since fiscal year 2010, U.S. agencies have provided the most CBSI funding to the Dominican Republic, Jamaica, and the countries covered by the Eastern Caribbean embassy. These countries received approximately 66 percent of total CBSI allocations from fiscal years 2010 through 2018. Approximately 13 percent of total CBSI allocations went to the Bahamas, Guyana, Suriname, and Trinidad and Tobago, while 21 percent of total CBSI allocations went to regional activities. Table 2 provides a breakdown of allocated funds by country for CBSI activities. U.S. Government Agencies Support Various Security Activities throughout the Caribbean in Line with the Three CBSI Pillars State and USAID fund various security activities in partner countries. State uses INCLE and FMF funds to conduct activities in support of CBSI goals at all seven embassies, covering all 13 CBSI countries. State uses several different implementing mechanisms—including contracts, cooperative agreements, and interagency agreements. According to INL officials, INL has an average of 10-50 distinct ongoing activities within any individual country program at any given time, ranging from multi-year, multi-million dollar embedded advisory programs to one-time procurements for equipment or individual trainings. USAID uses ESF funds for activities in three missions—the Dominican Republic, Eastern and Southern Caribbean, and Jamaica. In general, USAID uses similar implementing mechanisms, but typically has fewer projects that cover multiple years. State primarily focuses on funding CBSI activities that fall within the pillar of reducing illicit trafficking, and USAID concentrates on funding activities within the pillar of promoting social justice. Both agencies fund activities in the pillar of improving public safety and security. Reducing illicit trafficking. State uses INCLE and FMF funds, through interagency agreements with DOD and other implementing partners, to increase Caribbean countries’ control over their territorial maritime domain and reduce illicit trafficking, such as narcotics and firearms, as the examples below illustrate. Eastern Caribbean. INL and PM have provided training and equipment to the Regional Security System, a collective defense organization of Eastern Caribbean countries whose responsibilities include regional law enforcement training and narcotics interdiction. For example, U.S. assistance funded the refurbishment of aircraft operated by the Regional Security System to provide equipment for intelligence, surveillance, and reconnaissance related to drug interdiction. Jamaica. INL and PM have provided boats to the government of Jamaica to increase the government’s capacity to conduct counternarcotic operations (see fig. 3). Throughout the Caribbean. INL supports activities providing training, technical assistance, policy guidance, and basic equipment to enhance the capacity of CBSI countries to combat illicit small arms and ammunition trafficking through operational forensic ballistics. Throughout the Caribbean. State uses an interagency agreement to support the Technical Assistance Field Team (TAFT) program. This program, supported by both FMF and INCLE funds, aims to build maritime capacity of partner countries throughout the Caribbean. The team is composed of 15 Coast Guard and DOD engineers, technicians, specialists, and logisticians, based at U.S. Southern Command, who assist Caribbean maritime security forces with maintenance and sustainment issues. The advisors have worked to implement inventory management systems within CBSI countries and conduct regular site visits to CBSI countries to assist in the maintenance and logistics of maritime assets. Promoting social justice. USAID and its implementing partners— multilateral and nongovernmental organizations, for the most part—use ESF funds in an effort to increase economic opportunities for at-risk youth and vulnerable populations, improve community and law enforcement cooperation, improve the juvenile justice sector, and reduce corruption in public and private sectors. Dominican Republic. USAID has provided assistance for community- based activities, such as the Community Justice Houses. These centers are designed to provide services related to the justice sector, such as public defense and mediation efforts for populations in areas of high violence that have limited access to traditional justice institutions. Dominican Republic and Barbados. USAID’s implementing partners work with at-risk youth to provide skills training and education for those individuals in vulnerable populations. Jamaica. USAID’s implementing partners work with youth in the juvenile justice system to provide marketable technical skills, life skills, and individualized psychosocial attention to assist in their reintegration into society. Eastern and Southern Caribbean. USAID partners use a community- based approach to crime prevention to identify the underlying causes of crime and violence by collecting standardized crime data across the region. Increasing public safety and security. State uses INCLE to fund activities to increase the rule of law and reduce transnational crime. USAID uses ESF to support public safety and security activities by funding training and support programs that aim to build institutional capacity for police and judicial systems. Jamaica. INL works to enhance the government of Jamaica’s capacity to disrupt and deter money laundering operations and other financial crimes by providing technical assistance, equipment and training for combating money laundering and financial crime, and for the seizure of criminally-acquired assets. Eastern Caribbean. INL uses training, technical assistance, equipment purchases, and operational support to combat financial crimes and increase asset forfeiture efforts. Dominican Republic. INL has provided funding for the government’s creation of a centralized emergency “911” response system to increase citizen safety and security. Dominican Republic. Both INL and USAID provide assistance to the Dominican National Police, and USAID’s implementing partners work with the judicial sector to improve the skills of prosecutors (see fig. 4). INL provides assistance to the Dominican National Police through funding training to increase police professionalization and supports training on enforcing legislation for prosecutors and judges. USAID funding works to support the reform and modernization of the Dominican National Police by strengthening the management capacity and accountability of the organization. USAID implementing partners also work with prosecutors to strengthen the criminal justice system in the Dominican Republic. State and USAID Undertake Some Planning and Reporting of CBSI Activities but the U.S. Government Cannot Assess Initiative-wide Progress The United States and Caribbean countries meet periodically to set strategic goals and to designate high-level priorities for the subsequent year, and U.S. agencies individually plan and report on CBSI activities on a country-specific basis through a variety of reporting mechanisms (see fig. 5). However, State has not created an initiative-wide mechanism for planning and reporting on CBSI activities and the U.S. government cannot assess initiative-wide progress. State and USAID Establish Strategic Goals and Priorities for CBSI with Partner Countries At the strategic and political level, U.S. government agencies and CBSI partner countries engage on a periodic basis to set strategic goals and to designate high-level priorities for the subsequent year. The process involves various technical working groups meeting throughout the year, culminating in the Caribbean-United States Security Cooperation Dialogue meeting, attended by the Caribbean Community, the Dominican Republic, the United States, and other interested Caribbean states and international partners. At the 2017 meeting, participants set strategic goals by reaffirming the initiative’s three pillars of substantially reducing illicit trafficking, advancing public safety and security, and promoting social justice. Participants also produced a high-level plan of action that aimed to strengthen commitment and accountability of the countries involved and to ensure political support for implementation. Within each goal, the plan identified high-level priorities such as counternarcotics, anti-money laundering, border security, justice reform, and anti- corruption. State and USAID Generally Plan CBSI Activities on a Country- Specific Basis At the implementation level, State and USAID separately plan and report their CBSI activities, generally on a country-specific basis. Within State, INL develops multi-year country plans that are the basis for making decisions on CBSI activities for each country, according to INL officials. The plans describe objectives within a country for program areas such as law enforcement professionalization, rule of law, and counternarcotics, and include performance indicators related to those program areas. INL developed a country plan for each of the seven embassies in CBSI from fiscal years 2017 through 2021. In addition, a portion of INL’s CBSI funding is devoted to regional activities (i.e., activities that are implemented in more than one CBSI country), and INL developed the CBSI Regional Implementation Plan to describe the objectives and performance indicators for regional activities. The CBSI activities that are funded through FMF are planned and implemented by DOD in coordination with PM. USAID uses its Country Development Cooperation Strategies (CDCS) as the basis for planning CBSI activities in each country, according to USAID officials. USAID developed a CDCS for each of the three missions that have a USAID presence among the CBSI countries—Eastern and Southern Caribbean, the Dominican Republic, and Jamaica. The strategies outline priorities for each mission and typically cover 5 years. In each of the CDCS, USAID outlines three development objectives, including one that is CBSI-related—on crime prevention and reduction— and two that are not CBSI-related—on climate change and health care. According to INL and USAID officials, coordination of CBSI activities between the two agencies primarily occurs at the embassy level through routine meetings. Officials at embassies in the CBSI countries also compile bimonthly reporting cables that contain information on selected CBSI activities. State’s WHA, which plays a coordinating role for CBSI, holds monthly coordination meetings for INL, PM, and USAID officials in Washington, D.C. to discuss high-level issues and upcoming events relevant to the initiative, as well as to prepare for meetings with Caribbean partners, according to officials. The U.S. Government Cannot Assess CBSI Initiative-wide Progress Because It Does Not Have an Initiative-wide Planning and Reporting Mechanism While State and USAID set strategic goals and priorities with CBSI partner countries and plan for and report on CBSI activities within each agency or bureau, State has not established a CBSI-wide planning and reporting mechanism that links agencies’ activities to the three overall CBSI goals. State and USAID typically use Integrated Country Strategies (ICS) to strategically plan in a given country, and Performance Plans and Reports (PPR) to assess progress made relative to the foreign assistance priorities in a given country. Each of the U.S. embassies that cover the CBSI countries has both an ICS and PPR. However, the PPRs for the individual CBSI countries are for bi-lateral funds, and the ICSs serve as a whole-of-U.S.-government strategy in a country. According to State officials, since CBSI is a regional initiative, CBSI activities are included in the scope of the relevant regional planning and reporting documents. These regional documents include the WHA Joint Regional Strategy and the WHA PPR. However, these documents represent the entire Western Hemisphere and are not specific to CBSI activities. The Joint Regional Strategy does not serve as a planning mechanism for CBSI-wide activities and does not establish CBSI specific targets or performance indicators. Moreover, while the PPR reports outputs and outcomes, CBSI results are aggregated with other regionally funded activities in the Western Hemisphere, such as the Central America Regional Security Initiative. For example, while the PPR may report the number of judicial personnel trained with U.S. government assistance, that number may include officials in the Dominican Republic, Jamaica, Honduras, or any other number of countries within the Western Hemisphere. Therefore, the most recent WHA PPR does not serve as a CBSI reporting mechanism as it is not possible to always know which results are related to CBSI activities, and the CBSI-wide outputs and outcomes can be indiscernible from other regional efforts. In 2012, State created the CBSI Results Framework, recognizing the importance of tracking initiative-wide results. The Framework included the three CBSI pillars—reducing illicit trafficking, improving public safety and security, and promoting social justice—and specified intermediate results, such as reducing drug demand in target areas, improving security at ports of entry, and improving community and law enforcement cooperation. Each of the intermediate results included performance indicators for measuring and reporting CBSI results. According to WHA officials, WHA had envisioned establishing baseline data, obtaining annual reporting from each embassy, and reporting on a subset of the indicators. However, neither State nor USAID currently use the framework to gauge overall progress of CBSI. State officials that we interviewed were not aware of the reason for discontinuing use of the framework and stated that the decision to discontinue using it pre-dated their tenure. According to State officials and our assessment of program documentation, State does not currently use the framework in any official capacity. While USAID officials stated that they continue to use the framework as internal guidance on CBSI’s direction, they stated that they do not use it to track progress. The delivery of U.S. foreign assistance often involves multiple agencies or a whole-of-government approach. We have previously identified key elements for effectively aligning foreign assistance strategies in situations where multiple agencies are working together to deliver foreign assistance, such as CBSI. These elements include, among others, the establishment of interagency coordination mechanisms, integration of strategies with relevant higher- or lower-level strategies, and assessment of progress toward strategic goals through the articulation of desired results, activities to achieve the results, performance indicators, and monitoring and evaluation plans and reports. We found that agencies that establish strategies aligned with partner agencies’ activities, processes, and resources are better positioned to accomplish common goals, objectives, and outcomes. For foreign assistance that involves multiple agencies, strategies that consistently address agencies’ roles and responsibilities and interagency coordination mechanisms can help guide implementation and reduce potential program fragmentation. The absence of a functioning CBSI-wide planning and reporting mechanism leaves open the possibility that State’s and USAID’s existing planning efforts may be inadequate in ensuring that activities are effectively coordinated to reduce fragmentation or overlap. In 2016, USAID contracted for an independent assessment of all of its CBSI activities. Since USAID implements CBSI in conjunction with other U.S. agencies, such as State, one of the objectives within the assessment was to determine the degree to which USAID’s activities were complementary with those of other U.S. agencies and whether there were instances of overlap. The assessment noted that coordination and information exchange between the agencies about individual CBSI activities and their components appeared to be relatively ad hoc and was primarily seen as the mandate of staff in the field, though at that level, information sharing and coordination had been widely variable. It noted that in general, the level and type of communication between USAID and INL tended to be influenced by personalities, and information was not shared systematically. The assessment concluded that there was a potential for overlap between USAID and INL and recommended that USAID and INL take several actions to strengthen information sharing and coordinate and align activities. This coordination is important since overlap or unintended competition between INL’s and USAID’s CBSI activities has been documented on at least one occasion. According to the fiscal year 2017 annual report submitted by an implementing partner for one of USAID’s activities in the Dominican Republic, the partner was directed to suspend several of its activities related to training to strengthen standards for criminal case preparation and training for police and prosecutors, reportedly because State realigned the task to INL. The report cited poor delineation of roles and relationships as an underlying cause. While State and USAID set strategic goals and plan and report on CBSI activities in individual countries, the U.S. government does not have a functioning initiative-wide planning and reporting mechanism that links CBSI activities to overall goals or specifies a means for assessing initiative-wide progress through articulation of desired results, performance indicators, and a monitoring and evaluation plan. Without such a mechanism that establishes consistent performance indicators across agencies, countries, and activities and determines baselines and targets, it is difficult to measure CBSI’s activities across the initiative, making it difficult to assess any progress made toward achieving CBSI’s overall goals. Consequently, the U.S. government has limited ability to evaluate CBSI’s successes and limitations and use such information to better guide future decision-making. State and USAID Established Objectives and Performance Indicators and INL Is Taking Steps to Improve Weaknesses in Program Monitoring USAID and implementing partners have established objectives and performance indicators for selected CBSI activities that we reviewed and have been measuring and reporting on progress for those activities. Within State, INL and implementing partners have established objectives and performance indicators for all of the activities that we reviewed, and INL and PM receive quarterly monitoring reports containing performance information on the TAFT program. In response to identified weaknesses in its program monitoring, INL is taking steps to improve program monitoring for its Western Hemisphere programs, which include CBSI activities. State and USAID Established Objectives and Performance Indicators for Selected CBSI Activities State and USAID policies related to program management—found in the FAM and ADS, respectively—require the establishment of objectives and performance indicators for program monitoring. We found that USAID and its implementing partners established objectives and performance indicators for all 10 of the CBSI activities in our sample and use these indicators to measure activity progress. Table 3 includes examples of the types of indicators established for USAID activities in our sample. In addition to establishing performance indicators, USAID and its implementing partners are using these indicators to measure the progress of CBSI activities. We found that implementing partners for nearly all of the activities in our sample had submitted progress reports to USAID that used the performance indicators to measure progress and identify challenges in achieving the activities’ goals. State and its implementing partners also established objectives and performance indicators for all 15 of the CBSI activities that we reviewed. See table 4 for examples of the types of indicators established for INL activities in our sample. INL Cannot Ensure the Reliability of Its Program Monitoring Data but Is Taking Steps to Address Weaknesses in Western Hemisphere Program Monitoring INL cannot ensure the reliability of its CBSI program monitoring data but is taking steps to improve its ability to consistently collect and store such data for its activities in the Western Hemisphere, including CBSI activities. We have previously reported that effective program monitoring of foreign assistance requires quality data for performance reporting. Specifically, leading practices for monitoring of foreign assistance activities include development of objectives and relevant performance indicators, procedures for assuring quality of data on performance indicators, and submission of performance reports. According to INL officials, in the absence of a centrally available data management system, program monitoring data is collected and maintained at each embassy. As a result, compiling and providing program monitoring data is time-consuming. For example, when we requested a list of all completed and ongoing INL-funded CBSI activities from fiscal years 2012 through 2017, INL responded that it would take several months to compile that information. Further, INL officials told us that they cannot ensure the reliability of their program monitoring data because of questions about the comparability of data collected across embassies. During the course of our work, INL officials at headquarters and overseas told us that program monitoring is conducted differently in every embassy, and program monitoring data is not defined or recorded in a standardized manner. These variations can result in discrepancies in how program performance data is defined and collected. For example, INL officials explained that in order to collect drug seizure information that can be analyzed across countries, the data needs to be collected in the same units of measurement and over the same time period in each country, but currently, they are not. According to INL, absent a standardized data collection process, it is difficult to track data trends across programs. INL has expressed concerns about its program monitoring and an inability to centrally collect reliable program monitoring data. In 2015, an independent evaluation of INL’s CBSI activities noted that lack of monitoring information hinders INL’s efforts to link assistance directly to goals, objectives, and results laid out in the CBSI Results Framework. It recommended that INL prioritize improving internal program monitoring capacity. INL’s Functional Bureau Strategy, released in 2018, states that INL’s program monitoring efforts are often constrained by the availability of reliable data. In response to these concerns about program monitoring, the INL office for Western Hemisphere Programs contracted with a private firm in 2017 to improve its program monitoring capabilities by creating new performance indicators meant to standardize data collection across INL’s programs in the Western Hemisphere and better capture the impact of INL’s assistance. The contract also included the creation of a centralized data management system for collecting and storing the program monitoring data associated with the performance indicators. According to INL officials and progress reports submitted by the contractor, some progress has been made. To date, the contractors have been studying the availability of data, reviewing existing performance indicators, and proposing new indicators. The contractors have been considering options for designing and building the centralized data management system. However, INL officials acknowledge that data challenges remain, such as the issue of how to collect standardized data from each of the embassies and how to build a functioning data management system that is compatible with State requirements. As of October 2018, according to INL officials, the characteristics of the centralized data management system had not yet been determined, and consequently, they are uncertain what capabilities the final data management system will have. Therefore, it is unclear whether the system will allow for the consistent collection and storage of reliable program monitoring data for all CBSI activities and the ability to distinguish these data from those of other Western Hemisphere activities. In the absence of centrally-available, reliable data for CBSI activities, INL may continue to struggle with effective program monitoring for these activities. Conclusions The Caribbean region faces a variety of economic and security challenges that jeopardize the region’s economic growth and development. Because of close societal ties and geographic proximity, these challenges also threaten U.S. security. CBSI was created to respond to these threats—to provide mutually beneficial assistance that would increase citizen security for residents of the Caribbean region and bolster economic opportunities. However, while U.S. agencies have allocated more than $560 million to CBSI since 2010, they cannot attest to the initiative’s success or failure. State’s WHA, which plays the coordinating role for CBSI, has not established an initiative-wide planning and reporting mechanism that ensures CBSI activities are being coordinated to maximize the impact of assistance and prevent overlap, and that provides a means for assessing overall progress. Without such a mechanism, the ability to demonstrate the efficacy of the initiative, and to emphasize positive results that have been achieved, is limited. Although USAID and State have established objectives and performance indicators for the CBSI activities we reviewed, State does not have a process for centrally collecting and storing reliable program monitoring data for the activities it funds through CBSI, particularly those managed by INL. While INL is taking steps to address these challenges by improving program monitoring across its activities in the western hemisphere, without reliable performance data specific to CBSI, State cannot report comprehensively or accurately on its CBSI activities or track data trends across countries. Recommendations for Executive Action We are making the following two recommendations to State: The Secretary of State should, in consultation with USAID and other stakeholders as appropriate, create an initiative-wide planning and reporting mechanism for CBSI that includes the ability to monitor, evaluate, and report the results of their collaborative efforts (Recommendation 1). The Secretary of State should ensure that INL’s Office of Western Hemisphere Programs develops and implements a data management system for centrally collecting reliable program monitoring data for all INL- funded CBSI activities through its current program monitoring contract or by some other means (Recommendation 2). Agency Comments and Our Evaluation We provided a draft of this report to State and USAID, DOD, the Department of Justice, and the Department of Homeland Security for review and comment. In its comments, reproduced in appendix IV, State concurred with our two recommendations. State noted that it plans to develop an updated Results Framework for CBSI that will provide the basis for initiative-wide planning and reporting. State also noted that INL’s Office of Western Hemisphere Programs is working through its existing monitoring and evaluation contract to improve centralized data collection and is developing plans for an enhanced data management system that will facilitate the collection and management of both strategic and implementer-reported data. In addition, State reported that INL is developing complementary bureau-wide monitoring and evaluation guidance and procedures to ensure the consistency and reliability of collected data across INL programs, which include CBSI activities. USAID also provided written comments, which we have reproduced in appendix V. State, USAID, DOD, and the Department of Homeland Security provided technical comments, which we have incorporated as appropriate. The Department of Justice reviewed the report but did not provide comments. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Administrator of USAID, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7141 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope and Methodology We were asked to review security assistance to the Caribbean region provided through the Caribbean Basin Security Initiative (CBSI). In this report we (1) provide information on U.S. funding for CBSI activities, (2) examine the extent to which the U.S. Department of State (State) and U.S. Agency for International Development (USAID), in conjunction with other agencies, have implemented a planning and reporting process for CBSI, and (3) examine the extent to which State and USAID have established objectives and performance indicators to measure the progress of their CBSI activities. To provide information on U.S. funding for CBSI, we obtained State and USAID data for fiscal years 2010 through 2018. We analyzed these data to determine allocations, unobligated balances, unliquidated obligations, and disbursements by fiscal year, funding account, and country. We compared the data to those previously reported to identify inconsistencies, and interviewed State and USAID officials. We determined these data were sufficiently reliable for reporting allocations, unobligated balances, unliquidated obligations, and disbursements by fiscal year, funding account, and country. To obtain additional detail on the types of assistance provided by the United States, we reviewed activity documentation; interviewed State and USAID officials in Washington, D.C. and traveled to Barbados, the Dominican Republic, and Jamaica to meet with State, USAID, and implementing partner officials. We also observed CBSI activities in these countries. We selected these countries for fieldwork because they were among the countries receiving the largest amount of CBSI funding and the embassies there included CBSI program officials from State and USAID. The findings from these countries are not generalizable to all CBSI countries. To determine the extent to which State and USAID have implemented a planning and reporting mechanism for CBSI, we obtained relevant CBSI planning and reporting documents, including State Bureau of International Narcotics and Law Enforcement Affairs (INL) country and regional implementation plans and documents related to the Caribbean-U.S. Security Cooperation Dialogue; and strategy documents such as Integrated Country Strategies, Country Development Cooperation Strategies, and Functional Bureau Strategies. We also assessed relevant Performance Plans and Reports for Caribbean countries and the Western Hemisphere and interviewed State officials to determine how information on CBSI activities is aggregated and reported on a country level and initiative-wide basis. In addition, we interviewed relevant State and USAID officials in Washington, D.C. and in Barbados, the Dominican Republic, and Jamaica, about their planning processes for CBSI activities. We compared the planning and reporting procedures in place to the key elements for effectively aligning foreign assistance strategies in situations where multiple agencies work together to deliver foreign assistance. To determine the extent to which State and USAID have established objectives and performance indicators to measure the progress of CBSI activities, we selected three case study countries—Barbados, the Dominican Republic, and Jamaica. We selected these three countries because they receive the greatest amount of CBSI funding and because they have program officials from State and USAID in their embassies. We requested lists of all ongoing and completed CBSI activities from State and USAID for fiscal years 2012 through 2017 and used the lists to select a non-generalizable sample of activities, 15 implemented by State and 10 by USAID. The activities were chosen to provide a range of implementing partners, types of activity, and location. We requested State and USAID documentation related to the activities in our sample, including applications for funding, contracts, agreements, program monitoring and progress reports, financial reports, and evaluations. We reviewed the documentation to assess the performance management practices in place for these activities, as well as country-level and regional-level reporting related to the activities—specifically focusing on the use of program objectives and performance indicators, which are used to set and measure progress toward program goals. The objectives and performance indicators in place for these activities do not represent those in place for all CBSI activities, but offer illustrative examples. We compared the performance management practices in place for the sample activities to State and USAID policies. For the Technical Assistance Field Team (TAFT) program implemented by the Department of Defense (DOD) and the U.S. Coast Guard on behalf of State’s Bureau of Political-Military Affairs, we reviewed quarterly reports between fiscal years 2014 and 2018 for performance management information. The TAFT program is designed to provide technical assistance to enhance operational readiness and maintenance of equipment used by CBSI countries. The quarterly reports include articulation of objectives, descriptive information on the support TAFT members provided during each visit, assessments of host country capabilities, and details on where, when, and how funds were expended. While this information is not reported in the same manner as State’s and USAID’s performance data, we determined it appropriate to treat the information provided in the TAFT quarterly reports as comparable to the setting of objectives and performance indicators as generally carried out by State and USAID. We also interviewed State, USAID, DOD, the Department of Justice, the Department of Homeland Security, and other implementing partner officials in Washington, D.C.; Barbados; the Dominican Republic; and Jamaica; and conducted site visits in these countries to determine the types of performance indicators tracked and reported on for each activity. We conducted this performance audit from November 2017 to February 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Funding Data Tables To demonstrate how funding for Caribbean Basin Security Initiative (CBSI) activities have been allocated, obligated and disbursed, we are providing a status of CBSI funds as of November 2018. Tables 5-9 below show CBSI funding from the International Narcotics Control and Law Enforcement (INCLE); Economic Support Fund (ESF); Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR); and Development Assistance (DA) accounts. These tables illustrate, by year of appropriation, how U.S agencies have allocated, obligated, and disbursed funds for activities in CBSI partner countries. Specifically, the tables include unobligated balances—that is, portions of allocated funds that have not yet been obligated—and unliquidated obligations (i.e. obligated balances)—that is, amounts already incurred for which payment has not yet been made. Appendix III: Status of Caribbean Basin Security Initiative Foreign Military Financing Account Funds Table 10 below provides the status of Caribbean Basin Security Initiative (CBSI) Foreign Military Financing (FMF) funds as of November 2018. The presentation of FMF allocations and commitments in this table is different from presentations on allocations, obligations, and disbursements of the other CBSI accounts in tables 5-9 in appendix II because FMF funds are budgeted and tracked in a different way. The Defense Security Cooperation Agency (DSCA) and the Defense Financing and Accounting Service (DFAS) are responsible for the financial systems that account for FMF funds as well as for tracking the implementation and expenditure of those funds. According to DSCA officials, FMF funds are obligated on apportionment. Further, DSCA’s system can track only uncommitted and committed amounts, not unliquidated obligations or disbursements, of FMF funds. DFAS tracks obligations and disbursements using the Defense Integrated Finance System; however, there is no direct link between the DSCA and DFAS systems and the DFAS system does not track funding for specific initiatives, such as CBSI. Appendix IV: Comments from the Department of State Appendix V: Comments from the U.S. Agency for International Development Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact: Staff Acknowledgments: In addition to the contact named above, Thomas Costa (Assistant Director), Jennifer Young, Martin Wilson, Peter Choi, Debbie Chung, Benjamin Licht, Martin de Alteriis, Neil Doherty, and Mark Dowling made key contributions to this report.

The Caribbean region, which shares geographic proximity and common interests with the United States, faces high rates of crime and violence. In 2010, the United States and Caribbean countries formally launched CBSI, which aims to increase citizen safety. GAO was asked to examine U.S. assistance through CBSI. This report (1) discusses U.S. funding for CBSI activities, (2) examines the extent to which there is a planning and reporting process for CBSI, and (3) examines the extent to which State and USAID have established objectives and performance indicators to measure progress of their CBSI activities. GAO analyzed State and USAID data; assessed government strategies and performance reports; selected a non-generalizable sample of 25 CBSI activities and analyzed State and USAID documentation related to those activities; interviewed relevant officials; and conducted fieldwork in Barbados, Dominican Republic, and Jamaica, which are the countries generally receiving the most CBSI funding. U.S. agencies have allocated more than $560 million for the Caribbean Basin Security Initiative (CBSI) from fiscal years 2010 through 2018 for activities related to the three pillars of CBSI—reduce illicit trafficking (such as in narcotics and firearms), improve public safety and security, and promote social justice. For example, State Department's (State) Bureau of International Narcotics and Law Enforcement Affairs (INL) has ongoing activities such as advisory programs and equipment procurements, while the U.S. Agency for International Development (USAID) has activities aimed at increasing economic opportunities for at-risk youth and improving the skills of prosecutors. The U.S. government has undertaken some planning and reporting of CBSI activities, but State has not created an initiative-wide planning and reporting mechanism. Agencies individually set strategic goals and priorities with CBSI countries and plan and report on their CBSI activities on a country-specific basis. However, State has not created an initiative-wide planning and reporting mechanism that facilitates interagency coordination or establishes consistent performance indicators across agencies, countries, and activities—key elements for effectively aligning foreign assistance strategies. Without such a planning and reporting mechanism, overall progress of the initiative cannot be assessed. State and USAID have established objectives and performance indicators for selected CBSI activities, and INL is taking steps to improve identified weaknesses in its program monitoring. State and USAID had established objectives and performance indicators for the 25 activities in our sample. However, INL cannot ensure the reliability of its program monitoring data because collection and maintenance of this data is conducted differently in each country and there is no centralized data storage system. INL recently contracted to improve and standardize its program monitoring data for Western Hemisphere activities, but according to INL officials, data challenges remain—in particular, how to collect standardized data from each of the embassies and how to build a data management system that is compatible with State requirements. Without reliable data, INL may continue to struggle with program monitoring of CBSI activities.

GAO_GAO-18-60

Background This section includes information about seismic surveys, oil and gas activities in the four OCS regions, and the potential effects of seismic activities on the environment and marine mammals as well as related requirements. Seismic Surveys Seismic surveys use mechanically generated sound waves from an acoustic source such as an airgun to transmit energy into the subsurface. Some of this energy is reflected or refracted back to recording sensors, and data are transformed into representative images of the layers in the subsurface of the earth. Entities use seismic surveys for several purposes. For example, oil and gas companies use both onshore and offshore seismic surveys to collect data on geology that may indicate the presence of oil and gas. Other entities, such as research institutions, use seismic surveys for a variety of purposes, such as helping to detect groundwater, identifying archaeological resources and fault zones, and conducting other research. There are two main types of seismic surveys used on the OCS: (1) deep- penetration and (2) high-resolution seismic surveys. Deep-penetration seismic surveys are conducted by vessels towing an array of airguns that use a low frequency source and emit high-energy acoustic pulses into the seafloor over long durations. Deep-penetration seismic surveys can penetrate several thousand meters into the subsurface and are then reflected and recorded by receivers to image deep geological features. Deep-penetration seismic surveys are often acquired prior to the drilling phase of oil and gas exploration. High-resolution seismic surveys typically use high-frequency acoustic signals to image the sea bottom and shallow parts right below the ocean bottom with a higher level of detail. Seismic surveys vary in technologies used, as well as in their size and scope, with towed gear in some cases spanning several miles (see fig. 1). Activities in the Outer Continental Shelf (OCS) Regions The OCS refers to the submerged lands outside the territorial jurisdiction of all 50 states but that appertain to the United States and are under its jurisdiction and control. State submerged lands generally extend from the shore to 3 geographical miles offshore. Federal submerged lands, which are lands under the jurisdiction of the federal government—generally extend from 3 geographical miles to 200 nautical miles offshore. With certain exceptions, waters and submerged lands beyond 200 nautical miles offshore are considered international. The OCS is divided into four regions managed by BOEM—Alaska, Atlantic, Gulf of Mexico, and Pacific—each with its own histories and concerns and levels of commercial activities, including oil and gas development and history of using seismic surveys. The Gulf of Mexico OCS region has had the most oil and gas activity. The Alaska OCS encompasses the Arctic submerged lands, Cook Inlet planning area, and the Gulf of Alaska. The Arctic waters of the Alaska OCS include the Beaufort and Chukchi planning areas and the Bering Sea. In the last 25 years, seismic activities in the Alaska OCS have generally taken place in the Cook Inlet and the Chukchi and Beaufort Seas. The Atlantic OCS region is divided into four areas for administrative purposes under BOEM’s oil and gas leasing program: the North Atlantic, Mid-Atlantic, South Atlantic, and the Straits of Florida. At present, no active OCS oil and gas leases exist in any of these four planning areas. The most recent geological and geophysical seismic data for the Mid- and South Atlantic OCS were gathered more than 30 years ago. The Gulf of Mexico’s central and western planning areas—offshore Texas, Louisiana, Mississippi and Alabama—remain the United States’ primary offshore source of oil and gas, generating about 97 percent of all OCS oil and gas production. BOEM oversees offshore oil and gas resource-management activities, including preparing the 5-year OCS oil and gas leasing program, conducting lease sales and issuing leases, and receiving, reviewing, and approving oil and gas exploration and development and production plans. As part of its role, BOEM also issues permits for geological and geophysical data acquisition on the OCS, including seismic surveys, under the Outer Continental Shelf Lands Act and regulations under the act. BOEM does not have statutory review time frame requirements for issuing geological and geophysical seismic survey permits. Entities seeking to conduct geological and geophysical scientific research related to oil and gas but not associated with oil and gas exploration and development, including seismic surveys, generally do not need to obtain a permit from BOEM, but they are generally required to file a Notice of Scientific Research with the Regional Director of BOEM at least 30 days before beginning such research. Environmental Impacts of Seismic Surveys Man-made sources of ocean noise—such as from commercial shipping, marine pile driving, sonar, and seismic activities—may have a variety of impacts on marine mammals ranging from minor disturbance to injury or death. Effects of noise on marine mammals depend on a variety of factors including the species and behavior, as well as the frequency, intensity, and duration of the noise. NMFS and FWS evaluate the potential effects of activities, such as seismic surveys, on marine mammals in determining whether to authorize incidental take under the MMPA when such authorization is requested by entities engaging in those activities. Agencies are required to evaluate potential environmental effects of their actions, such as approval of seismic survey permits, under the National Environmental Policy Act (NEPA), and in cases where Endangered Species Act listed species may be affected, conduct Endangered Species Act section 7 consultations. Marine Mammal Protection Act The MMPA was enacted in 1972 to ensure that marine mammals are maintained at or restored to their optimum sustainable population. NMFS and FWS implement the MMPA, which generally prohibits the “taking” of marine mammals. However, the MMPA provides a mechanism for NMFS and FWS, upon request, to authorize the incidental take of small numbers of marine mammals by U.S. citizens engaging in a specified activity, other than commercial fishing, within a specified geographic region. Specifically, NMFS and FWS issue incidental take authorizations after finding that the activities will cause the taking of only small numbers of marine mammals of a species or stock, the taking will have a negligible impact on such marine mammal species or stocks, and the taking will not have an unmitigable adverse impact on the availability of the species or stock for taking for subsistence uses. Entities whose seismic survey activities may result in incidental take of marine mammals obtain an incidental take authorization from NMFS or FWS, or both, depending on the affected species. If operators incidentally take a marine mammal and do not have authorization to cover the incidental take, they would be in violation of the MMPA. By statute, incidental take authorizations must also include permissible methods of taking and means of affecting the least practicable adverse impact on affected species and stocks and their habitat, monitoring requirements, and reporting requirements. National Environmental Policy Act Under NEPA, federal agencies are required to evaluate the potential environmental effects of actions they propose to carry out, fund, or approve (e.g., by permit). NEPA and implementing regulations set out an environmental review process that has two principal purposes: (1) to ensure that an agency carefully considers information concerning the potential environmental effects of proposed actions and alternatives to proposed actions and (2) to ensure that this information will be made available to the public. Under NEPA, before approving any oil and gas leasing, exploration, geological and geophysical permits, or development activities, BOEM must evaluate the potential environmental effects of approving or permitting those activities. NMFS and FWS also must evaluate potential environmental effects under NEPA of issuing the MMPA incidental take authorization as part of their review of the proposed authorizations. Generally, the scope of the proposed permit or authorization—that is, the federal action—determines whether the federal agency prepares either an environmental assessment or a more detailed environmental impact statement. Agencies may prepare an environmental assessment to determine whether a proposed action is expected to have a potentially significant impact on the human environment. If the agency determines that the action will not have significant environmental impacts following the environmental assessment, the agency will issue a Finding of No Significant Impact. If prior to or during the development of an environmental assessment, the agency determines that the action may cause significant environmental impacts, an environmental impact statement should be prepared. In implementing NEPA, federal agencies may rely on “tiering”, in which prior broader, earlier NEPA reviews are incorporated into subsequent site-specific analyses. Tiering is used to avoid duplication of analysis as a proposed activity moves through the NEPA process, from a broad assessment to a site-specific analysis. If an agency would like to evaluate the potential significant environmental impacts of multiple similar or recurring activities, the agency can prepare a programmatic environmental assessment or environmental impact statement. Because BOEM prepares a site specific environmental analysis for each geological and geophysical permit application, to increase efficiency, BOEM uses this tiering process and tiers from either an existing environmental impact statement or environmental assessment during its site specific environmental analysis review. Endangered Species Act The Endangered Species Act provides programs for conserving threatened and endangered species. Under section 7 of the act, federal agencies must ensure that any action they authorize, fund, or carry out is not likely to jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of its critical habitat. To fulfill this responsibility, federal agencies must consult with NMFS or FWS, depending on the affected species, to assess the potential effects of proposed actions, including approval of seismic survey permits and authorization of incidental take under the MMPA, on threatened and endangered species. The Endangered Species Act allows NMFS and FWS to exempt incidental takings from the taking prohibition for endangered and threatened species as provided through an incidental take statement. The statement is to include the amount or extent of anticipated take, reasonable and prudent measures to minimize the effects of incidental take, and the terms and conditions that must be observed. Formal consultations between federal agencies and NMFS or FWS are required where a proposed action could have an adverse effect on listed species or designated critical habitat and are concluded with issuance by NMFS or FWS of biological opinions. The biological opinion is to discuss in detail the effects of the proposed action on listed species and their critical habitat and contain NMFS’s or FWS’s opinion on whether the proposed action is likely to jeopardize the continued existence of the species or destroy or adversely modify any designated critical habitat. For consultations involving marine mammals, an Endangered Species Act section 7 incidental take statement cannot be issued until the incidental take has been authorized under the MMPA. Agencies may informally consult with NMFS or FWS, and if it is determined by the federal agency during such informal consultation that the proposed action is not likely to adversely affect endangered or threatened species or critical habitat, the informal consultation process is concluded upon written concurrence of NMFS or FWS, and no further action is necessary. If an action agency would like to evaluate the impacts of multiple similar or recurring activities on endangered and threatened species, NMFS or FWS can prepare a programmatic biological opinion for the OCS region. BOEM’s Process Differs by OCS Region, and BOEM Reviewed 297 Seismic Survey Permit Applications from 2011 through 2016 BOEM’s Process for Reviewing Seismic Survey Permit Applications Differs by Selected OCS Region BOEM has a documented process for reviewing seismic survey applications in each of the three selected OCS regions that differs at the final step (see fig. 2), depending on the region. For the Alaska and Atlantic regions, the applicant generally submits an application to BOEM for a seismic survey permit at the same time that the applicant submits an application to NMFS or FWS for an incidental take authorization. For the Gulf of Mexico region, the applicant has generally only submitted an application to BOEM for a seismic survey permit. In all three regions, BOEM is required to conduct environmental reviews under NEPA, and Endangered Species Act Section 7 consultations as necessary to help ensure agency actions, such as permit approvals, do not jeopardize the continued existence of a species or destroy or adversely modify critical habitat. In all three regions, when appropriate, BOEM is also to coordinate with relevant stakeholders, such as state officials, the Department of Defense and the National Aeronautics and Space Administration, if proposed activities have the potential to interfere with defense or civil aerospace activities in the same area. The final step in BOEM’s process for reviewing seismic survey permit applications differs among the three selected OCS regions. In the Atlantic region, prior to issuing a permit, BOEM intends to require incidental take authorizations related to the seismic survey activities proposed in the permit application to be in place before issuing permits, but BOEM issues conditional permits while waiting for incidental take authorizations in the Alaska region. In the Gulf of Mexico region, BOEM generally issues permits without requiring incidental take authorizations to be in place. Stakeholders from industry groups and BOEM officials we interviewed stated that differences in the review process were the natural result of the process adapting to the three different OCS regions and their history of oil and gas exploration. For example, agency officials stated that, in terms of oil and gas activity, the Atlantic is a “frontier region,” and, according to a stakeholder group, has vocal coastal communities that are uncomfortable with offshore energy development and, relatedly, the potential impacts of seismic surveys on marine mammals and commercial fishing. If certain activities are considered controversial or have more vocal public opponents, they may result in an increased number of public comments the agency must review, which in turn may result in BOEM taking extra time to review applications for permits or NMFS requiring more time to review incidental take authorization applications, agency officials said. For example, in the Atlantic OCS, there was a large vocal public opposition to the seismic surveys proposed. Specifically, 126 municipalities, 1,200 officials, and over 40,000 businesses representing Republicans and Democrats opposed seismic surveying, according to testimony at a July 2017 hearing of the House Committee on Natural Resources. By contrast, according to BOEM officials and industry stakeholders we interviewed, the Gulf of Mexico region has a long history of offshore energy development and seismic survey activity. BOEM has issued permits in the Gulf of Mexico region without requiring an applicant to already have an incidental take authorization in place. According to two industry stakeholders we interviewed, obtaining permits in the Gulf of Mexico has been a fairly routine process. BOEM has made a policy decision to generally require an incidental take authorization in Alaska and the Atlantic but not in the Gulf of Mexico, agency officials said. While historically, BOEM has not required incidental take authorizations in the Gulf of Mexico to be in place prior to issuing seismic survey permits, around 2002, ocean noise emerged as an environmental concern in the region, according to BOEM officials. At that time, BOEM requested incidental take regulations from NMFS for the Gulf of Mexico at the request of NMFS and on behalf of the industry and submitted revised requests in 2004, 2011, and 2016. According to BOEM officials we interviewed, the agency has been working with NMFS since 2002 to get incidental take regulations in place. According to NMFS officials, BOEM’s 2002 request only addressed 1 of the 21 species present in the Gulf of Mexico, so NMFS requested that BOEM revise its request. The 2004 request included all marine mammals present in the area, according to NMFS officials. BOEM and NMFS agreed to require mitigation measures on all deep penetration seismic surveys in lieu of the formal authorization until completion of the pending rulemaking, according to BOEM officials. Meanwhile, in 2010, a consortium of environmental organizations sued Interior, alleging that BOEM permitted seismic activities in the Gulf of Mexico in violation of NEPA. In correspondence with BOEM, plaintiffs also alleged that seismic activities permitted by BOEM in the Gulf of Mexico resulted in the unauthorized take of marine mammals in violation of the MMPA. In June 2013, the parties reached an agreement providing for a temporary stay of all proceedings in the lawsuit until Final Action, as defined in the settlement agreement, with respect to BOEM’s application for incidental take regulations or until the expiration of 30 months, whichever occurs first. In addition, BOEM agreed to consider the appropriateness of prescribing additional mitigation measures for industry applicants related to seismic survey permits during the stay, including seasonal restrictions for coastal waters and certain monitoring and reporting requirements; the plaintiffs agreed not to challenge such permits for surveys implementing the mitigations during the stay. In February 2016, the parties agreed to extend the stay through September 25, 2017, subject to BOEM’s consideration of certain additional conditions on seismic surveys permitted in the Gulf of Mexico. In October 2016, BOEM submitted a revised request to NMFS for incidental take regulations governing geophysical surveys in the Gulf of Mexico. In December 2016, NMFS published in the Federal Register a notice of receipt and request for comments and information in response to BOEM’s revised request for incidental take regulations. According to NMFS officials, the agency is currently working on developing incidental take regulations for the Gulf of Mexico region. In September 2017, the parties agreed to extend the stay through November 1, 2018. From 2011 through 2016, BOEM Reviewed 297 Applications for Seismic Survey Permit Applications and Issued 264 Permits Based on our review of agency data, from 2011 through 2016, BOEM reviewed 297 applications for seismic survey permits. Of the 297 seismic survey permit applications reviewed, BOEM issued 264 permits during this period, and the number of applications reviewed and permits issued varied by OCS region (see table 1). For the Gulf of Mexico region, which has had the most oil and gas activity, BOEM reviewed the most permit applications (268) and issued the most permits (250). From 2011 through 2016, BOEM Time Frames for Issuing Seismic Survey Permit Applications Varied by OCS Region BOEM does not have statutory review time frame requirements for issuing geological and geophysical seismic survey permits. The range of BOEM’s review time frames—from the date the agency determined that an application was complete to when BOEM issued a seismic survey permit—varied by OCS region (see table 2 and fig. 3). This table does not include pending, denied, or withdrawn applications or Notices of Scientific Research. This table also does not include the Pacific Outer Continental Shelf region because the Bureau of Ocean Energy Management did not issue any seismic survey permits there from 2011 through 2016. The six permits issued in the Atlantic region were for high-resolution seismic surveys for non-oil and gas mineral resources. Internally, according to BOEM officials, BOEM’s goal in the Gulf of Mexico OCS region is to issue high-resolution seismic survey permits within 40 days and to issue deep penetration (airgun) permits within 70 days. Our analysis of BOEM data on seismic survey permits found that, in the Gulf of Mexico OCS region, for high-resolution seismic survey permits, the agency issued 103 permits out of 108 permits (95 percent) within 40 days; for deep penetration permits, the agency issued 90 permits out of 142 permits (63 percent) within 70 days. NMFS and FWS Follow a Similar Process for Incidental Take Authorization Reviews, but Guidance Does Not Sufficiently Describe How to Record Certain Review Dates NMFS and FWS follow a similar application review process for reviewing incidental take authorization applications, and from 2011 through 2016, the agencies reviewed a total of 35 applications. However, neither agency was able to provide accurate data for the dates on which it began its formal processing of these applications because neither agency’s guidance sufficiently describes how to record certain review dates. As a result, it is not possible to determine whether the agencies were meeting their statutory time frames for the type of incidental take authorization application that has such time frames—the incidental harassment authorizations. NMFS and FWS Follow a Similar General Process to Review Incidental Take Authorization Applications Based on our review of agency guidance, NMFS and FWS follow a similar general process in reviewing applications for incidental take authorizations—both incidental harassment authorizations and letters of authorization with associated incidental take regulations—related to seismic survey activities (see fig. 4). According to NMFS and FWS officials we interviewed, the incidental take authorization process is concurrent with, but separate from, BOEM’s process for issuing seismic survey permits, and entities seeking to conduct seismic surveys apply separately with each agency, as appropriate. When applicants apply for an incidental take authorization, they are first to decide which type of authorization they need—an incidental harassment authorization or a letter of authorization associated with incidental take regulations, depending on the expected effect on marine mammals. Specifically, if the proposed activity has the potential to result in the taking of marine mammals by harassment only, applicants can request an incidental harassment authorization. Incidental harassment authorizations can be issued for up to 1 year. The MMPA provides that NMFS or FWS shall issue incidental harassment authorizations within 120 days of receiving an application. If an activity has the potential to result in serious injury to marine mammals, the applicant would request incidental take regulations, which can be issued for up to 5 years. Letters of authorization are required to conduct activities pursuant to incidental take regulations. Once incidental take regulations are finalized, the applicant can submit a request for a letter of authorization, which is issued under the incidental take regulations. Once NMFS or FWS initially receives an application for an incidental harassment authorization or incidental take regulation, agency officials said that they begin their review and determine whether the application is adequate and complete. They also work with the applicant to obtain any additional required or clarifying information, according to agency officials we interviewed. According to agency regulations and guidance, once the agency deems an application to be adequate and complete, it begins to formally process the application and may initiate several review actions, including a NEPA environmental review and, if appropriate, an Endangered Species Act Section 7 consultation. In the case of NMFS, the agency publishes a notice of receipt of a request for incidental take regulations in the Federal Register. The agencies then publish in the Federal Register a proposed incidental harassment authorization or proposed incidental take regulations. For incidental harassment authorizations, the MMPA provides that NMFS or FWS, or both, are to publish a proposed incidental harassment authorization and request public comment in the Federal Register no later than 45 days after receiving an application. Following a 30-day public comment period for proposed incidental harassment authorizations, the agencies would make their final determination on the authorization, based on: the findings of their NEPA review, the Endangered Species Act consultation, an assessment of whether the proposed activity is consistent with the requirements of other statutes, as necessary, an analysis of the applicant’s ability to implement any necessary mitigation measures to reduce potential effects on marine mammals, and a review of the formal public comments submitted regarding the proposed application. Not later than 45 days after the close of the public comment period, NMFS and/or FWS is to, under the MMPA, issue an incidental harassment authorization, including any appropriate conditions. In order to issue an incidental harassment authorization, the relevant agency must make the required findings that the activity will result in a taking by harassment only of small numbers of marine mammals, that the anticipated take will have a negligible impact on the species or stock, and the anticipated take will not have an unmitigable adverse impact on the availability of the species or stock for subsistence uses. For incidental take regulations, the agencies are to publish proposed regulations in the Federal Register and generally provide a public comment period of 30-to-60 days, depending on the type of authorization requested and circumstances that may warrant a shorter or longer period. The agencies then publish a final rule in the Federal Register, which includes the agencies’ response to public comments received. Generally, 30 days after the final rule is published, an approved incidental take regulation becomes effective. Once the regulation becomes effective, the agencies may issue letters of authorization, the applications for which may have been received at the same time as the submission of the incidental take regulation request or following the implementation of the regulations, and then determine whether the activities in the letter of authorization application are within the scope of the activities analyzed in the regulations. The relevant agency can issue a letter of authorization based on a determination under the agency’s regulations that the level of any incidental takings will be consistent with the findings used to determine the total taking allowable under the specific regulations. NMFS Reviewed and Approved Incidental Take Authorizations in Three OCS Regions, and FWS Reviewed and Approved Authorizations in the Alaska OCS From 2011 through 2016, based on our analysis of agency data, NMFS reviewed 28 applications for incidental take authorizations and issued 21 incidental take authorizations across the Alaska, Atlantic, and Gulf of Mexico OCS regions, and FWS reviewed and issued 7 authorizations only in the Alaska OCS, in part because the marine species under FWS’ jurisdiction do not tend to occur in waters of the OCS in the other regions. Of the 28 applications NMFS reviewed, it reviewed the most applications (18) and issued the most authorizations (16) related to seismic surveys in the Alaska region (see table 3). With regard to incidental take regulations, NMFS reviewed and issued one set of incidental take regulations related to seismic surveys in Alaska but did not receive applications for—and as a result has not issued—any letters of authorization associated with the incidental take regulations, agency officials said. There were no requests for incidental take regulations related to seismic surveys in the Atlantic region, and NMFS is currently developing incidental take regulations for the Gulf of Mexico, in response to BOEM’s request, as noted previously. From 2011 through 2016, FWS reviewed applications for and issued incidental take authorizations related to seismic surveys only in the Alaska region, in part because the species under FWS’ jurisdiction do not tend to occur in waters of the OCS in the other regions or there has not been industry interest in applying for incidental take authorizations in those regions, according to agency officials. Specifically, FWS reviewed and issued two incidental harassment authorizations and two incidental take regulations, which had five associated letters of authorization, for seismic activities in the Alaska OCS. Both NMFS and FWS Did Not Accurately Record Certain Review Dates Because Neither Agency’s Guidance Sufficiently Describes How to Record Such Dates From 2011 through 2016, NMFS did not accurately record the dates on which it determined applications to be adequate and complete, and FWS did not record those dates at all; therefore, it is not possible to determine NMFS and FWS time frames for reviewing incidental take authorization applications. As noted previously, both agencies, per their guidance and regulations, are to begin their formal processing of a request for an incidental take authorization once an application is determined to be “adequate and complete.” NMFS has general guidance on what constitutes an adequate and complete incidental take authorization application—for both incidental harassment authorization and incidental take regulation applications, as well as associated letter of authorization applications. Specifically, NMFS’ regulations and website outline 14 sections of information required in an incidental take authorization application, such as the anticipated impact of the activity to the species or stock of marine mammal. The agency’s website also notes that adequate and complete means “with enough information for the agency to analyze the potential impacts on marine mammals, their habitats, and on the availability of marine mammals for subsistence uses.” FWS also has general guidance on what constitutes an adequate and complete incidental take authorization application, for both incidental harassment authorization and incidental take regulations, as well as associated letters of authorization. Specifically, FWS regulations and guidance specify that all applications must include certain pieces of information and note that if an application is determined to be incomplete, FWS staff are to notify the applicant within 30 days of receiving the application that information is lacking. However, neither NMFS nor FWS guidance sufficiently describes how agency staff should record the date on which an application is determined to be adequate and complete, which would start the time frame for reviewing incidental take authorization applications. Specifically, NMFS’ guidance provides information on what should be included in an adequate and complete application but does not include information on how or when staff should record the date an application is determined to be adequate and complete. NMFS officials we interviewed told us that while they generally record these dates, they are not sufficiently accurate to be used for an analysis of review time frames. These officials said that determinations of whether an application is adequate and complete have historically varied by staff member, with some staff waiting until all outstanding questions are resolved with an applicant before deeming the application adequate and complete, and others considering an application to be adequate and complete if more substantive questions are answered (e.g., the dates, duration, specified geographic region of, and estimated take for the proposed activity), even if some less substantive questions are still outstanding (e.g., contact information). In addition, NMFS officials told us that, in some cases, staff might not enter into their system the date they determine an application to be adequate and complete and might instead enter the information in batches once they have a few applications that are ready for data entry. This might mean that, in cases where a staff member waits until an application is done being processed and reviewed, the date recorded for the determination of adequate and complete, and the date the incidental take authorization is published, may be zero to a few days apart. Based on our review of NMFS data, in at least two cases, the date NMFS recorded for the determination of adequacy and completeness of an application was after the date when the proposed incidental take authorization was published in the Federal Register. While FWS has guidance on what applicants should include in an incidental take authorization application, the guidance does not specify how or when staff should record the date on which they determine an application is adequate and complete. One FWS official we interviewed told us that the agency does not record this date in the spreadsheet for tracking incidental take authorization applications. According to this FWS official, agency officials do not record this date because they do not wait until the application is considered adequate and complete to begin their review. Instead, they begin processing the application while working with applicants to provide missing information and clarifications. By the time FWS officials consider an application to be adequate and complete, the officials said that they usually have a well-developed draft incidental take authorization and are typically finalizing details with the applicant. According to FWS officials, recording an adequate and complete date would have little meaning. NMFS’s and FWS’s guidance does not specify how or when staff should record the date an application is determined to be adequate and complete to help ensure that such a date is recorded consistently. As a result, the agencies are either not accurately recording the date an application is adequate and complete or not recording that date. Thus, the agencies are not able to determine how long their formal processing takes. This outcome is inconsistent with federal internal control standards, which call for management to use quality information to achieve agency objectives and design control activities, such as accurate and timely recording of transactions, to achieve objectives and respond to risk. Officials we interviewed at both agencies told us that they work to help meet applicants’ project timelines—for example, applicants might need an incidental harassment authorization to be in place when their seismic survey vessel becomes available to begin operations. Until NMFS and FWS develop guidance that clarifies how and when staff should record the date on which the agency determines the “adequacy and completeness” of an application, the agencies and applicants will continue to have uncertainty around review time frames for incidental take authorizations. Further, NMFS and FWS do not know if they are meeting their statutory time frames for reviewing one type of incidental take authorization application—incidental harassment authorization applications—because they do not assess the time it takes their agencies to review applications and make authorization decisions. As noted previously, the MMPA provides that NMFS or FWS shall issue incidental harassment authorizations within 120 days of receiving an application. Industry representatives, scientific researchers, and agency officials we interviewed noted, however, that the agencies often take longer than 120 days to make a decision about whether to issue an incidental harassment authorization. For example, NMFS and FWS officials we interviewed told us they often do not complete incidental harassment authorization reviews within the 120-day statutory time frame. According to NMFS and FWS officials, reviews may take longer than 120 days in cases where the agency determines that a threatened or endangered species under the Endangered Species Act may be affected, because the agency generally must request the initiation of a section 7 consultation, which by regulation can take up to 135 days. More specifically, NMFS and FWS officials we interviewed were unable to provide accurate estimates of how long it takes their agency to review incidental harassment authorization applications because they said that they do not conduct analyses of their review time frames. This practice is inconsistent with federal standards for internal control, which call for agency management to design control activities to achieve objectives and respond to risks, including by comparing actual performance to planned or expected results throughout the organization and analyzing significant differences. Without analyzing how long it takes to review incidental harassment authorization applications, from the date the agency determines that an application is adequate and complete until the date an application is approved or denied, and comparing it to the statutory review time frame, NMFS and FWS will be unable to determine whether they are meeting their objectives of completing reviews within the statutory time frame of 120 days. For Several Years, BOEM and NMFS Have Been Reviewing Certain Seismic Survey Permit and Incidental Take Authorization Applications in the Atlantic OCS As of October 2017, in addition to the six permits BOEM issued in the Atlantic OCS from 2011 through 2016, another six permits were pending a decision. Five related incidental harassment authorizations have also been pending a decision by NMFS, as of October 2017. BOEM Has Been Reviewing Six Seismic Survey Permit Applications in the Atlantic OCS Region for Several Years As of October 2017, in addition to the six permits BOEM issued in the Atlantic OCS from 2011 through 2016, another six permits were pending a decision. From March to May 2014, BOEM received these six applications for seismic survey permits in the Atlantic region (see fig. 5). Of the six applicants that applied to BOEM during that time, five also applied to NMFS for incidental harassment authorizations related to their seismic survey permit applications, from August 2014 to January 2016. The sixth applicant that applied to BOEM for a seismic survey permit in the Atlantic OCS region did not apply for an incidental harassment authorization with NMFS, according to NMFS officials. BOEM officials we interviewed stated that beginning in August 2014, the agency began conducting outreach to Atlantic state officials to explain the geological and geophysical permitting process and the seismic technologies involved in the applications. In addition, according to BOEM officials, the agency began coordinating with the Department of Defense and the National Aeronautics and Space Administration to ensure that the proposed seismic surveys did not interfere with any of their activities. According to BOEM data we reviewed, the agency had determined that all six applications to be “accepted,” or complete in late April to early June 2014. In March 2015, BOEM made the applications available for public comment for 10 or 30 days, depending on the type of activity proposed. According to BOEM officials, while the agency does not generally provide a similar public comment period for the Gulf of Mexico or Alaska OCS regions, once the Atlantic applications were considered “accepted,” BOEM decided to provide a public comment period for them because the region is considered a “frontier area”—a region without a long history of oil and gas development—and local communities in Atlantic states are less familiar with the impacts of seismic surveys than communities in the Gulf states. From March 2015 until January 2017, BOEM had no further data on its review activities that took place. BOEM officials we interviewed told us that their seismic survey permit reviews were complete, but the agency did not issue the seismic survey permits because it had made a policy decision to wait for NMFS to issue incidental harassment authorizations before doing so. In January 2017, BOEM denied the six applications for deep-penetration seismic survey permits in the Atlantic OCS region after reviewing the applications for 948 to 982 days. In May 2017, BOEM announced it would reconsider the six applications for seismic survey permits in the Atlantic region, after the new administration rescinded the permit denials. As of August 2017, BOEM officials we interviewed were unable to provide estimates of when the agency’s reviews would be completed. NMFS Has Been Reviewing Incidental Harassment Authorization Applications Related to Seismic Survey Permits in the Atlantic OCS for Several Years In addition to the four incidental harassment authorizations NMFS approved in the Atlantic OCS region from 2011 through 2016, there are five authorization applications related to seismic survey permits that are pending a decision by NMFS, as of October 2017. NMFS received three incidental harassment authorization applications related to seismic surveys in the Atlantic OCS region from August to September 2014, a fourth in March 2015, and a fifth in January 2016 (see fig. 6). In fall 2014, NMFS redirected staff reviewing the Atlantic incidental harassment authorization applications to work on issues related to the agency’s Fisheries Science Center, according to a NMFS official we interviewed. According to this official, review of the Atlantic applications resumed in February 2015. In spring 2015, NMFS became aware of some academic studies concerning the impacts of seismic surveys on marine mammals that they felt would be important to consider with the Atlantic OCS applications under review, according to agency officials we interviewed. According to these officials, NMFS notified applicants of these studies, and one applicant voluntarily revised its impact estimates based on the studies. In summer 2015, NMFS officials said they determined the three applications were sufficiently complete to begin processing. The agency also published a formal notice of receipt and request for comments in the Federal Register. According to NMFS officials we interviewed, this procedure is not a required step in the incidental harassment authorization review process, but NMFS officials thought it was important to solicit the input, given potential local community concern over the surveys in the Atlantic OCS region. Also according to NMFS officials, based on comments received during the public comment period, NMFS determined one application had been erroneously considered complete and returned the application to the applicant. In fall 2015, NMFS officials informed applicants that NMFS would need revised applications based on the new academic studies. In addition to the applicant noted above who updated its application in spring 2015, one additional applicant chose to update its application in fall 2015, and NMFS updated two additional remaining applications. NMFS officials told us they received the last major revisions to the applications in May 2016 and were reviewing and drafting mitigation and monitoring proposals throughout 2016. In November 2016, according to NMFS officials, the five proposed incidental harassment authorizations were ready to be published in the Federal Register, but internal leadership placed the process on hold due to uncertainty regarding BOEM’s actions on the permits. Following BOEM’s denials in January 2017, NMFS suspended the five incidental harassment authorization applications related to the denied seismic survey permits; according to NMFS officials, NMFS determined there was no longer a valid basis for any proposed activity following BOEM’s denial of permits for the actual activity. Agency officials informed applicants that NMFS may resume its incidental harassment authorization review if BOEM resumed its permit review at some point in the future. Once BOEM announced it would reconsider the six applications for seismic survey permits in the Atlantic region, NMFS published five proposed incidental harassment authorizations related to the permits being reconsidered by BOEM in June 2017. In July 2017, NMFS extended the public comment period an additional 15 calendar days for a total of 45 days. After the close of the public comment period, under the MMPA, NMFS is to finalize its decision regarding the applications and either publish the final incidental harassment authorizations or deny the applications. As of October 2017, officials we spoke with at NMFS were unable to provide estimates of when the agency’s reviews would be completed. Conclusions Offshore seismic surveys provide federal agencies and commercial entities with a wide range of information, including data on fault zones and geology that may indicate the presence of oil and gas. This information can help inform regulatory and resource development decisions. In reviewing applications for seismic survey permits, BOEM records the date on which an application for a seismic survey permit is “accepted”, or complete, which may be weeks or months after an application is received. NMFS and FWS, however, were unable to provide accurate data on the dates that they determined applications for incidental take authorizations were adequate and complete because the agencies’ guidance does not specify how or when staff should record this date. Until NMFS and FWS develop guidance that clarifies how and when staff should record the date the agency determines the “adequacy and completeness” of an application, the agencies and applicants will continue to have uncertainty around review time frames for incidental take authorizations. Moreover, NMFS and FWS officials we interviewed said that they do not analyze their review time frames, a practice that is inconsistent with federal standards for internal control. Without analyzing how long it takes to review incidental harassment authorization applications and comparing time frames to the statutory review time frame, NMFS and FWS will be unable to determine whether they are meeting their statutory review time frame of 120 days. Recommendations for Executive Action We are making the following four recommendations, including two to NMFS and two to FWS. Specifically: The Assistant Administrator for Fisheries of NMFS should develop guidance that clarifies how and when staff should record the date on which the agency determines the “adequacy and completeness” of an incidental take authorization application. (Recommendation 1). The Principal Deputy Director of FWS should develop guidance that clarifies how and when to record the date on which the agency determines the “adequacy and completeness” of an incidental take authorization application. (Recommendation 2). The Assistant Administrator for Fisheries of NMFS should analyze the agency’s time frames for reviewing incidental harassment authorization applications—from the date the agency determines that an application is adequate and complete until the date an application is approved or denied—and compare the agency’s review time frames to the statutory review time frame. (Recommendation 3). The Principal Deputy Director of FWS should analyze the agency’s time frames for reviewing incidental harassment authorization applications— from the date the agency determines that an application is adequate and complete until the date an application is approved or denied—and compare the agency’s review time frames to the statutory review time frame. (Recommendation 4). Agency Comments and Our Evaluation We provided a copy of this report to the Departments of Commerce and the Interior for review and comment. The Department of Commerce provided comments on behalf of the National Marine Fisheries Service (NMFS). NMFS agreed with our recommendations but recommended changes to some of the terms used in our report and stated that our characterization of the statutory and mandated requirements did not fully describe the extent of review and analysis required during their review. While we believe that our description of the extent and complexity of NMFS’ review and analysis, including the terms we use to describe NMFS’ process, was sufficient for this report, we revised the report as appropriate. In its letter, NMFS acknowledged that it does not consistently record the date that an application is deemed ”adequate and complete,” and agreed with our recommendations, including describing the steps it plans to take to address them. The Department of Commerce also provided technical comments, which we incorporated throughout our report as appropriate. The Department of Commerce’s letter can be found in appendix II. The Department of the Interior provided comments on behalf of the Bureau of Ocean Energy Management (BOEM) and the U.S. Fish and Wildlife Service (FWS). The FWS partially concurred with our first recommendation and fully concurred with our second. Regarding the first recommendation, FWS noted that it plans to develop guidance for recording the “adequate and complete” date of incidental harassment authorization applications; however, it did not indicate that it would develop such guidance for the other type of incidental take authorization—the incidental take regulations. We believe that FWS should develop guidance for both. Such guidance is necessary to maintain consistency with federal internal control standards, which call for management to use quality information to achieve agency objectives and design control activities, such as accurate and timely recording of transactions, to achieve objectives and respond to risk. The Department of the Interior also provided technical comments, which we incorporated throughout our report as appropriate. The Department of the Interior’s letter can be found in appendix III. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Acting Director of BOEM, the Assistant Administrator for Fisheries of NMFS, and the Principal Deputy Director of FWS. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made significant contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report examines (1) BOEM’s process for reviewing seismic survey permit applications in each OCS region, the number of applications reviewed from 2011 through 2016, and BOEM’s review time frames; (2) NMFS’s and FWS’s processes for reviewing incidental-take authorization applications related to seismic surveys in each OCS region, the number of such applications reviewed by the agencies from 2011 through 2016, and their review time frames; and (3) the status of pending seismic survey permit applications and related incidental take authorizations in the Atlantic OCS region. In our preliminary review of all four OCS regions— Alaska, the Atlantic, the Gulf of Mexico, and the Pacific—we determined that there had been no new oil and gas and related seismic activity in the Pacific OCS region for the last two decades; as a result, we excluded the Pacific OCS region from our review. To examine BOEM’s, NMFS’s, and FWS’s processes for reviewing seismic survey permit applications and related incidental take authorizations, we analyzed relevant laws and regulations that govern the processes and reviewed and analyzed agency guidance, such as process flowcharts, and other documents, including Federal Register notices. We also interviewed BOEM, NMFS, and FWS agency officials, in their headquarters and regional offices, responsible for overseeing seismic permitting and incidental take authorization reviews in each selected OCS region. In addition, we interviewed a range of stakeholders, identified and selected because of their knowledge of the seismic survey permit and incidental take authorization application processes, to obtain their views. Specifically, we interviewed representatives from 10 stakeholder groups, which included industry groups, a research institution, and environmental organizations. Because this was a nonprobability sample of stakeholders, the views of stakeholders we spoke with are not generalizable beyond those groups that we interviewed. To examine the number of seismic survey permit applications and related incidental take authorizations that BOEM, NMFS, and FWS reviewed from 2011 through 2016, we obtained data from BOEM, NMFS, and FWS on the number of permit and authorization applications each agency reviewed and the number of permits and authorizations the agencies issued in each selected OCS region. We asked the agencies to categorize their data with different types of seismic survey technologies (e.g., deep-penetration seismic surveys, high-resolution seismic surveys, or other seismic survey technology such as vertical seismic profile technology). As a result, we identified the number of relevant permits and authorizations that were identified by these agencies as having used seismic survey technologies. We used publicly available information on the number of permit and authorization applications on agency websites to check the reliability of BOEM, NMFS, and FWS data and found the data on the number of permits and authorizations to be sufficiently reliable for our purposes. To examine the review time frames for seismic survey permit applications and related incidental take authorizations from 2011 through 2016, as well as pending applications, and the extent to which NMFS and FWS are meeting their statutory time frames for reviewing incidental harassment authorization applications related to seismic survey permits, we obtained data from BOEM, NMFS, and FWS. We also interviewed agency officials knowledgeable about the data and analyzed the data to determine the range of review time frames by agency and by selected OCS region. We focused our review of pending applications on the Atlantic OCS region because it was the only region with applications that had been pending review for several years. We used information on the dates applications were received and issued as listed in the Federal Register or publicly available documentation to check the reliability of BOEM, NMFS, and FWS data. For BOEM, we found the dates the agency gave us generally were consistent with the dates listed in the Federal Register. As a result, we used BOEM’s dates from the time an application was deemed “accepted,” or adequate and complete, until the permit was issued. We found the data to be sufficiently reliable for our purposes. For NMFS and FWS, we found errors between the dates the agencies gave us and the dates listed in the Federal Register. In addition, the agencies told us they did not have reliable information on the dates that applications were determined to be adequate and complete. We also examined NMFS and FWS guidance on review time frames, agency communication with applicants, and data- recording procedures. We also interviewed agency officials as well as industry stakeholders to learn more about time frames for seismic survey permit applications and related incidental take authorizations. Appendix II: Comments from the Department of Commerce Appendix III: Comments from the Department of the Interior Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Christine Kehr (Assistant Director), Nirmal Chaudhary, Maggie Childs, John Delicath, Marissa Dondoe, Cindy Gilbert, Jessica Lewis, Greg Marchand, Patricia Moye, Katrina Pekar-Carpenter, Caroline Prado, Dan Royer, and Kiki Theodoropoulos made key contributions to this report.

Offshore seismic surveys provide federal agencies and other entities with a wide range of data, from research on fault zones to geology that may indicate the presence of oil and gas. Companies seeking to conduct such surveys to find oil and gas resources in the OCS must obtain a permit from BOEM—which oversees offshore oil and gas activities. Man-made sources of ocean noise, such as seismic surveys, may harm marine mammals. Entities whose activities may cause the taking of marine mammals, which includes harassing or injuring an animal, may obtain incidental take authorizations for seismic surveys from NMFS or FWS, depending on the potentially affected species. GAO was asked to provide information on the seismic permitting process. This report examines (1) BOEM's review process, the number of permit applications reviewed from 2011 through 2016, and its review time frames; and (2) NMFS's and FWS's review process, the number of incidental take authorization applications reviewed from 2011 through 2016, and their review time frames, among other objectives. GAO reviewed laws and regulations and agency documents, analyzed data on applications to BOEM, NMFS, and FWS, and interviewed agency officials. The Department of the Interior's Bureau of Ocean Energy Management's (BOEM) process and time frames for reviewing seismic survey applications differ by region along the Outer Continental Shelf (OCS). From 2011 through 2016, BOEM reviewed 297 applications and issued 264 seismic survey permits, and the reviews' time frames differed by region (see table). As part of the process, BOEM may require approved “incidental take” authorizations from the Department of Commerce's National Marine Fisheries Service (NMFS) or Interior's U.S. Fish and Wildlife Service (FWS), given the possibility such surveys may disturb or injure marine mammals. BOEM does not have statutory review time frame requirements for issuing permits, and officials said the agency starts its formal review once it determines that an application is complete. In some cases, the agency issued a permit on the same day it determined an application was complete. NMFS and FWS follow a similar general process for reviewing incidental take authorization applications related to seismic survey activities. From 2011 through 2016, NMFS and FWS reviewed 35 and approved 28 such applications across the three OCS regions, including some authorizations related to BOEM permits as well as research seismic surveys not associated with BOEM permits. NMFS was unable to provide accurate data for the dates the agency determines an application is adequate and complete—and FWS does not record this date. For example, based on GAO's review of NMFS data, in at least two cases, the date NMFS recorded the application had been determined adequate and complete was after the date when the proposed authorization was published in the Federal Register . Federal internal control standards call for agencies to use quality information. Without guidance on how to accurately record review dates, agencies and applicants will continue to have uncertainty around review time frames. Further, under the Marine Mammal Protection Act, the agencies are to review one type of incidental take authorization application—incidental harassment authorization applications—within 120 days of receiving an application for such authorizations. NMFS and FWS have not conducted an analysis of their review time frames. Not conducting such an analysis is inconsistent with federal internal control standards that call for agency management to design control activities to achieve objectives and respond to risks. Without analyzing the review time frames for incidental harassment authorization applications and comparing them to statutory review time frames, NMFS and FWS are unable to determine whether they are meeting their objectives to complete reviews in the 120-day statutory time frame.

GAO_GAO-18-57

Background The Commercial Space Launch Act Amendments of 1988 established the foundation for the current U.S. policy to potentially provide federal payment for a portion of claims by third parties for injury, damage, or loss that results from a commercial launch or reentry accident. A stated goal of the act was to provide a competitive environment for the U.S. commercial space launch industry. The act also provided for, among other things, government protection against some losses—referred to as indemnification—while still minimizing the cost to taxpayers. All FAA- licensed commercial launches and reentries by U.S. companies, whether unmanned or manned and from the United States or overseas, are covered by federal indemnification for third-party damages that result from the launch or reentry. According to agency officials, in 2016 FAA issued five active licenses, which had an average third-party MPL of about $51 million and ranged from $10 million to $99 million. The amount of insurance coverage that FAA requires launch companies to purchase—the MPL value—is intended to reflect the greatest dollar amount of loss to third parties and the federal government for bodily injury and property damage that can be reasonably expected to result from a launch or reentry accident. FAA calculates separate MPL values for potential damages to third parties and the federal government. For each launch license that it issues, FAA determines MPL values for third parties with the intent of estimating the greatest dollar amount of losses that reasonably could be expected from a launch or reentry accident, which have no less than a 1 in 10 million chance of occurring. For damages to the federal government, FAA determines MPL values with the intent of estimating the greatest dollar amount of losses that reasonably could be expected from a launch or reentry accident, which have no less than a 1 in 100,000 chance of occurring. According to FAA, the agency defines these probability thresholds to estimate the federal government’s exposure to losses above the MPL. Agency officials said that the current probability thresholds are set such that losses are very unlikely to exceed launch companies’ private insurance and become potential costs for the government under CSLCA. FAA’s process for determining the MPL value for a launch or reentry license generally includes three elements: 1. Number of casualties. Estimating the number of third-party casualties involves adding the number of direct and secondary casualties that could result from a launch accident. Direct casualty estimates include serious injuries and deaths. Secondary casualties include those resulting from fires and collapsing buildings. 2. Cost of casualties. FAA uses $3 million as an estimate of the average loss per casualty, which is multiplied by the number of estimated casualties. 3. Property damage. FAA applies a predetermined factor—which it recently changed from 50 percent to 25 percent—to the estimated cost of casualties to derive estimated losses from property damage. The total MPL is equal to the estimated cost of casualties plus property damage. FAA has revised two components of its MPL methodology since our 2012 report. For example, in April 2016, the agency adopted a new method for estimating the number of casualties, known as the risk profile method. This method uses different tools to simulate a range of possible scenarios to create a distribution of potential casualty numbers and the simulated probability of different levels of casualty numbers. The risk profile method replaced FAA’s “overlay method,” which was a method it had used since the early 1990s which the agency said did not work well for launches of small launch vehicles in remote areas, or for reentries. In addition, FAA reduced the factor it uses to estimate losses due to property damage, based on tests of a new process for estimating such losses that showed the previous factor was too high. GAO Previously Reviewed FAA’s MPL Methodology We have previously reviewed FAA’s MPL methodology in 2012 and 2017. In 2012 we examined the U.S. government’s indemnification policy, the federal government’s potential costs for indemnification, and the effects of ending indemnification on the competitiveness of U.S. launch companies, among other aspects of FAA’s MPL methodology. In 2017 we examined the extent to which FAA had revised its MPL methodology since our 2012 report to address previously cited weaknesses and the potential effect of any changes to that methodology on financial liabilities for the federal government. The findings and recommendations of those reports, including any unaddressed weaknesses, are discussed later in this report. FAA Did Not Fully Address the CSLCA’s Three Mandated Requirements CSLCA required FAA to evaluate its MPL methodology incorporating three requirements, but the agency’s report did not fully address these requirements. First, the act required FAA to ensure a balance of risk between launch companies and the federal government. However, agency officials told us that they did not re-evaluate the probability thresholds—which are used to divide the risk of loss between launch companies and the federal government—as part of evaluating its MPL methodology when implementing the risk profile method due to resource constraints. Second, the act required FAA to consider the cost impact of implementing an updated MPL methodology, but the agency did not evaluate the impact of implementing its revised methodology on the direct costs to launch companies (insurance premiums) and to the federal government (indemnification liability). Third, the act required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL, but they did not consult such parties in response to the act. Without fully addressing CSLCA’s mandated requirements, FAA cannot ensure that the federal government is not exposed to greater liability costs than intended or that launch companies are not required to purchase more insurance coverage than necessary. FAA Has Not Fully Evaluated the Balance between Government Liability Exposure and Industry Insurance Costs In its report, FAA states that implementing an updated MPL methodology in April 2016—the risk profile method—helps ensure that the federal government is not exposed to greater liability costs than intended and that launch companies are not required to purchase more insurance coverage than necessary, as required under CSLCA. Further, agency officials told us that their updated methodology is technically more valid and improves their ability to avoid overestimating MPL values (which can cause launch companies to purchase more insurance coverage than necessary) or significantly underestimating MPL values (which can expose the federal government to greater costs than intended). While an improved model may provide a more realistic calculation of the MPL, by changing the resulting estimates it can also change the balance between the federal government’s exposure to liability costs and the amount of insurance launch companies are required to purchase. For example, if the more realistic results produced by the revised methodology increased the MPL estimates, this would increase insurance costs for the launch companies and reduce the federal government’s exposure, thereby shifting the balance of costs between the two and suggesting a reevaluation of the thresholds. In addition, FAA officials told us that they had not reevaluated the probability thresholds upon implementing the revised MPL methodology, although defining these thresholds is their primary mechanism for adjusting the balance of risk between launch companies and the federal government. Agency officials acknowledged that an examination of the thresholds’ continued appropriateness would be warranted in the future. However, they told us that changing the probability thresholds would require significant effort because it would require them to change federal regulations and that resources are currently allocated to other rulemaking priorities. Nevertheless, without evaluating the appropriateness of the probability threshold as part of the mandated evaluation of the MPL methodology, FAA cannot ensure that the federal government is not exposed to greater liability costs than intended or that launch companies are not required to purchase more insurance coverage than necessary. FAA Evaluated Only Indirect Costs to Industry and Government of Implementing a New Methodology CSLCA also required FAA to consider the cost impact on both the commercial space launch industry and the federal government of implementing an updated MPL methodology. In its report to Congress, the agency discussed indirect costs to launch applicants and the federal government. For example, FAA discussed indirect data burden costs on launch company applicants and FAA analysts associated with the agency’s risk profile method implementation. The report states that the risk profile method requires more data from a launch applicant than the previous method, but that the added burden is minimal because the information is similar to the type of information required by FAA for a risk analysis. Agency officials also said that the risk profile method requires more of an FAA analyst’s time than the overlay method, but that the added burden is minimal because the work done by FAA on risk analysis provides much of the foundation for an MPL analysis. However, FAA’s report did not include an evaluation of the direct costs to launch companies and the federal government of implementing an updated MPL methodology. The report identifies the direct cost to the launch industry as insurance premiums, and the direct cost to the federal government include potential indemnification payments. Agency officials also told us that the agency does not track commercial space launch insurance costs, and that they do not have meaningful insights on insurance premiums paid by commercial launch companies. FAA officials told us that they only have a general notion of insurance premiums because the industry is reluctant to share such information. FAA officials also told us that, outside of the work done for the report, they have not evaluated the economic implications for launch companies of implementing an updated MPL methodology. Without evaluating direct costs to both the launch companies and the federal government, FAA will be limited in its ability to consider the impact of the cost to both the industry and the federal government of implementing an updated methodology. FAA Obtained Limited Input from the Commercial Space Sector and Insurance Providers Although CSLCA required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL methodology for the mandated report, it obtained limited input. For example, FAA officials told us that they obtained input from their Commercial Space Transportation Advisory Committee (COMSTAC) in April 2016 about what to include in their report to Congress, but did not consult with the commercial space sector and insurance providers to evaluate their MPL methodology in response to CSLCA. FAA officials also said that, to respond to CSLCA’s consultation requirement, they did not think they needed to repeat the consultations they took in 2013. In January 2013, the agency solicited input from COMSTAC’s Business/Legal Working Group about how to best conduct a review of FAA’s methodology for calculating MPL, in response to our July 2012 report. FAA also briefed the Business/Legal Working Group in May 2013 to solicit input on MPL methodologies, including the risk profile method. In the January 2013 meeting, a COMSTAC member suggested several contractors for a study by outside experts of the complete MPL methodology, and FAA subsequently hired one of these contractors to develop the risk profile method that it implemented in April 2016. However, the agency did not solicit input from COMSTAC about its risk profile methodology prior to its April 2016 implementation or following CSLCA’s November 2015 mandated evaluation. As a result, FAA lacks input on the effect of its revised MPL methodology on launch companies and the federal government, making it difficult to evaluate the balance of risk between the two. FAA’s Revised MPL Methodology Does Not Fully Address Certain Previously Identified Weaknesses Our 2012 report identified concerns with all three components of FAA’s MPL methodology: estimating the number of casualties, estimating the cost of casualties, and deriving estimated property damage costs from estimated casualty costs. In that report we recommended that the agency reassess its methodology, including the reasonableness of several key elements. As noted in our 2017 report, FAA has since made improvements to its methodology. However, it still has not yet updated the cost of a casualty. In addition, in our 2017 report we also noted that there are instances where deriving estimated property damage from estimated casualty costs is inappropriate. As of November 2017, FAA does not have guidance to identify such instances or to guide decisions on which tools to use in developing the MPL estimate. FAA Has Made Improvements to Its MPL Methodology but Has Not Updated the Cost-of- Casualty Amount FAA has taken steps designed to improve two of three elements of its MPL methodology, including revising its methodology for estimating the number of potential casualties for a given launch and changing the factor it uses to derive estimated property damage from estimated casualties. However, the agency has not updated the third element, the amount it uses for the cost of an individual casualty, leaving a previously identified weakness unaddressed. Our 2012 report raised concerns with each of the three components of FAA’s MPL calculation methodology. First, we found that FAA’s method for estimating the number of casualties involved use of a single loss scenario instead of applying the insurance industry’s standard practice of catastrophe modeling, and that the agency’s method might significantly understate the number of potential casualties. Catastrophe modeling, unlike the single-loss approach, generally estimates losses by using various tools to simulate tens of thousands of scenarios to create a distribution of potential losses and the simulated probability of different levels of loss. Second, we reported that FAA had been using an outdated and likely understated figure of $3 million to estimate the cost of a single casualty—including injury or death—which Office of Commercial Space Transportation officials said has not been updated since they began using it in 1988. Third, we reported that the agency’s approach of estimating potential property damage by adding a flat 50 percent to the estimated casualty damage could lead to estimates that were too high in some cases. Given these weaknesses, we recommended that FAA reassess its MPL methodology, including assessing the reasonableness of the cost-of- casualty amount and other assumptions used. Because the agency took actions to assess its MPL methodology, we closed the recommendation as implemented. In March 2017 we reported that FAA had taken steps to address weaknesses in two of these three areas. Specifically, we reported that FAA’s adoption of the risk profile method in April 2016 had improved its estimates of the number of potential casualties associated with a particular license launch. In addition, we reported that the agency had revised the factor it uses to estimate losses from property damage in the MPL calculation from 50 percent to 25 percent. This change has resulted in property damage estimates that FAA officials believe are still conservative but more realistic than previous estimates. However, in our March 2017 report we also determined that FAA had not yet addressed weaknesses in the cost-of-casualty amount we had previously identified; despite the conclusion by a contractor it had hired to study the cost-of-casualty that it was too low. Agency officials told us that they had not addressed this weakness because of other priorities. Given the significance of the cost-of-casualty amount to the MPL calculations, we recommended that FAA prioritize the development of a plan to address the identified weakness in the cost-of-casualty amount, including setting time frames for action, and update the amount based on current information. In October 2017, FAA officials told us that they had not yet updated the cost-of-casualty because they have continued to prioritize completing other work with their limited resources, such as reviewing launch applications and fulfilling other safety responsibilities. As a result, our recommendation remains open. FAA officials told us that they have identified potential steps to update the cost-of-casualty amount, including seeking public input on whether and how to revise the amount, but that they do not expect to make a decision on whether to make any changes to the cost-of-casualty amount until June 30, 2018, at the earliest. FAA officials told us that in order to prioritize the development of a plan to address the identified weakness in the cost-of-casualty amount they will need to consult with both the commercial space and insurance industries about the necessity and implications of any potential increase in the cost-of-casualty amount. Agency officials said that they plan to do such consultations through COMSTAC. However, because COMSTAC was just reestablished in June 2017 after not having been active since November 2016 and new members had not been approved as of October 2017, the anticipated decision date of June 2018 could be further delayed. As we reported in March 2017, an understated cost-of-casualty amount can lead to an inaccurate loss calculation, which in turn understates the amount of insurance a launch company must obtain. This could increase the potential exposure to the federal government, as the insurance amount would be less than the potential losses associated with the launch activity and the property would be inadequately protected. Because of this potential exposure, we maintain that addressing this weakness is a priority. FAA Does Not Have Guidance for When to Estimate Property Damage Separately from the Number of Casualties and Which Analytical Tool to Use As noted above, in our 2012 report we raised concerns about the first element of FAA’s MPL methodology, which is estimating the number of potential casualties. FAA officials said that they have implemented two tools for estimating the number of potential casualties, and that each tool requires a different level of resources and is more appropriate for different launch scenarios. The Range Risk Analysis Tool creates physics-based simulations of possible accidents using launch vehicle data, such as launch trajectory and types of failures, and assigns each simulated accident a probability of occurrence based on the failure rates of the different elements of the launch vehicle. According to agency officials, the Range Risk Analysis Tool is a comprehensive, high-fidelity tool and is the most appropriate tool for coastal launch sites, which are often located in heavily populated areas, and is labor intensive. The Risk Estimator Sub- orbital and Orbital Launch Vehicle and Entry tool, which in contrast to the Range Risk Analysis Tool, is a medium-fidelity tool that can be used for low-risk launches, such as launch sites located in very sparsely populated areas and reentry operations that do not need the use of a high-fidelity tool. According to FAA, this tool significantly reduces the time required to estimate the risk from launch and reentry vehicle operations. In our 2017 report, we also reiterated that there are cases where the third element of FAA’s methodology, deriving estimated property damage from estimated casualties, could lead to misleading MPL calculations. Specifically, in March 2017 we reported that estimating losses from property damage as a percentage of losses from casualties could lead to overestimates. For example, FAA’s contractor found that, if a launch accident affected a residential area, the agency’s practice of estimating property damage based on casualties would likely overstate property damages because residential structures have relatively low values compared to losses from casualties. We also reported in March 2017 that in some accidents the number of casualties may be low but property losses could still be very large, in which case FAA’s estimating property losses based on casualties would likely understate potential property damage. For example, a launch vehicle could strike an unoccupied structure that is very expensive, such as a neighboring launch complex. Agency officials said that while deriving property losses from casualty losses is a simpler method that may be an effective use of limited FAA resources, it could be inappropriate in scenarios where the number of casualties might be low but property losses could still be very large. In October 2017, agency officials said that FAA had not developed guidance for determining, for a given launch license, which of the available tools would be most appropriate to estimate the number of potential casualties, and whether it would be more appropriate to estimate property losses separately rather than derive them from estimated casualties. While FAA officials said they believe their current decision process is adequate and that they do not need more formal guidance at this time, they also told us that they were in the process of developing internal guidance on the most appropriate tool to use for future launches. The officials said that they did not have a projected completion date for the guidance, primarily because the agency has other priorities and resource limitations. As noted earlier, these priorities include reviewing commercial space launch license applications and managing program safety. Federal internal control standards state that, as part of an entity’s risk assessment component, management should identify, analyze, and respond to risks to achieving objectives. For example, the standards state that management should design control activities in response to the entity’s objectives and risks to achieve an effective internal control system. Without such guidance, FAA could face challenges in ensuring that it is using the most appropriate method to calculate an MPL for a given launch and is making the most efficient use of its resources. Such guidance could become more important as the number of commercial space launches increases, potentially creating greater demands on its resources. We have previously reported that the commercial space launch industry has experienced significant growth in the number and complexity of launches in the past half-decade. FAA has also reported that its licensed launches have increased 60 percent and industry revenue has increased 471 percent since 2012. Conclusions FAA’s MPL methodology is critical in balancing the encouragement of the U.S. commercial space industry with the need to manage the federal government’s risk exposure because it determines how much risk each party will bear for third-party damages resulting from potential space launch accidents. However, despite changes to the methodology, the probability threshold that the agency uses to achieve this balance of risk has been the same since the 1990s, and has not been reviewed for appropriateness. In addition, while FAA evaluated the effect of its MPL methodology on the indirect costs of launch companies and the federal government, it did not similarly evaluate direct costs. Further, although FAA has obtained input from some stakeholders on certain aspects of its MPL methodology, it has not consulted with launch providers and insurance companies to evaluate effects on key potential costs to launch companies and the federal government, as required under CSLCA. FAA officials told us that resource issues and pursuing other priorities have prevented them from taking these actions. However, the longstanding nature of these issues, as well as their importance in determining the federal government’s financial exposure, makes their completion a priority. FAA has also begun improving other aspects of its MPL process, but important actions remain incomplete. For example, the cost of a casualty, a key component of the methodology, has not been updated since 1988. While FAA has identified potential steps to update this amount, it has not implemented these steps and our March 2017 recommendation to prioritize the updating of this amount remains open. Further, agency officials said they have begun to develop internal guidance on how to determine which methodological tools should be used for a given launch, but are not sure when this process will be completed. These are important steps to help ensure the validity of the MPL methodology and the results obtained for each launch, which in turn determine the balance between the amount of insurance launch companies are required to purchase and the potential financial exposure for the federal government. Recommendations for Executive Action We are making the following four recommendations to FAA: The FAA Administrator should fulfill the CSLCA mandate to include ensuring a balance of risk between the federal government and launch companies as part of FAA’s MPL methodology evaluation by reexamining the current probability thresholds. (Recommendation 1) The FAA Administrator should fulfill the CSLCA mandate to analyze the cost impact of implementing its revised MPL methodology by evaluating the impact on the direct costs of launch companies and the federal government. (Recommendation 2) The FAA Administrator should fulfill the CSLCA mandate to evaluate its MPL methodology in consultation with the commercial space sector and insurance providers by consulting with those entities on the cost impact of its revised MPL methodology, including an updated cost-of-casualty amount, on the launch industry and the federal government. (Recommendation 3) The FAA Administrator should establish an estimated completion date for developing and implementing a plan to establish guidance on the most appropriate MPL methodologies and tools to use for each launch. (Recommendation 4) Agency Comments We provided a draft of this report to the Department of Transportation for their review and comment. In its comments, reproduced in appendix I, the Department of Transportation concurred with our recommendations. The Department of Transportation also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to interested congressional committees and the Secretary of the Department of Transportation. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions or would like to discuss this work, please contact Alicia Puente Cackley at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Individuals making key contributions to this report are listed in appendix II. Appendix I: Comments from the Department of Transportation Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Patrick Ward (Assistant Director), Jessica Artis, Isidro Gomez (Analyst in Charge), Courtney La Fountain, Maureen Luna-Long, Jessica Sandler, Jennifer Schwartz, Joseph Silvestri, and Shana Wallace made key contributions to this report.

The federal government shares liability risks with the commercial space launch industry for accidents that result in damages to third parties or federal property. This arrangement requires space launch companies to have a specific amount of insurance to cover these damages. The government is potentially liable for damages above that amount, up to a cap GAO estimated to be $3.1 billion in 2017, subject to appropriations in advance. CSLCA, enacted in 2015, directed the Department of Transportation, of which FAA is a part, to evaluate its MPL methodology and, if necessary, develop a plan to update that methodology. The act also included a provision requiring GAO to assess FAA's evaluation and any actions needed to update the methodology. This report discusses the extent to which (1) FAA's evaluation report addresses the requirements in CSLCA and (2) FAA has addressed previously identified weaknesses in the MPL methodology. GAO reviewed documents and interviewed FAA on its loss methodology evaluation and actions to address weaknesses. The Federal Aviation Administration's (FAA) report evaluating its maximum probable loss (MPL) methodology did not fully address the evaluation and consultation requirements specified by the U.S. Commercial Space Launch Competitiveness Act (CSLCA). Balance of Risk. CSLCA required FAA to include ensuring that the federal government is not exposed to greater indemnification costs and that launch companies are not required to purchase more insurance coverage than necessary as a result of FAA's MPL methodology. FAA said that it ensured this balance by improving its methodology, but it did not reevaluate its probability thresholds after revising its methodology. These thresholds are used to divide the risk of loss between launch companies and the government. Impact on Costs. The act required FAA to consider the costs to both the industry and the federal government of implementing an updated methodology. FAA's report discussed the impact on indirect costs, such as data collection, but did not discuss direct costs: insurance premiums for launch companies and indemnification liability for the federal government. Consultation. The act also required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL methodology in accordance with the preceding requirements. While the agency consulted with some stakeholders, these consultations were limited in scope. FAA officials said they have not been able to take the actions needed to fully satisfy the mandated elements because of issues such as resource limitations and the lack of available data. However, by not resolving these issues, FAA lacks assurance that launch companies are not purchasing more insurance than needed or that the federal government is not being exposed to greater indemnification costs than expected. FAA has addressed two of three previously identified weaknesses in its MPL methodology but has not yet dealt with the remaining weakness. Specifically, the agency has revised its methodology for estimating the number of potential casualties for a launch and changed the factor it uses to derive estimated property damage from estimated casualties. However, FAA has not updated the amount used for the cost of an individual casualty. GAO recommended in a March 2017 report (GAO-17-366) that FAA update this amount. Not doing so could understate the amount of insurance launch companies are required to purchase, exposing the federal government to excess risk. GAO also determined that while FAA has two tools and methods it can use in making its MPL estimates, it does not have guidance on determining which are most appropriate for a given launch scenario. For example, one tool is more comprehensive but also labor intensive to use, while the other is inappropriate for certain launch scenarios and could result in misleading MPL amounts. Officials said they have begun to create such guidance but do not have an estimated completion date. Without such guidance, FAA cannot ensure that the most appropriate MPL methodology is used for each launch.

CRS_RL34498

Three Commonly Used Concepts of Tax Rates and How They Differ In analyzing the effects of U.S. individual income tax rates, it is important to be clear about which rates are being discussed. Among tax analysts, the three most widely used measures are statutory rates (STRs), marginal effective rates (MERs), and average effective rates (AERs). Each has its own applications. Those interested in how individual income taxes affect the economic behavior of households should have a clear understanding of the ways in which the three rates differ and the implications of these differences for the economic analysis of income taxes. STRs are the rates prescribed by law that apply to specified ranges of taxable income. For any individual, the applicable rate depends on her/his taxable income. Since the federal income tax is progressive in nature, taxpayers with relatively low taxable incomes face lower STRs than do taxpayers with relatively high taxable incomes. Effective rates, by contrast, whether marginal or average, measure how STRs are affected by tax provisions that modify someone's taxable income or tax liability. A taxpayer's MER shows the percentage of an additional dollar of income that is taxed, while her/his AER indicates how much of her/his total income is taxed. In general, someone's average tax rate is lower than her/his marginal tax rate. Still, for many individuals, the interaction between special provisions in the tax code and their specific financial circumstances leads to differences between their effective and statutory rates. Among the provisions that can drive a wedge between the two rates are the earned income tax credit (EITC), the alternative minimum tax (AMT), and personal exemptions and deductions. Personal circumstances that can cause MERs to diverge from STRs include the sources of income, itemized deductions, the number of children (if any) eligible for the child tax credit and the EITC, and filing status. Most economists believe that taxpayers change their economic behavior in response to MERs, not to statutory rates. Drawing on a standard model of consumer behavior, they argue that a person's MER influences important decisions concerning whether and how much to work, how much to spend, and how much to save. For example, someone's MER may help determine whether he takes on an overtime shift, bargains for wages and benefits, takes a second job, or even enters the labor force. The idea that MERs help shape an individual's economic behavior can be extended to an entire tax system, including federal payroll and excise taxes and state and local taxes. A broader analysis along these lines, however, goes beyond the scope of this report. Major Legislation Affecting Individual Statutory Rates Since 1986 The current income tax is largely a product of the Tax Reform Act of 1986 (TRA86; P.L. 99-514 ). Among other things, the act reduced the individual tax rate structure to two statutory rates: 15% and 28%. TRA86 also imposed a 5% surcharge on the taxable income of certain upper-income households, effectively adding a third marginal tax rate of 33%. Since the enactment of TRA86, several other major changes in the federal individual income tax rate structure have been made. The Omnibus Budget Reconciliation Act of 1990 (OBRA90; P.L. 101-508 ) eliminated the 5% surcharge and replaced it with a statutory rate of 31%. In addition, OBRA90 imposed a limit on the amount of itemized deductions upper-income households could claim and accelerated the phaseout of personal exemptions for upper-income households. These provisions had the effect of raising effective tax rates above statutory tax rates for affected taxpayers. The Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L. 103-66 ) added two new statutory rates at the upper end of the income scale: 36% and 39.6%. It also delayed the indexation of the two new tax brackets for one year and permanently extended the limitation on itemized deductions and the accelerated phaseout of the personal exemption from OBRA90. Eight years later, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16 ) added a new 10% statutory rate. It also included a phased-in reduction in the top four statutory rates to 25%, 28%, 33%, and 35%. Several other provisions of the act modified the tax brackets and limitations on personal exemptions and deductions for higher-income taxpayers. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27 ), the Working Families Tax Relief Act of 2004 (WFTRA; P.L. 108-311 ), and the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA; P.L. 109-222 ) collectively accelerated and extended the tax rate reductions enacted under EGTRRA through 2010. Under a last-minute agreement between President Obama and congressional leaders from both parties, Congress extended the Bush-era individual income tax cuts through 2012 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUC; P.L. 111-312 ). Facing the unwanted prospect of an across-the-board increase in all STRs, the 112 th Congress permanently extended (through the American Taxpayer Relief Act of 2012 [ATRA; P.L. 112-240 ]) each of the Bush-era STRs, with one exception: the top rate increased from 35% to 39.6%. Six years passed before Congress made another significant change in individual income tax rates. Through P.L. 115-97 , often referred to as the Tax Cuts and Jobs Act, Congress temporarily reduced five of the seven individual income tax rates under prior law. For tax years beginning after December 31, 2017, and before January 1, 2026, individual income tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%; they are set to return to the levels that applied in 2017, for tax years beginning on or after January 1, 2026. Each act is described in greater detail below. Tax Reform Act of 1986 Among its many changes, TRA86 simplified the individual income tax rate structure for tax years after 1987 by replacing the 14 nonzero statutory rates that applied to the 1985 and 1986 tax years with two such rates: 15% and 28%. Table 3 shows the key elements of the 1988 tax rate structure. These rates applied to capital income as well as to labor income. Although TRA86 established only two statutory individual marginal income tax rates, it included a 5% surcharge on the taxable income of certain upper-income households. This surcharge effectively created a third statutory tax rate of 33% (a 28% statutory tax rate plus a 5% surcharge). Because the surcharge phased in over a certain range of income and then phased out as income increased, statutory tax rates rose to 33% but then fell back to 28%, producing what was known as an income tax rate "bubble." The intent of the surcharge was two-fold: (1) to prevent TRA86 from changing the distribution of the income tax burden among income groups, relative to the distribution under pre-1986 tax law, and (2) to meet specific revenue targets. More specifically, the surcharge was designed to eliminate the tax benefits of both the 15% tax bracket and the personal exemption for upper-income households. For joint returns in 1988, the phaseout of the 15% tax rate started when taxable income exceeded $71,900 and ended when it reached $149,250. For single returns, the 15% tax bracket phased out when taxable income was between $47,050 and $97,620. For heads of households, the phaseout occurred when taxable income fell in the range of $67,200 to $134,930. The phaseout of the personal exemption started immediately after the phaseout of the 15% tax bracket and occurred sequentially for each exemption. This meant that the taxable income range over which the 5% surcharge offset personal exemptions depended on the number of personal exemptions claimed on the tax return. For example, on a joint return claiming two personal exemptions, the 5% surcharge would apply to taxable income between $149,250 and $171,090 ($149,250 plus two times $10,920). On a joint return with four personal exemptions, the 5% surcharge would apply to taxable income between $149,250 and $192,930 ($149,250 plus four times $10,920). To demonstrate how the 5% surcharge worked to "phase out" the tax benefits of the 15% tax bracket, consider the following example based on joint returns for 1988. The difference between taxing the first $29,750 of taxable income at 28% instead of 15% was $3,867.50 (obtained as $29,750 multiplied by 13%, the difference between 28% and 15%). Five percent of the difference between the upper and lower phaseout limits also equaled $3,867.50 ($149,250 less $71,900 multiplied by 5%). Hence, assessing the 5% surcharge on taxable income between $78,400 and $162,770 was equivalent to taxing the first $32,450 of taxable income at 28% rather than 15%. Omnibus Budget Reconciliation Act of 1990 OBRA90 created a three-tiered statutory marginal income tax rate structure. The rates were 15%, 28%, and 31% and applied to tax years beginning in 1991 and thereafter (see Table 5 ). OBRA90 eliminated the tax rate bubble created by TRA86, and replaced it with a limitation on itemized deductions and a new approach to phasing out the tax benefits of the personal exemption for upper-income households. OBRA90 also reintroduced a tax-rate differential for capital gains income. The act limited the tax on capital gains income to a maximum of 28%, starting in 1991. Under TRA86, capital gains was treated as ordinary income and taxed at regular rates that peaked at 33%. OBRA90's limitation on itemized deductions was based on a taxpayer's adjusted gross income (AGI). For tax years starting in 1991 to 1995, allowable deductions were reduced by 3% of the amount by which a taxpayer's AGI exceeded $100,000 (or $50,000 in the case of married couples filing separate returns). For example, if a taxpayer's AGI in 1991 was $110,000, then his itemized deductions would have been reduced by $300 ($110,000 less $100,000 multiplied by .03). This provision effectively raised the marginal income tax rate of affected taxpayers by approximately one percentage point. A dollar of income in excess of $100,000 was taxed as if it were $1.03, since in addition to the tax on an extra dollar of income, the taxpayer lost a tax deduction by giving up $0.03 of itemized deductions. This limitation was scheduled to expire after tax year 1995 under OBRA90, but was later extended. Allowable deductions for medical expenses, casualty and theft losses, and investment interest were not subject to this limitation. For tax years after 1991, the $100,000 threshold was indexed for inflation. OBRA90 phased out the tax benefits of the personal exemption for higher-income households. Each personal exemption was phased out by a factor of 2% for each $2,500 (or fraction thereof) by which a taxpayer's AGI exceeded a given threshold amount. In 1991, the threshold amounts were $150,000 for a joint return, $100,000 for a single return, and $125,000 for a head-of- household return. Starting in 1992, these amounts were indexed for inflation. The phaseout provision was scheduled to expire at the end of 1995. A simple example illustrated how the personal exemption phaseout increased the tax burden on affected taxpayers. In 1991, a joint household whose AGI was $183,000 would have lost 28% of their total personal exemptions. The AGI amount in excess of the threshold in this instance would have been $33,000, or $183,000 AGI minus the $150,000 threshold limit. The $33,000 excess divided by $2,500 would produce a factor of 13.2, which when rounded up would equal 14. This figure is multiplied by 2% to arrive at the final disallowance amount of 28%. Hence, if the family had claimed two personal exemptions, which at $2,150 each would have totaled $4,300, they would have been allowed to deduct $3,096 ($4,300 total personal exemptions less the $1,204 disallowance, which is 28% of the total). Omnibus Budget Reconciliation Act of 1993 OBRA93 made several changes in the individual marginal income tax rate structure. First, it added two new marginal tax rates, 36% and 39.6%, at the upper end of the income spectrum. The 39.6% tax bracket was the result of adding a 10% surtax to the 36% rate for taxpayers with taxable incomes over $250,000 in 1993. Although OBRA93 was enacted in August 1993, the increase in the top marginal tax rates was made effective retroactively to January 1, 1993. Affected taxpayers, however, were not assessed penalties for underpayment of 1993 taxes resulting from the tax rate increase. Taxpayers were also allowed to pay any additional 1993 taxes in three equal installments over a two-year period. Second, OBRA93 delayed indexation of the new top marginal income tax brackets for one year. Hence, the nominal dollar tax brackets for the 36% and 39.6% marginal tax rates remained at the same level for both tax years 1993 and 1994. Finally, OBRA93 made permanent both the itemized deduction limitation and the phaseout of the tax benefits from personal exemptions. Economic Growth and Tax Relief Reconciliation Act of 2001 EGTRRA made several major changes to the marginal tax rate structure. Many of the act's provisions were set to phase in over a period of time, but subsequent legislation, described in the next section, overrode the schedule originally set by EGTRRA. All of the EGTRRA provisions, as amended, were set to expire at the end of 2010. First, the 2001 act created a new 10% bracket. It applied, beginning in tax year 2002, to the first $12,000 of taxable income for married couples filing jointly, the first $10,000 of taxable income for heads of households, and the first $6,000 of taxable income for single individuals. For tax year 2001, the act created a "rate reduction tax credit," mimicking the effects of the 10% tax rate bracket for most taxpayers. EGTRRA gradually phased in and expanded the bracket over several years, but in 2003-2007, these provisions of EGTRRA were accelerated by subsequent legislation. In 2008, EGTRRA became effective again, setting the 10% marginal tax rate bracket at $7,000 for single filers and $14,000 for joint filers. Starting with tax year 2009, these bracket amounts were indexed for inflation. Second, the 2001 act gradually reduced the top four marginal income tax rates. Under prior income tax law, the top four marginal tax rates were 28%, 31%, 36%, and 39.6%. When fully phased in, the 2001 act reduced the top four marginal income tax rates to 25%, 28%, 33%, and 35%. Once again, under EGTRRA the reductions were scheduled to take place in 2001 through 2006, but subsequent legislation accelerated the EGTRRA phase-in schedule. Third, EGTRRA also repealed the limitation on itemized deductions and personal exemptions for high-income taxpayers. The repeal was phased in between 2006 and 2009. The limitation was completely repealed for 2010, but it was scheduled to reappear again in 2011, once the EGTRRA's tax cuts expire. Fourth, some of the act's measures designed to reduce the marriage penalty affected the rate bracket structure. The act increased the income range of the 15% tax bracket for married couples filing joint returns to twice the income range of the 15% tax bracket for single returns. Under EGTRRA, this provision was scheduled to phase in from 2005 to 2008, but subsequent legislation accelerated the phase-in. Under EGTRRA, the upper dollar limit of the 15% tax bracket for joint returns was set at 180% of the upper dollar limit of the 15% tax bracket for single returns in 2005, 187% of that limit in 2006, 193% of that limit in 2007, and 200% of that limit in 2008 and subsequent years. Finally, the 2001 act increased the standard deduction for joint returns to twice the size of the standard deduction for single returns. The change was scheduled to be phased in over a five-year period, 2005 to 2009, but it was accelerated by the subsequent bills as well. This had the effect of raising the lower income threshold of the lowest tax bracket for married taxpayers. Jobs and Growth Tax Relief Reconciliation Act of 2003 JGTRRA accelerated several changes to the individual income tax rate structure that were first enacted under EGTRRA. It moved forward to 2003 the tax rate reductions, the expansion of the 10% tax bracket, and the widening of the 15% tax bracket for joint returns to make it double the width of the 15% tax bracket for single returns. Under EGTRRA, some of these changes would not have been fully phased in until 2009. JGTRRA also lowered the tax rates for long-term capital gains and dividends. It reduced the top rate to 15%, and allowed a rate of 0% for certain low-income taxpayers. Working Families Tax Relief Act of 2004 WFTRA extended several tax provisions of JGTRRA that were scheduled to expire at the end of 2004. It extended the expansion of the 10% income tax bracket through 2007, at which point EGTRRA's relevant provisions would be fully phased in, maintaining a constant amount of tax relief. WFTRA also extended marriage penalty relief under EGTRRA from 2005 to 2008. The standard deduction for a married couple filing jointly was set to be equal to double the standard deduction for an unmarried single filer over that period. In addition, the act made the size of the 15% tax bracket for joint filers double that of the tax bracket for single filers from 2005 to 2007. As a result, in both cases, the marriage penalty relief extended from 2005 to 2010, before ending under the EGTRRA sunset provision. Tax Increase Prevention and Reconciliation Act of 2005 The reductions in tax rates for long-term capital gains and dividends under JGTRRA were set to expire at the end of 2008; TIPRA extended them through the end of 2010. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 A last-minute agreement in 2010 between President Obama and congressional leaders of both parties cleared the way for an extension of all the Bush-era individual tax cuts through the end of 2012. TRUC served as the legislative vehicle for the extension. American Taxpayer Relief Act of 2012 Facing a reversion of each statutory individual income tax rate to its level before the enactment of EGTRRA starting January 1, 2013, Congress and President Obama agreed on legislation (ATRA) to extend permanently each of the Bush-era rates and restore the top marginal tax rate to its pre-EGTRRA level of 39.6%. The act also permanently extended the repeal of the phaseout of the personal exemption included in EGTRRA, but it restricted the repeal of the phaseout to taxpayers with AGIs of $250,000 or less for single filers and $300,000 or less for married couples filing jointly. Taxpayers with AGIs above these inflation-adjusted amounts were subject to the phaseout. The same rule applied to the repeal under EGTRRA of the Pease limitation on the amount of itemized deductions an upper-income taxpayer could take. P.L. 115-97 Individual marginal income tax rates did not change after ATRA until the enactment of P.L. 115-97 in December 2017. The act made significant changes to a number of individual income tax provisions, including individual tax rates and the standard deduction. For tax years beginning in 2018 and ending before 2027, the individual income tax rate structure consists of seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. (The rates are scheduled to revert to their levels in 2017 starting in 2026.) For individuals receiving income from passthrough businesses (i.e., partnerships, S corporations, and sole proprietorships), the current rates can be adjusted downward as a result of a new deduction under Section 199A; the deduction is equal to up to 20% of a noncorporate business owner's qualified income from a qualified trade or business. The 2017 tax revision also made the following changes in these key elements of the individual income tax for the 2018 to 2025 tax years: It terminated the personal exemption (which was $4,050 in 2017). It increased the standard deduction (which is indexed for inflation using the chained consumer price index for urban consumers) for nonitemizers to $24,000 for joint filers and $18,000 for head-of-household filers, and $12,000 for single filers, from 2018 to 2025. It eliminated the deduction for miscellaneous expenses from 2018 through 2025. It suspended the overall limit on itemized deductions for certain high-income taxpayers. Effects of Inflation on Income Tax Liabilities During periods of relatively high inflation, a progressive income tax based on tax brackets set in nominal dollars can lead to automatic tax increases, and these increases can lead to unintended changes in the overall distribution of the tax burden by income class. This is because nominal incomes rise faster than real incomes, all other things being equal. As a result, tax burdens for taxpayers become larger than what lawmakers had intended when they established existing statutory tax rates. In the absence of indexation of the elements of the tax code determining the tax burdens of individuals, an increasing share of taxpayers will face growing tax liabilities because their nominal incomes are rising, irrespective of what happens to their real incomes. The effects of inflation on income tax liabilities can be substantial, even in periods of low inflation, such as the last two decades. According to the Bureau of Labor Statistics, $1,000 in November 1988 had the buying power of $2,095.08 in November 2018. Year-to-year changes can be negligible, but over a decade or so, those changes can add up to make a substantial difference through the power of compounding. A simplified hypothetical example illustrates the impact that a lack of indexation can have over time for the tax burdens (as measured by the average income tax rate) of individual taxpayers. The results are summarized in Table 1 . Assume that the individual income tax structure from 1988 applied without indexation (or any other changes) in 2017. Also assume that a household with a husband, wife, and two children had an adjusted gross income (AGI) of $35,000 in 1988, was eligible for no tax credits, and filed a joint tax return. If the family took the standard deduction, then its taxable income would have been $22,200 ($35,000 minus the standard deduction of $5,000 and four personal exemptions at $1,950 apiece), and its tax liability would have been $3,330. As a result, the household's average tax rate was 9.5% ($3,330 divided by $35,000 income) in 1988. Next consider what would happen to the household's tax burden in 2017 if the family's income had kept up with inflation but the 1988 tax structure had remained in place, with no indexation for inflation. The family's AGI would have been $71,766: $35,000 x 2.05 (the rise in the general price level as measured by the Consumer Price Index for all Urban Consumers (CPI-U) from 1988 to 2017). Its taxable income would have been $58,966; its tax liability would have totaled $12,643; and its average tax rate would have reached 17.6%. So in the absence of the indexation of the key income tax elements when the family's AGI rose in step with the rate of consumer inflation, keeping the buying power of its income constant, the family's income tax burden increased by 85% from 1988 to 2017. This difference exemplifies what is known as "bracket creep," an effect that is accelerated during periods of high inflation. Under an indexed individual income tax, however, the household would have experienced no change in their tax burden. With an inflation adjustment equal to the rise in the CPI-U, the value of the standard deduction for a joint return would have increased from $5,000 in 1988 to $10,252 in 2017, and the personal exemption for each family member would have increased from $1,950 to $3,998. Under these circumstances, the family's 2017 taxable income would have been $45,522 ($71,766 in income less the inflation-adjusted standard deduction and four personal exemptions). Tax brackets would have adjusted as well. Based on this taxable income and the adjusted brackets, their income tax liability would have been $6,828, yielding an average tax rate of 9.5%, the same as in 1988. While the nominal household's amount of income and tax owed rose, the value of both in 1988 dollars stayed approximately the same. Congress added indexation to the individual income tax as a part of the package of statutory tax rate reductions included in the Economic Recovery Tax Act of 1981. The U.S. rate of inflation was exceptionally high at the time, and this condition influenced congressional deliberations on the benefits of tax indexation. As the Joint Committee on Taxation noted in its explanation of the act: The Congress believed that "automatic" tax increases resulting from the effects of inflation were unfair to taxpayers, since their tax burden as a percentage of income could increase during intervals between tax reduction legislation, with an adverse effect on incentives to work and invest. In addition, the Federal Government was provided with an automatic increase in its aggregate revenue, which in turn created pressure for further spending. Since 1981, the list of indexed elements has gradually expanded and now includes more than three dozen tax items. TRA86 extended indexation to some newly created tax provisions, including the standard deductions for the elderly and the blind and the EITC. EGTRRA indexed the phaseout amounts for the EITC, starting in 2008. Table 2 lists the major indexed tax items and notes the first year of the adjustment. Indexing may compound the complexity of the individual income tax, but, given its benefits to taxpayers over time, this effect is arguably a minor matter. The year-to-year changes in dollar amounts are usually small, so taxpayers seldom, if ever, face unexpected changes that might materially affect them. On the revenue side, of course, indexing results in lower government receipts. But some key elements of the tax remain unadjusted for inflation. One such element is the child tax credit. Under current law, the amount of the credit itself and the phaseout thresholds for higher-income taxpayers are not adjusted for inflation. But the earned income threshold used in calculating the credit's refundable amount has been adjusted for inflation since 2001. Consequently, under current law, inflation erodes the value of the credit and reduces the number of eligible taxpayers over time. Another element not indexed for inflation is the threshold amounts for determining who pays the 3.8% tax on net investment income that was added in 2013. The Mechanics of Indexation Most elements are indexed using the technical calculation described below. In some instances, the calculation methodology differs somewhat. Examples include the EITC or transportation benefits. The variations are insignificant, as long as they do not lead to systematic deviations from the actual rate of inflation. The adjustment for tax years before 2019 was based on the percentage by which the average Consumer Price Index for All Urban Consumers (CPI-U) in the 12 months ending on August 31 of the preceding year exceeded the average CPI-U during a 12-month base period. Not all indexed tax elements used the same base period, as shown in Table 2 . With the exception of the EITC, inflation adjustments were rounded down to the nearest multiple of $50. Although rounding down affected the accuracy of any given year's inflation adjustment, the effect was not cumulative since each year's adjustment reflected the total inflation that occurred between the adjustment year and the base period. For example, the adjustment factor for the personal exemption in 2017 was calculated as follows. By law, the base period for this factor was September 1987 through August 1988, when the average CPI-U was 116.6. The average CPI-U for September 2015 through August 2016, on which the 2017 value is based, was 238.6. Thus, the inflation adjustment factor in 2017 was 2.05 (238.6/116.6). This factor was then applied to $2,000, the value of the exemption in 1989, resulting in a personal exemption of $4,080 for the 2017 tax year. Rounding this number down to the nearest multiple of $50 produced the final value of the exemption in 2017: $4,050. For tax years beginning after December 31, 2018, a different consumer price index will be used to adjust the values of income tax elements subject to indexation. Under a provision of P.L. 115-97 , the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) replaces the CPI-U for this purpose. Both indices were designed by the Bureau of Labor Statistics (BLS) to measure price changes faced by the average urban consumer. Each of them tracks the prices of about 80,000 goods and services each month in cities throughout the United States. The BLS bases the indices on a fixed basket of goods and services obtained from a survey of the spending patterns of 7,000 American families. The survey determines which goods and services go into the basket and how much weight should be assigned to each item in calculating the overall change in prices. The market basket for the CPI-U is revised every two years. Many analysts have argued that the CPI-U overstates rises in the cost of living because it does not fully account for the changes consumers make in their buying patterns when the price of one item in the market basket goes up or the price of another goes down. When this tendency to substitute lower-priced items for other items whose prices have increased is ignored, the impact on consumers of inflation is overstated. The chained CPI-U is better at capturing changes in consumer spending patterns tied to price increases or decreases. This is because it compares details about what a consumer buys in the period before a price change with details about what he/she buys in the period after the change. In essence, the BLS calculates one measure of inflation for the first-period basket and a second measure of inflation for the second-period basket and then takes the average. The basket after the price change may contain different amounts of some items, as consumers respond to increases or decreases in the prices of other items in the same categories. For instance, the second-period basket may include more chicken than the first-period basket did when the price of beef increases while the price of chicken remains unchanged. This substitution softens the impact of the price rise for beef on the overall measure of inflation. The chained CPI-U does this every month, creating an index that links these changes from month to month. As a result, the index reflects shifts in consumer buying patterns between months and between basket items. It also leads to lower estimates of the rate of increase in the cost of living over time, since the chained CPI-U is built around the tendency of consumers in general to purchase lower-priced items that can be substituted for items whose prices have risen. From 2000 to 2012, the annual average for the chained CPI-U rose by 29.4%. In the same period, the CPI-U's annual average increased by 33.3%. Many analysts have noted that using the chained CPI-U to adjust the amount of individual income tax elements for inflation has one significant drawback: the index is revised several times, while the CPI-U is never revised. A final reading for the chained CPI-U is released between 10 and 16 months after its initial release. Consequently, starting in 2018, tax elements that are adjusted for inflation are indexed to a preliminary estimate that could be significantly revised. Switching to the chained CPI-U to adjust key tax elements for inflation is likely to result in more bracket creep than would occur if the elements were still adjusted for inflation using the CPI-U. Since the chained CPI-U increases more slowly than the CPI-U, tax bracket thresholds are likely to rise by smaller amounts from one year to the next. More individual taxpayers will be pushed into higher tax brackets than they would be if the CPI-U were still used for inflation adjustment. One significant result is an increase in federal tax revenue over time. The Joint Committee on Taxation has estimated that the revenue gain from switching to the chained CPI-U will total $134 billion from FY2018 to FY2027. Since the onset of the Great Recession in late 2007, the annual U.S. inflation rate has fluctuated between -0.4% and 3.2%, as measured by the CPI-U. Negative inflation, or deflation, occurred in 2009 relative to 2008. Deflation denotes a decrease in the general price level. As a result, the inflation adjustments in 2010 were very small or nonexistent. Several other federal programs experienced similar situations, even though they do not use the same indexing methodology. For example, there was no cost-of-living adjustment for Social Security benefits in 2010. If the United States were to experience a period of sustained deflation, the income tax elements could decline in constant dollars. By law, however, the elements cannot fall below their base-year values. Since their current values are much higher than their base values, which were established years ago in some cases, and the near-term outlook for inflation is projecting rates below 3%, this limitation is unlikely to come into play anytime soon for most indexed elements. Tax Rate Schedules for the 1988 Through 2019 Tax Years The following tables present the personal exemption amounts, standard deductions, and statutory marginal tax rates schedules for each tax year from 1988 through 2019.

Statutory individual income tax rates are the tax rates that apply by law to various amounts of taxable income. Statutory rates form the basis of marginal effective and average effective tax rates, which most economists believe have a greater impact on the economic behavior of companies and individuals than do statutory rates. Marginal effective rates capture the net effect of special tax provisions on statutory rates. They differ from average effective rates, which measure someone's overall income tax burden. Current statutory and effective individual tax rates are the result of the Tax Reform Act of 1986 (TRA86; P.L. 99-514) and several tax laws that have been enacted since then. Of particular importance among the latter are the Omnibus Budget Reconciliation Act of 1990 (OBRA90; P.L. 101-508), the Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L. 103-66), the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16), the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUC; P.L. 111-312), the American Taxpayer Relief Act of 2012 (ATRA, P.L. 112-240), and the tax rate changes contained in the 2017 tax revision (P.L. 115-97). TRA86 altered the income tax rate structure. EGTRRA established what are referred to as the Bush-era tax cuts for individuals. TRUC extended those cuts for another two years, through 2012. ATRA permanently extended the Bush-era tax rates for taxpayers with taxable incomes below $400,000 for single filers and $450,000 for joint filers but reinstated the 39.6% top rate established by OBRA93 for taxpayers with taxable incomes equal to or above those amounts. And P.L. 115-97 lowered individual tax rates for all income groups except those subject to the 10% and 35% brackets under previous law. Ordinary income is taxed at seven statutory individual income tax rates, from 2018 to 2026: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. (Starting in 2026, these rates will revert to their levels in 2017.) Income from long-term capital gains and dividends is taxed at 0% for single filers with capital gains below $39,375 (below $78,750 for joint filers), 15% for single filers with capital gains between $39,375 and $434,550 (between $78,750 and $488,850 for joint filers), and 20% for single filers with capital gains above $434,550 (above $488,850 for joint filers). Since 2013, a 3.8% tax has been imposed on the lesser of net investment income received by individuals, estates, or trusts, or the amount of their modified adjusted gross incomes above $250,000 for joint filers and $125,000 for single filers. In addition, the individual alternative minimum tax (AMT), which functions like a separate income tax in that its rate structure is narrower and tax base broader than those of the regular income tax, applies to income above exemption amounts in 2019 of $111,700 for joint filers and $71,700 for single filers; the AMT taxes income at two rates: 26% and 28%. Tax rates and the income brackets to which they apply are not the only elements of the individual income tax that determine the tax liabilities of taxpayers. Personal exemptions, exclusions, deductions, credits, and certain other elements have an effect as well. Some of these elements are indexed for inflation. Congress added annual indexation to the individual income tax in 1981, using the Consumer Price Index for All Urban Consumers. Such a mechanism helps prevent tax increases and unintended shifts in the distribution of the tax burden that are driven by inflation alone. The indexed elements are tax rate brackets, personal exemptions and their phaseout threshold, standard deductions, the itemized deduction limitation threshold, and the exemption amounts for the AMT. Starting in 2018, these items are indexed for inflation with the Chained Consumer Price Index for All Urban Consumers. This report summarizes the tax brackets and other key elements of the individual income tax that help determine taxpayers' marginal and average effective tax rates going back to 1988. It will be updated to reflect indexation adjustments and changes in the taxation of individual income.

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Background Chemical attacks have emerged as a prominent homeland security risk because of recent attacks abroad using chemical agents and the interest of ISIS in conducting and inspiring chemical attacks against the West. DHS’s OHA officials have stated that nationwide preparedness for a chemical attack is critical to prevent, protect against, mitigate, respond to, and recover from such an attack because it could occur abruptly, with many victims falling ill quickly, and with a window of opportunity of a few hours to respond effectively. Also, recent incidents in Malaysia and the United Kingdom demonstrate that chemical agents can be used to target individuals and can contaminate other individuals near the attack area. Chemicals that have been used in attacks include chlorine, sarin, and ricin, all of which can have deadly or debilitating consequences for individuals exposed to them; see figure 1. Laws and Presidential Directives Guiding DHS’s Chemical Defense Efforts Various laws guide DHS’s efforts to defend the nation from chemical threats and attacks. For example, under the Homeland Security Act of 2002, as amended, the Secretary of Homeland Security, through the Under Secretary for Science and Technology, has various responsibilities, to include conducting national research and developing, testing, evaluating, and procuring technology and systems for preventing the importation of chemical and other weapons and material; and detecting, preventing, protecting against, and responding to terrorist attacks. Under former Section 550 of the DHS Appropriations Act, 2007, DHS established the CFATS program to, among other things, identify chemical facilities and assess the security risk posed by each, categorize the facilities into risk-based tiers, and inspect the high-risk facilities to ensure compliance with regulatory requirements. DHS’s responsibilities with regard to chemical defense are also guided by various presidential directives promulgated following the September 11, 2001, terror attacks against the United States; see table 1. Our Work on Duplication, Overlap, and Fragmentation of Federal Programs In 2010, Public Law 111-139 included a provision for us to identify and report annually on programs, agencies, offices, and initiatives—either within departments or government-wide—with duplicative goals and activities. In our annual reports to Congress from 2011 through 2018 in fulfillment of this provision, we described areas in which we found evidence of duplication, overlap, and fragmentation among federal programs, including those managed by DHS. To supplement these reports, we developed a guide to identify options to reduce or better manage the negative effects of duplication, overlap, and fragmentation, and evaluate the potential trade-offs and unintended consequences of these options. In this report, we use the following definitions: Duplication occurs when two or more agencies or programs are engaged in the same activities or provide the same services to the same beneficiaries. Overlap occurs when multiple programs have similar goals, engage in similar activities or strategies to achieve those goals, or target similar beneficiaries. Overlap may result from statutory or other limitations beyond the agency’s control. Fragmentation occurs when more than one agency (or more than one organization within an agency) is involved in the same broad area of national interest and opportunities exist to improve service delivery. DHS Has Several Chemical Defense Programs and Activities Intended to Prevent and Protect Against Chemical Attacks DHS manages several programs and activities designed to prevent and protect against domestic chemical attacks. Prior to December 2017, for example, three DHS components—OHA, S&T, and NPPD—had specific programs and activities focused on chemical defense. In December 2017, DHS created the CWMD Office, which, as discussed later in this report, consolidated the majority of OHA and some other DHS programs and activities intended to counter weapons of mass destruction such as chemical weapons. Other DHS components—such as CBP, the Coast Guard, and TSA—have chemical defense programs and activities as part of their broader missions. These components address potential chemical attacks as part of an all-hazards approach to address a wide range of threats and hazards. Appendix I discusses in greater detail DHS’s programs and activities that focus on chemical defense, and appendix II discusses DHS components that have chemical defense responsibilities as part of an all-hazards approach. Table 2 identifies the chemical defense responsibilities of each DHS component, and whether that component has a specific chemical defense program or an all-hazards approach to chemical defense. Figure 2 shows that fiscal year 2017 funding levels for three of the programs that focus on chemical defense totaled $77.3 million. Specifically, about $1.3 million in appropriated funds was available for OHA for its Chemical Defense Program activities and S&T had access to about $6.4 million in appropriated funds for its Chemical Security Analysis Center activities. The CFATS program had access to about $69.6 million in appropriated funds—or 90 percent of the $77.3 million for the three programs—to regulate high-risk facilities that produce, store, or use certain chemicals. OHA officials stated that their efforts regarding weapons of mass destruction over the last few years had focused mostly on biological threats rather than chemical threats. For example, $77.2 million in fiscal year 2017 appropriated funds supported OHA’s BioWatch Program to provide detection and early warning of the intentional release of selected aerosolized biological agents in more than 30 jurisdictions nationwide. By contrast, as stated above, OHA and S&T had access to about $7.7 million in fiscal year 2017 appropriated funds for chemical defense efforts. We could not determine the level of funding for components that treated chemical defense as part of their missions under an all-hazards approach because those components do not have chemical defense funding that can be isolated from funding for their other responsibilities. For example, among other things, CBP identifies and interdicts hazardous chemicals at and between ports of entry as part of its overall mission to protect the United States from threats entering the country. A Chemical Strategy and Implementation Plan Would Enhance DHS Efforts to Integrate and Coordinate Its Chemical Defense Programs and Activities DHS’s chemical defense programs and activities have been fragmented and not well coordinated, but DHS recently created the CWMD Office to, among other things, promote better integration and coordination among these programs and activities. While it is too early to tell the extent to which this new office will enhance this integration and coordination, developing a chemical defense strategy and related implementation plan would further assist DHS’s efforts. DHS’s Efforts to Address Chemical Attacks Have Been Fragmented and Not Well Coordinated DHS’s chemical defense programs and activities have been fragmented and not well coordinated across the department. As listed in table 2 above, we identified nine separate DHS organizational units that have roles and responsibilities that involve conducting some chemical defense programs and activities, either as a direct mission activity or as part of their broader missions under an all-hazards approach. We also found examples of components conducting similar but separate chemical defense activities without DHS-wide direction and coordination. OHA and S&T—two components with specific chemical defense programs—both conducted similar but separate projects to assist local jurisdictions with preparedness. Specifically, from fiscal years 2009 to 2017, OHA’s Chemical Defense Program conducted chemical demonstration projects in five jurisdictions—Baltimore, Maryland; Boise, Idaho; Houston, Texas; New Orleans, Louisiana; and Nassau County, New York—to assist the jurisdictions in enhancing their preparedness for a large-scale chemical terrorist attack. According to OHA officials, they worked with local officials in one jurisdiction to install and test chemical detectors without having department-wide direction on these detectors’ requirements. Also, according to S&T officials, the Chemical and Biological Defense Division worked with three jurisdictions in New York and New Jersey to help them purchase and install chemical detectors for their transit systems beginning in 2016 again without having department-wide direction on chemical detector requirements. The Secret Service, CBP, and the Coast Guard—three components with chemical defense activities that are part of their all-hazards approach—also conducted separate acquisitions of chemical detection or identification equipment, according to officials from those components. For example, according to Secret Service officials, the agency has purchased chemical detectors that agents use for personal protection of protectees and assessing the safety of designated fixed sites and temporary venues. Also, according to CBP officials, CBP has purchased chemical detectors for identifying chemical agents at ports of entry nationwide. Finally, according to Coast Guard officials, the agency has purchased chemical detectors for use in maritime locations subject to Coast Guard jurisdiction. Officials from OHA, S&T, and the CWMD Office acknowledged that chemical defense activities had been fragmented and not well- coordinated. They stated that this fragmentation occurred because DHS had no department-wide leadership and direction for chemical defense activities. We recognize that equipment, such as chemical detectors, may be designed to meet the specific needs of components when they carry out their missions under different operating conditions, such as an enclosed space by CBP or on open waterways by the Coast Guard. Nevertheless, when fragmented programs and activities that are within the same department and are responsible for the same or similar functions are executed without a mechanism to coordinate them, the department may miss opportunities to leverage resources and share information that leads to greater effectiveness. DHS Has Begun to Consolidate Some Chemical Defense Programs and Activities As discussed earlier, DHS has taken action to consolidate some chemical defense programs and activities. Specifically, in December 2017, DHS consolidated some of its chemical, biological, radiological, and nuclear defense programs and activities under the CWMD Office. The CWMD Office consolidated the Domestic Nuclear Detection Office; the majority of OHA; selected elements of the Science and Technology Directorate, such as elements involved in chemical, biological, and integrated terrorism risk assessments and material threat assessments; and certain personnel from the DHS Office of Strategy, Policy, and Plans and the Office of Operations Coordination with expertise on chemical, biological, radiological, and nuclear issues. According to officials from the CWMD Office, the fiscal year 2018 funding for the office is $457 million. Of this funding, OHA contributed about $121.6 million and the Domestic Nuclear Detection Office contributed about $335.4 million. Figure 3 shows the initial organizational structure of the CWMD Office as of June 2018. As of July 2018, according to the Assistant Secretary of CWMD, his office supported by DHS leadership is working to develop and implement its initial structure, plans, processes, and procedures. To guide the initial consolidation, officials representing the CWMD Office said they plan to use the key practices for successful transformations and reorganizations identified in our past work. For example, they noted that they intend to establish integrated strategic goals, consistent with one of these key practices—establish a coherent mission and integrated strategic goals to guide the transformation. These officials stated that the goals include those intended to enhance the nation’s ability to prevent attacks using weapons of mass destruction, including toxic chemical agents; support operational components in closing capability gaps; and invest in and develop innovative technologies to meet technical requirements and improve operations. They noted that the latter might include networked chemical detectors that could be used by various components to help them carry out their mission responsibilities in the future. However, the officials stated that all of the new office’s efforts were in the initial planning stages and none had been finalized. They further stated that the initial setup of the CWMD Office covering the efforts to consolidate OHA and the Domestic Nuclear Detection Office may not be completed until the end of fiscal year 2018. It is still too early to determine the extent to which the creation of the CWMD Office will help address the fragmentation and lack of coordination on chemical defense efforts that we have identified. Our prior work on key steps for assisting mergers and transformations shows that transformation can take years to complete. One factor that could complicate this transformation is that the consolidation of chemical defense programs and activities is limited to certain components within DHS, such as OHA, and not others, such as some parts of S&T and NPPD. Officials from the CWMD Office stated that they intend to address this issue by coordinating the office’s chemical security efforts with other DHS components that are not covered by the consolidation, such as those S&T functions that are responsible for developing chemical detector requirements. These officials also stated that they intend to address fragmentation by coordinating with and supporting DHS components that have chemical defense responsibilities as part of their missions under an all-hazards approach, such as the Federal Protective Service, CBP, TSA, the Coast Guard, and the Secret Service. Furthermore, the officials stated that they plan to coordinate DHS’s chemical defense efforts with other government agencies having chemical programs and activities at the federal and local levels. DHS’s Prior Efforts and Recent Reorganization Offer an Opportunity for More Strategic Coordination In October 2011, the Secretary of Homeland Security designated FEMA to coordinate the development of a strategy and implementation plan to enhance federal, state, local, tribal and territorial government agencies’ ability to respond to and recover from a catastrophic chemical attack. In November 2012, DHS issued a chemical response and recovery strategy that examined core capabilities and identified areas where improvements were needed. The strategy identified a need for, among other things, (1) a common set of catastrophic chemical attack planning assumptions, (2) a formally established DHS oversight body responsible for chemical incident response and recovery, (3) a more rapid way to identify the wide range of chemical agents and contaminants that comprise chemical threats, and (4) reserve capacity for mass casualty medical care. The strategy also identified the principal actions needed to fill these gaps. For example, with regard to identifying the range of chemical agents and contaminants that comprise chemical threats, the strategy focused on the capacity to screen, search for, and detect chemical hazards (and noted that this area was cross-cutting with prevention and protection). The strategy stated that, among other things, the Centers for Disease Control and Prevention, the Department of Agriculture and Food and Drug Administration, the Department of Defense, the Environmental Protection Agency, and DHS components, including the Coast Guard, provide screening, search, and detection capabilities. However, the strategy noted that “DHS does not have the requirement to test, verify, and validate commercial-off-the-shelf (COTS) chemical detection equipment purchased and fielded by its various constituent agencies and components, nor by the first responder community.” According to a November 2012 memorandum transmitting the response and recovery strategy to DHS employees, the distribution of the strategy was only to be used for internal discussion purposes and was not to be distributed outside of DHS because it had not been vetted by other federal agencies and state, local, tribal, and territorial partners. The memorandum and the strategy further stated that DHS was developing a companion strategy focused on improving the national capacity to prevent, protect against, and mitigate catastrophic chemical threats and attacks and noted that once this document was complete, DHS would engage with its partners to solicit comments and feedback. The strategy also stated that DHS intended to develop a separate implementation plan that would define potential solutions for any gaps identified, program any needed budget initiatives, and discuss programs to enhance DHS’s core capabilities and close any gaps. DHS officials representing OHA and S&T told us that DHS had intended to move forward with the companion strategy and the accompanying implementation plan but the strategy and plan were never completed because of changes in leadership and other competing priorities within DHS. At the time of our discussion and prior to the establishment of the CWMD Office, OHA officials also noted that DHS did not have a singular entity or office responsible for chemical preparedness. An official representing S&T also said that the consolidation of some chemical, biological, radiological, and nuclear efforts may help bring order to chemical defense efforts because DHS did not have an entity in charge of these efforts or a strategy for guiding them. Now that DHS has established the CWMD Office as the focal point for chemical, biological, radiological, and nuclear programs and activities, DHS has an opportunity to develop a chemical defense strategy and related implementation plan to better integrate and coordinate the department’s programs and activities to prevent, protect against, mitigate, respond to, and recover from a chemical attack. The Government Performance and Results Act of 1993 (GPRA), as updated by the GPRA Modernization Act of 2010 (GPRAMA), includes principles for agencies to focus on the performance and results of programs by putting elements of a strategy and plan in place such as (1) establishing measurable goals and related measures, (2) developing strategies and plans for achieving results, and (3) identifying the resources that will be required to achieve the goals. Although GPRAMA applies to the department or agency level, in our prior work we have reported that these provisions can serve as leading practices for strategic planning at lower levels within federal agencies, such as planning for individual divisions, programs, or initiatives. Our past work has also shown that a strategy is a starting point and basic underpinning to better manage federal programs and activities such as DHS’s chemical defense efforts. A strategy can serve as a basis for guiding operations and can help policy makers, including congressional decision makers and agency officials, make decisions about programs and activities. It can also be useful in providing accountability and guiding resource and policy decisions, particularly in relation to issues that are national in scope and cross agency jurisdictions, such as chemical defense. When multiple agencies are working to address aspects of the same problem, there is a risk that duplication, overlap, and fragmentation among programs can result in wasting scarce funds, confuse and frustrate program customers, and limit overall program effectiveness. A strategy and implementation plan for DHS’ chemical defense programs and activities would help mitigate these risks. Specifically, a strategy and implementation plan would help DHS further define its chemical defense capability, including opportunities to leverage resources and capabilities and provide a roadmap for addressing any identified gaps. By defining DHS’s chemical defense capability, a strategy and implementation plan may also better position the CWMD Office and other components to work collaboratively and strategically with other organizations, including other federal agencies and state, local, tribal, and territorial jurisdictions. Officials from the CWMD Office agreed that the establishment of the new office was intended to provide leadership to and help guide, support, integrate, and coordinate DHS’s chemical defense efforts and that a strategy and implementation plan could help DHS better integrate and coordinate its fragmented chemical defense programs and activities. Conclusions Recent chemical attacks abroad and the threat of ISIS to use chemical weapons against the West have sparked concerns about the potential for chemical attacks occurring in the United States. DHS components have developed and implemented a number of separate chemical defense programs and activities that, according to DHS officials, have been fragmented and not well coordinated within the department. In December 2017, DHS consolidated some of its programs and activities related to weapons of mass destruction, including those related to chemical defense, by establishing the new CWMD Office. It is too early to tell whether and to what extent this office will help address fragmentation and the lack of coordination across all DHS’s weapons of mass destruction efforts, including chemical efforts. However, as part of its consolidation, the CWMD Office would benefit from developing a strategy and implementation plan to guide, support, integrate, and coordinate DHS’s programs and activities to prevent, protect against, mitigate, respond to, and recover from a chemical attack. A strategy and implementation plan would also help the CWMD Office guide DHS’s efforts to address fragmentation and coordination issues and would be consistent with the office’s aim to establish a coherent mission and integrated strategic goals. Recommendation for Executive Action The Assistant Secretary for Countering Weapons of Mass Destruction should develop a strategy and implementation plan to help the Department of Homeland Security, among other things, guide, support, integrate and coordinate its chemical defense programs and activities; leverage resources and capabilities; and provide a roadmap for addressing any identified gaps. (Recommendation 1) Agency Comments and GAO Evaluation We provided a draft of this report to DHS for review and comment. DHS provided comments, which are reproduced in full in appendix III and technical comments, which we incorporated as appropriate. DHS concurred with our recommendation and noted that the Assistant Secretary for CWMD will coordinate with the DHS Under Secretary for Strategy, Policy, and Plans and other stakeholders to develop a strategy and implementation plan that will better integrate and direct DHS chemical defense programs and activities. DHS estimated that it will complete this effort by September 2019. These actions, if fully implemented, should address the intent of this recommendation. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Homeland Security, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (404) 679-1875 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Department of Homeland Security Chemical Defense Programs At the time our review began, the Department of Homeland Security (DHS) had three headquarters components with programs and activities focused on chemical defense. These were the Office of Health Affairs’ (OHA) Chemical Defense Program; the Science and Technology Directorate’s (S&T) Chemical and Biological Defense Division and Chemical Security Analysis Center (CSAC); and the National Protection and Programs Directorate’s (NPPD) Chemical Facility Anti-Terrorism Standards (CFATS) program and Sector Outreach and Programs Division. Each component had dedicated funding to manage the particular chemical defense program or activity (with the exception of the Sector Outreach and Programs Division because this division funds DHS activities related to all critical infrastructure sectors, including the chemical sector). On December 7, 2017, DHS established the Countering Weapons of Mass Destruction (CWMD) Office, which incorporated most of OHA and selected elements of S&T, together with other DHS programs and activities related to countering chemical, biological, radiological, and nuclear threats. According to DHS, the CWMD Office was created to, among other things, elevate and streamline DHS’s efforts to prevent terrorists and other national security threat actors from using harmful agents, such as chemical agents, to harm Americans and U.S. interests. Office of Health Affairs, Chemical Defense Program OHA, which was subsumed by the CWMD Office in December 2017, was responsible for enhancing federal, state, and local risk awareness and planning and response mechanisms in the event of a chemical incident through the Chemical Defense Program. This program provided medical and technical expertise to OHA leadership and chemical defense stakeholders including DHS leadership, DHS components, the intelligence community, federal interagency partners, and professional and academic preparedness organizations. The program’s efforts focused on optimizing local preparedness and response to chemical incidents that exceed the local communities’ capacity and capability to act during the first critical hours by providing guidance and tools for first responders and supporting chemical exercises for preparedness. DHS’s Chief Medical Officer was responsible for managing OHA. The Chemical Defense Program expended about $8.3 million between fiscal years 2009 and 2017 in chemical demonstration projects and follow-on funding to assist five jurisdictions in their chemical preparedness: Baltimore, Maryland; Boise, Idaho; Houston, Texas; New Orleans, Louisiana; and Nassau County, New York. For example, in Baltimore, OHA assisted the Maryland Transit Administration with the selection and installation of chemical detection equipment to integrate new technology into community emergency response and planning. In the other four locales, OHA assisted these partners in conducting multiple scenarios specific to each city based on high-risk factors identified by the Chemical Terrorism Risk Assessment (CTRA), which is a risk assessment produced by CSAC every 2 years. Such scenarios included indoor and outdoor scenarios in which persons were “exposed” to either an inhalant or a substance on their skin. Figure 4 summarizes the scenarios conducted in each city and some of the lessons learned. According to OHA summary documentation, a key finding from this work was that timely decisions and actions save lives and manage resources in response to a chemical incident. Since the completion of the five-city project, OHA has been working to, among other things, continue to develop a lessons learned document based on the project, as well as a related concept of operations, that state and local jurisdictions could use to respond to chemical incidents. As of December 7, 2017, OHA was consolidated into the CWMD Office and its functions transferred to the new office, according to officials from the CWMD Office. The Chief Medical Officer is no longer responsible for managing OHA but serves as an advisor to the Assistant Secretary for Countering Weapons of Mass Destruction and as the principal advisor to the Secretary and the Administrator of FEMA on medical and public health issues related to natural disasters, acts of terrorism, and other man-made disasters, among other things. Science and Technology Directorate, Chemical Defense Activities S&T’s Homeland Security Advanced Research Projects Agency includes the Chemical and Biological Defense Division, which supports state and local jurisdictions by, for example, providing them help in modeling potential chemical attacks. The Chemical and Biological Defense Division worked with the City of New York to develop chemical detection modeling by simulating a chemical attack. As a result of the simulation, New York City officials wanted to implement mechanisms to prevent the potential consequences of a chemical attack in a large city. S&T’s Office of National Laboratories includes the CSAC, which identifies and characterizes the chemical threat against the nation through analysis and scientific assessment. CSAC is responsible for producing, among other things, the CTRA, a comprehensive evaluation of the risks associated with domestic toxic chemical releases produced every 2 years. CSAC officials chair the Interagency Chemical Risk Assessment Working Group that meets to develop the CTRA, identify chemical hazards, and produce a list of priority chemicals. This working group is comprised of DHS components, federal partners, and private industry officials that share industry information to ensure accurate and timely threat and risk information is included in the CTRA. To complement the CTRA, CSAC developed a standalone CTRA desktop tool that DHS components can use to conduct risk-based modeling of a potential chemical attack and provide results to DHS components, such as the U.S. Secret Service, for advance planning of large-scale events. In addition, CSAC conducts tailored risk assessments addressing emerging threats such as fentanyl, a synthetic opioid that has caused numerous deaths across the United States. CSAC sends these assessments, along with other intelligence and threat information, to relevant DHS components, federal agencies, state and local partners, and private entities so this information can be used in planning and decision making. Officials from eight DHS components we spoke with said they use CSAC information in their work and that CSAC products are useful. CSAC conducted two exercises, known as Jack Rabbit I and II, to experimentally characterize the effects of a large-scale chemical release and to understand the reason for the differences seen between real-world events and modeling predictions. These exercises were intended to strengthen industry standards in chemical transportation, as well as response and recovery plans. Outputs and data from these exercises have been used to write first responder guidelines for these types of events and are being taught in nationwide fire and hazmat courses. The fiscal year 2018 President’s Budget request did not ask for an appropriation to fund CSAC. However, the Consolidated Appropriations Act, 2018, did provide funding for CSAC. Furthermore, in May 2018, the Secretary delegated responsibility for conducting the non-research and development functions related to the Chemical Terrorism Risk Assessment to the CWMD Office. National Protection and Programs Directorate, Chemical Facility Anti- Terrorism Standards (CFATS) Program and Other Chemical Facility Security Activities The CFATS program uses a multitiered risk assessment process to determine a facility’s risk profile by requiring facilities in possession of specific quantities of designated chemicals of interest to complete an online questionnaire. CFATS program officials said they also use CSAC data as part of the process for making decisions about which facilities should be covered by CFATS, and their level of risk. If CFATS officials make a determination that a facility is high-risk, the facility must submit a vulnerability assessment and a site security plan or an alternative security program for DHS approval that includes security measures to meet risk- based performance standards. We previously reported on various aspects of the CFATS program and identified challenges that DHS was experiencing in implementing and managing the program. We made a number of recommendations to strengthen the program to include, among other things, that DHS verify that certain data reported by facilities is accurate, enhance its risk assessment approach to incorporate all elements of risk, conduct a peer review of the program to validate and verify DHS’s risk assessment approach, and document processes and procedures for managing compliance with site security plans. DHS agreed with all of these recommendations and has either fully implemented them or taken action to address them. The Sector Outreach and Programs Division works to enhance the security and resilience of chemical facilities that may or may not be considered high-risk under the CFATS program and plays a nonregulatory role as the sector-specific agency for the chemical sector. The Sector Outreach and Programs Division works with the chemical sector through the Chemical Sector Coordinating Council, the Chemical Government Coordinating Council, and others in a public-private partnership to share information on facility security and resilience. In addition, the division and the coordinating councils help enhance the security and resilience of chemical facilities that may or may not be considered high-risk under the CFATS program. The division and councils are to collaborate with federal agencies, chemical facilities, and state, local, tribal, and territorial entities to, among other things, assess risks and share information on chemical threats and chemical facility security and resilience. Further, the Protective Security Coordination Division in the Office of Infrastructure Protection works with facility owners and operators to conduct voluntary assessments at facilities. Appendix II: Department of Homeland Security Components’ Chemical Defense Responsibilities as Part of an All-Hazards Approach Department of Homeland Security (DHS) components conduct various prevention and protection activities related to chemical defense. These activities are managed by individual components as part of their overall mission under an all-hazards approach. U.S. Coast Guard - The Coast Guard uses fixed and portable chemical detectors to identify and interdict hazardous chemicals as part of its maritime prevention and protection activities. It also responds to hazardous material and chemical releases in U.S. waterways. The Coast Guard also staffs the 24-hour National Response Center, which is the national point of contact for reporting all oil and hazardous materials releases into the water, including chemicals that are discharged into the environment. The National Response Center also takes maritime reports of suspicious activity and security breaches at facilities regulated by the Maritime Transportation Security Act of 2002. Under this act, the Coast Guard regulates security at certain chemical facilities and other facilities possessing hazardous materials. U.S. Customs and Border Protection (CBP) - CBP interdicts hazardous chemicals at U.S. borders and ports of entry as part of its overall mission to protect the United States from threats entering the country. Among other things, CBP has deployed chemical detectors to point of entry nationwide that were intended for narcotics detection, but can also be used by CBP officers to presumptively identify a limited number of chemicals. Also, CBP’s National Targeting Center helps to screen and identify high-risk packages that may contain hazardous materials at ports of entry. In addition, CBP’s Laboratories and Scientific Services Directorate manages seven nationally accredited field laboratories, where staff detect, analyze, and identify hazardous substances, including those that could be weapons of mass destruction. When CBP officers send suspected chemical weapons, narcotics, and other hazardous materials to the labs, the labs use various confirmatory analysis technologies, such as infrared spectroscopy and mass spectrometry, to positively identify them. Also, the Directorate has a 24-hour Teleforensic Center for on-call scientific support for CBP officers who have questions on suspected chemical agents. Federal Emergency Management Agency (FEMA) - FEMA provides preparedness grants to state and local governments for any type of all-hazards preparedness activity, including chemical preparedness. According to FEMA data, in fiscal year 2016, states used about $3.5 million, local municipalities used about $48.5 million, and tribal and territorial municipalities used about $80,000 in preparedness grant funding for chemical defense including prevention and protection activities, as well as mitigation, response, and recovery efforts related to a chemical attack. Office of Intelligence and Analysis (I&A) - I&A gathers intelligence information on all homeland security threats including chemical threats. Such threat information is compiled and disseminated to relevant DHS components and federal agencies. For example, I&A works with CSAC to provide intelligence information for the CTRA and writes the threat portion of that assessment. I&A also receives information from CSAC on high-risk gaps in intelligence to help better inform chemical defense intelligence reporting. Also, the Under Secretary of I&A serves as the Vice-Chair of the Counterterrorism Advisory Board. This board is responsible for coordinating, facilitating, and sharing information regarding DHS’s activities related to mitigating current, emerging, perceived, or possible terrorist threats, including chemical threats; and providing timely and accurate advice and recommendations to the Secretary and Deputy Secretary of Homeland Security on counterterrorism issues. NPPD’s Federal Protective Service (FPS) - FPS secures federally- owned and leased space in various facilities across the country. Federal facilities are assigned a facility security level determination ranging from a Level 1 (low risk) to a Level 5 (high risk). As part of its responsibility, FPS is to conduct Facility Security Assessments of the buildings and properties it protects that cover all types of hazards including a chemical release, in accordance with Interagency Security Committee standards and guidelines. FPS is to conduct these assessments at least once every 5 years for Level 1 and 2 facilities, and at least once every 3 years for Level 3, 4, and 5 facilities. FPS conducts the assessments using a Modified Infrastructure Survey Tool. Transportation Security Administration (TSA) - TSA efforts to address the threat of chemical terrorism have been focused on the commercial transportation of bulk quantities of hazardous materials and testing related to the release of commercially transported chemicals that could be used as weapons of mass destruction. TSA’s activities with respect to hazardous materials transportation aim to reduce the vulnerability of shipments of certain hazardous materials through the voluntary implementation of operational practices by motor carriers and railroads, and ensure a secure transfer of custody of hazardous materials to and from rail cars at chemical facilities. Also, in May 2003, TSA began requiring that all commercial motor vehicle operators licensed to transport hazardous materials, including toxic chemicals, must successfully complete a comprehensive background check conducted by TSA. According to TSA documents, approximately 1.5 million of the nation’s estimated 6 million commercial drivers have successfully completed the vetting process. Additionally, TSA has also recently partnered with five mass transit and passenger rail venues, together with other DHS components such as DHS’s Science and Technology Directorate and the U.S. Secret Service, to test chemical detection technologies for such venues. In addition, TSA is responsible for the Transportation Sector Security Risk Assessment, which examines the potential threat, vulnerabilities, and consequences of a terrorist attack involving the nation’s transportation systems. This assessment’s risk calculations for several hundred specific risk scenarios, including chemical weapons attacks, are based on the elements of threat, vulnerability and consequence using a combination of subject matter expert judgments and modeling results. U.S. Secret Service - The Secret Service is responsible for protecting its protectees and designated fixed sites and temporary venues from all threats and hazards, including chemical threats. For example, the Secret Service conducts security assessments of sites, which may involve chemical detection, and coordinates with other agencies for preparedness or response to threats and hazard incidents. In addition, the Secret Service has a Hazardous Agent Mitigation Medical Emergency Response team, dedicated to responding to numerous hazards, including chemical threats and incidents. Appendix III: Comments from the Department of Homeland Security Appendix IV: GAO Contacts and Staff Acknowledgements GAO Contacts Staff Acknowledgements In addition to the contact named above, John Mortin (Assistant Director), Juan Tapia-Videla (Analyst-in-Charge), Michelle Fejfar, Ashley Grant, Imoni Hampton, Eric Hauswirth, Tom Lombardi, Sasan J. “Jon” Najmi, Claire Peachey, and Kay Vyas made key contributions to this report.

Recent chemical attacks abroad and the threat of using chemical weapons against the West by the Islamic State of Iraq and Syria (ISIS) have raised concerns about the potential for chemical attacks occurring in the United States. DHS's chemical defense responsibilities include, among others, managing and coordinating federal efforts to prevent and protect against domestic chemical attacks. GAO was asked to examine DHS's chemical defense programs and activities. This report examines (1) DHS programs and activities to prevent and protect against domestic chemical attacks and (2) the extent to which DHS has integrated and coordinated all of its chemical defense programs and activities. GAO reviewed documentation and interviewed officials from relevant DHS offices and components and reviewed DHS strategy and planning documents and federal laws and directives related to chemical defense. The Department of Homeland Security (DHS) manages several programs and activities designed to prevent and protect against domestic attacks using chemical agents (see figure). Some DHS components have programs that focus on chemical defense, such as the Science and Technology Directorate's (S&T) chemical hazard characterization. Others have chemical defense responsibilities as part of their broader missions, such as U.S. Customs and Border Protection (CBP), which interdicts chemical agents at the border. DHS recently consolidated some chemical defense programs and activities into a new Countering Weapons of Mass Destruction (CWMD) Office. However, GAO found and DHS officials acknowledged that DHS has not fully integrated and coordinated its chemical defense programs and activities. Several components—including CBP, U.S. Coast Guard, the Office of Health Affairs, and S&T—have conducted similar activities, such as acquiring chemical detectors or assisting local jurisdictions with preparedness, separately, without DHS-wide direction and coordination. As components carry out chemical defense activities to meet mission needs, there is a risk that DHS may miss an opportunity to leverage resources and share information that could lead to greater effectiveness addressing chemical threats. It is too early to tell the extent to which the new CWMD Office will enhance the integration of DHS's chemical defense programs and activities. Given the breadth of DHS's chemical defense responsibilities, a strategy and implementation plan would help the CWMD Office (1) mitigate the risk of fragmentation among DHS programs and activities, and (2) establish goals and identify resources to achieve these goals, consistent with the Government Performance and Results Modernization Act of 2010. This would also be consistent with a 2012 DHS effort, since abandoned, to develop a strategy and implementation plan for all chemical defense activities, from prevention to recovery. DHS officials stated the 2012 effort was not completed because of leadership changes and competing priorities.

GAO_GAO-18-99

Background NNSA’s strategic materials programs include a broad range of activities. The programs often include (1) building unique new facilities, (2) modifying and repairing existing facilities and equipment, and (3) developing and deploying new technologies for processing and producing strategic nuclear materials. The programs may involve multiple NNSA and DOE sites and multiple facilities at a given site. For example, since the days of the Manhattan Project, a large portion of the nation’s uranium mission has been executed at the Y-12 National Security Complex in Oak Ridge, Tennessee, with uranium production and associated operations housed in several nuclear facilities within the complex. These facilities are in some cases more than 60 years old. NNSA’s uranium program is coordinating efforts to build the UPF, invest in the infrastructure of existing facilities to extend their lives, and develop and deploy several new technologies that are expected to increase the efficiency and effectiveness of uranium processing. Collectively, these uranium program activities may take more than 2 decades to implement and cost several billion dollars. NNSA’s 2017 future-years nuclear security program estimate projected that NNSA would need about $1.4 billion in fiscal year 2018 to carry out its annual activities associated with the management of these strategic materials programs (see table 1). NNSA documents indicate that the agency expects to spend about $7.7 billion over the next 5 years on activities related to managing its strategic materials. This spending, which would represent about 12 percent of the approximately $63 billion NNSA expects to spend on all weapons activities over this same time period, includes: $4.8 billion for costs related to construction of facilities and other capital equipment purchases that will be used to support the strategic materials mission; and $2.9 billion for program costs related to general activities such as reducing risk and ensuring sufficient supply, as well as the consolidation, disposition, tracking, and accounting of nuclear materials. Program managers are an important part of the federal government’s workforce. They interact with the managers of individual projects to provide support and guidance on those projects but also must take a broad view of the overall objectives of programs and an agency’s organizational culture. According to leading practices outlined by the Project Management Institute, organizations develop program plans, capture and understand stakeholder needs, and establish processes for maintaining program management oversight, among other activities. Recognizing the importance of improving program management, in December 2016 the President signed the ‘‘Program Management Improvement Accountability Act” that required the Office of Management and Budget to, among other things, adopt and oversee implementation of government-wide standards, policies, and guidelines for program and project management for executive agencies and assess the quality and effectiveness of program management for these agencies. We have previously reported on DOE’s and NNSA’s program management challenges. In March 2009, we found that NNSA and the Department of Defense (DOD) established unrealistic schedules, did not establish consistent cost baselines, and did not effectively manage technical risks in some of their nuclear weapon life extension programs. These problems resulted in delays, additional expenditures, difficulties tracking the cost of the programs, and difficulties in meeting all of NNSA’s and DOD’s technical objectives. We recommended that NNSA develop and use consistent budget assumptions and criteria for the baseline to track costs over time, among other actions. NNSA agreed with our recommendations and made changes to its cost estimating procedures. In November 2014, we found that the lack of requirements for programs meant that DOE could not ensure that it was developing fully credible cost estimates for programs. We recommended that DOE revise its program management directives to require that programs develop life-cycle cost estimates in accordance with our 12 cost-estimating best practice steps. DOE agreed with our recommendation but has not yet incorporated the best practice steps into its program management directives. In February 2016, we found that the B61-12 life extension program, the most complex such program NNSA has undertaken to date, faces ongoing management challenges in some areas, including staff shortfalls and an earned value management system that has yet to be tested. We did not make any recommendations but reiterated previous recommendations such as those already mentioned. In November 2016, we found that DOE and NNSA had not established organization-wide policies or practices addressing leading practices related to program management, and we recommended that DOE do so. DOE did not agree or disagree with this recommendation. NNSA, however, in late 2016 instituted a training program for program management. NNSA’s stockpile stewardship program has established strategic materials as one of the major elements to sustain the nation’s nuclear weapons stockpile. According to NNSA budget documents, the strategic materials programs help ensure the sustainment of nuclear material processing capabilities and fund the stabilization, consolidation, disposition, tracking, and accounting of nuclear materials. Strategic materials are generally not available, or are available only in limited quantities, from commercial suppliers because of their specific properties and use in nuclear weapons or for other national security purposes. NNSA named strategic material program managers in 2014 and 2015 to integrate, oversee, plan, and execute material strategies for uranium (including domestic uranium enrichment), plutonium, and tritium. In addition to the general program management challenges highlighted above, we have also reported previously on challenges facing NNSA’s strategic materials programs: In July 2015, we found that NNSA had identified various challenges in its lithium production strategy that may impact its ability to meet demand for lithium in the future. These challenges included insufficient supply of lithium material and constraints facing NNSA’s efforts to replace the aging lithium production facility. We recommended that NNSA objectively consider all alternatives, without preference for a particular solution, as it proceeds with its analysis of alternatives process. NNSA neither agreed nor disagreed with our recommendation but did undertake a formal analysis of alternatives in 2017, according to NNSA officials. In August 2016, we found that NNSA had not documented important requirements for its plutonium program at Los Alamos National Laboratory in New Mexico. We recommended that, among other things, NNSA should update its program requirements. NNSA outlined actions taken and planned to address this recommendation. NNSA Has Defined Strategic Materials Program Requirements, Including Roles and Responsibilities for Program Managers NNSA’s Office of Defense Programs has set program requirements for the strategic materials programs and has established the roles and responsibilities of the programs’ managers. NNSA defined these program requirements in two documents issued in 2016 and 2017. Collectively these documents set documentation requirements as well as established the roles and responsibilities of the strategic materials program managers. According to NNSA officials, these requirements apply to each of the programs, including the lithium program. These requirements are outlined below. Program Execution Instruction (2016) – In January 2016, NNSA approved a Program Execution Instruction that defines requirements for carrying out NNSA defense programs, such as the strategic materials programs. This instruction outlines a series of requirements that vary based on the categorization—and therefore the rigor—of management applied to a program. Of the four categories outlined in the instruction—Standard Management, Enhanced Management A, Enhanced Management B, and Capital Acquisition Management—NNSA has generally designated the strategic materials programs as “Enhanced Management B,” the most rigorous designation applicable to this type of program, according to NNSA officials. The “Enhanced Management B” programs are required to have the following elements documented: a program plan, a work breakdown structure that details the work elements necessary to organize the total work scope with cost estimates, a decision analysis, an integrated master schedule that includes the entire scope of work required for the program’s successful execution, a performance management approach, and a lessons learned/best practices review. According to the instruction, if the scope, cost, and schedule of a program are more complex, moving to a more rigorous program management category is often required. According to the instruction, when enhanced complexity and risk are associated with a program, among other things, “Enhanced Management B” is the appropriate designation. The instruction also allows for programs to “tailor,” or modify, the application of certain requirements depending on risk and other factors. Program Management Policy for Weapons and Strategic Materials Programs (2017) – NNSA issued a program management policy in January 2017 that defines general roles and responsibilities for all four strategic materials program managers. This policy broadly outlines the managers’ authority and responsibilities for managing the strategic materials; these responsibilities include developing program documentation and managing risk. According to NNSA officials we interviewed, the policy is based on NNSA’s experience in implementing the uranium program in 2014. The policy requires each of the strategic materials programs to develop a number of guidance documents, including a mission strategy, mission requirements, and a technology development plan. For each program, the policy also requires the formation of a strategic materials mission working group that is comprised of the key stakeholders involved in the program. NNSA Officials Reported Progress in Meeting Strategic Materials Program Requirements but Challenges from Staffing Shortages NNSA officials told us that they are making progress in implementing the program requirements outlined for each of the strategic materials programs, although some are further along than others. However, these officials said that relatively few staff had been assigned to these programs, which has challenged implementation efforts. Progress Reported in Implementing Program Requirements For its two strategic materials programs established in 2014—uranium and domestic uranium enrichment—NNSA officials told us that they are generally meeting the strategic materials program management requirements outlined in the Program Execution Instruction and the Program Management Policy for Weapons and Strategic Materials. NNSA officials identified documents for each program, including mission strategy, mission requirements, program plan, and work breakdown structure. For the other programs, according to agency officials, NNSA is still working to meet these requirements, though the tritium program met all requirements during the course of this review. More specifically, according to agency officials: The plutonium sustainment program has met some of the Program Execution Instruction requirements to date, including having in place a program plan, work breakdown structure, and decision analysis, but not an integrated master schedule (although one is being developed, according to agency officials). The plutonium program also has a mission strategy in place, as called for by the Program Management Policy for Weapons and Strategic Materials, but has not yet met the other strategic materials program management requirements. According to agency officials, those requirements are being developed. The tritium sustainment program has recently met the Program Execution Instruction requirements as well, including having a program plan, work breakdown structure, integrated master schedule, and performance management approach in place. Additionally, the program recently updated documentation to meet the Program Management Policy requirements including revising its Strategic Material Mission Working Group in 2017, according to agency officials. The lithium program is early in its development, and no program manager has been appointed yet, pending senior NNSA leadership decisions. NNSA has a lithium mission strategy, a mission requirements matrix, and a technology development plan in place, as required by the Program Management Policy for Weapons and Strategic Materials, but the rest of the strategic materials program management requirements are still in the process of being developed, according to agency officials. NNSA officials said that even though the lithium program is not subject to the same requirements, they intend for it to meet all of the same requirements as the other strategic materials programs. Staffing Challenges Reported Officials from the Office of Defense Programs, including the strategic materials program managers themselves, said that a shortage of staff has presented a challenge in terms of implementing the requirements of the strategic materials programs and meeting their missions. According to NNSA officials, all of the strategic materials programs have been assigned relatively few federal staff to implement the programs. The officials also said that while they plan to have all five strategic materials programs fully meet the requirements and operate as cohesive programs, the lack of staff has hampered their efforts to do so. For example, the plutonium manager said more staff were needed to successfully implement the program, and the lithium lead point of contact said that at least two full-time staff members would be required to accomplish the work needed to make the lithium program meet program requirements. Specifically, according to agency officials as of October 2017, in addition to contractor support: the uranium program had the program manager and two federal staff assigned; the domestic uranium enrichment program had the program manager and one federal staff assigned; the plutonium program had the program manager and one federal staff member; the tritium program had the program manager and no dedicated staff, relying instead on staff in other programs such as a federal program manager from a different program who acts as staff for this program; and the lithium program had the lead point of contact and no dedicated staff, although a contracted senior technical advisor provides some support. NNSA officials cited competing agency priorities and current perceived staffing limits as the primary impediments to assigning more staff to these programs. First, according to agency officials, the relative newness of the strategic materials programs and competing agency priorities to modernize the nuclear weapons infrastructure and modernize and extend the lives of current nuclear weapons have meant that federal staff are in high demand across the agency. This concern is consistent with issues we have identified in our past work as well. For example, in April 2017, we noted NNSA’s ambitious, costly, decades-long effort to modernize the nation’s nuclear security enterprise. In addition to ongoing and planned infrastructure modernization, some of which is associated with the strategic materials programs, this modernization includes four ongoing expensive weapons refurbishments and efforts to improve the agency’s research, development, testing, and evaluation capabilities by, for example, continuing efforts in advanced modeling, simulation, and computing. Similarly, we found in September 2016 that the competing agency priorities for infrastructure modernization and weapons refurbishments had negatively affected another NNSA program: the Enhanced Surveillance Program. Second, NNSA officials said that they have limited flexibility when it comes to increasing federal staff levels. Specifically, in each year that the total number of federal employees at NNSA exceeds 1,690, the Administrator is required by law to submit to the congressional defense committees a report justifying such excess. In the NNSA Administrator’s testimony before the Senate Appropriations Subcommittee on Energy and Water Development in June 2017, he stated that since 2010, NNSA’s program funding had increased 28 percent, while its federal staffing levels had decreased by 17 percent. He said that initial results from a yet-to-be- completed study by the Office of Personnel Management in support of the Reform of Government Initiative indicate the need for a 20 percent increase in federal staff at NNSA. We have also previously reported that staffing shortages have affected NNSA’s efforts to improve management capability. For example, we reported in October 2014 that NNSA determined that inadequate levels of federal staff had contributed to management problems with the UPF project. As a result, NNSA increased staffing levels for the UPF project office from 9 full-time equivalents in 2012 to more than 50 as of January 2014. According to NNSA officials, the additional staff enabled NNSA to conduct more robust oversight of the contractor’s design efforts than was previously possible. Similarly, in 2016, we found that the B61-12 life extension program, the most costly and complex such program undertaken to date, successfully requested that NNSA enlarge its program office staff from 3 to 8 full-time equivalent staff to provide more management capability. However, we found that even with this increase in federal staff, some NNSA and DOD officials said that they believe that NNSA needs two to three times more personnel in the federal program manager’s office to ensure sufficient federal management and oversight. One area that we noted in this review is that with regard to the strategic materials programs, NNSA has not conducted a workforce needs assessment. Strategic materials program officials acknowledged that they had neither specifically assessed the number or skills of staff needed to manage the strategic materials programs, nor did they have current plans to do such an assessment. Our prior work on strategic human capital management has identified certain activities or practices that can help an agency strategically manage its human capital. These activities include determining the critical skills and competencies that will be needed to achieve the programs’ missions and developing strategies to address gaps in the number, deployment, and alignment of staff needed. NNSA officials said that individual offices have attempted over time to assess resource and skill needs but that these efforts have been hampered by, among other things, a lack of staff. By determining the critical skills and competencies needed to achieve each strategic material program’s mission and using this determination to develop strategies to address any gaps in the number, deployment, and alignment of staff needed, NNSA may find it has better information to justify increased staffing levels for its strategic materials programs. Conclusions Since 2014, NNSA has taken steps to establish programs to maintain and modernize the nation’s nuclear weapons stockpile, including appointing federal program managers for four of the five strategic materials programs, as well as steps to establish and organize the programs according to internal program management requirements. This is a significant step given the importance, cost, and complexity of these strategic materials programs. However, NNSA has made varying progress implementing these strategic materials programs, in part because these programs may not have been allotted staff and management capacity commensurate with their cost and scope of work. Although strategic materials program officials acknowledged staffing limitations, they have not determined the critical skills and competencies that will be needed to meet program requirements and, ultimately, achieve the programs’ missions. By determining the critical skills and competencies needed to achieve each strategic materials programs’ missions and using that determination to develop strategies to address any gaps in the number, deployment, and alignment of staff needed, NNSA may find it has more information to justify increased staffing levels for its strategic materials programs. Recommendation for Executive Action The NNSA Administrator should determine the critical skills and competencies that will be needed for the strategic materials programs and use this determination to develop strategies for addressing challenges, if any, related to the number, deployment, and alignment of program staff (Recommendation 1). Agency Comments We provided a draft of this report to DOE and NNSA for their review and comment. NNSA provided written comments, which are reproduced in full in appendix II, as well as technical comments, which we incorporated in our report as appropriate. In its comments, NNSA agreed with our recommendation and stated that the recommendation is consistent with the programs’ current evolution. NNSA further stated that it recognizes the need to define the range of skills and competencies necessary to execute the programs' critical missions and that it plans to identify the complete set of core competencies needed for these programs by December 31, 2018. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, the Administrator of the National Nuclear Security Administration, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Strategic Nuclear Materials Managed by the National Nuclear Security Administration (NNSA) Appendix I: Strategic Nuclear Materials Managed by the National Nuclear Security Administration (NNSA) NNSA has established programs for ensuring the supply of each of the following strategic materials as well as the capability to process them: Uranium – National security needs for uranium are met using a large existing inventory of previously enriched uranium. Although NNSA has estimated that stocks are sufficient for projected needs, existing uranium needs to be purified, machined, and recovered from existing operations. The Y-12 National Security Complex in Oak Ridge, Tennessee, is the NNSA site for conducting enriched uranium activities, producing uranium-related components for nuclear warheads and bombs, and processing feedstock for nuclear fuel for the U.S. Navy. In 2004, NNSA decided to construct a new Uranium Processing Facility (UPF) that consolidated the functions of four separate uranium facilities into a single building. In 2014, NNSA, on the advice of a peer review team, decided to pursue a uranium program that includes a smaller UPF and, among other program elements, modifications to existing uranium buildings and capabilities to include several new uranium processing technologies. Construction on the UPF continues at the Y-12 site, and NNSA continues to request funds for that project. Fiscal year 2018 funds are to be used for construction of some related subprojects. According to NNSA officials, the UPF is expected to be complete by 2025 and cost no more than $6.5 billion. NNSA estimates that additional investments needed to upgrade existing uranium facilities will cost about $20 million per year for the next 20 years. Domestic Uranium Enrichment – To produce tritium, the Tennessee Valley Authority (TVA) must use unobligated uranium in certain nuclear reactors, under an interagency agreement between Department of Energy (DOE) and TVA. The United States has not had a sustained uranium enrichment capability since the 2013 closure of the Paducah Gaseous Diffusion Plant, which was originally constructed in 1952. In 2014, NNSA created the domestic uranium enrichment program manager position with responsibility to sustain the agency’s supply of low-enriched uranium for tritium production. We currently have ongoing work reviewing the program’s plan to ensure supply through 2060. NNSA estimated that over the next 5 years alone, these activities will likely cost more than $400 million. Plutonium – A set of aging facilities at Los Alamos National Laboratory provides the backbone of NNSA’s plutonium work, such as certifying the safety of existing nuclear weapons’ plutonium pits and producing new pits to extend the life of nuclear weapons in the stockpile. NNSA conducts plutonium analysis in the Chemistry and Metallurgy Research facility, which was built in the 1950s, but NNSA plans to cease programmatic operations in this facility by 2019 because of its aging infrastructure and because it sits on a seismic fault line. NNSA produces pits and conducts pit surveillance in the 38- year-old high-hazard, high-security Plutonium Facility 4 at Los Alamos. Other important plutonium activities, such as NNSA’s plutonium disposition efforts and the processing of plutonium used to provide heat sources for space missions, are not included in the plutonium manager’s portfolio because other program offices are responsible for these activities, according to NNSA officials. Officials said that these program offices coordinate capability and facility needs with the plutonium program manager. In August 2014, DOE cancelled plans to construct the nuclear facility that was part of the overall Chemistry and Metallurgy Research Replacement (CMRR), which was approved in 2005 to replace the aging Chemistry and Metallurgy Research facility. In its place, DOE approved the implementation of the first part of NNSA’s new plutonium strategy: the revised CMRR project, which includes a subproject to remove contaminated equipment no longer in use in Plutonium Facility 4, install new plutonium analysis equipment, and modify an existing building to handle higher quantities of plutonium. NNSA estimated that the CMRR project would cost from $2.4 billion to $2.9 billion and be completed by 2024. In addition, in November 2015, DOE approved the mission need for the implementation of the second part of the strategy: building modular nuclear facilities to add high- hazard, high-security laboratory space at Los Alamos (the Plutonium Modular Approach) to meet plutonium pit production requirements. NNSA estimated that the Plutonium Modular Approach could cost from $1.3 billion to $3.0 billion and be completed by the end of 2027. Tritium – NNSA has relied on tritium produced many years ago; recycling and recovery of existing tritium is currently the source of most of the tritium in the stockpile, according to NNSA officials. However, tritium decays relatively rapidly, and in 2015 NNSA identified a need to produce additional tritium. To produce tritium, lithium target rods—called tritium-producing burnable absorber rods— are irradiated in TVA’s reactors. The irradiated rods are transported to DOE’s Tritium Extraction Facility at the Savannah River Site in South Carolina, where they are processed in a specialized facility to extract and then prepare the tritium for nuclear warheads. NNSA requested $9.8 million in design funds in fiscal year 2018 for construction of a new tritium production capability. In its fiscal year 2018 budget request, NNSA estimated that this facility would cost about $425 million and be approved for operations in 2027. Lithium – Lithium is a key component of nuclear weapons and is essential for their refurbishment. NNSA has a sufficient supply of enriched lithium-6 (the isotope used in refurbishments and for tritium production), but that lithium is stored in another form and must undergo complex processing before it can be used for these purposes. NNSA halted certain aspects of its lithium processing operation—conducted at its Y-12 site in Oak Ridge, Tennessee—in May 2013 due to the condition of the site’s 72-year-old lithium production facility. Currently, NNSA is relying on a less complex but also less efficient process that results in a loss of approximately 50 percent of material. In 2013, NNSA developed a lithium production strategy that proposed a new lithium production facility, which the agency estimated would cost more than $500 million. NNSA plans to request $30.4 million in fiscal year 2019 for construction of this facility. This strategy includes sustaining current infrastructure and deploying new technologies to sustain lithium production. Appendix II: Comments from the National Nuclear Security Administration Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact above, Jonathan Gill (Assistant Director), Alisa Beyninson, Antoinette Capaccio, Jeff Larson, Cynthia Norris, and Kiki Theodoropoulos made key contributions to this report. Related GAO Products Modernizing the Nuclear Security Enterprise: A Complete Scope of Work Is Needed to Develop Timely Cost and Schedule Information for the Uranium Program. GAO-17-577. Washington, D.C.: September 8, 2017. Program Management: DOE Needs to Develop a Comprehensive Policy and Training Program. GAO-17-51. Washington, D.C.: November 21, 2016. DOE Project Management: NNSA Needs to Clarify Requirements for Its Plutonium Analysis Project at Los Alamos. GAO-16-585. Washington, D.C.: August 9, 2016. Modernizing the Nuclear Security Enterprise: NNSA’s Budget Estimates Increased but May Not Align with All Anticipated Costs. GAO-16-290. Washington, D.C.: March 4, 2016. Modernizing the Nuclear Security Enterprise: NNSA Increased Its Budget Estimates, but Estimates for Key Stockpile and Infrastructure Programs Need Improvement. GAO-15-499. Washington, D.C.: August 6, 2015. DOE Project Management: NNSA Should Ensure Equal Consideration of Alternatives for Lithium Production. GAO-15-525. Washington, D.C.: July 13, 2015. DOE and NNSA Project Management: Analysis of Alternatives Could Be Improved by Incorporating Best Practices. GAO-15-37. Washington, D.C.: December 11, 2014. Project and Program Management: DOE Needs to Revise Requirements and Guidance for Cost Estimating and Related Reviews. GAO-15-29. Washington, D.C.: November 25, 2014. Nuclear Weapons: Some Actions Have Been Taken to Address Challenges with the Uranium Processing Facility Design. GAO-15-126. Washington, D.C.: October 10, 2014. Nuclear Weapons: Technology Development Efforts for the Uranium Processing Facility. GAO-14-295. Washington, D.C.: April 18, 2014. Plutonium Disposition Program: DOE Needs to Analyze the Root Causes of Cost Increases and Develop Better Cost Estimates. GAO-14-231. Washington, D.C.: February 13, 2014. Nuclear Weapons: Information on Safety Concerns with the Uranium Processing Facility. GAO-14-79R. Washington, D.C.: October 25, 2013. Nuclear Weapons: Factors Leading to Cost Increases with the Uranium Processing Facility. GAO-13-686R. Washington, D.C.: July 12, 2013. Nuclear Weapons: National Nuclear Security Administration’s Plans for Its Uranium Processing Facility Should Better Reflect Funding Estimates and Technology Readiness. GAO-11-103. Washington, D.C.: November 19, 2010.

NNSA is responsible for ensuring a sustainable supply of strategic materials critical to the nation's nuclear security missions, as well as the capability to process these materials. NNSA estimates that strategic materials management activities will cost about $7.7 billion over the next 5 years. The House Report accompanying H.R. 4909, a bill for the National Defense Authorization Act for Fiscal Year 2017, included a provision for GAO to review NNSA's management of its strategic materials programs. This report examines (1) the extent to which NNSA has, for these programs, defined requirements, including program manager roles and responsibilities, and (2) the progress of NNSA's implementation of those program requirements. GAO reviewed NNSA program management policies and documents related to its strategic materials program manager positions and interviewed NNSA officials and program managers. The Department of Energy's (DOE) National Nuclear Security Administration (NNSA) manages strategic materials programs for uranium, plutonium, tritium, and lithium—materials that are critical to national security. NNSA has set program requirements that each of the programs must follow and has established the roles and responsibilities of the program managers. NNSA has defined these requirements in two documents: Program Execution Instruction (2016). Outlines requirements for program management documents, such as a program plan, cost and schedule estimates, and an integrated master schedule that includes the entire scope of work for successful execution. Program Management Policy (2017). Outlines the program managers' authority and requirements for managing the strategic materials programs, such as managing risk, and requires each program to develop documents, such as a mission strategy and technology development plan. NNSA officials reported that the agency is making progress implementing the requirements outlined for each of the strategic materials programs, although some of the programs are farther along than others. For example: The uranium and domestic uranium enrichment programs established in 2014 are the furthest along and have developed the documents needed to meet strategic program requirements. The plutonium program has met some of the requirements, such as developing a program plan, work breakdown structure, and decision analysis, but does not yet have an integrated master schedule. The tritium program met the requirements during the course of GAO's review. The lithium program, which is the newest, has made the least amount of progress and to date has developed only a mission strategy, a mission requirements matrix, and a technology development plan. According to NNSA officials, shortage of staff assigned to the strategic materials programs has been the primary reason hampering progress in implementing the program requirements. For example, a lithium program manager has not yet been assigned, and all the other programs have identified the need for additional staff beyond the one or two staff currently assigned to each. According to officials, competing agency priorities and perceived staffing limits are the primary impediments to assigning more staff to these programs. However, GAO also found that NNSA has not determined the critical skills and competencies needed for these programs. GAO's prior work has identified certain activities or practices that can help an agency strategically manage its human capital. These activities include determining the critical skills and competencies that will be needed to achieve the program's mission and developing strategies to address gaps in the number, deployment, and alignment of staff needed. By determining the critical skills and competencies needed for the strategic materials programs and using this determination to develop strategies to address any gaps in the number, deployment, and alignment of program staff, NNSA may have the information it needs to better justify increased staffing levels for the programs.

GAO_GAO-19-155

Background Air Force RPA Aircrews RPA aircrews consist of a pilot and a sensor operator. The Air Force in most cases assigns officers to fly its RPAs. The Air Force relied solely on manned aircraft pilots to fly remotely piloted aircraft until 2010 when it established a RPA pilot career field (designated as Air Force Specialty Code 18X) for officers trained to fly only RPAs. As of December 2013, approximately 42 percent of the RPA pilots were temporarily assigned, manned aircraft pilots and manned aircraft pilot training graduates. Both of those groups of RPA pilots are temporarily assigned to fly RPAs with the assumption that after their tour they will return to flying their manned aircraft. By comparison, as of September 2018, manned aircraft pilots and manned aircraft pilot training graduates comprised only 17 percent of the RPA pilots. Further, the number of permanent RPA pilots has increased from 58 percent of all RPA pilots in December 2013, to 83 percent as of September 2018, as shown in figure 1. Additionally, Air Force enlisted personnel operate the RPAs’ sensors, which provide intelligence, surveillance, and reconnaissance capabilities. As a crewmember, the RPA sensor operators provide assistance to the RPA pilot with all aspects of aircraft use, such as tracking and monitoring airborne, maritime and ground objects and continuously monitoring the aircraft and weapons systems status. Officer Promotion Process The Defense Officer Personnel Management Act, as amended, created a standardized system for managing the promotions for the officer corps of each of the military services. Pursuant to the established promotion system, the secretaries of the military departments must establish the maximum number of officers in each competitive category that may be recommended for promotion by competitive promotion boards. Within the Air Force, there are groups of officers with similar education, training, or experience, and these officers compete among themselves for promotion opportunities. There are several competitive categories including one that contains the bulk of Air Force officers called the Line of the Air Force, which includes RPA pilots, as well as pilots of manned aircraft and other operations-oriented careers. To determine the best-qualified officers for promotion to positions of increased responsibility and authority, the Air Force appoints senior officers to serve as members of a promotion selection board for each competitive category of officer in the Air Force. Promotion selection boards consist of at least five active-duty officers who are senior in grade to the eligible officers and who reflect the eligible population with respect to minorities and women, as well as career field, aviation skills, and command in an attempt to provide a balanced perspective. Promotion boards convene at the Air Force Personnel Center headquarters to perform a subjective assessment of each officer’s relative potential to serve in the next higher grade by reviewing the officer’s entire selection folder. This “whole-person concept” involves the assessment of such factors as job performance, professional qualities, leadership, job responsibility, depth and breadth of experience, specific achievements, and academic and professional military education. Developmental Education Program Selection Process The Air Force developmental education programs expand expertise and knowledge as well as a path that helps to ensure that personnel receive the appropriate level of education throughout their careers. Officers have three opportunities to compete for intermediate developmental education programs, which focus on warfighting within the context of operations and leader development, such as at the Air Command and Staff College. Officers have four opportunities to compete for senior developmental education programs, such as at the Air War College, which are designed to educate senior officers to lead at the strategic level in support of national security, and in joint interagency, intergovernmental and multinational environments. A subset of developmental education is Professional Military Education, which includes resident and non-resident attendance options open to officers in both the intermediate and senior developmental education programs. Nonresident programs exist to provide individuals who have not completed resident programs an opportunity to complete them via correspondence, seminar, or other approved methods. Prior to 2017, officers who were identified by their promotion board as a developmental education candidate or “selectee” were assured of the opportunity to attend some form of developmental education in-resident program. However, in March 2017, the Air Force announced changes to its nomination process for officer developmental education by separating in- residence school selection status from promotion decisions. Since that time, commanders nominate candidates for in-residence, developmental education programs based on individual performance. Various Career Assignments for Officers with Aviation Expertise Officers with aviation expertise, including RPA pilots, at various points in their careers, may rotate through both flying and nonflying positions to broaden their career experiences. Operational positions, whether flying or nonflying, include those positions that exist primarily for conducting a military action or carrying out a strategic, tactical, service, training or administrative military mission. Operational positions include a range of flying positions, such as for RPA pilots, operating aircraft to gather intelligence or conduct surveillance, reconnaissance or air strikes against a variety of targets. Operational positions that are non-flying positions could include assignments as a close-air-support duty officer in an Air Operations Center. Non-operational staff positions are generally non-flying positions and include assignments to headquarters or combatant command positions. Certain non-operational staff positions can be filled only by qualified pilots. Other non-operational positions are more general in nature and are divided among officer communities to help carry out support activities, training functions, and other noncombat related activities in a military service. These positions could include positions such as a recruiter, working as an accident investigator, advisor to foreign militaries, or a policy position at an Air Force major command. The Air Force views nonoperational staff positions as a means to develop leaders with the breadth and depth of experience required at the most senior levels inside and outside the Air Force. Roles and Responsibilities Related to Aircrew Management Various offices within the Air Force have roles and responsibilities for the management of aircrew positions and personnel. The Deputy Chief of Staff for Operations is to establish and oversee policy to organize, train and equip forces for the Department of the Air Force. This specifically includes the responsibility for all matters pertaining to aircrew management. The Directorate of Operations is responsible for developing and overseeing the implementation of policy and guidance governing aircrew training, readiness, and aircrew requirements. The directorate is the approval authority for aircrew distribution plans, rated allocation oversight and any other areas that have significant aircrew management implications. The Operational Training Division produces the official Air Force aircrew personnel requirements projections, and in conjunction with the Military Force Policy Division, develops and publishes the Rated Management Directive, formerly known as the Rated Staff Allocation Plan, as approved by the Chief of Staff of the Air Force as designed to meet near-term operational as well as long-term leadership development requirements. The Office of the Deputy Chief of Staff for Manpower, Personnel, and Services has responsibilities that include developing personnel policies, guidance, programs, and other initiatives to meet the Air Force’s strategic objectives to include accessions, assignments, retention, and career development. The Directorate of Force Management Policy, the Force Management Division analyzes officer, enlisted and civilian personnel issues. The division also maintains a variety of computer models and databases to analyze promotion, retention, accession, compensation and separation policy alternatives. Additionally, it is responsible for providing official aircrew personnel projections for use in various management analyses. The Air Force Personnel Center, one of three field-operating agencies reporting to the Deputy Chief of Staff of the Air Force, Manpower, Personnel and Services, conducts military and civilian personnel operations such as overseeing performance evaluations, promotions, retirements, separations, awards, decorations and education. The Center also directs the overall management and distribution of both military and civilian personnel. Since 2013 RPA Pilots Have Been Promoted and Nominated for Education Opportunities at Rates Generally Similar to Pilots in Other Fields RPA Pilots Have Been Promoted at Rates Generally Similar to Those of Pilots in Other Career Fields Based on our analysis of Air Force promotion data, the percentage of RPA pilots promoted were generally similar in comparison to the promotion rates of pilots in other career fields since 2013. However, it is important to note that since the population of eligible RPA pilots to be considered for promotion was smaller than other pilot populations, the promotion of one or two RPA pilots could have a large effect on their promotion rate. For example, the RPA pilot promotion rates were within 10 percentage points of the promotion rates for the other types of pilots in each year of those years in 8 out of 10 promotion boards to major and to lieutenant colonel held during that time frame. RPA pilot promotion rates from captain to major were generally similar as the promotion rates for other pilots from 2014 through 2017, as shown in figure 2. For example, in 2014, 94 percent of eligible RPA pilots (29 of 31), bomber pilots (47 of 50), fighter pilots (189 of 201) and 91 percent of eligible mobility pilots (355 of 388) were promoted from captain to major. This is an improvement in promotion rates for RPA pilots compared to 2006 through 2012, where RPA pilot promotion rates fell below those for all other pilots in 5 of the 7 promotion boards held. Additionally, the promotion rates for RPA pilots from major to lieutenant colonel relative to other types of pilots in 2013 through 2017 showed a similar improvement compared to 2006 through 2012, as shown in figure 3. For example, in 2017, 75 percent of eligible RPA pilots (15 of 20) were promoted, which is generally similar to the promotion rates for the other pilots—78 percent for bomber pilots (18 of 23), 83 percent for fighter pilots (75 of 90), and 72 percent for mobility pilots (143 of 199). However, in 7 of the 8 promotion boards held from 2006 through 2012, RPA pilot promotion rates from major to lieutenant colonel fell below the promotion rates for all other pilots. The one exception to the promotion rates being generally similar was the rate at which RPA pilots were promoted from lieutenant colonel to colonel. In this case, the rates for RPA pilots diverged notably from the promotion rates of bomber, fighter, and mobility pilots from 2013 to 2017. For example, in 2016, 1 out of the 5 (20 percent) eligible RPA pilots was promoted to colonel. In contrast, 13 of 21 (62 percent), bomber pilots, 32 of 51 (63 percent) fighter pilots, and 34 of 65 (52 percent) mobility pilots were promoted from lieutenant colonel to colonel. However, the promotion rates of RPA pilots from lieutenant colonel to colonel that we calculated should be considered cautiously as fewer than 10 RPA pilots were eligible for promotion boards each year through this time period. The promotion of one or two officers could have a large effect on the promotion rate due to the small number of eligible RPA pilots. In April 2014, we reported that Air Force officials attributed the low RPA pilot promotion rates from 2006 through 2012 generally to the process that it used to staff RPA pilot positions at that time. Specifically, they stated that commanders generally transferred less competitive pilots from other pilot career fields to RPA squadrons to address the increased demand. Air Force officials also stated that these officers generally had in their records fewer of the factors that the Air Force Personnel Center identified that positively influence promotions than their peers. They said that because the bulk of RPA pilots who competed for promotion during the time of our previous review was transferred using this process, these were the reasons that RPA pilots had been promoted at lower rates than their peers. Air Force officials stated that they believed the trend of increased promotion rates for RPA pilots from 2013 through 2017 mostly reflected the change in the population of eligible pilots who were recruited and specialized as an RPA pilot (i.e., the 18X career field). According to Air Force officials, the creation and establishment of this career field resulted in an increase in the number of skilled and more competitive promotion candidates. Specifically, as of September 2018, the number of permanent RPA pilots outnumbered all other types of pilots serving as RPA pilots combined. RPA Pilots Have Been Nominated to Developmental Education Programs at Rates Similar to Pilots in Other Career Fields RPA pilots were nominated to attend developmental education programs, such as professional military education, at rates similar to the rates for other pilots from academic years 2014 through 2018, according to our analysis of Air Force data. An officer’s attendance at developmental education programs can be a factor that is taken into consideration when being assessed for promotion. Our analysis showed that, for the academic years 2014 through 2018, nomination rates for RPA pilots to Intermediate and Senior Developmental Education programs combined ranged from a low of 25 percent for academic year 2016 to a high of 31 percent for academic year 2015. In comparison, nomination rates across the same time period for pilots in other career fields ranged from a low of 21 percent for mobility pilots for academic year 2016 to a high of 35 percent for fighter pilots for academic year 2014. Table 1 provides the various nomination rates for each of the different types of pilots that we analyzed. RPA Sensor Operators Have Been Promoted at Rates Similar to Other Enlisted Servicemembers The Air Force promoted enlisted RPA sensor operators at a rate similar to the rates of all enlisted servicemembers, according to our analysis of Air Force promotion data. Specifically, the Air Force promoted an average of 100 RPA sensor operators (or an average of 26 percent) annually for the period from 2013 through 2017. Similarly, the Air Force annually promoted an average of approximately 27,000 enlisted personnel (or an average of 25 percent) for the same period. Our analysis showed that in 2013 through 2017, promotion rates for RPA sensor operators ranged from a low of 18 percent in 2014 to a high of almost 35 percent in 2017. The promotion rates across the same time period for all other enlisted servicemembers ranged from a low of approximately 19 percent in 2014 to a high of 32 percent in 2017. Table 2 provides the various promotion rates that we analyzed. Air Force enlisted servicemembers in the lowest four levels (grades E1- E4) are selected for promotion based on time in grade and time in service. Selection for promotion to the next two levels, known as the non- commissioned officer levels (grades E5 and E6), is based on the Weighted Airman Promotion System to fill the requirement. This system provides weighted points for an individual’s performance record and service decorations received, and the results of tests to assess an individual’s promotion fitness and job skills and knowledge. Selection for promotion to the senior non-commissioned officer level (grades E7-E9) is based on the same Weighted Airman Promotion System plus the results from a central board evaluation. Servicemembers eligible for promotions to the non-commissioned ranks are assessed and then listed from the highest to lowest scores and offered promotion if they fall above a specific cutoff score established to meet quotas within each career field and for each rank. While enlisted servicemembers must pass knowledge and skills tests to qualify for promotions, officials explained that the resulting promotion rates essentially reflect requirements and are not indicative of competitiveness across career fields as with officer promotion rates. Officials stated that enlisted servicemember promotions are based on the service’s numeric personnel requirements for each enlisted grade. To consider an enlisted servicemember for promotion from among those who are eligible, a vacancy must first be required at the next higher grade within that servicemember’s occupational area, known as their Air Force Specialty Code that needs to be filled. For example, in 2017, the Air Force required promotions for 128 RPA sensor operators, and officials promoted that many enlisted servicemembers from the cohort of 370 eligible servicemembers. Air Force Assigned Non-operational Staff Positions Requiring RPA Pilots at High Rates Since 2013 For each year since 2013, the Air Force has assigned over 75 percent of the non-operational staff positions that require an RPA pilot to the organizations that had requested those positions, according to our analysis of service headquarters data. However, the overall number of non-operational staff positions that require an RPA pilot is about one- tenth of the number of those requiring pilots in other career fields. For example, in fiscal year 2018 the Air Force had 83 non-operational staff positions that required an RPA pilot compared to 330 positions requiring fighter pilots. Air Force officials stated that the number of RPA positions was smaller than for other pilots because the career field is relatively new and still growing. Non-operational staff positions are generally non-flying positions and include assignments to headquarters or combatant command positions. Certain non-operational staff positions can be filled only by qualified pilots. Other non-operational positions are more general in nature and are divided among officer communities in a military service. Officers with aviation expertise, including RPA pilots, at various points in their careers may rotate through both flying and nonflying positions to broaden their career experiences and Air Force officials stated that staff assignments are essential to the development of officers who will assume greater leadership responsibilities. Headquarters Air Force prepares allocation or “assignment” plans to provide positions requiring aviator expertise to various Air Force commands and other entities. Under this process, these organizations identify the number of non-operational staff positions requiring aviator expertise (e.g., pilots) they require as well as indicate the type of aviator expertise that is needed to fill those positions, (e.g., fighter, bomber, RPA). Headquarters Air Force then determines the extent to which the staff position requirements can be met in accordance with senior leadership priorities designed to equitably manage the shortage of officers with aviation expertise. The results of this process are outlined in the Air Force’s annual Rated Management Directive which reinforces each organization’s flexibility for using their entitlements in non- operational staff and other positions. In some instances, the Air Force is able to assign enough positions to an organization to meet nearly all of its non-operational staff position requirements. For the purposes of our analyses, the assignment rate is determined by the number of positions assigned compared to the number of positions the organization required. For example, in fiscal year 2018 the Air Force assigned 99 percent of the non-operational staff positions that require an RPA pilot to the requesting entities. In other instances, the Air Force assignment rate of non-operational staff positions may be much lower because of competing management priorities or shortages of personnel in a career field. As a result, the Air Force’s assignment of staff positions can vary across the different career fields. For example, the Air Force fighter pilot career field has had fewer fighter pilots than its authorization number since 2013. Therefore, the Air Force assignment rate for staff positions requiring fighter pilots is significantly lower than the rate for staff positions requiring other types of pilots. For example, in fiscal year 2017, the Air Force assignment rate for staff positions requiring a fighter pilot was 18 percent, which was less than a quarter of the rate for staff positions requiring an RPA pilot, as shown in table 3. The Air Force Has Not Reviewed Its Oversight Process to Manage Its Non- operational Staff Positions That Require Aviator Expertise The Air Force has not reviewed its oversight process to ensure that it is effectively and efficiently managing its review of non-operational staff positions that require aviator expertise, such as RPA pilots. Air Force officials explained that its oversight process for managing these positions requiring pilot expertise consists of a time-consuming, labor-intensive process of exchanging emails and spreadsheets with 57 organizations, such as various Air Force Major commands like the Air Combat Command, the Air Force Special Operations Command, and the National Guard Bureau. According to these officials, this process consists of the maintenance and exchange of spreadsheets and briefing slides with information about every position found throughout the Air Force and in various other entities that are required to be reviewed and validated annually. Additionally, this process is maintained by one official within the Headquarters Air Force who must exchange the spreadsheets via email approximately twice a year with officials from each of the organizations that are responsible for annually justifying their continued need for non- operational staff positions requiring aviator expertise. Air Force officials stated that this process does not always produce complete and accurate information in a timely manner as in some instances the information produced is not relevant by the time a complete review of the positions is accomplished. Headquarters Air Force officials familiar with its oversight responsibilities stated that using a different system would more efficiently and effectively support their ability to manipulate, analyze and share information among the applicable organizations and make informed decisions. For example, these officials explained that over the last 10 years, the Air Force drew down the number of squadrons, but did not do a good job of cross checking that reduced number of squadrons with a revised number of staff positions required for support. Therefore, the number of non- operational staff positions was not adjusted and are now artificially high in some career fields and others may have fewer non-operational staff positions than needed. These officials added that as the new RPA pilot career field has developed, there has been no timely and widely accessible system of checks and balances to establish an accurate number of non-operational staff positions required to support the career field. Further, they said that using a different system that allows them to have more timely and quality information would enhance their ability to manage and make decisions regarding the appropriate mix of expensive pilots and others with aviator expertise between operational line positions and non-operational staff position needs. They said this would better ensure that there is a reasonable range of non-operational staff positions required for each career field, such as for the growing RPA pilot career field. An October 2017 memorandum from the Air Force Chief of Staff stated that the number of non-operational staff positions which require aviation expertise must be brought into balance with the Air Force’s ability to produce the appropriate number of officers with aviator expertise. The memorandum also stated that organizations were strongly encouraged to change their current requirements to meet the available current force levels including converting chronically unfilled non-operational staff positions requiring aviator expertise to positions specifically designated for RPA pilots. As a result of two separate reviews, Air Force officials identified hundreds of these positions that lacked adequate justification or qualifications to support the positions’ requirement to be filled by officers with aviator expertise. For example, in August 2018, out of 2,783 non- operational staff positions, the Air Force found that 513 of these positions were evaluated as lacking adequate justification or mission qualifications to support the need for aviator expertise and 61 positions were eliminated after further review. Prior to 2010, according to officials, the Headquarters Air Force maintained a web-based management oversight system to review and approve the justifications for its non-operational staff positions requiring aviator expertise that allowed for wide access to and manipulation and timely analyses of information. Additionally, this former system provided multilevel coordination among Headquarters Air Force and its major commands for reviewing the justifications of all of the positions. According to Headquarters Air Force officials, the use of this management oversight system was discontinued in 2010 due to a decision to no longer fund the contractor maintaining the system. In October 2018, officials from one of the Air Force’s Major Commands confirmed that the current oversight system in use is time-consuming, does not readily support information analysis and that plans to integrate it with another existing management system had not happened. The Headquarters Air Force official in charge of managing this process told us that he had submitted multiple requests over the last 3 years to integrate the information being managed with spreadsheets and emails into an existing personnel management system to improve the efficiency of the process. However, according to this official, higher priorities and funding issues have precluded the information from being integrated into another existing system. In September, 2018, another Air Force official told us that the Program Management Office that manages a system into which the information could be integrated was behind schedule in implementing several other system updates. Because of these delays, the official acknowledged that no review has yet been done of what is needed to provide the most efficient management oversight process of the information currently being managed via the spreadsheet process. The official said that before any actions could take place, a review of requirements and priorities would be needed in order to make a determination as to what changes could be made. Therefore, he said that there are no decisions or timelines available for reviewing a process that would provide the validation information for non-operational staff positions in a timelier and widely accessible manner. Air Force instructions state that major commands are required to perform annual aircrew requirements reviews including review and revalidation of all aircrew positions, except for rank of colonel or higher, to ensure aviator expertise is required, and report the results to the Headquarters Air Force Operations Training Division. Further, the Headquarters Air Force Operations Training Division has the responsibility to ensure a management process is in place to provide efficient and effective oversight of the major commands’ annual review and revalidation of the aircrew position requirements process. Additionally, Standards for Internal Control in the Federal Government states that management should identify needed information, obtain the relevant information from reliable sources in a timely manner, and process the information into quality data to make informed decisions and evaluate its performance in achieving key objectives and addressing risks. By reviewing its oversight process, the Air Force may be able to identify a more efficient manner to manage its non-operational staff positions that require aviator expertise. A management oversight process that provides timely and widely accessible position justification information may help ensure that the proper type of aviator expertise needed in these positions is up to date. In turn, this could result in a more efficient use of the Air Force’s short supply of expensive pilot resources, particularly fighter pilots, and could potentially improve its ability to assign and develop effective leaders, such as those within the growing RPA career field. Conclusions The Air Force continues to expand the use of RPAs in its varied missions of intelligence gathering, surveillance and reconnaissance, and combat operations. While the overall number of eligible RPA pilots is much smaller compared to other pilots, over the last 5 years RPA pilots have achieved promotions and nominations to attend developmental education programs at rates that were generally similar in comparison to pilots in other career fields. Additionally, non-operational staff positions requiring RPA pilots have been assigned to entities at high rates since 2013, but the number of positions available to them is smaller than the number that require fighter, bomber, and mobility pilots because the career field is still growing. Air Force officials have noted problems with the current oversight process which may be hindering its ability to efficiently and effectively manage these non-operational staff positions as required by Air Force policy. For example, the Air Force has recently identified that a large number of these positions designated as requiring officers with aviator expertise lacked adequate justification for that requirement. By reviewing the efficiency and effectiveness of its management oversight process that provides information in a timelier and more widely accessible manner, the Air Force could better ensure that it makes informed decisions regarding the need for pilots in certain non-operational staff positions and is in compliance with policy. It also could help ensure that the Air Force more efficiently uses its short supply of expensive pilot resources. Ultimately, this may positively affect its ability to assign and develop effective leaders, such as those within the growing RPA career field. Recommendation for Executive Action The Secretary of the Air Force should review its management oversight process that provides information and documents the justifications of the Air Force’s non-operational staff positions requiring aviator expertise, including RPA positions, to identify opportunities for increased efficiency and effectiveness and take any necessary actions. (Recommendation 1) Agency Comments and Our Evaluation In written comments reproduced in appendix II, DOD concurred with comments to the recommendation, and provided separate technical comments, which we incorporated as appropriate. DOD concurred with the recommendation to review the management oversight process that provides information and documents the justifications of the Air Force’s non-operational staff positions requiring aviator expertise, including RPA positions, to identify opportunities for increased efficiency and effectiveness and to take any necessary actions. In its comments, DOD stated that it agrees the current oversight process is time-consuming and could be more efficient. However, it believes this process is effective because the Air Force was able to validate the need for having pilots fill a majority of its non-operational staff positions during a recent congressionally-mandated review of these positions. As we reported, this review of all staff positions requiring aviator expertise across the Air Force and other defense entities discovered more than 500 of approximately 2,800 positions that were initially found to be lacking adequate justifications, and 61 positions eventually were eliminated. We believe the Air Force’s results from this one-time review is an example of how the current process is not consistently yielding up-to-date validations of positions. Further, DOD also stated that while a move to automating the process again has been considered, current funding shortfalls prevent the Air Force from establishing an automated system to increase the process’s efficiency. We continue to believe that the Air Force should review its current process in order to identify any viable means to increase its efficiency and effectiveness. Such a review may provide the Air Force with opportunities to more consistently provide the proper type of aviator expertise needed to fill its staff positions as well as potentially provide more leadership opportunities to those within growing career fields, such as RPA pilots. We provided a draft of this report to DOD for review and comment. We are sending copies of this report to the appropriate congressional committees, the Acting Secretary of Defense, and the Secretary of the Air Force. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-3604 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. Appendix I: Steps Taken by the Department of Defense and the Air Force to Address Prior GAO Report Recommendations Since 2014, we have issued three reports assessing the Air Force’s remotely piloted aircraft (RPA) workforce management. In April 2014, we found that the Air Force had shortages of pilots of remotely piloted aircraft (RPA) and faced challenges to recruit, develop, and retain pilots and build their morale. We also found that Air Force RPA pilots experienced potentially challenging working conditions and were promoted at lower rates than other career fields. We made seven recommendations, and the Air Force generally concurred with our recommendations. It has fully implemented all but one recommendation to analyze the career field effect of being an RPA pilot to determine whether and how being an RPA pilot is related to promotions. In May 2015, we found that the Air Force faced challenges ensuring that their RPA pilots completed their required training and that the Office of the Deputy Assistant Secretary of Defense for Readiness had not issued a training strategy that addresses if and how the services should coordinate with one another to share information on training pilots who operate unmanned aerial systems. We made one recommendation related to these findings with which DOD concurred. However, in September 2018, an official from the Office of Secretary of Defense for Readiness stated that there are compelling reasons why a training strategy is no longer necessary and that no action is planned to implement the recommendation. In January 2017, we found, among other things, that the Air Force had not fully tailored a strategy to address the UAS pilot shortage and evaluated their workforce mix of military, federal civilian, and private- sector contractor personnel to determine the extent to which these personnel sources could be used to fly UAS. We made five recommendations related to these findings with which the Air Force and DOD generally concurred. As of July 2018, the Air Force has taken some action to address the first three recommendations and officials from the Office of the Under Secretary of Defense for Personnel and Readiness have fully implemented the other two recommendations. In table 4, we present the recommendations that we made to the Air Force and the Under Secretary of Defense for Personnel and Readiness and summarize the actions taken to address those recommendations as of September 2018. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Lori Atkinson (Assistant Director), Rebecca Beale, Amie Lesser, Felicia Lopez, Grant Mallie, Ricardo Marquez, Richard Powelson, Amber Sinclair, and John Van Schaik made key contributions to this report.

An increasing number of Air Force missions use unmanned aerial systems, or RPAs, to provide their specialized capabilities in support of combat operations. The demand for crew members for these systems has grown rapidly. For example, RPA pilot requirements increased by 76 percent since fiscal year 2013 while those for fighter pilots stayed about the same. These requirements include pilots who serve in non-operational staff positions, such as trainers. Senate Report 115-125 included a provision that GAO review career advancement for Air Force RPA pilots compared to other pilots. This report, among other things, describes (1) the rates that RPA and other pilots were promoted; (2) the rates that non-operational staff positions requiring RPA pilot expertise were assigned to various organizations, and (3) the extent to which the Air Force has reviewed its oversight process to effectively manage non-operational staff positions requiring aviator expertise. Among other things, GAO analyzed Air Force pilot promotion data from 2006-2017. GAO also analyzed non-operational staff position data from fiscal years 2013-2018 and interviewed officials regarding the management and oversight of these positions. The promotion rates for Air Force Remotely Piloted Aircraft (RPA) pilots have been generally similar to those of other pilots since 2013 and have increased over time. See figure below for promotion rates from major to lieutenant colonel. Air Force officials stated that RPA pilot promotion rates increased because the creation of a dedicated career field resulted in more competitive candidates. Since 2013, over 75 percent of non-operational staff positions requiring RPA pilot expertise were assigned to various organizations within the Air Force, according to GAO's analysis. These positions carry out support and other noncombat-related activities as well as training functions and are essential to the development of officers. However, the overall number of these positions that require a RPA pilot is about one-tenth of the combined number of those requiring other pilots. For example, in fiscal year 2018, 83 non-operational staff positions required RPA pilots compared to 330 requiring fighter pilots. Air Force officials stated that the small number of RPA positions is because the career field is new. The Air Force has not reviewed its oversight process to ensure that it is efficiently managing its non-operational staff positions that require aviator expertise. Air Force officials explained that over the last 10 years, the Air Force reduced the number of squadrons but had not reviewed the number of non-operational staff positions. Similarly, the Air Force has had no widely accessible oversight process to monitor whether it had established an accurate number of non-operational staff positions required to support the new RPA career field. In August 2018, the Air Force identified 513 non-operational staff positions (out of 2,783) as needing further review because they lacked adequate justification of the need for aviator expertise. Officials described the process for managing these positions as time and labor intensive, which can cause delays in obtaining reliable information needed to inform decision-making. By reviewing this process, the Air Force may be able to identify opportunities to create efficiencies and more effectively manage its non-operational staff positions requiring aviator expertise.

GAO_GAO-19-56

Background SNAP Work Requirements All SNAP recipients ages 16 through 59, unless exempted by law or regulation, must comply with general work requirements. (See fig. 1.) These requirements generally include registering for work, reporting to an employer if referred by a state agency, accepting an offer of a suitable job, not voluntarily quitting a job or reducing work hours below 30 hours a week, or participating in a SNAP E&T program or a workfare program—in which recipients perform work on behalf of the state—if assigned by the state agency. SNAP recipients are exempt from complying with these work requirements if they meet certain criteria, such as being responsible for caring for a dependent child under age 6 or an incapacitated person. In addition, per federal law, those who are employed for 30 or more hours per week are exempt from the work requirements. SNAP recipients who are subject to the work requirements—known as work registrants—may lose their eligibility for benefits if they fail to comply with the requirements without good cause. In addition to meeting the general work requirements, able-bodied adults without dependents (ABAWDs) must work or participate in a work program 20 hours or more per week, or participate in workfare, which is performing work to earn the value of their SNAP benefits. Participation in SNAP E&T, which is a type of work program, is one way for ABAWDs to meet the 20-hour-per-week ABAWD work requirement, but other work programs are acceptable as well. Unless ABAWDs meet these work requirements or are determined to be exempt, they are limited to 3 months of SNAP benefits in a 36-month period. (See fig. 2.) At the request of states, FNS may waive the ABAWD time limit for ABAWDs located in certain areas of a state or an entire state when certain circumstances are met. For example, a waiver may be granted if the area has an unemployment rate of over 10 percent or the number of jobs available is insufficient to provide employment for these individuals. If the time limit is waived, ABAWDs are not required to meet the ABAWD work requirement in order to receive SNAP for more than 3 months in a 36-month period, but they must still comply with the general work requirements. SNAP Employment and Training Programs Federal requirements for state SNAP E&T programs were first enacted in 1985 and provide state SNAP agencies with flexibility in designing their SNAP E&T programs, including whom to serve and what services to offer. The state can require some or all SNAP work registrants to participate in the SNAP E&T program as a condition of eligibility, an approach commonly referred to as a mandatory program. In mandatory programs, individuals can be sanctioned if they fail to participate in an assigned SNAP E&T activity. State SNAP agencies also may elect to exempt categories and individuals from participating in SNAP E&T, such as those living in rural areas or experiencing homelessness. In addition, states may exempt all work registrants from participation in SNAP E&T and only serve volunteers, an approach commonly referred to as a voluntary program. States also determine which types of services to provide participants through their SNAP E&T programs, although they must provide at least one from a federally determined list. This list includes job search programs, job search training programs, workfare, programs designed to improve employability through work experience or training, education programs to improve basic skills and employability, job retention services, and programs to improve self-sufficiency through self- employment. There are three types of federal funding streams for state SNAP E&T programs: 100 percent funds—formula grants for program administration, including planning, implementing, and operating a SNAP E&T program; 50 percent federal reimbursement funds; and ABAWD pledge funds— grants to states that pledge to serve all of their at-risk ABAWDs. While the federal allocation for 100 percent funds has generally been capped at $90 million over the last decade, some states do not obligate or expend their full allocation, and as a result, the following year FNS reallocates these funds to other states that request additional funds, according to FNS officials. Total federal expenditures on SNAP E&T programs increased from about $282 million in fiscal year 2007 to about $337 million in fiscal year 2016, according to FNS data (see fig. 3). Federal 50 percent reimbursement funds, which are generally not capped, constitute the largest portion of federal expenditures on SNAP E&T and were responsible for the majority of the increase in total federal SNAP E&T expenditures over the last decade. These funds are used for program administrative costs for operating SNAP E&T programs, as well as SNAP E&T participant expenses, such as transportation and dependent care costs. Program Support and Oversight In 2014, FNS created the Office of Employment and Training to provide support and oversight for the SNAP E&T program. Specifically, FNS expanded its headquarters staff dedicated to SNAP E&T from one to six full-time employees, and added a dedicated SNAP E&T official in each FNS regional office to provide technical assistance to states. FNS has also developed resources, such as a SNAP E&T Operations Handbook, intended to help states implement and expand their SNAP E&T programs. To inform its program support and oversight, FNS collects information on SNAP recipients and work registrants, as well as SNAP E&T program participants, services, and expenditures. More specifically, FNS periodically collects data from states on the total number of work registrants, ABAWDs, SNAP E&T participants, and participants in each type of SNAP E&T service. FNS also collects data from states on a sample of all households participating in SNAP each month as part of the Quality Control process. The Quality Control data include characteristics of SNAP recipients, including whether they are work registrants, for example. In addition, as a result of requirements in the Agricultural Act of 2014, FNS began collecting annual SNAP E&T outcome and participant characteristics data from states in January 2018. Furthermore, FNS collects quarterly information from states on SNAP E&T expenditures. States are also required to submit an annual SNAP E&T plan to FNS, including information on the services they plan to offer during the year and their projected budget and program participation numbers. Guidance on plan requirements is provided in an FNS handbook for states. FNS national and regional officials review the plans to ensure compliance with requirements, and plans must be approved by regional officials before SNAP E&T funding is allocated to a state. State SNAP E&T Programs Have Served a Small Percentage of Recipients over Time and Little Is Known about Participants and Outcomes State SNAP E&T programs have served a small and decreasing percentage of overall SNAP recipients over time, and although these data are generally reliable, FNS data on SNAP E&T program participant characteristics and outcomes are not reliable. State SNAP E&T programs have served a small percentage of SNAP recipients over the last decade potentially due in part to certain policy changes during that time, such as the increasing number of states moving from mandatory to voluntary SNAP E&T programs. The number of SNAP recipients served by SNAP E&T programs has also potentially been low because a limited number of those referred to state programs go on to participate in services. FNS’s lack of reliable SNAP E&T data, as well as the agency’s lack of a plan for using newly reported participant characteristics and outcome data to assess program performance, constrain FNS’s ability to understand the extent to which agency goals are being met. State SNAP E&T Programs Have Served a Small and Decreasing Percentage of SNAP Recipients over the Last Decade, Due to Various Factors According to FNS data, among the approximately 43.5 million total SNAP recipients, only a small percentage—0.5 percent, or about 200,000—were served by state SNAP E&T programs in an average month of fiscal year 2016, due to several factors. (See fig. 4.) First, according to FNS data, most SNAP recipients are exempt from work requirements for various reasons, under federal law and regulation. For example, according to FNS data, almost two-thirds of SNAP recipients were children, elderly, or adults with a disability in an average month of fiscal year 2016, and these groups generally are exempt from work requirements. As a result of federal exemptions, in an average month of fiscal year 2016, about 14 percent of SNAP recipients, or about 6.1 million individuals, were work registrants who were subject to work requirements, according to FNS data. Further, state SNAP agencies may elect to exempt individuals for whom participation is judged to be impractical or not cost effective. Moreover, SNAP work registrants may participate in other activities to comply with work requirements, such as other federal- and state-funded E&T programs. In recent years, the number and percentage of SNAP recipients and work registrants participating in SNAP E&T programs has decreased, according to FNS data. From fiscal years 2008 through 2016, the average monthly number of SNAP E&T participants decreased from about 256,000 to about 207,000, or by 19 percent, according to state data on SNAP E&T participants that were reported to FNS. (See fig. 5.) However, the data also show that over the same time period, the average monthly number of SNAP recipients increased from about 27.8 million to about 43.5 million, and work registrants increased from about 3.2 million to about 6.1 million. As a result, the percentage of total SNAP recipients participating in SNAP E&T programs decreased from about 0.9 percent to about 0.5 percent, and the percentage of work registrants participating in these programs decreased from approximately 8.1 percent to approximately 3.4 percent. The decline in SNAP E&T participation in recent years may have been influenced by certain policy changes, including states’ widespread use of waivers for ABAWDs. According to FNS data, from fiscal years 2008 through 2012, the number of states with statewide waivers due to economic conditions increased from 7 to 46 states, potentially enabling ABAWDS in these states to continue receiving SNAP benefits without meeting ABAWD work requirements. As a result, these waivers potentially reduced the number of ABAWDs nationwide who may otherwise have participated in SNAP E&T programs in order to continue receiving SNAP benefits. Further, according to FNS data, from fiscal years 2011 through 2015, the majority of states continued to operate under statewide waivers of the ABAWD time limit. According to FNS data, states have also increasingly moved from mandatory to voluntary SNAP E&T programs in recent years, another policy change that may have influenced SNAP E&T participation. In fiscal year 2010, 36 states operated mandatory programs; however, by fiscal year 2017, 19 states operated mandatory programs. (See fig. 6.) When states move to a voluntary program, they generally experience a decline in SNAP E&T participation, according to FNS officials and our analysis of FNS data. Specifically, of the 21 states that changed from a mandatory to a voluntary program from fiscal year 2010 through fiscal year 2016, 13 experienced a decrease in SNAP E&T participation in the year following the change—ranging from a 21 percent decrease to a 93 percent decrease. This trend was generally inconsistent with the trend in work registrants, as 9 of the 13 states that changed from a mandatory to a voluntary program and experienced a decrease in SNAP E&T participation also experienced an increase in their total number of SNAP work registrants during the same time period. Furthermore, voluntary programs are generally smaller overall than mandatory programs, according to our analysis of FNS data. In fiscal year 2016, for example, the 31 states operating voluntary programs together served less than half of the total number of SNAP E&T participants served by the 22 states operating mandatory programs, although these two groups of states had similar numbers of new work registrants. FNS officials told us that there are various reasons states may move to voluntary programs. For example, FNS officials said that many states have reported to them that offering employer-driven, skills-based, intensive employment and training services, such as vocational training or work experience, through voluntary programs yields more engaged participants with stronger outcomes. FNS officials stated that they have been actively encouraging states to offer these types of services because they believe these types of services are more effective in moving SNAP recipients, who may be more likely to have barriers to employment, toward self-sufficiency. However, they noted that SNAP E&T funding may not be sufficient to provide these types of services in mandatory programs that require participation by SNAP recipients and thus have higher participation. In addition, FNS officials told us that voluntary programs are less administratively burdensome than mandatory programs, as they allow states to focus on serving motivated participants rather than sanctioning non-compliant individuals. In addition, participation rates are low for SNAP recipients referred to the SNAP E&T program, according to FNS officials, state program officials, and available data, regardless of whether the state operates a mandatory or voluntary program. FNS officials said that engaging SNAP recipients who are referred to the program is a challenge across all states—a point confirmed by the states we selected and available data. Among the 11 states that reported data to FNS on SNAP E&T participation by those referred to the program, which included states operating mandatory and voluntary programs, the percentage of SNAP recipients who were sent a referral letter but did not participate in any activity ranged from 35 to 98 percent in fiscal year 2017. For 8 of these states, about 70 percent or more of SNAP recipients who were sent a referral letter did not participate in any activity. FNS officials, state officials, and SNAP E&T service providers in our selected states indicated that participation by SNAP recipients referred to SNAP E&T may be low for various reasons. For example, FNS officials told us that some recipients face barriers to participation, such as a lack of transportation, childcare, or treatment for mental health issues, yet they have not been exempted by the state. For example, SNAP E&T providers and state officials in our selected states noted that SNAP recipients in rural areas, in particular, experience challenges participating in the E&T program due to a lack of transportation to E&T services, as well as the limited range of available services and employment opportunities. State officials and providers in all five of the states we selected also noted that SNAP recipients with mental health needs or substance abuse issues usually require additional services to participate in the SNAP E&T program, such as intensive case management or treatment. Lack of awareness of E&T services may also affect participation, as three SNAP E&T providers we spoke with said that SNAP recipients can be transient, and as a result, may not receive referral letters provided by mail. Further, some SNAP recipients may decide not to participate, despite the potential loss of SNAP benefits, or others face certain barriers to employment that may deter them from participating. For example, formerly incarcerated SNAP recipients may be discouraged from participating in SNAP E&T due to past struggles finding employers willing to hire those with a criminal background. Low participation rates are common across other employment and training programs serving similar populations, and although FNS has not researched how to address this issue in SNAP E&T, other agencies have assessed ways to improve participation in these programs. For example, in our past work, we found that states faced challenges with low participation in employment and training activities by Temporary Assistance for Needy Families cash assistance recipients. Recognizing that states would benefit from strategies on how to increase engagement in such activities, the U.S. Department of Health and Human Services contracted for research on behavioral interventions that affect attendance rates for employment and training services. Researchers found that strategies such as sending text messages to participants—in addition to letters in the mail—could increase the likelihood that they would attend program activities, particularly when communications encouraged recipients to make a detailed plan to participate. FNS officials stated that they are aware of research on strategies to address low participation in E&T programs; however, they noted that they have not researched causes of low participation in the SNAP E&T program. FNS officials added that they believe states could take steps to make enrolling and participating in SNAP E&T activities less burdensome for SNAP recipients. Further, FNS officials acknowledged that states could potentially benefit from technical assistance on increasing the rates at which referred SNAP recipients participate in SNAP E&T activities, but the agency’s SNAP E&T technical assistance resources have generally not focused on this issue. In a recent policy brief, FNS indicated that collecting data on SNAP E&T participation can help state agencies and providers determine where attrition is occurring and point towards processes or services that need improvement. However, the brief did not provide strategies for improving processes or services to reduce attrition, and FNS officials acknowledged that they generally have not focused their resources on getting recipients to initially engage with service providers. Rather, FNS has focused its technical assistance resources on an approach intended to improve participation among those recipients who engage with the SNAP E&T program. Specifically, according to FNS officials, the agency’s resources have focused on encouraging SNAP E&T providers to offer more intensive services, including skills-based training, as these services may be better able to address SNAP recipients’ barriers to employment. Officials noted that they believe these types of services may be more responsive to SNAP recipients’ needs, which could increase participation in E&T. Assisting state efforts to increase the level of participation for SNAP recipients who are referred to the E&T program could help FNS achieve agency goals, as well as help SNAP recipients move toward self- sufficiency. Specifically, USDA’s fiscal year 2018 strategic plan includes increased participation in SNAP E&T as a strategy for supporting SNAP recipients in achieving self-sufficiency. Similarly, in a 2016 letter to states, FNS noted that expanding SNAP recipients’ access to employment and training services is critical to helping them transition off the SNAP program by becoming economically self-sufficient. If states continue to struggle with low participation in SNAP E&T, and FNS does not expand its technical assistance to include a broader array of strategies to increase participation, both FNS’s ability to meet its strategic goals, and the program’s ability to help recipients achieve self-sufficiency, will be hindered. Information on SNAP E&T Participant Characteristics and Outcomes Is Not Reliable Although data on the number of overall participants in SNAP E&T programs in an average month from one FNS dataset are generally reliable, data on SNAP E&T program participant characteristics and outcomes are not reliable, according to our analysis of state data on SNAP E&T programs reported to FNS and our discussions with FNS and state officials. Specifically, in our review of the three FNS datasets that include state-reported information on SNAP E&T, we found several issues that affect the reliability of these data. According to our analysis, these data reliability issues include widely varying counts of SNAP E&T participants, ABAWDs, and work registrants across the datasets; missing or incomplete data on work registrants, ABAWDs, SNAP E&T participant characteristics and outcomes, and SNAP E&T services within the datasets; and inconsistencies within and between quarterly and annual reports of SNAP E&T participants in one of the datasets. For example, according to FNS officials, some states inaccurately reported participation in a single SNAP E&T service that exceeded the state’s total number of SNAP E&T participants. FNS has taken steps to address some of the SNAP E&T data limitations, including providing additional training and guidance to states. For example, FNS provided training to states in July 2014 and September 2018 on how to accurately report SNAP E&T participant information through one of the state-reported datasets on SNAP E&T. In addition, in response to state questions regarding how to collect new outcome measures on SNAP E&T required by the Agricultural Act of 2014, FNS issued two memoranda in 2016 and 2017 providing additional policy clarifications. Recently, in 2018, FNS issued two memoranda providing clarifications on work requirements for ABAWDs and on SNAP E&T, in part to improve the reliability of data collected. Even with these efforts, our analysis suggests that FNS continues to lack reliable data on SNAP E&T programs for at least two reasons: imprecise instructions on data collection forms and staff confusion at the state level. Imprecise instructions on data collection forms. According to our analysis, state-reported data on SNAP E&T participants and characteristics are not reliable due to imprecise instructions on the respective data collection forms. For example, the form used by states to collect information on SNAP recipients nationwide asks states to indicate if recipients are work registrants, and if so, participate in employment and training programs. Although FNS officials told us that this was intended to capture SNAP E&T participants alone, the form does not specify this. As a result, FNS officials explained that they believe states are incorrectly reporting SNAP recipients participating in any E&T program. Without a reliable link to SNAP E&T participation, FNS is unable to use this source, which provides detailed information on SNAP recipients’ demographic, educational, and economic characteristics, to analyze SNAP E&T participant characteristics. Similarly, in the case of another state-reported data source, we found that the form used to collect data on the types of SNAP E&T services participants receive does not list or define required services. According to FNS officials, states report widely varying SNAP E&T services within the same categories. Staff confusion at the state level. According to FNS officials, there has been widespread confusion among states regarding the need to track ABAWDs when waivers are in place. Consequently, some states were not tracking ABAWD participation or properly documenting SNAP recipients’ ABAWD status in recent years, according to FNS officials and some of the state SNAP agency officials we spoke with. FNS noted the importance of accurately tracking ABAWDs following the expiration of the waivers and reinstatement of the time limit in a March 2015 memorandum to regional directors. Further, FNS officials told us that states should have continued to track ABAWDs even if the state was under a statewide ABAWD waiver. FNS noted in its 2015 memorandum that states that failed to accurately track ABAWDs risked potential overpayments, as ABAWDs who fail to meet work requirements are ineligible for benefits. Further, although we found generally reliable SNAP E&T participation data in one FNS dataset, staff confusion has also likely affected these participation data. FNS officials told us that some states may mistakenly include those referred into SNAP E&T programs who did not participate in a program activity in their count of SNAP E&T participants. Finally, in the case of SNAP E&T data on outcomes, FNS regional officials told us that state-level staff were confused by the two different definitions for completion of a SNAP E&T activity used by FNS—an issue which may have affected the reliability of the outcome data. FNS has acknowledged that it is important to have reliable data on the SNAP E&T program for program oversight. Recently, in August and September 2018, FNS presented information to states at a national conference and in a webinar regarding the interactions of the different state-reported SNAP E&T data sources, and the importance of these data for funding and planning purposes. In a July 17, 2009 memorandum, FNS also stated that it is important that the agency collect reliable data on SNAP E&T to satisfy the increasing demands of Congress, advocacy groups, and the public for an accurate picture of the types of activities provided and participation patterns in those activities. This is generally consistent with federal internal control standards and our previous work on SNAP E&T. Federal internal control standards state that agencies should maintain quality data in order to produce and share quality information with stakeholders to help achieve agency goals. Further, in our 2003 report on SNAP E&T, we found that no nationwide data existed on whether SNAP E&T programs helped participants obtain employment, and we recommended that FNS collect nationwide data on program participants and require states to collect outcome measures. However, at present, the lack of reliable state-reported data on SNAP E&T participant characteristics and outcomes hinders FNS’ ability to effectively oversee and monitor the SNAP E&T program. Without such information, states, FNS, and the Congress are unable to fully assess whether agency goals are being met through the SNAP E&T program. Further, the lack of reliable state-reported data on work registrants and ABAWDs affects FNS’s ability to monitor states’ implementation of program rules, including work requirements, and ensure program integrity. In addition, as data on work registrants and ABAWDs are used to allocate federal funds to states for SNAP E&T, unreliable estimates of these groups have funding implications. FNS’s ability to understand the extent to which agency goals are being met is further hampered because FNS has not yet determined how it will use newly reported data to assess the performance of state SNAP E&T programs. As a result of provisions in the Agricultural Act of 2014, FNS required states to report new data on SNAP E&T participants’ outcomes, such as the median quarterly earnings of certain program participants, and participant characteristics, such as the percentage of participants who have received a high school diploma. In addition, the Act requires that FNS assess the effectiveness of states’ performance. In the preamble to the relevant interim final rule, FNS described at a high level how it intends to use the data, including identifying which program activities are most successful at moving individuals into employment. However, FNS officials told us that they were not yet certain how they will use the data to make such determinations. In addition, regional officials we spoke with stated that the current data might not allow FNS to answer questions about whether the program is achieving its goals. Similarly, state SNAP E&T officials we spoke with during our review did not know how the recently collected data related to program performance. Specifically, state officials in all five states we selected indicated that they were not certain how FNS will use these data to assess states’ performance. Officials in three states also said that a lack of clarity about how these data relate to program goals has led to confusion. FNS officials told us that they have not determined how they will use the newly reported data or whether the current data are sufficient, in part, because the agency has instead focused its resources on assisting the states in submitting the data to meet the new reporting requirements. According to FNS regional and national officials, states required extensive technical assistance to obtain the requisite data and calculate the reporting measures. For example, one regional official said that his office had been providing the states technical assistance for a year and a half to prepare them for the new reporting requirements. States we spoke with also indicated that the data were time-consuming and challenging to obtain. For example, many states struggled to obtain data sharing agreements with workforce agencies for the required employment data. According to FNS officials, after receiving the first round of reports in January 2018, FNS officials continued to provide technical assistance to states to improve the quality of the data, and FNS required states to submit revised reports in May. However, as of August 2018, one state and one territory had not submitted the required reports to FNS, according to FNS officials. In the absence of FNS taking steps to determine how it will use the newly reported data to assess state effectiveness, questions about whether SNAP E&T programs meet their goals will remain unanswered. Further, states may continue to be challenged to report these data, and without information from FNS on how state performance will be assessed, states may lack clarity on how collecting these data will help contribute to program goals. As of October 2018, FNS officials said that they are exploring ways to improve their ability to collect and analyze all of the program data necessary to do a comprehensive assessment of state SNAP E&T. Our prior work has emphasized the importance of establishing how performance data relates to program goals. In addition, federal internal control standards state that management should determine whether performance measures for the defined objectives are appropriate for evaluating the agency’s performance in achieving those objectives. Federal internal control standards also state that management should communicate necessary quality information to relevant internal and external parties to help the agency achieve its objectives. States Have Increasingly Partnered with Various E&T Providers, but Some States Have Not Leveraged Available Workforce Development System Resources States Have Increasingly Partnered with Other Entities to Provide SNAP E&T Services In recent years, state SNAP agencies have increasingly partnered with other state and local organizations, such as nonprofit community-based social service providers, community colleges, and workforce agencies, to provide services to SNAP E&T participants, according to FNS officials and states we selected for our review. In fiscal year 2018, 50 state SNAP agencies partnered with at least one other organization to deliver SNAP E&T services, with the majority partnering with more than one, according to an analysis by FNS (see fig. 7). In that year, 36 states partnered with community-based social service providers, 33 states had partnerships with workforce agencies, and 24 states partnered with community colleges. FNS officials in all seven regions said that states have increasingly used an approach FNS refers to as third party partnerships in recent years to leverage outside funding to serve SNAP E&T participants. In this model, according to FNS officials, third party organizations use non-federal funding to provide allowable E&T services and supports to SNAP recipients, and state SNAP agencies are then eligible for a federal reimbursement of 50 percent of these expenditures. FNS has promoted this third party partnership model through various technical assistance resources provided to states, including an operations handbook and webinars, and has added a dedicated position for a SNAP E&T official in each regional office, in part, to help develop these partnerships. Federal 50 percent reimbursement funds expended increased from nearly $182 million to more than $223 million, or by 23 percent, from fiscal year 2007 to fiscal year 2016. According to FNS national officials as well as officials in some FNS regions and states, partnerships play a critical role in SNAP E&T programs because state SNAP agencies may lack the capacity, resources, and expertise to provide the type of intensive employment and training services FNS considers most likely to lead to self-sufficiency for SNAP recipients. For example, two of our selected states reported that they have partnered with community colleges to train participants for local in-demand occupations, including information technology, healthcare, and welding. According to officials in one FNS regional office, community- based social service providers and community colleges may have staff with expertise in workforce development, which SNAP agencies may not have, and this enables SNAP agencies to expand their programs and services without the expense of growing their own staff. According to officials in some FNS regions and some of our selected states, partnering with workforce agencies has enabled some states to provide training to participants using Workforce Innovation and Opportunity Act (WIOA) funds and supportive services using SNAP E&T funds, maximizing their ability to address participants’ needs. Officials in one of the states we visited also said that partnering with the workforce agency allows them to ensure basic E&T services, such as job search assistance, are available to SNAP recipients across all counties in their state. (See fig. 8.) FNS officials also said that these partnerships better position states to improve their program outcomes by tapping into providers currently serving communities that include SNAP recipients. For example, one of our selected states partnered with nonprofit community-based social service providers experienced in working with homeless and previously incarcerated populations. Officials in this state said that the providers tailor E&T services based on their knowledge of these populations’ unique barriers to employment. Further, officials in three of our five selected states said that some of the community-based social service organizations they partner with provide SNAP E&T participants with additional supportive services, including transitional housing, clothing, financial advising, and mental and physical health services, to address a broader set of barriers to employment. Some States Do Not Leverage Workforce Development System Resources for SNAP E&T, and FNS Has Not Assessed State Efforts to Utilize these Resources Although states are increasingly partnering with external entities to provide SNAP E&T services, according to FNS data for fiscal year 2018, 20 state SNAP agencies have not partnered with workforce agencies for SNAP E&T. According to FNS officials, the nationwide network of more than 2,500 American Job Centers, which are operated by state and local workforce agencies, can help to fill service gaps in areas lacking community based organizations or community colleges. However, despite the broad availability of E&T services such as job search assistance through American Job Centers, 12 state SNAP agencies directly provided job search or job search training for their SNAP E&T programs, according to their fiscal year 2017 state SNAP E&T plans. In addition, some states have not yet fully leveraged resources from the broader workforce development system, which includes workforce agencies, community-based organizations, and community colleges, to provide SNAP E&T services. For example, FNS data for fiscal year 2018 show that three states’ SNAP agencies operated their own SNAP E&T programs in fiscal year 2018 and did not involve existing workforce development system entities in the provision of these services. According to their fiscal year 2017 state plans, these states each offered one or two types of SNAP E&T services, and the services they offered—primarily job search and job search training—are considered less intensive by FNS officials. In contrast, states with workforce development system partnerships offered a broader range of services, as well as more intensive services, such as vocational education. For example, all 36 state SNAP agencies that offered vocational education did so through workforce development system partnerships. As previously noted, FNS officials have said that intensive services are likely more effective in moving SNAP E&T participants, who may be more likely to have barriers to employment, toward self-sufficiency. Overlap and a lack of coordination in federally-funded E&T programs is a long-standing concern, and relatedly, state SNAP agencies are required to make use of workforce development system resources for SNAP E&T, when possible. In our prior work, we found that SNAP E&T was 1 of 47 federally funded E&T programs, nearly all of which overlapped with at least one other program by providing similar services to similar populations. We noted that overlap among federal E&T programs raises questions about the efficient use of resources, and we highlighted the value of coordination between these programs to ensure efficient and effective use of resources. Consistent with our findings, federal regulations require that each component of a state agency’s SNAP E&T program be delivered through its statewide workforce development system, unless the component is not available locally through such a system. FNS national and regional officials, as well as state officials, described challenges states face in forming effective workforce development system partnerships. FNS officials said that challenges are often caused by differences in workforce agency and SNAP E&T program target populations and service delivery approaches. According to FNS, SNAP E&T participants often have more barriers to employment, such as low literacy and limited work experience, than the broader population served by workforce agencies. Because those with employment barriers could adversely impact the workforce agencies’ employment and earnings performance, which could jeopardize agencies’ workforce program funding, workforce agency staff are sometimes reluctant to serve SNAP E&T participants, according to FNS national and regional officials in three of the seven regions, as well as officials in one of our selected states. For example, officials in one region said that workforce agency staff had stopped serving SNAP E&T participants in the past when they realized the participants needed more supportive services or time in workforce programs to meet employment goals. Recognizing these challenges, in recent years, USDA has urged state SNAP agencies to collaborate with workforce agencies and others to improve coordination of E&T services. For example, in March 2016, USDA and the Department of Labor issued a joint letter encouraging state SNAP agencies and state and local workforce agencies to work together to develop shared strategies to better connect SNAP recipients with E&T opportunities through American Job Centers. FNS has also provided states with technical assistance materials on SNAP E&T and WIOA partnerships, which describe respective program requirements and how SNAP E&T and WIOA-funded workforce programs can complement one another. However, FNS has not ensured that all states take steps to identify potential workforce development system partners. Federal internal control standards state that agencies should collect complete and reliable information to ensure effective monitoring. FNS officials told us that they do not independently assess the availability of states’ workforce development system partners but instead rely on states to document this information in their state SNAP E&T plans, a key tool used by FNS for program monitoring. However, we found that 24 states did not provide information in their fiscal year 2017 SNAP E&T plans that would allow FNS to verify whether these states had assessed available workforce development system providers. For example, the states’ plans did not describe existing workforce development services in the state, despite FNS guidance that directs states to describe the statewide workforce development system and identify the E&T services that will be delivered through this system in their plans. States that are not fully leveraging resources available through the workforce development system may miss opportunities to provide a wider variety of services to SNAP E&T participants and serve a greater number of SNAP recipients through SNAP E&T programs. If state SNAP agencies do not assess workforce development system resources available in their state, they may lack awareness of potential partners and the resources they offer, potentially leading to an inefficient use of resources. In addition, without complete and reliable information on states’ available workforce development system resources, FNS is not able to ensure that states are complying with the requirement to deliver SNAP E&T services through their state workforce development systems. Conclusions FNS has made strides in recent years to provide additional support and oversight of states’ SNAP E&T programs, yet the agency lacks complete and accurate information on these programs, which may limit the effectiveness of its efforts. For example, SNAP E&T programs have served a small percentage of SNAP recipients over time, and while FNS recognizes that states lack information on strategies for increasing participation among those referred to the SNAP E&T program, it has not provided technical assistance in this area. As a result, FNS may miss opportunities to help more SNAP recipients receive program services intended to increase their self-sufficiency, a USDA strategic goal. FNS’s ability to assess whether the program is assisting the department in meeting this goal is also hindered because FNS lacks reliable data on SNAP E&T participant characteristics and outcomes. Without reliable data on SNAP recipients subject to work requirements and participation in SNAP E&T, the agency’s ability to monitor states’ implementation of program rules to ensure recipients are not receiving benefits for which they are ineligible is also limited. Further, because FNS has not yet determined how it will use the newly required outcome and participant characteristics data to assess state SNAP E&T programs, questions about program performance remain unanswered. In addition, without information from FNS on how state performance will be assessed, states will continue to lack clarity on how reporting these data will help contribute to program goals. Finally, because partnerships can be a crucial source of additional capacity, resources, and expertise for SNAP E&T programs, states that are not fully leveraging available workforce development system resources may miss opportunities to serve a greater number of SNAP recipients through SNAP E&T and provide a wider variety of services to SNAP E&T participants. In addition, states may provide overlapping or duplicative services and use resources inefficiently, because FNS has not ensured that all states take steps to identify potential workforce development system partners. Recommendations for Executive Action We are making the following four recommendations to FNS: The Administrator of FNS should identify and disseminate strategies to states and service providers for increasing the participation of SNAP recipients referred to the SNAP E&T program. (Recommendation 1) The Administrator of FNS should take additional steps to address data reliability issues in the state-reported data on SNAP E&T participant characteristics and outcomes, including steps to address imprecise instructions on data collection forms and staff confusion at the state level. (Recommendation 2) The Administrator of FNS should determine and communicate to states how the agency will use newly reported outcome and participant characteristics data to assess the effectiveness of state SNAP E&T programs. (Recommendation 3) The Administrator of FNS should take additional steps to assist states in leveraging available workforce development system resources. Such steps should include ensuring that state SNAP E&T plans provide the agency with sufficient information to verify that states have assessed available workforce development system providers. (Recommendation 4) Agency Comments We provided a draft of this report to USDA for review and comment. On November 5, 2018, the Deputy Associate Administrator for SNAP and FNS officials from SNAP’s Office of Employment and Training provided us with the agency’s oral comments. FNS officials told us that they generally agreed with the recommendations in the report. They noted that they have been implementing strategies to help states improve their SNAP E&T programs, including expanding the reach of the programs and improving the reliability of state reported data. FNS officials stated that the agency plans to build on these current efforts to address the recommendations. We acknowledge the agency’s ongoing efforts in our report but continue to believe that additional action is necessary to address our recommendations. FNS also provided technical comments, which we incorporated into the report as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of the USDA, congressional committees, and other interested parties. In addition, this report will be available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology This appendix discusses in detail our methodology for addressing our two research objectives examining (1) what is known about Supplemental Nutrition Assistance Program (SNAP) employment and training (E&T) program participants and outcomes over time and (2) the extent to which state SNAP E&T programs have partnered with other programs offering similar services. We scoped our review of state SNAP E&T programs to include the 50 states, the District of Columbia, Guam, and the Virgin Islands. In addition to the methods we discuss below, to address both our research objectives, we reviewed relevant federal laws, regulations, and guidance; interviewed United States Department of Agriculture (USDA) Food and Nutrition Service (FNS) officials in its headquarters and seven regional offices; and reviewed relevant research from FNS and the USDA Office of Inspector General, as well as our prior work on SNAP E&T programs. Further, we interviewed representatives of a range of nationwide organizations knowledgeable about SNAP E&T and state officials from seven state SNAP E&T programs: Idaho, Louisiana, New York, Pennsylvania, Tennessee, Washington, and the District of Columbia. We also analyzed SNAP E&T expenditures using form FNS- 778 data for fiscal years 2007 through 2016, the most recent data available. The form FNS-778—Federal Financial Report—is a form used by FNS to collect quarterly expenditure data for state SNAP E&T programs. To assess the reliability of these data, we interviewed FNS and state officials, performed data testing, and reviewed relevant documentation. We determined these data to be sufficiently reliable for the purposes of our report. We excluded from our review the SNAP E&T pilot programs that were authorized by the Agricultural Act of 2014 because these are being evaluated separately by FNS. We conducted this performance audit from September 2017 to November 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. SNAP E&T Program Data To address our first objective, we analyzed data on SNAP E&T participation from three FNS data sources. First, we analyzed aggregate data on SNAP E&T participants collected from state SNAP agencies for fiscal years 2008 through 2016, the most recent data available. Second, for the same time period, we analyzed Quality Control data on individual SNAP recipients, work registrants, and SNAP E&T participants. Finally, we reviewed and analyzed aggregate participation data from state SNAP agencies’ fiscal year 2017 outcome and participant characteristics reports. Form FNS-583 Data We analyzed the average monthly number of SNAP recipients participating in SNAP E&T using the form FNS-583 data. The form FNS- 583—U.S. Department of Agriculture Food and Nutrition Service SNAP Employment and Training (E&T) Program Activity Report—is used by FNS to collect quarterly and annual participation data for state SNAP E&T programs. To assess the reliability of these data, we interviewed FNS and state officials, performed data testing, and reviewed relevant documentation. Data testing included checks for missing data elements, duplicative data, and values outside a designated range. We determined the data were sufficiently reliable to identify the number of average monthly SNAP E&T participants and to assess change over time. To further examine what is known about participation in SNAP E&T, we also assessed form FNS-583 data on work registrants and able-bodied adults without dependents (ABAWDs) participating in SNAP E&T for fiscal years 2008 through 2016. To assess the reliability of these data, we interviewed FNS and state officials, performed data testing, and reviewed relevant documentation. We determined these data to be unreliable for the purposes of our report. As described above, for example, FNS officials learned in recent years that there was widespread confusion among states regarding the need to track ABAWDs when waivers were in place. Consequently, some states were not tracking ABAWD participation or properly documenting SNAP recipients’ ABAWD status. FNS Quality Control Data We analyzed SNAP Quality Control data on individual SNAP recipients, work registrants, and SNAP E&T participants. The SNAP Quality Control database contains detailed demographic, economic, and SNAP eligibility information for a nationally representative sample of SNAP households. We estimated the number of SNAP recipients and work registrants for fiscal years 2008 and 2016 using the public use Quality Control dataset and calculated confidence intervals to determine if the change over time was statistically significant (see table 1). To assess the reliability of these data, we interviewed officials from FNS and the contractor responsible for maintaining the Quality Control dataset, as well as state officials; reviewed relevant technical documentation; and conducted data testing. For example, we compared the estimates we produced for fiscal years 2008 and 2016 to the publicly reported estimates in the annual Characteristics of Supplemental Nutrition Assistance Program Households reports for those years. We determined that the data, and the corresponding estimates in these reports, were sufficiently reliable for our purposes. As a result, for fiscal years 2009 through 2015, we relied on the estimates of SNAP recipients and work registrants published in the reports. We also analyzed SNAP Quality Control data on SNAP E&T participants for fiscal year 2016. To assess the reliability of these data, we interviewed officials from FNS and the contractor responsible for maintaining the Quality Control dataset, as well as state officials; reviewed relevant technical documentation; and conducted data testing. For example, we compared the estimate of SNAP E&T participants from the SNAP Quality Control dataset to the number of SNAP E&T participants reported by states on the FNS-583, which we had determined was reliable. From our review, we determined the Quality Control SNAP E&T participation data to be unreliable for the purposes of our report. As described above, for example, the form used by states to collect information on SNAP recipients nationwide asks states to indicate if recipients participate in employment and training programs. Although FNS officials told us that this was intended to capture SNAP E&T participants alone, the form does not specify this, and FNS officials said that some states are incorrectly reporting SNAP recipients participating in any E&T program. To determine the percentage of SNAP recipients and work registrants that participate in SNAP E&T, we used the data that we had determined were reliable. Specifically, we used the Quality Control data on SNAP recipients and work registrants, as well as the form FNS-583 data on SNAP E&T participants, for fiscal years 2008 through 2016. SNAP E&T Outcome and Participant Characteristics Data We also reviewed and analyzed fiscal year 2017 outcome and participant characteristics data reported by state SNAP agencies in the SNAP E&T Annual Report Federal Fiscal Year 2017. These data include information on SNAP E&T participants’ outcomes, such as the median quarterly earnings of program participants, and participant characteristics, such as the percentage of participants who have received a high school diploma. Certain outcome data were only collected by FNS for two quarters of fiscal year 2017, whereas participant characteristics data were collected for the entire year. We received copies of these data reports from FNS as states submitted their initial reports to FNS in early 2018. Subsequent to FNS’ review of these initial reports and their efforts to help states improve the accuracy and consistency of their reporting, FNS provided us with updated versions of the reports for many of the states. We used the reports to describe rates at which SNAP recipients referred to the SNAP E&T program participated in services—data that were reported by 11 states. We did not validate the accuracy of these data. State SNAP E&T Plans and FNS Program Characteristics Data To address our second objective on the extent to which state SNAP E&T programs have partnered with other programs offering similar services, we reviewed fiscal year 2017 SNAP E&T state plans for all 53 state SNAP agencies. Specifically, we reviewed the plans to determine which services states planned to offer through partnerships with other programs in that year and the extent to which states documented their use of available workforce development system resources. To supplement our review of the plans, we also analyzed fiscal year 2018 summary data from FNS on the number of state SNAP agencies that partnered with community-based organizations, workforce agencies, and community colleges, as well as the number with state SNAP agency-operated SNAP E&T programs. We also analyzed fiscal year 2010 and 2017 summary data from FNS on mandatory and voluntary programs to determine how the number of state SNAP agencies with each program type changed over time. To assess the reliability of the FNS summary data, we interviewed FNS and state officials and reviewed relevant documentation. We determined these data to be sufficiently reliable for the purposes of this report. State Interviews and Site Visits To help inform both of our objectives and gather additional information about state SNAP E&T programs, we selected five states: Delaware, Oregon, Kansas, Texas, and Virginia. We selected these states based on several criteria to ensure our sample included state SNAP E&T programs with different service delivery approaches and other program characteristics, as well as geographic diversity. Specifically, we considered state SNAP E&T participation and expenditures, including utilization of federal 50 percent reimbursement funds. In addition, we considered whether the state operated a mandatory or voluntary SNAP E&T program, a county- or state-administered program, and opted to be an ABAWD pledge state. We also considered whether the state submitted its SNAP E&T plan as part of a Workforce Innovation and Opportunity Act Combined State Plan. Using semi-structured questions, we interviewed officials from the state agencies responsible for administering SNAP in the five selected states. We gathered information on SNAP E&T administration at the state level, including information on partnerships; program participation and expenditures; data collection efforts, including those related to assessing program outcomes; and any challenges to administering the program, as well as efforts to address such challenges. We conducted site visits to our selected states in which services are provided through partnerships with local providers—Delaware, Oregon, Texas, and Virginia—and interviewed selected local program staff with knowledge of SNAP E&T program operations, participant characteristics, and coordination with the state SNAP agency who provide SNAP E&T services in both urban and rural areas. We conducted these visits in February and March 2018. During each site visit, we used semi- structured questions to gather information on the goals and mission of the providers’ organizations, types of services provided to SNAP E&T participants, needs and characteristics of SNAP E&T participants and how these might differ from those of other clientele, sources of funding used to provide services to SNAP E&T participants, and efforts to coordinate with the state SNAP agency. The local program staff we interviewed included representatives of workforce agencies, non-profit community-based organizations, a for-profit company, and community colleges. Information collected from state and local SNAP E&T officials during our site visits cannot be generalized to all SNAP E&T officials nationwide. Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Rachel Frisk (Assistant Director), Kristen Jones (Analyst-in-Charge), Morgan Jones, and Kelly Snow made key contributions to this report. Also contributing to this report were Alex Galuten, Mimi Nguyen, Sam Portnow, Julia Robertson, Monica Savoy, Almeta Spencer, Jeff Tessin, Kathleen van Gelder, Nicholas Weeks, and Jessica L. Yutzy.

SNAP is the nation's largest federally funded nutrition assistance program. In fiscal year 2017, it provided about $64 billion in benefits. To maintain eligibility for benefits, certain SNAP recipients must comply with the program's work requirements, which may include participating in a state's SNAP E&T program if required by the state. This report examines (1) what is known about SNAP E&T program participants and outcomes over time and (2) the extent to which state SNAP E&T programs have partnered with other programs offering similar services. GAO reviewed relevant federal laws, regulations, and guidance; analyzed USDA data on SNAP recipients, work registrants, and SNAP E&T participants from fiscal years 2008 through 2016, the most recent data available; reviewed states' fiscal year 2017 SNAP E&T plans and outcome reports; and interviewed USDA officials and state officials in five states selected, in part, to reflect a range of SNAP E&T program characteristics. The Supplemental Nutrition Assistance Program's (SNAP) Employment and Training (E&T) programs, which are overseen by the U.S. Department of Agriculture (USDA) and administered by states, have served a small percentage of SNAP recipients over time, and information on participant characteristics and outcomes is limited. In an average month of fiscal year 2016, SNAP E&T served about 0.5 percent of the 43.5 million SNAP recipients. Further, since 2008, the percentage of SNAP recipients served by SNAP E&T has declined. Participation in SNAP E&T may be low, in part, because most SNAP recipients were exempt from work requirements, according to USDA data. In addition, SNAP recipients may participate in other activities to comply with work requirements. Although data on the number of recipients served in SNAP E&T are generally reliable, USDA lacks reliable data on participant characteristics and outcomes because of imprecise instructions on data collection forms and staff confusion at the state level. USDA has taken some steps to address these issues, but data reliability issues persist. As a result, USDA's ability to assess whether agency goals are being met through the SNAP E&T program is limited, as is the department's ability to monitor states' implementation of work requirements and ensure program integrity. In fiscal year 2018, most state SNAP agencies partnered with workforce development system entities, such as community colleges and workforce agencies, to provide services to SNAP E&T participants, according to USDA data. Regional and state officials reported that state SNAP agencies often have used these partnerships to leverage non-federal funding sources and provide additional capacity and expertise to help expand SNAP E&T services. However, 3 states operated their own SNAP E&T programs without partnering with any other program, and a total of 20 states lacked partnerships with workforce agencies, according to USDA data for fiscal year 2018. Federal regulations require that SNAP E&T services be delivered through the state's workforce development system unless the services are not available locally through this system. USDA and state officials described challenges to forming effective partnerships with workforce agencies, including perceived disincentives to serving SNAP recipients. However, states that are not fully leveraging resources available through the workforce development system may miss opportunities to provide a wider variety of services to SNAP E&T participants and serve a greater number of SNAP recipients through SNAP E&T.

GAO_GAO-18-320

Background This section provides an overview of patenting in the United States, patent infringement litigation, and administrative proceedings for patent validity challenges. It also includes a brief history of court decisions that clarified eligibility requirements for the Patent Trial and Appeal Board’s CBM program. See “Related GAO Products” at the end of this report for a list of our prior work related to patents and intellectual property. Patenting in the United States In the United States, patents may be granted by USPTO for any new and useful process or machine, or any new and useful improvement on an existing process or machine, but there are some exceptions. Laws of nature, physical phenomena, and abstract ideas are not patentable. The U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have refined the boundaries of these exceptions over time, allowing some subject matter that was previously not patentable to become so. For example, U.S. Supreme Court decisions in the 1970s found mathematical formulas used by computers (i.e., software) were like laws of nature and therefore not patentable subject matter. However, a 1981 Supreme Court decision overturned USPTO’s denial of a patent application for a mathematical formula and a programmed digital computer because, as a process, the claimed invention was patentable subject matter. Similarly, business methods were widely considered unpatentable subject matter until 1998, when the U.S. Court of Appeals for the Federal Circuit ruled in the State Street Bank decision that they were patentable. In 2014, however, the Supreme Court effectively limited the patentability of some business methods by ruling in Alice Corp. Pty. Ltd. v. CLS Bank Int’l that using a generic computer to implement an abstract idea is not patentable. Traditionally, economic theory has held that intellectual property rights, such as those conferred by patents, can help encourage innovation and stimulate economic growth. Exclusive rights provided by patents, for example, can help patent owners recoup investments in technology and earn greater profits than if their patented technologies could be freely imitated. Moreover, to the extent that intellectual property rights encourage specialization, innovators may be more productive than they would be in the absence of patent laws. Because of complex trade-offs, however, some economists hold a more nuanced view of the potential for patents to promote innovation and increase productivity. By increasing the cost of using technologies, for example, patents may discourage not only diffusion of these technologies but also cumulative innovation that uses such technologies to develop new technologies. In addition, attempts to quantify the effect of patents on economic growth often fail to account for the creation of useful knowledge outside the patent system. Furthermore, to the extent that innovation occurs in the absence of patent laws, the need for patents can vary across industries or over time. Some researchers have suggested that some patents are currently limiting innovation, especially in areas such as software and computer technologies that overlap with business methods. USPTO receives hundreds of thousands of applications each year from inventors seeking patents to protect their work. According to USPTO data, applications for patents have increased in recent years, and the share of patents granted for business methods has significantly increased over the past 2 decades (see fig. 1). In calendar year 2014, patents related to business methods accounted for more than 28 percent of all issued patents. A patent’s claims define the legal boundaries of the invention, often in complex technical language. A patent application can be written to define an invention broadly or narrowly. Patent applicants often prefer broader claims because their competitors are less able to avoid infringement by making only small changes to their patented invention, as we reported in June 2016. Before issuing a patent, USPTO patent examiners determine whether claimed inventions in the application meet requirements for patentable subject matter, novelty, non-obviousness, and clarity—the four patentability grounds that are established by statute. Patent examiners assess whether the claimed invention consists of patentable subject matter and also ensure that the claims are described clearly enough to enable a person skilled in the art to make the claimed invention. In addition, examiners determine whether a patent application’s claimed invention is novel and non-obvious by comparing the application’s content to “prior art”— existing patents and patent applications both in the United States and abroad, as well as non-patent literature such as scientific articles. In February 2015, USPTO launched an Enhanced Patent Quality Initiative, which included several proposals designed to improve the quality of patent examination and issued patents. However, we found in June 2016 that USPTO faced challenges in issuing patents in accordance with standards. For example, we found that a majority of examiners (67 percent) said they have somewhat or much less time than needed to complete an examination, given a typical workload, and many examiners felt a time pressure that reduced their ability to conduct thorough searches. Examiners also said that it was difficult to issue patents that met the statutory requirements because of the limited availability of and access to non-patent prior art such as offers for sale and public use. Examiners said another limitation is their being responsible for examinations in subject areas in which they do not have adequate technical knowledge. We made seven recommendations to USPTO aimed at improving patent quality, clarity, and prior art search. USPTO agreed with the recommendations and is working to address them. Patent Infringement Litigation Patent owners can bring infringement lawsuits against anyone who uses, makes, sells, offers to sell, or imports the patented invention without authorization. Only a small percentage of patents in force are ever litigated, but some scholars believe that low-quality patents can make such litigation not only more complex and expensive but also more frequent. During an infringement case, the accused infringer may seek to have the lawsuit dismissed by showing the patent is invalid. When the courts rule on validity, they generally invalidate almost half of the patents, according to academic research. Exactly what a patent covers and whether another product infringes the patent’s claims are rarely easy questions to resolve in litigation, and defending a patent infringement lawsuit in district court can take years and cost millions of dollars, not including damages if infringement is found. Whatever the outcome, costly litigation can leave defendants with fewer resources for innovation. Consequently, patent infringement defendants often find it in their best interest to settle lawsuits quickly, as we reported in August 2013. Administrative Proceedings for Challenging Patent Validity before the Patent Trial and Appeal Board The AIA in 2011 created the Patent Trial and Appeal Board and stated any references in federal law to USPTO’s then-existing Board of Patent Appeals and Interferences be deemed to refer to the new board. By statute, the Patent Trial and Appeal Board consists of the USPTO Director, Deputy Director, Commissioner for Patents, Commissioner for Trademarks, and administrative patent judges. In practice, to issue decisions in the matters that come before it, the board involves more than 300 people serving in many positions, according to the board. The board is led by the Chief Judge and Deputy Chief Judge, who, along with other members of senior management, meet regularly to discuss operational and procedural matters of importance to the board’s overall mission, according to the board. The AIA created three new administrative proceedings for the board to administer, each with different statutory rules (see table 1). Two proceedings were made permanent: Post-grant review provides a 9-month opportunity following the issuance of a patent during which a third party can file a petition to challenge a patent’s validity on any of the four statutory grounds: subject matter eligibility, novelty, non-obviousness, and clarity. Inter partes review is available to third parties for the life of the patent, but on a limited set of grounds (non-novelty or obviousness), and on a limited set of acceptable prior art (previously issued patents and printed publications). The third proceeding—the CBM program—was included in the act as a temporary proceeding that can be used to challenge a patent at any point in its life, as allowable under the inter partes review program. However, under the CBM program, only a party (e.g., a company or an individual) that is sued or charged in an infringement suit can petition. Such petitioners can challenge a patent’s validity on any of the four statutory grounds without the limits on prior art in inter partes review. Additionally, rules about which arguments parties are officially barred from being raised again in later legal actions (called estoppel provisions) are less restrictive under the CBM program than for the other two board proceedings. However, the body of patents that qualify for review under the CBM program is limited to those that claim a non-technological method involved in the practice, administration, or management of a financial service or product. A patent is “technological” if it claims a technological feature that solves a technical problem using a technical solution. Many software and business method patents issued in the wake of State Street Bank describe implementing an abstract idea on a generic computer. Since the Supreme Court’s 2014 decision in Alice, which closely aligns with the CBM program’s “non-technological” designation, these types of ideas are no longer thought to be patentable. Inter partes review is the most-used of the proceedings created by the AIA and the one stakeholders we interviewed were most familiar with when they discussed the Patent Trial and Appeal Board. The other proceedings have been used less frequently, likely because of the short window for filing a challenge, in the case of post-grant review, and because of additional restrictions on what patents may be challenged, in the case of CBM. Under statute and regulation, the full review process at the Patent Trial and Appeal Board for any of the three proceedings generally takes up to 18 months and comprises two phases: (1) the petition phase, which lasts up to 6 months, and (2) the trial phase, which generally lasts up to 12 months. During the petition phase, the petitioner—typically a party accused of patent infringement, in the CBM program— files a petition challenging the validity of one or more of the patent’s claims and pays fees for each challenged claim. In some cases, a petitioner will file more than one petition challenging a patent. This might occur when a petitioner is constrained by the maximum number of pages allowed in a petition. Multiple petitions can also be filed against a single patent if the patent owner has sued more than one party for infringement, and each files a separate petition challenging the patent’s validity. Petitioners might also file a petition under more than one proceeding, either concurrently or sequentially. When a petition is received and the fees paid, administrative personnel of the board, under direction of the Chief Judge, assign three technically trained administrative patent judges to the case. According to agency documents, these three-judge panels are put together taking into account many factors, including technical experience, experience at the board, potential conflicts of interest, and availability. The patent owner may then, within 3 months of the petition date, file a preliminary response to the petitioner’s arguments. Within 3 months of submission of any preliminary response, or the last date on which such response may be filed, the panel of judges determines whether to allow the petition to move to the trial phase for review. This determination is called the “institution decision.” According to statute and regulations, in the case of the CBM program and post-grant review, a panel of judges may not institute a review unless the information presented in the petition, if not rebutted, would demonstrate that it is “more likely than not” that at least one of the claims challenged in the petition is unpatentable, or in the case of inter partes review, if the petitioner has a “reasonable likelihood” of prevailing. The first step in the trial phase is discovery (a step that exists in all federal civil litigation), during which the parties produce documents or testimony relevant to the challenged claims. Each party has 3 months to file discovery documents for the panel of judges’ review. If a petitioner and patent owner do not settle a case or it does not otherwise terminate, the case will proceed to the oral hearing. The hearing is an opportunity for the parties to make their strongest arguments and to answer judges’ questions, according to a board official, and after the hearing, the panel of judges will deliberate over the course of a few weeks or months and then issue its final written decision. The final written decision must be issued within 1 year of the institution decision, with limited exceptions. The patent owner may, for example, cancel one or more claims in the patent in an attempt to avoid institution of the trial. Figure 2, shows the progression of a case from the petitioner’s filing to the panel of judges issuing a final written decision. Under its Standard Operating Procedures, every Patent Trial and Appeal Board decision is, by default, a routine opinion until it is designated as “representative,” “informative,” or “precedential.” Representative decisions typically provide a representative sample of outcomes on a particular matter; they are not binding authority. Informative decisions provide norms on recurring issues, guidance on issues of first impression, and guidance on the board’s rules and practices; they are not binding authority. Precedential decisions are binding authority and emphasize decisions that resolve conflicts or address novel questions. Nominations for these designations can be made by a Patent Trial and Appeal Board judge, the Chief Judge, the Director of USPTO, the Deputy Director of USPTO, the Commissioner for Patents, or the Commissioner for Trademarks. Also, a member of the public may nominate a decision for a precedential designation within 60 days of its issuance. The Chief Judge can designate a nominated decision as representative or informative, but under Standard Operating Procedures, a precedential designation requires a majority agreement among all voting members of the board, including administrative patent judges and statutory members, as well as concurrence by the Director of the USPTO. Court Decisions on Eligibility for Review under the CBM Program Petitioners and patent owners may appeal the final written decisions of the Patent Trial and Appeal Board to the U.S. Court of Appeals for the Federal Circuit, just as unsatisfied plaintiffs or defendants may appeal a federal district court decision, and decisions may ultimately be appealed to the U.S. Supreme Court. The following decisions have significantly influenced the eligibility rules for CBM review, for different reasons: In Cuozzo Speed Technologies, LLC v. Lee (June 2016), the U.S. Supreme Court affirmed the board’s use of the “broadest reasonable construction” standard—meaning the ordinary meaning that someone skilled in the art would reach—to define the language of the claims during post-grant review as a reasonable exercise of the board’s rulemaking authority. Defining claim language using the broadest reasonable interpretation meant that the number of business method patents that could be determined as financial in nature is larger than it would otherwise be, so more patents are potentially eligible for review under the CBM program. In Unwired Planet, LLC v. Google Inc. (November 2016), the U.S. Court of Appeals for the Federal Circuit ruled that the USPTO’s policy of assessing whether a claim’s activities were “incidental” or “complementary” to a financial activity was too broad a standard to apply when determining whether a patent claim was eligible for a CBM review. The court stated that, to be CBM-eligible, a patent must claim a method used in the practice, administration, or management of a financial product or service. Applying this narrower standard effectively reduced the number of patents accepted for review under the CBM program. In Secure Axcess, LLC v. PNC Bank Nat’l Assoc. (February 2017), the U.S. Court of Appeals for the Federal Circuit clarified that a CBM patent must specifically have a claim that contains an element of financial activity in order for a patent to qualify for review under the CBM program. Like the Unwired Planet decision, the narrower standard expressed by the court has led to fewer patents being eligible for review under the CBM program. More Than 350 Patents Have Been Challenged under the CBM Program, and About One-Third of These Patents Were Ruled Unpatentable From September 2012 through September 2017, parties accused of patent infringement filed 524 petitions challenging the validity of 359 distinct patents under the CBM program, resulting in rulings against about one-third of these patents. The average monthly number of CBM petitions fluctuated during this period, but use of the program has declined since about 2015. Some stakeholders have expressed concern about multiple petitions being filed against the same patent, but our analysis of petition data showed that the vast majority of patents challenged under the CBM program were challenged once or twice. Overall, through September 2017, the Patent Trial and Appeal Board completed reviews of 329 of the 359 patents challenged under the program, and the board ruled at least some challenged patent claims unpatentable in about one-third of these patents. Petitioners Have Challenged the Validity of 359 Patents under the CBM Program, but Use of the Program Has Declined Overall Parties accused of patent infringement filed 524 petitions for patent review under the CBM program from September 2012 through September 2017, with the number of petitions per month fluctuating but tapering off over time (see fig. 3). During this 5-year period, an average of more than 9 petitions per month were filed under the CBM program, but this average rate has declined since 2015 to fewer than 5 per month in the last fiscal year, with no petitions filed in August or September 2017. As a point of comparison, the number of petitions for inter partes review has generally increased over the 5-year period. Stakeholders we interviewed suggested several possible reasons for the decline in CBM petitions. Specifically, some stakeholders told us that recent Federal Circuit and Supreme Court decisions that have changed what is patentable subject matter and the eligibility criteria for CBM review may have reduced the set of business method patents eligible for CBM review. Some stakeholders also suggested CBM petitioners successfully targeted the lowest-quality business method patents in the early years of the program, and now that those patents have been challenged, there are fewer patents that do not meet patentability requirements. Another possibility, according to stakeholders, is that owners of business method patents are wary of asserting their intellectual property and risking its invalidation, especially in light of the Alice decision, which effectively limited the patentability of some business methods. As a result, according to these stakeholders, fewer such patents end up in litigation and subsequently before the Patent Trial and Appeal Board. Some stakeholders also told us the CBM program has reduced patent infringement lawsuits, including some filed by non- practicing entities. In addition, a few stakeholders told us some patent owners may be waiting until after the CBM program sunsets to assert their patents. Patents Are Infrequently Challenged More Than Once or Twice Some stakeholders we interviewed were concerned about multiple petitions being filed against the same patents; however, our analysis showed that the vast majority of the 359 distinct patents challenged under the CBM program were challenged only once or twice under that program. Stakeholders have suggested that petitioners are, in some cases, using the CBM program and the inter partes review program as tools to increase costs borne by patent owners, and in the case of the CBM program, as a tool to delay district court proceedings. Some stakeholders have stated that the use of the AIA trials in this manner amounts to harassment, and at least one stakeholder has written letters to USPTO requesting the Director to intervene. However, our analysis of petition data showed that among the 359 patents challenged under the CBM program, 73.3 percent were challenged once and 18.4 percent were challenged twice during the 5- year period we reviewed. Another thirty patents, or 8.4 percent, were challenged more than twice under the CBM program during this period (see fig. 4). Of these 30 patents, in many cases multiple parties challenged a single patent; in others, a single petitioner or set of petitioners challenged a patent multiple times. In addition, of the 359 patents challenged under the CBM program during the 5-year period we reviewed, 92 were also challenged at least once in inter partes review. In some instances, petitioners filed concurrent petitions for CBM and inter partes review if, for example, they were unsure if the claims were eligible for a CBM review. In other instances, petitioners first sought CBM review and, when that was unsuccessful, filed an inter partes review. In these cases, petitioners may initially be seeking CBM review because of the additional grounds available for challenging the patents, and then turning to the inter partes review program if the CBM challenge proves unsuccessful. In other instances, petitioners first had success under the inter partes review program and then filed another petition under the CBM or inter partes review programs, according to our analysis of petition data. When including patent challenges under both the CBM and inter partes review programs, 52.1 percent of the 359 patents challenged under the CBM program were challenged once and 29.3 percent were challenged twice (see fig. 4). More than half of the patents challenged under both programs (50 of 92 patents) did not have any challenged patent claims instituted for trial under the CBM program, meaning that those patents, in many cases, did not meet the CBM program’s eligibility requirements and may have been more appropriately challenged with an inter partes review. There are several other reasons why petitioners may file more than one petition against a single patent, according to stakeholders we interviewed. First, the board limits the number of pages that a petitioner may use to submit prior art and arguments for invalidity. Some petitioners might file more than one petition so they have room to present all of their art and arguments at once. Data we analyzed on CBM petitions show that many follow-on petitions are filed on or near the same day as the first petition, supporting this argument. Second, in some cases the patent owner may not identify all the asserted patent claims in the district court right away or may change the set of asserted claims later in the proceedings, necessitating an additional CBM or inter partes review petition to cover the new claims. Third, in order to get the expensive district court proceedings stayed—that is, halted pending the board’s decision on the patent’s validity—a petitioner may file a CBM petition on patentability or clarity grounds soon after the district court trial commences, because these arguments require limited time to formulate. Later, once the petitioner takes the time to investigate the prior art, the petitioner might file a second petition challenging the patent for non-novelty or obviousness. In our analysis of petition data, we found some examples that were consistent with this approach. Fourth, if a patent owner charges multiple entities with patent infringement, each of the alleged infringers has an individual right to file a petition challenging the patent’s validity. The defendants in the infringement suits who become petitioners at the board may collaborate with one another and join their cases, but they may also choose to file petitions individually. In our analysis of petition data, we found examples of both. Petitioners might choose to join their cases in order to share the cost of counsel, while others may choose not to join their cases, perhaps because they use substantially different art and arguments in their petitions. Our analysis of the petition data found some examples of multiple petitions against a single patent that may raise questions about the legitimacy of the follow-on petitions. In some instances, a second, follow- on petition challenging the patent’s validity on the same statutory grounds as it did in the first petition was filed by the same petitioner after the first petition was denied institution. This type of multiple petitioning may occur when, for instance, a procedural termination resulted from a technical error in the first petition. Board officials said it may also occur because a petitioner is using the first denial of institution to alter the arguments and guide the second petition, a strategy that the board has labeled “road- mapping.” In other instances, a single petitioner filed a second, follow-on petition challenging the patent on different statutory grounds after the first petition was denied institution. These follow-on petitions may be legitimate attempts to correct simple errors in the first petitions, or they may reflect practices that might raise questions about whether the program is being used as intended. Patent Trial and Appeal Board officials are aware of concerns over multiple petitions and recently concluded a study about the prevalence of such practices in relation to all three types of proceedings created by the AIA. The board found that almost two-thirds (63.4 percent) of follow-on petitions were filed on or near the same day as the first petition. Nearly three in four (72.4 percent) follow-on petitions were filed before the institution decision on the first petition. These findings suggest that most petitioners are not waiting to use the board’s decision of non-institution as a guide for developing a second petition. Moreover, the board officials we interviewed told us they are empowered to deny a petition if they determine the petition presents the same or substantially the same prior art or arguments previously presented in another petition. Board officials told us they had denied several recent petitions on this basis. In addition, in a recent precedential opinion, the board clarified the characteristics it looks for to determine whether it should deny an inter partes review when a petitioner submits a follow-on petition. These characteristics include whether the petitioner previously filed a petition against the same patent claims; whether the petitioner provides adequate explanation for the time elapsed between filing two or more petitions against the same patent claims; and whether the petitioner knew, or should have known, about the prior art presented in the second petition at the time of the first petition. Claims Have Been Ruled Unpatentable in More Than One-Third of Patents Challenged under the CBM Program The Patent Trial and Appeal Board has ruled unpatentable some or all of the patent claims instituted for trial in about one-third of challenged patents and about one-third of petitions under the CBM program. Data on petition outcomes, however, are open to different interpretations depending on how they are presented. For example, board judges ruled some or all of the patent claims considered at trial unpatentable in 96.7 percent of petitions (175 of 181) under the CBM program for which they issued a final written decision from September 2012 through September 2017. On the basis of this statistic, the board could seem to invalidate the majority of the patents it reviews, as noted by some stakeholders. However, this outcome is predictable given the criteria for institution of a CBM trial—a judge panel will institute a petition to the trial phase if it is “more likely than not” that at least one of the claims challenged in a petition is unpatentable—which tips outcomes for instituted petitions toward rulings of unpatentability. In addition, board judges did not issue final written decisions for all petitions that enter the trial phase because the parties often reach a settlement before the final written decision. When taking into account all of the CBM petitions that had an outcome as of Sept 30, 2017, board judges ruled some or all of the claims considered at trial unpatentable in 35.6 percent of the cases (175 of 492). The results are similar when considered by patent rather than by petition. Specifically, for patents challenged between September 2012 and September 2017 and for which a final written decision was issued in at least one petition, 95.2 percent of patents (120 of 126) had some or all the patent claims that were instituted for trial ruled unpatentable. However, because not all challenged patent claims are instituted for trial and because final written decisions are not issued for all petitions that enter the trial phase, it is also accurate to say the board judges ruled some or all of the patent claims unpatentable for 36.5 percent of challenged patents (120 of the 329) that had an outcome as of September 30, 2017 (see fig. 5). Changes in petition outcomes over time also challenge the idea that the board invalidates most patents it reviews. In particular, the percentage of CBM petitions instituted for trial has decreased over time (see fig. 6). In 2012, about 80.0 percent of CBM petitions had some or all challenged claims instituted. In comparison, in 2016 about 53.5 percent of CBM petitions had some or all claims instituted. Preliminary data for 2017 suggests that this trend might continue: through September 2017, about 38.5 percent of CBM petitions had some or all claims instituted. Similar to the decline in number of petitions filed, this trend might have a few explanations, according to stakeholders. Specifically, board panels might be less likely to institute a petition for trial based on conclusions of the U.S. Court of Appeals for the Federal Circuit in Unwired Planet and Secure Axcess. Another possibility is that the patents in earlier cases represented the easiest targets for validity challenges, and thus the more recent challenges are based on shakier legal grounds and less likely to meet the CBM program’s institution threshold. In addition to declining institution rates, there has been an increase in the percentage of CBM petitions that settle before reaching an outcome. Specifically, the percentage of cases where the parties settled their dispute either before or after the institution decision increased from about 6.7 percent in 2012 to about 28.9 percent in 2016. When a case before the board is settled, it generally concludes any concurrent district court infringement case. The patent owner’s intellectual property remains in place, and the patent owner is free to assert the patent against other alleged infringers later. The Board Met Timeliness Requirements and Has Taken Steps to Analyze Decisions and Improve Proceedings but Does Not Have Guidance to Ensure Decision Consistency The Patent Trial and Appeal Board has completed all trials under AIA- authorized proceedings within statutorily directed time frames, according to board data, and the board has taken steps to review issues that could affect the consistency of its trial proceedings and decisions and to engage with stakeholders to improve its proceedings. To ensure timeliness of trial proceedings, the board provided a checklist of information and time frames to petitioners and patent owners, among other things. According to board documents and interviews with officials, the board has also taken steps to review and assess its trial proceedings and decisions, but it does not have guidance for reviewing trial decisions, or the processes that lead to the decisions, for consistency. The board has also taken several steps to engage with stakeholders regarding various aspects of trial proceedings. Patent Trial and Appeal Board Data Indicate Trials Have Been Completed within Statutorily Directed Time Frames According to data on Patent Trial and Appeal Board proceedings, as of September 31, 2017, all trials under AIA-authorized proceedings, including the CBM program, have been completed within statutorily directed time frames. The board maintains a database of trial proceedings that includes the date of each petition, decision to institute a trial, and final written decision. Board officials we interviewed told us the timeliness of decisions to institute a trial and of final written decisions has not been a concern in the 5 years that it has operated. According to board officials, as of November 2017, two AIA trials—one under the inter partes review program and one under the CBM program—have been extended for good cause past the typical 1-year time limit between the institution decision and the final written decision, as allowed by statute. Board officials told us they have taken several steps to ensure that trials are completed within required time frames. According to board documentation, between 2012 and 2017, for example, the board hired more than 150 additional administrative patent judges, in part to preside over AIA trials. In addition, the board has taken several proactive administrative steps to help ensure that stakeholders are aware of requirements for information filing and dates. For example, when a petition is filed, the board’s administrative staff creates a checklist of information required and due dates, and communicates these dates and requirements to petitioners and patent owners throughout the trial. Some stakeholders have expressed concern that AIA trial time frames are too short and deprive patent owners and petitioners of due process rights. One patent attorney that we spoke with, for example, noted that the short time frames limit discovery. As directed by the AIA, a final determination for a review generally must be issued not later than 1 year after the date a review has been instituted, and the director may extend that period by up to 6 months for good cause. Board officials we interviewed stated that they do not believe parties are having trouble completing discovery activities in the time allotted in view of the limited discovery allowed at the board. Board officials further stated that they have not found compelling reasons to extend trial proceedings on the basis of the need for additional discovery. As reflected in USPTO’s strategic plan, timeliness of the board’s trial process is a key program goal, and board officials said trials would be extended only in unusual circumstances. In addition, board officials stated that the board adheres to the 12-month timeline for final written decisions because this timeline gives the district courts a definitive and predictable endpoint for the trials. The Board Has Taken Several Steps to Review Issues That Affect Trial Proceedings, but It Does Not Have Guidance to Ensure the Consistency of Its Decisions The Patent Trial and Appeal Board has decision review processes that help ensure trial decisions are revisited as appropriate, but the board cannot ensure the consistency of these decisions because it does not have guidance for reviewing them or the processes that lead to them. For trials still in progress, board officials told us that there are several ways that management gets involved in reviews. According to officials, a review of an ongoing trial is triggered if and when a paneled judge raises any issue deserving of management attention. Such issues are brought to the attention of the Chief Judge or other members of the board’s management team and are acted upon at their discretion. According to board officials, the usual response is a management meeting with the three-judge panel, with the goal of ensuring the judges are aware of any precedent or ongoing trials dealing with similar issues. The officials said these review meetings are also meant to ensure that board management is aware of any decisions that may be relevant to the stakeholder community or the public. According to board officials, issues that may prompt action include those that are not routine in nature, that involve novel questions of law, or that may result in decisions that could contradict previous board decisions. Board officials called these review meetings the first step for keeping track of key issues. Board officials told us these reviews raise a fair number of issues, but the process relies on self-reporting by the judges, and board officials told us the effectiveness of these reviews is not measured. Board officials also told us that a separate internal review process has evolved over time, whereby a small group of board judges, in consultation with board management, seeks to ensure decision quality and consistency by reading a large number of draft AIA trial decisions and giving feedback or suggestions to authoring judges prior to issuance. The board is currently drafting a formal charter that will outline the group’s function, reviewer selection, and membership term. According to board officials, these reviews are meant to help ensure consistency with applicable board rules, other board decisions, and Federal Circuit and Supreme Court case law. In addition, such reviews may result in coaching and training to increase an individual judge’s quality of performance. Regarding completed trials, board officials told us they review any board AIA trial decisions that are appealed to the U.S. Court of Appeals for the Federal Circuit and that the appeals court reverses or remands. Specifically, the board monitors Federal Circuit decisions and board management then reviews any reversals or remands for opportunities to improve processes and stay abreast of emerging issues. According to board officials, for any reversal or remand, board management and members of the three-judge panel that decided the case meet to discuss what steps could have been taken to avoid the Federal Circuit reversal or remand, and what else can be learned from the Federal Circuit decision. In some instances, according to officials, the board will host a session where all board judges are invited to review and discuss the trial court decision and the decision of the Federal Circuit. In addition, board officials told us they track data on Federal Circuit affirmances, remands, and reversals. The board has recently updated its Standard Operating Procedure to provide guidance on how it handles cases remanded by the Federal Circuit. This procedure creates internal norms to promote timeliness and consistency of the board’s response to remands. The procedure includes a goal for the board to issue decisions on remands within 6 months of receipt and calls on the Chief Judge and the Deputy Chief Judge to discuss each remanded case with the presiding three- judge panel before the panel expends substantial effort on the case. The Chief Judge may also elect to expand the panel assigned to the remanded case, when deemed prudent. Furthermore, officials told us that all board decisions—including final written decisions, decisions to institute a trial, and any substantive orders—are reviewed by board judges on the date of issuance. Specifically, a rotating group of judges, on a voluntary basis, reads and analyzes each day’s decisions and, according to board officials, sends a summary list of the number of decisions made that day along with a brief decision summary for any cases where key issues of interest were raised. Board officials said that most decisions are straightforward and generally not summarized in detail. For decisions highlighted in the summary report, according to officials, a lead judge, in most cases, will then review the decision more closely. Example summary lists provided to us by the board show brief summaries of a trial involving interpretations of prior art admissibility and a trial dealing with an interpretation of a challenge based on clarity. Finally, board officials told us that the board has begun to increase the number of trial decisions considered for precedential and informative designations as part of its efforts to ensure the consistency of trial decisions. Board officials also told us that increasing the number of these designations had not been a priority while the AIA trial procedures and processes were being operationalized and as the board was hiring more than 150 administrative patent judges over the past 5 years. However, officials said that they are now taking steps to simplify the vetting and voting process, and the board expects more precedential and informative designations going forward. Taken together, the board’s review processes help ensure that board trial decisions are reviewed in some manner. However, because the board does not have documented procedures for how to review decisions for consistency, the board cannot fully ensure the consistency of the decisions or the processes that lead to them. USPTO’s 2014-2018 strategic plan includes the goal to “optimize patent quality and timeliness,” which includes an objective to “maintain ability to provide high-quality decisions.” As part of this objective, the plan states that it is “critical for the to ensure consistency in its decisions through review of decisions in proceedings.” Under federal standards for internal control, management should design control activities to achieve objectives and respond to risks. Such control activities include clearly documenting internal control in a manner that allows the documentation to be readily available for examination. The documentation may appear in management directives, administrative policies, or operating manuals. However, the board has not yet clearly documented how judges are to review trial decisions, or the processes that lead to the decisions, to ensure consistency. Without developing guidance, such as documented procedures, outlining the steps USPTO will take to review the Patent Trial and Appeal Board decisions and the processes that lead to decisions, USPTO cannot ensure that it is fully meeting the objective of ensuring consistency of its decisions. The Patent Trial and Appeal Board Has Taken Several Steps to Engage Stakeholders and Address Stakeholder Concerns The Patent Trial and Appeal Board has taken several steps to engage stakeholders regarding trial proceedings and decisions and address related concerns. USPTO’s strategic plan states that the board should expand outreach to stakeholders by providing opportunities for interaction and updates on board operations and other important issues. The board has done so through several types of public outreach efforts, including participating in roundtables, webinars, and judicial conferences, among other activities. The board has made several changes to policies and procedures based on stakeholder feedback gathered through these mechanisms. For example, after the Patent Trial and Appeal Board had been operational for about 18 months, it conducted a series of eight roundtables in April and May of 2014 at locations around the country to publicly share information concerning trial proceedings, to obtain public feedback on these proceedings, and to launch the process of revisiting its trial rules and trial practice guide. At these roundtables, the board provided the public with statistics summarizing the administrative trial proceedings, as well as lessons learned for filing effective petitions, engaging in successful discovery and amendment practice, and effectively presenting a case at oral hearing, among other things. The board also asked for and received feedback from the public on the AIA administrative trial proceeding rules and trial practice guide, as well as on experiences in general with the AIA administrative trial proceedings. Subsequent to the 2014 roundtables, the USPTO sought public input on all aspects of AIA trial proceedings through a June 27, 2014 Federal Register notice, which included 17 specific questions regarding certain trial rules, such as claim construction, the claim amendment process, and good cause trial extensions. USPTO took a two-step approach in responding to the 37 comments received in response to this Federal Register notice. First, USPTO implemented several immediate changes to board proceedings, including changes to page limits for some documents. According to the annual report of USPTO’s Patent Public Advisory Committee, these changes were favorably received by the stakeholder community. Second, in April 2016, the board implemented more substantive changes, including allowing testimonial evidence to be submitted with a patent owner’s preliminary response to a petition and changing from a page limit to a word count for major briefings, among other things. In addition to roundtables, the board has engaged with stakeholders through several other mechanisms, including webinars and judicial conferences. For example, in February 2015, the board announced its inaugural “Boardside Chat” lunchtime webinar series, which has been held bi-monthly ever since. These webinars are designed to update the public on current board activities and statistics, and to allow a means for the board to regularly receive public feedback about AIA trial proceedings and any issues of concern. Topics discussed at these events include key trial decisions, proposed changes to trial rules, and best practices for prior art presentations in AIA trials, among other things. Since 2015, the board has hosted an annual judicial conference, where the board engages with stakeholders and educates them about AIA trial proceedings, answers questions, and receives feedback. Board judges present trial statistics, information about the internal functioning of the board, practice tips, and engage in discussions on topics of current interest to stakeholders. Topics have included motions to amend and the prevalence of multiple petitions. More recently, the board has conducted other outreach sessions, including: an August 2017 roundtable meeting with stakeholders from the American Intellectual Property Law Association to address a broad range of topics affecting practitioners before the board, including how patent claims are interpreted, claim amendments, and conditions under which multiple petitions from a single petitioner would be denied; a webinar on August 31, 2017, addressing common evidentiary issues that occur during AIA trial proceedings; and a webinar on September 12, 2017, with the Chief Judge to commemorate the 5th anniversary of the board, where discussion topics included the origins and mission of the board, recent board developments, and operational procedures. According to USPTO’s Patent Public Advisory Committee, this type of outreach provides a valuable two-way conduit for constructive flow of information to and from the board. In addition to these various outreach efforts, stakeholders are encouraged to provide feedback to the board, on any topic related to trial proceedings, by e-mail or telephone. Board officials we interviewed told us that they review information obtained from stakeholders during roundtable meetings and other outreach events and implement changes to policies and procedures where applicable. The officials told us that stakeholder feedback has been used to inform updates to the board’s trial rules guidance, to modify rules of practice, and in updating Standard Operating Procedures. In addition, board officials told us that in response to stakeholder concerns, they conducted two extensive studies covering motions to amend and the filing of multiple petitions against a single patent. Furthermore, board officials told us that they have held training sessions for judges regarding specific areas of interest to stakeholders. Lastly, board officials also told us that the board’s website, including the frequently-asked-questions pages, is updated with information relevant to stakeholders, including stakeholder concerns. For example, written stakeholder comments submitted in response to a proposed rulemaking are posted on the USPTO website for public viewing. Stakeholders Agree the CBM Program Has Reduced Litigation, and Many See Value in Maintaining Aspects of the Program Stakeholders we interviewed generally agreed that the CBM program has reduced litigation, and many said there is value in maintaining some aspects of the program. Stakeholders generally agreed that the CBM program has contributed to a decrease in litigation involving business methods patents and that the program has had positive effects on innovation and investment. Most stakeholders also said there is value in maintaining, among other things, the ability to challenge patents on all four statutory grounds before the Patent Trial and Appeal Board. Stakeholders Generally Agreed the CBM Program Has Contributed to a Decrease in Litigation Involving Business Method Patents Stakeholders we interviewed generally agreed the CBM program has reduced litigation involving business method patents because the CBM program allows these patents to be more easily challenged than in district courts. Stakeholders told us that fewer business method patent lawsuits are filed and that existing lawsuits are often dropped after patents have been through the CBM program. However, stakeholders also noted that the Supreme Court’s 2014 decision in Alice may have also reduced the number of business method patent lawsuits. Patents that would be found invalid under Alice are often very similar to the patents that are eligible for challenge under the CBM program, and in some cases, according to stakeholders, it is cheaper and more efficient to challenge a patent’s validity in district court using Alice than it is to use the CBM program. Stakeholders described the following additional effects of the CBM program: Business method patent assertion is riskier. The CBM program makes it riskier to assert business method patents because, compared with district court, the program offers a cheaper and more efficient way for alleged infringers to challenge a patent’s validity. District court litigation can take several years and cost several million dollars, while CBM trials are limited to 18 months and generally cost much less. In addition, technically trained board judges have greater expertise in patent law than an average district court judge and jury, and are often better able to understand complex patentability issues. Because of this, some alleged infringers are more willing to present complex arguments—such as questions about whether the patent meets standards for clarity—to the board than to a jury. As a result, the CBM program has deterred owners of financial business method patents from asserting their patents for fear those patents will be ruled unpatentable. According to stakeholders, the existence of CBM challenges has put downward pressure on settlement amounts. Patent owners may want to avoid the risk of their patent being invalidated and will demand lower settlement amounts to avoid the risk of CBM and district court proceedings. Petitioners, too, told us they use this knowledge to negotiate lower settlement fees. In addition, because challenges under the CBM program may suspend the parallel district court proceedings, it is more difficult for patent owners to expect quick settlements from alleged infringers looking to avoid the rapidly increasing court costs associated with lengthy trials. The parties can still reach settlements after the alleged infringer files a challenge under the CBM program, but the patent owners have less leverage in negotiations. On the other hand, for patent owners willing to go through a CBM challenge, their patents will emerge stronger having survived the additional review according to stakeholders we interviewed. Business method patent owners have adjusted assertion strategies to avoid the CBM program. Patent owners are focused on asserting business method patents that are higher quality and less vulnerable to challenge under the CBM program or based on the Supreme Court’s decision in Alice; in other words, those patents that describe a technological invention that is not abstract and implemented on a generic computer. In addition, a few stakeholders told us that they have abandoned some claims in certain patents to avoid the possibility of their patents being challenged under the CBM program. Stakeholders also told us that patent owners seem to be asserting more patents, and more claims, than before the CBM program was implemented, as a strategy either to ratchet up defense costs for accused infringers and secure a settlement or to at least have success with some of the infringement charges. In addition, some stakeholders said that because the board charges fees for each petition challenging a patent, asserting more patents is a strategy to increase expected costs of defending against infringement and, thus, to increase the likelihood of a settlement. However, our analysis of RPX litigation data from 2007 to 2017 did not support these assertions. Patent litigation data did not show an increase in the monthly average number of patents asserted per case among cases involving one or more business method patents. The CBM program has decreased the value of business method patents. The CBM program has decreased the value of business method patents generally, even beyond those focused on financial services. Several stakeholders told us that the board’s broad initial interpretation of the CBM program’s eligibility requirements contributed to an increased risk to a wider swath of business method and software patents than was intended by Congress. Stakeholders told us that any patent tangentially related to financial business methods has been devalued because it could potentially be challenged under the CBM program. In addition, stakeholders said they believed that the threat of such challenges has decreased the value of all business method patents, including those that might ultimately survive a CBM challenge. Some stakeholders pointed to a decrease in licensing of business method patents and others suggested that patents have lost value on the secondary patent market. Available data that we reviewed, though limited, support the claims that patent values on the secondary market have fallen. A few stakeholders, however, told us that to the extent these patents have lost value, the devaluation is related to problems with patent quality. Stakeholders Generally Agreed the CBM Program Has Had Positive Effects on Innovation and Investment Stakeholders generally agreed the effects of the CBM program on innovation and investment have been minimal or mostly positive. More specifically, stakeholders told us that the CBM program is good for overall innovation and investment in financial technologies in that the program eliminates overly broad (non-specific), low-quality patents. Stakeholders told us they believe the existence and assertion of overly broad patents is bad for innovation, in part because defending against alleged infringement is expensive and time-consuming, even under the CBM program. Assertion of overly broad, unclear, or otherwise low-quality patents acts much like a tax on investment, according to stakeholders. Stakeholders also told us that removing such patents from the marketplace promotes innovation because it prevents these patents from blocking new innovation. According to stakeholders, innovation is represented by the quality of the patents issued rather than the quantity. A large number of patents in a technology space, according to stakeholders, can make it difficult to innovate within that crowded space. A few stakeholders had differing views, stating that the CBM program has affected some companies’ ability to protect a business model with a business method patent, although one stakeholder acknowledged that the Supreme Court’s decision in Alice has also had an effect. These types of comments were generally from stakeholders with company-specific interests, including individual patent owners and companies that have had patents invalidated under the CBM program. Other stakeholders, however, including those in the financial services industry, told us that innovation in their field is robust. For example, these companies are developing mobile-payment and blockchain technologies, and the companies have not seen any negative effects from the CBM program on their ability to innovate, patent, and invest in these financial services technologies. Stakeholders generally agreed that the CBM program and the other post- grant programs have had a positive effect on patent quality, as patent applicants are more and more aware of what it takes to ensure a patent will survive a post-grant challenge. Several stakeholders highlighted extra steps they have taken before and during the patent application and examination stages to ensure their patents will stand up to any eventual challenges. For example, one patent owner told us how his company proactively worked to get its patent examined by a foreign patent office, in an effort to understand any quality issues with the patent, before submitting a patent application to USPTO. Another stakeholder told us about an extended back-and-forth with the USPTO examiner. This stakeholder told us that the additional effort taken during the examination process resulted in a patent that is much clearer and that will be more likely to stand up to additional scrutiny. Most Stakeholders Said There Is Value in Maintaining Aspects of the CBM Program Most stakeholders told us there was value in maintaining aspects of the CBM program, including the ability to challenge patents on all four statutory grounds at the Patent Trial and Appeal Board, and many told us that it would be useful to expand this capability to a broader set of patents beyond business methods. However, there was no strong consensus among stakeholders for how the AIA trials should be designed in the future. Stakeholders generally agreed that the ability to challenge a patent’s validity on subject matter eligibility grounds remains important, although there was not broad agreement among stakeholders regarding how far that ability should extend beyond business method patents. Stakeholders we interviewed pointed to inconsistencies in how federal courts interpret subject matter eligibility requirements and said that challenges on subject matter eligibility grounds should remain an option at the Patent Trial and Appeal Board because of the board’s expertise over the courts. Some stakeholders said subject matter eligibility challenges were important for a wider scope of patents than just business methods because concerns about subject matter eligibility that apply to business method patents extend to software-related patents in general. In addition, a few stakeholders suggested that subject matter eligibility challenges should be available for patents in all areas of technology. The continued prevalence of challenges in district courts based on the Supreme Court’s decision in Alice, for business method patents and for a wider array of patents, highlights the importance of retaining the ability to challenge patent validity at the board on subject matter eligibility grounds. Similarly, stakeholders told us that patent clarity problems exist beyond business method patents. Stakeholders said that the federal courts and jurors do not necessarily have the expertise to interpret patent clarity requirements and that the technically trained Patent Trial and Appeal Board judges were better suited to make patentability determinations, including on clarity grounds. One stakeholder, for example, told us that petitioners can delve much deeper into the invalidity argument on patent clarity grounds at a CBM trials than they can as defendants in district court, mostly because the board judges have the requisite technical expertise. In addition, many stakeholders told us that challenging patents on clarity grounds was also important for a much broader array of patents than business method patents, and some suggested that these challenges should remain an option for all patents challenged at the board. In June 2016, we reported that more than 40 percent of patent examiners experience pressure to avoid rejecting a patent application because of problems with clarity and we recommended additional steps USPTO could take to improve patent clarity. This suggests there are a potentially large number of patents, beyond and including business method patents, that could benefit from a second look by the board on these grounds, and inter partes review does not allow patents to be challenged on clarity grounds. Stakeholders discussed several other topics related to the future of the CBM program: Post-grant review is not an effective substitute for the CBM program for challenging patents on subject matter eligibility and patent clarity grounds. Stakeholders told us that the 9-month window, after a patent is issued, to file challenges using post-grant review is too short to make it an effective substitute for the CBM program. Post-grant review was established as a permanent mechanism at the board for challenging all patents on all statutory grounds. However, only 78 petitions have been filed for post-grant review through September 30, 2017. According to stakeholders, few companies have the resources to continuously monitor patent issuance in real time. In addition, even if companies do discover patents that are relevant to their business, companies, in general, are not willing or able to spend resources challenging patents that may never be used as the basis for an infringement lawsuit. As a result, the public essentially does not have the ability to challenge most patents on subject matter eligibility and clarity grounds, according to stakeholders. CBM challenges should not be limited to a specific technology. Although the CBM program was designed to address a problem caused by a narrow set of patents, some stakeholders told us they are troubled by CBM’s focus on patents for financial services and products. Stakeholders said that singling out such services and products is unfair and that the need to determine eligibility for review created uncertainty for patent owners. In addition, some stakeholders told us that the singling out of a particular subset of patents may raise questions about compliance with an international treaty. Concerns remain about business method and software-related patents. Some stakeholders told us the patents that the CBM program was designed to address have largely been addressed by improved examination at USPTO, reducing the need for the program. In addition, some stakeholders told us that the CBM program, which was designed to be temporary, had largely succeeded in addressing the problems with business method patents. However, other stakeholders told us that patents of questionable validity, including business method and software patents, continue to be issued by the patent office. Given these continuing concerns over software-related patents, several stakeholders suggested that one viable option for the future of the CBM program is to expand its eligibility beyond financial services patents to cover all software-related patents. In addition, in contrast to the inter partes review program, the CBM program allows any form of prior art to be used to challenge a patent on novelty or obviousness grounds. This broader allowance for prior art is important because many software and business method patents were preceded by prior art not found in existing patents or printed publications. Conclusions In 2016, we reported on a number of patent quality challenges at USPTO and made several recommendations to help improve the quality and clarity of issued patents. In that report, we estimated that almost 70 percent of patent examiners did not have enough time to complete a thorough examination of patent applications given a typical examiner’s workload. Given these time constraints and other patent quality challenges, the Patent Trial and Appeal Board has provided a means to challenge low-quality patents after they have been issued. Stakeholders generally agreed that the CBM program has reduced lawsuits in the federal courts involving business method patents, and many stakeholders were in favor of maintaining aspects of the program. The board has a track record of issuing timely decisions that have largely been upheld by the U.S. Court of Appeals for the Federal Circuit. However, the board does not have guidance, such as documented procedures, for reviewing trial decisions and the processes that led to the decisions. Without developing guidance, such as documented procedures, that outlines the steps USPTO will take to review the Patent Trial and Appeal Board’s decisions and the processes that lead to decisions, USPTO cannot fully ensure that it is meeting the objective of ensuring consistency of its decisions. Recommendation for Executive Action We are making the following recommendation to USPTO: The Director of USPTO should develop guidance, such as documented procedures, for judges reviewing the Patent Trial and Appeal Board’s decisions and the processes that lead to the decisions. (Recommendation 1) Agency Comments We provided a draft of this report to the Department of Commerce for review and comment. In its comments, reproduced in appendix II, the department agreed with the recommendation and stated that it has begun taking steps to address it, including drafting a formal, written charter that documents procedures for reviewing board decisions. The department further stated that it intends to address the recommendation within one year. In addition, it provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 8 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Commerce, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology Our objectives were to (1) describe the extent to which the Patent Trial and Appeal Board’s Transitional Program For Covered Business Method Patents (CBM program) has been used to challenge patents, and the results of those challenges; (2) examine the extent to which USPTO ensures timeliness of trial decisions, reviews decisions for consistency, and engages with stakeholders to improve its administrative proceedings for the program; and (3) discuss stakeholder views on the effects of the CBM program and whether it should be extended past its scheduled September 2020 sunset date. To describe the extent to which the CBM program has been used to challenge patents, and the results of those challenges, we obtained data on board proceedings from two companies—RPX Corporation and Unified Patents—that included information on all of the board’s proceedings from September 2012 through September 2017. RPX and Unified Patents collect, compile, and analyze data from the U.S. Patent and Trademark Office’s publicly available data system. Both companies manually review these data to verify variables and to manually code additional information from other publicly available board documents. We conducted data quality testing, interviewed relevant officials, and reviewed relevant documentation for the data. We found these data to be sufficiently reliable for the purposes of our reporting objectives. For petitions filed at the board, data from RPX and Unified Patents include information on the patent in dispute, including its U.S. patent number, petition-filing dates, and trial institution and final written decision dates. RPX data include the patent claims challenged and the statutory grounds on which they were challenged. In addition, RPX data includes which patent claims were instituted for trial on which statutory grounds, and which patent claims were ruled unpatentable on which statutory grounds. RPX and Unified Patents provided the names of the petitioners and patent owners, as well as whether the patent owner is an operating company or one of several classifications of non-practicing entities. RPX also provided the names of the parties’ attorneys. We categorized which program each petition was filed under (CBM, inter partes review, or post- grant review) to enable comparisons across programs. We used the data from Unified Patents on Patent Trial and Appeal Board proceedings to supplement the RPX data for outcomes of each petition. Specifically, we compared the Unified Patents’ outcome variable—which describes the final outcome of the proceeding—and the RPX outcome variable to create a new variable that reflects the full available information about each petition’s outcome. There were some—fewer than 3 percent of cases—where the two variable values were inconsistent with one another. In these cases, we reviewed trial documentation to determine the correct value for the outcome variable. The Unified Patents outcome variable sometimes had more information than the RPX variable. For example, cases that were terminated because of settlement were identified as settlements in the Unified Patents data, but not in the RPX data. We retained the additional detail for our analysis. To determine trial outcomes at the patent level, we analyzed the petition in which the patent proceeded the furthest in the CBM process. For example, if a patent was challenged under the CBM program multiple times—for example, three times—and two petitions were not instituted to the trial phase and one was instituted and then settled before the board judges issued a final written decision, we used the petition that proceeded the furthest for our patent-level analysis of outcomes. In this way, we were able to report what happened to patents under the CBM program, while not double-counting those patents that were challenged more than once. To examine the extent to which USPTO ensures trial timeliness, reviews past decisions for consistency, and engages with stakeholders to improve its administrative proceedings for the program, we reviewed the America Invents Act (AIA); USPTO’s strategic plan; the Patent Trial and Appeal Board’s policy and guidance documents, including the Trial Practice Guide; and we interviewed board officials on several occasions. We compared USPTO’s efforts to review decisions for consistency against USPTO’s current strategic plan as well as Standards for Internal Control in the Federal Government (commonly referred to as the “Green Book”). In addition, we reviewed publicly available information documenting the steps the board takes to engage with stakeholders, including documentation of webinars, judicial conferences, and roundtable discussions. To obtain stakeholder views on the effects of the CBM program and whether it should be extended, we conducted semi-structured interviews with 38 stakeholders knowledgeable about the CBM program. To identify these stakeholders, we first identified the following sets of stakeholder groups: petitioners and patent owners who have been involved with CBM trials; attorneys who have represented clients with board proceedings; industry trade groups; academic and legal commentators; public interest groups; and venture capitalists. We identified petitioners, patent owners, and attorneys who had been involved in board proceedings using data from RPX Corporation and Unified Patents. We ranked petitioners, patent owners, and attorneys based on how many CBM cases they had been involved with, and how many inter partes review cases they had been involved with in front of the board. We then requested, via email, interviews with several stakeholders from each stakeholder group, and began our semi-structured interviews as stakeholders accepted our invitation. During our initial set of semi-structured interviews, we identified additional stakeholders through an iterative process known as a “snowball selection method,” whereby during each interview we solicited names of additional stakeholders it would be useful to interview. As we obtained the names of additional stakeholders, we requested additional interviews, conducted interviews, and solicited additional stakeholders, until we (a) had interviewed four or more stakeholders from each identified stakeholder group and (b) found that stakeholder responses were, in general, commonly describing the same broad themes and relevant points that previous stakeholders had described about the topics we were discussing. In total, the stakeholders we recruited and interviewed did not form a random, statistically representative sample of all relevant stakeholders. As such, we cannot generalize the results of the interviews. However, these stakeholder groups and the stakeholders we interviewed provide a broad spectrum of informed opinions on the CBM program. Of the 38 stakeholders interviewed, 14 had previously petitioned CBM against more than one patent owner, and many of those had also petitioned an inter partes review. In addition, we interviewed 6 patent owners that had been involved in multiple CBM trials. We also interviewed attorneys from 5 law firms that have represented multiple petitioners and patents owners in CBM cases. In addition, we interviewed officials from 4 trade groups, 4 venture capital firms, and 5 academics and legal commentators, all of whom had interest and expertise in the CBM program. During our semi-structured interviews, we asked stakeholders the following three broad questions: How much and in what way has the existence of the CBM program affected patent assertion strategies since 2012? How much has the CBM program influenced investment decisions and innovation for technologies related to financial-services business methods? Should the CBM program be allowed to expire in September 2020 or should it be renewed? For each question, we used a consistent set of follow-up prompts to ensure that we fully covered all aspects of each topic with the stakeholders, that we received complete answers, and that we were able to accurately record the responses. While we asked every stakeholder each of the three questions, we did so keeping in mind the particular background and experience of each stakeholder because experience and expertise differed across our wide range of stakeholders. As such, during each interview, we focused on the topics where the stakeholder had the most experience, expertise, or knowledge. To systematically analyze the information we collected during our semi- structured interviews, we used qualitative analysis software to group the responses into categories and themes. All information was individually coded by two analysts. We classified individual responses according to these broad themes, which generally corresponded to our main questions: The effect of the CBM program on patent assertion and litigation. The effect of the CBM program on innovation and investment in business methods. The future of the CBM program. Within each broad theme, we labeled and organized sub-themes. We established the sub-themes by identifying natural clusters of stakeholder responses. We analyzed the categorized themes and sub-themes to draw inferences about the effectiveness of the CBM program by taking the following steps: We first examined the amount and nature of agreement and disagreement between responses within each theme and sub-theme. We then assessed the strength of the arguments supporting each categorized response, and considered factors including the number of stakeholders who discussed a topic, including the strength of the rationale for each viewpoint and other supporting evidence provided. We also considered the way in which stakeholders’ interests could influence their perspectives. In this report, we present the themes with the strongest and most consistent support based on rationale including the prevalence of each argument, the presence of credible evidence in support of statements, and the amount of consistency and corroboration of themes across stakeholders. Because stakeholders do not make up a defined population that we could sample from, and because the stakeholders we interviewed had a wide range of experience and expertise, we did not tally up similar responses and do not present stakeholder responses based solely on how many stakeholders agreed or disagreed with a given statement. We conducted this performance audit from November 2016 to March 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Commerce Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, the following individuals made contributions to this report: Rob Marek (Assistant Director), Kevin Bray, Mark Braza, Richard Burkard, Stephanie Gaines, Michael Krafve, Cynthia Norris, Ardith Spence, Sara Sullivan, and Sarah Williamson. Related GAO Products Intellectual Property: Patent Office Should Define Quality, Reassess Incentives, and Improve Clarity. GAO-16-490. Washington, D.C.: June 30, 2016. Intellectual Property: Patent Office Should Strengthen Search Capabilities and Better Monitor Examiners’ Work. GAO-16-479. Washington, D.C.: June 30, 2016. Intellectual Property: Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality. GAO-13-465. Washington, D.C.: August 22, 2013. U.S. Patent and Trademark Office: Performance Management Processes. GAO-10-946R. Washington, D.C.: September 24, 2010. Intellectual Property: Enhanced Planning by U.S. Personnel Overseas Could Strengthen Efforts. GAO-09-863. Washington, D.C.: September 30, 2009. Check 21 Act: Most Consumers Have Accepted and Banks Are Progressing Toward Full Adoption of Check Truncation. GAO-09-8. Washington, D.C.: October 28, 2008. U.S. Patent and Trademark Office: Hiring Efforts Are Not Sufficient to Reduce the Patent Application Backlog. GAO-08-527T. Washington, D.C.: February 27, 2008. U.S. Patent And Trademark Office: Hiring Efforts Are Not Sufficient to Reduce the Patent Application Backlog. GAO-07-1102. Washington, D.C.: September 4, 2007. Intellectual Property: Improvements Needed to Better Manage Patent Office Automation and Address Workforce Challenges. GAO-05-1008T. Washington, D.C.: September 8, 2005. Intellectual Property: Key Processes for Managing Patent Automation Strategy Need Strengthening. GAO-05-336. Washington, D.C.: June 17, 2005. Intellectual Property: USPTO Has Made Progress in Hiring Examiners, but Challenges to Retention Remain. GAO-05-720. Washington, D.C.: June 17, 2005.

Patents can promote innovation by giving inventors exclusive rights to their inventions, and patent owners can bring infringement lawsuits against anyone who uses, makes, sells, offers to sell, or imports a patented invention without authorization. As GAO previously reported, such lawsuits can take years and cost several million dollars. USPTO's CBM program provides a trial proceeding to challenge a patent's validity at USPTO's board for, according to stakeholders, a fraction of the time and money that would be spent in the federal courts. The CBM program began in September 2012 and is slated to sunset in September 2020. GAO was asked to examine the CBM program. This report (1) describes the extent to which the program has been used to challenge patents, and the results of those challenges; (2) examines the extent to which USPTO ensures timeliness of trial decisions, reviews decisions for consistency, and engages with stakeholders to improve proceedings for the program; and (3) discusses stakeholder views on the effects of the program and whether it should be extended past its sunset date. GAO analyzed CBM trial data from September 2012 through September 2017, reviewed USPTO documents, and interviewed 38 stakeholders, such as legal and academic commentators, selected for their knowledge of or direct involvement in such trials. From September 2012 through September 2017, entities facing patent infringement lawsuits filed 524 petitions challenging the validity of 359 patents under the U.S. Patent and Trademark Office's (USPTO) covered business method (CBM) program, resulting in decisions against about one-third of these patents. The CBM program provides entities facing infringement lawsuits an opportunity to challenge the validity of a business method patent by demonstrating that it did not meet requirements for patentability. Business method patents focus on ways of doing business in areas such as banking or e-commerce. The rate of filing petitions over this period has fluctuated but has generally declined since 2015, and none were filed in August or September 2017. USPTO has taken several steps to ensure the timeliness of trial decisions, review past decisions, and engage with stakeholders to improve proceedings under the program: Timeliness: USPTO regularly informs relevant parties about paperwork requirements and due dates throughout trials. According to program data, as of September 2017, all 181 completed trials were completed within statutorily required time frames. Decision review: USPTO has taken several steps to review its decisions and has monitored the rate at which the Court of Appeals for the Federal Circuit affirms or reverses them. However, USPTO does not have guidance, such as documented procedures, for reviewing trial decisions, or the processes leading to decisions, for consistency. Without guidance, such as documented procedures, USPTO cannot fully ensure that it is meeting its objective of ensuring consistency of decisions. Stakeholder engagement: USPTO judges have engaged with stakeholders by participating in public roundtables and webinars, and attending judicial conferences, among other things. Stakeholders GAO interviewed generally agreed that the CBM program has reduced lawsuits involving business method patents in the federal courts. While many stakeholders favored maintaining aspects of the program, there was not strong consensus among stakeholders for how future trials should be designed.

GAO_GAO-18-424

Background DOD’s MWR Program Categories and Funding Sources DOD Instruction 1015.10, Military Morale, Welfare, and Recreation (MWR) Programs, establishes policy, assigns responsibilities, and prescribes procedures for operating and managing programs for military MWR programs. Specifically, the policy states that the services are to establish MWR programs in order to maintain individual, family, and mission readiness and that these programs are an integral part of the military and its benefits package. The Office of USD(P&R) oversees DOD’s MWR programs, develops policy, and oversees MWR programs’ funding. DOD’s instruction specifies the purpose of, the funding sources for, and the activities within each of MWR’s three designated program categories—all of which are summarized below in table 1. For a complete listing of the activities by program category, see appendix I. Each service supports MWR programs with a mix of appropriated and nonappropriated funding. According to officials, the services allocate appropriated funding amounts for MWR purposes, which primarily supports Category A and B programs. Nonappropriated funding is government money from sources other than amounts appropriated by Congress and may be generated in a number of ways to support MWR programs. For example, bowling programs, marinas, and golf programs generate nonappropriated funding revenue through participation fees for recreational activities paid by servicemembers and their families. Services must use any nonappropriated funding generated from or associated with MWR programs within their MWR programs. DOD’s MWR Program Funding Targets According to DOD Instruction 1015.10, the MWR programs are divided into three distinct categories, two of which also have specific funding targets. According to DOD’s 2016 report to Congress on appropriated funding support for MWR programs, the funding targets are intended to ensure that the services adequately fund MWR programs instead of requiring the servicemembers and their families to pay out of their own pockets for costs that should be borne by appropriated funding. While DOD Instruction 1015.10 establishes minimum funding targets for MWR Category A and B programs, it directs that the basic funding target, regardless of program category, is to use appropriated funding for 100 percent of costs for which they were authorized. While DOD’s Instruction allows the services to use appropriated funding for 100 percent of authorized costs, according to service officials this is generally not possible given budget constraints. Therefore, for MWR Category A mission sustaining programs, the DOD instruction establishes the funding target—stating that DOD is to use appropriated funding amounts for a minimum of 85 percent of total expenditures. For the MWR Category B community support system programs, the DOD instruction establishes the funding target as DOD’s use of appropriated funding amounts for a minimum of 65 percent of total expenditures. For the MWR Category C recreational activities for servicemembers and their families, appropriated funding support should generally be limited because this category has the highest capability of generating nonappropriated funding revenues. Budget, Funding, and Accounting Processes for MWR Programs Budget Processes The services have annual budget processes for MWR programs that vary based on whether appropriated or nonappropriated funding is being used. For MWR programs supported by appropriated funding, according to officials, the services submit and validate program requirements through DOD’s Planning, Program, Budgeting, and Execution process. DOD and service guidelines for certain MWR programs as well as annual service- issued budget guidance provide input for determining MWR programs’ requirements. Service officials from the Army, the Marine Corps, and the Air Force also stated that they determine program requirements using input from installations and service components, while service officials from the Navy stated that they use a budget model along with performance measures and budget guidance to determine program requirements. The requirements are then submitted to higher level components within the services for review, adjustment, and approval. Once the services validate the requirements, they are provided to the Office of the Secretary of Defense for inclusion in the President’s Budget. Figure 1 provides an overview of the general process the services use to budget for appropriated funding support of MWR activities. Budget processes and authorities for nonappropriated funding, or program-generated revenue, vary by service. Specifically, the services maintain nonappropriated funding budgets and budget approvals at different levels within the service organization. For example, officials stated that Marine Corps and Air Force installations maintain and manage nonappropriated funding generated at their locations while Army and Navy installations submit nonappropriated funding and budgets to a higher level of command, Installation Directorates for the Army and Regions for the Navy, as well as the service headquarters component. The services plan for and manage their nonappropriated funding budgets based on a number of factors, including revenue generated; projected revenues; and the amount, if any, of appropriated funding available. Figure 2 provides an overview of the general process the services use to approve and manage nonappropriated funding generated within the service. Each service uses processes to provide funds for the implementation of its MWR programs. Service officials stated that during program execution the services execute their programs and make adjustments to their budgets based on funding authorized from appropriated funding and nonappropriated funding sources. Commanders have authority over budget implementation and the guidelines and parameters for commanders vary by service. For example, according to Army officials, during the fiscal year Army commanders can change MWR program budgets and have some flexibility to move funding to other non-MWR command priorities. Installations report to the services actual expenditures and income generated, which are included in the services’ annual reports. Figure 3 provides an overview of the general process the services use to provide funding for MWR programs. Each service uses accounting processes for its MWR programs. According to service officials, accounting is handled differently at each service depending on the service’s organizational structure. According to service officials, the Navy and the Marine Corps centrally manage their MWR accounting processes at their service headquarters; the Army manages its accounting process at its headquarters and at the Defense Financial and Accounting Services Nonappropriated Financial Services; and the Air Force manages its accounting process at its Secretariat and at the service components. According to service officials, program managers at the service headquarters and activity level are able to review financial data, such as expenditures and revenues, for MWR programs on a recurring basis. DOD’s Instruction 1015.10 states that the services should identify appropriated and nonappropriated funding accounts in annual budgets, and the services have designated codes to categorize expenditures. Service officials stated they use the codes to report annually to USD(P&R) on MWR programs’ expenditures for both appropriated and nonappropriated funding. The Services Did Not Consistently Meet One of the Two Appropriated Funding Targets and Are Taking Steps to Address This, but DOD Has Not Comprehensively Evaluated the Targets to Ensure They Are Appropriate The services generally met the funding target for fiscal years 2012 through 2017 for MWR Category A mission-sustaining programs, but did not consistently meet the target for Category B programs that provide community support systems to servicemembers and their families during the same time period. Service officials said they are taking steps to meet the Category B target, such as restoring targeted levels of appropriated funding support in future budget planning. Data indicate that the services are getting closer to meeting the target. However, DOD has not comprehensively evaluated the funding targets, which were established more than 20 years ago, to ensure they currently are appropriate. The Services Generally Met the Funding Target for MWR Category A Mission- Sustaining Programs For MWR Category A mission-sustaining programs, the services generally met the 85-percent target for appropriated funding support. Specifically, the Navy and the Air Force consistently met or exceeded the 85-percent funding target in fiscal years 2012 through 2017, and the Army met or exceeded the target every year except for fiscal year 2012 when it reported that 84 percent of its Category A programs were supported with appropriated funds. The Marine Corps exceeded the minimum funding target for Category A programs in fiscal years 2012 through 2017, but consistently fell below the target with appropriated funding support ranging from 77 percent to 84 percent from fiscal years 2013 through 2016. Table 2 provides additional detail on the extent to which each service met the 85-percent funding target for MWR Category A mission- sustaining programs in fiscal years 2012 through 2017. The Services Did Not Consistently Meet the Funding Target for MWR Category B Community Support Programs, but Are Taking Steps to Meet the Target in the Future For MWR Category B community support programs, the services missed the 65-percent target for appropriated funding support with increasing frequency from fiscal years 2012 through 2017. Service officials stated that constrained budgets and competing priorities have made it difficult to allocate the appropriated funding needed to support their programs. However, service officials said they are taking steps to meet the Category B funding target in the future. Specifically, we found that the services collectively missed the funding target over 60 percent of the time from fiscal years 2012 through 2017. All four services missed the funding target in fiscal years 2015 and 2016 with appropriated fund support ranging from 55 to 63 percent. Most recently, in fiscal year 2017 the Army met the 65-percent funding target, but the Navy, the Marine Corps, and the Air Force fell below the 65-percent funding target with appropriated funding support ranging from 60 percent to 62 percent. Although the Air Force did not meet the 65-percent target for fiscal years 2012–2017 citing resource issues, Air Force leadership has increased appropriated funding for the MWR programs each year to help get closer to meeting the Category B funding target. Air Force officials said they plan to continue to increase funding each year so they can meet the target in the future. Table 3 provides additional detail on the extent to which each service met the 65-percent funding target for MWR Category B community support programs in fiscal years 2012 through 2017. The USD(P&R) monitors the services’ compliance in meeting the targets. When a funding target is missed, USD(P&R) officials said a memorandum is sent to the services that asks for a detailed plan on how they will achieve the required level of appropriated funding support for the missed target in the future, and these officials said that each service has provided such a plan when they fell below the 65-percent funding target. In instances when a service does not respond to the initial request for a remediation plan, USD(P&R) officials said a second memorandum is sent notifying the service that they missed the funding target and that they need to submit a plan detailing how they intend to come into compliance. For example, in fiscal year 2015 the Army did not meet the 65-percent funding target for Category B programs. In June 2016, the Assistant Secretary of Defense for Manpower and Reserve Affairs sent the Army a memorandum asking it to submit a plan on how it would meet the target. After not receiving a response, the Assistant Secretary of Defense for Manpower and Reserve Affairs sent the Army a second memorandum in September 2016 that noted the missed target and reiterated the need to submit a plan for achieving compliance with designated funding targets. Following the second memorandum, the Army issued a memorandum in December 2016 stating it would fully fund Category A and B programs to the required targets in fiscal year 2017. Following these communications, in February 2018, the Army sent USD(P&R) its fiscal year 2017 program and metric report showing that it had successfully met the Category A and B funding targets as planned. Service officials said they are taking steps to meet the Category B target, and data from fiscal years 2015 through 2017 indicate that the services are getting closer to meeting it. However, in the prior years when the services have not met appropriated funding targets for Category B programs, officials said that the services have relied on nonappropriated funding as supplemental support to help ensure that such programs continue to operate. Specifically, according to USD(P&R) officials, the services have used nonappropriated funding—that is, revenue generated largely through user fees incurred by servicemembers and their families— to cover MWR program costs for which appropriated funding was authorized. However, the use of nonappropriated funds to cover shortfalls in appropriated funding support for MWR programs has been a long- standing issue about which Congress has previously expressed concern. Specifically, in House Report 104-563, which accompanied H.R. 3230, a bill for the National Defense Authorization Act for Fiscal Year 1997, the House Committee on National Security established the annual DOD Category A and B MWR programs reporting requirement to Congress, after receiving testimony from the services’ MWR managers and noting a disparity in the degree of appropriated funding support afforded these programs particularly in the area of Category A and B programs. While the committee recognized that shortfalls in appropriated funding support for MWR programs requires the use of nonappropriated funding to meet requirements, it also stated that the use of nonappropriated funding resources—soldier, sailor, airman, and Marine money—to subsidize appropriated funding activities should be minimized. While the Army met the Category B funding target for fiscal year 2017, the Navy, the Marine Corps, and the Air Force have each submitted plans and briefed USD(P&R) on how they plan to meet the target in the future. Navy officials said that they acknowledged the Navy’s challenges with meeting the Category B funding target and, as a result, began assessing their Category B programs to eliminate those that had limited use, consolidate some where possible, and implement operational efficiencies. Marine Corps officials indicated that the Marine Corps is committed to preserving valuable MWR programs and restoring appropriate levels of appropriated funding support in future budget planning. Specifically, the Marine Corps plans to readdress appropriated funding levels in the budget planning process in 2019. However, Marine Corps officials noted they may continue to have challenges meeting the 65-percent funding target in fiscal year 2018. Air Force officials said they will continue to advocate for retaining established MWR program funding in the budget process. Air Force officials said that for fiscal years 2014 through 2017, Air Force leadership has increased appropriated funding for the MWR programs each year to help get the Air Force closer to meeting the Category B funding target. DOD Has Not Comprehensively Evaluated the Funding Targets to Ensure They Are Appropriate DOD has not comprehensively evaluated the funding targets for Category A and B programs, which were instituted more than 20 years ago, to ensure they are appropriate. Standards for Internal Control in the Federal Government recommends that management periodically review policies and procedures for continued relevance and effectiveness in achieving an entity’s objectives. According to USD(P&R)officials, a limited evaluation took place prior to 1995 that resulted in the Category A funding target in DOD’s instruction being changed from 100 percent to 85 percent. USD(P&R) officials said that the Category A appropriated funding target was changed because some of the activities within the category have expenses, such as for the food and beverage elements, that are able to generate revenue and thus not authorized to use appropriated funds. USD(P&R) officials stated that since that time there have been no further evaluations of the Category A or Category B targets and agree that it is time to evaluate the current relevance of the targets. Specifically they noted the considerable changes to the budgeting and funding environment that have taken place in the more than 20 years since the Category A funding target was modified. In addition, officials told us they also agree that it is time to evaluate the relevance of the Category B funding target, which has never been modified. Specifically, officials said that the services’ extended engagement in overseas conflicts and constrained budgets have resulted in an operating environment that is substantially different from the peacetime setting in which the targets were first established. Moreover, Standards for Internal Control in the Federal Government requires management to document internal controls to meet operational needs. Documentation of controls, including changes to controls, is evidence that controls are identified, capable of being communicated to those responsible for their performance, and capable of being monitored and evaluated by an entity. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel, as well as a means to communicate that knowledge as needed to external parties, such as external auditors. As previously stated, officials stated that the Category A funding target was updated sometime prior to 1995; however, officials did not have any specific documentation related to this change. Furthermore, USD(P&R) officials said the targets were developed so long ago that there is a general lack of information on the funding targets’ origins and that they are not sure of the process or methodology that was used to develop them. The amount of time that has passed since Category A’s target was modified, recent challenges in meeting the Category B target, and the general lack of information on the funding targets’ origins raise concerns about the appropriateness and continued relevance and effectiveness of the targets in achieving MWR programs objectives. Until DOD comprehensively evaluates the appropriateness of current targets for Category A and B programs and, based on its evaluation, documents any changes it makes to its funding targets, DOD cannot be certain that the targets reflect the current operating environment and do not pose undue financial burden on the servicemembers. DOD Has Established an Oversight Structure and Performance Measures for MWR Programs but Has Not Developed Measurable Goals for Determining Whether MWR Programs Are Cost-Effective DOD Has Established a Structure to Provide Oversight of MWR Programs DOD has established a structure that specifies roles, responsibilities, and procedures for overseeing MWR programs. Specifically, DOD Instruction 1015.10 assigns roles and responsibilities for oversight of MWR programs to the USD(P&R), the Secretaries of the military departments, and the Chiefs of the military services (i.e., the Chiefs of Staff for the Army and the Air Force, the Chief of Naval Operations, and the Commandant of the Marine Corps). In addition, the services’ respective policies assign roles and responsibilities for MWR program oversight to the commander level. Table 4 summarizes the general oversight roles and responsibilities for DOD’s MWR programs. The first level of oversight responsibility for MWR programs is assigned to the USD(P&R). Specifically, responsibilities include the development of department-level policies, program goals, performance measures, funding targets, and the oversight of appropriated and nonappropriated funding and expenditures for all MWR programs. To help ensure consistent quality, USD(P&R) monitors the services’ compliance in meeting minimum MWR funding targets and performance measures. As previously discussed, if a service misses a funding target, USD(P&R) officials said they ask that service to submit a remediation plan that summarizes its intent to meet the target in the future, as USD(P&R) did in fiscal year 2015 when several services missed appropriated funding targets for Category A and B activities. The second level of oversight is assigned to the Secretaries of the military departments who are responsible for designating a central point of contact within their respective service to facilitate MWR programs policy compliance, coordinating with USD(P&R), and establishing funding priorities and strategy for MWR programs. For example, service officials we met with from the military departments said they have designated their respective Assistant Secretary Offices for Manpower and Reserve Affairs as the central point of contact for the services’ MWR programs. The third level of oversight is assigned to the Chiefs of the military services who are responsible for the development of overall goals and uniform quality measures, which could include performance measures, for MWR programs consistent with the performance measures set by DOD in its instruction. For example, the Commander, Navy Installations Command has developed uniform quality measures for the Navy MWR Fitness program based on items such as customer satisfaction, usage rates, and equipment maintenance, among other things. According to officials, these quality measures provide a common tool to measure customer satisfaction and the quality of each installation’s MWR Physical Fitness program. Additionally, these Chiefs are also responsible for helping to ensure MWR programs are resourced with appropriated and nonappropriated funding according to financial categories and for identifying their respective appropriated and nonappropriated accounts in annual budgets to meet DOD funding goals. Service Chiefs are also responsible for ensuring that military installations operate customer-driven MWR programs that are determined locally by market analysis. Lastly, the services’ respective policies assign roles and responsibilities for MWR program oversight to the commander level. Additionally, according to service officials, commanders assist with preparing an annual briefing for USD(P&R) on their MWR programs, which includes initiatives, challenges, program trends, and financial information. For example, in fiscal year 2017, each of the services reported on new initiatives to support MWR programs for servicemembers and their families, some of which are highlighted in table 5. DOD and the Services Have Performance Measures to Assess MWR Programs but These Measures Lack Measurable Goals for Determining Cost- Effectiveness DOD Instruction 1015.10 identifies six broad categories of performance measures that the services use to assess their respective MWR programs. However, these measures do not include measurable goals, which are needed to assess the cost-effectiveness of the 55 activities that currently make up the MWR programs. Specifically, DOD identifies six broad performance measure categories in its instruction and, according to service officials, the services collect and use various types of information within these categories to periodically assess and adjust these activities, as appropriate. Table 6 summarizes the types of information that DOD requires the services to collect across the six categories established in its instruction. In addition to the information that is to be collected across these six broad categories, DOD established separate, more specific performance measures for 2 of the 55 activities—namely, for Physical Fitness and for Library Programs and Information Services. For the Physical Fitness activity, the services are required to submit annual reports to DOD on their compliance with meeting more specific performance measures in a variety of areas such as administrative operations, staff qualifications, facility equipment, and child play areas. Similarly, DOD requires the services to report on a variety of areas related to the Library Programs and Information Services activity, such as library operation plans, customer programs and service, and technology infrastructure. Unlike the broad measures contained in DOD’s Instruction, the specific performance measures DOD established for the Physical Fitness and Library Programs and Information Services activities tell the services exactly what information to collect and report in each performance measure category instead of the services having to develop specific measures on their own. In an effort to better evaluate MWR programs, the services also have efforts underway that include the following to develop specific performance measures for their programs beyond the broad performance measures contained in DOD Instruction 1015.10. Army. Army officials told us that they partnered with the Army Public Health Center to build evidence-based MWR programs. Based on this review, the Army found that Army MWR Community Recreation and Fitness programs have not been formally evaluated as directed by DOD Instruction 1015.10 requirements to measure and assess programs. Additionally, the Army found that, while the Army Office of the Assistant Chief of Staff for Installation Management provides program oversight, it does not possess the capability to conduct program evaluations. According to the results of the Army Public Health Center report issued in June 2017, the Army initiated a three- phase approach for evaluating its MWR programs. The report showed that assessing the evaluability of the Army MWR programs is phase one. According to the Army, these evaluations will enable the Army to validate program outcomes and better position itself to compete for scarce resources. The report also showed that many of the 13 Army MWR programs selected for review do not have direct links between activities and the priority outcomes with behavioral, social, and physical health, and that they do not have sufficient outcomes data that have been consistently collected. Army officials said that phase two will include the development of formal evaluation plans for selected evaluable MWR programs. Lastly, Army officials said that phase three will be the execution of the evaluation for two selected MWR programs, which is on target to be completed by December 2018. While Army officials are learning how to evaluate programs through this partnership with the Army Public Health Center, they said that they have also learned that these endeavors are costly. Officials said that a very modest program evaluation requires approximately $300,000 to $500,000. Army officials also stated that program evaluation requires support and participation by those organizations and people that deliver the programs. Furthermore, according to Army officials, resource reductions at the operational level (garrisons) are increasingly restrictive, preventing them from collecting critical information to support this multiphase effort. Navy. Navy officials said that they use the MWR Enterprise Modeling System, which is based on performance measures that have been developed and routinely reviewed and updated by headquarters, regional, and installation program managers. The MWR Enterprise Modeling System is used as the baseline for the annual MWR performance data call that measures actual program performance against performance standards. Navy officials said that the performance measures provide the business strategy and guidance to ensure efficient, effective and market-driven delivery of programs and services. Marine Corps. Marine Corps officials said they collaborated with the RAND Corporation to provide an analytically rigorous assessment framework to evaluate program performance. The RAND Corporation provided draft measures of performance. Marine Corps officials said that the RAND Corporation also provided a user guide that outlines an evaluation methodology and ensures consistent and standard application. Marine Corps officials said that they are reviewing the draft measures to determine appropriate data collection and have drafted an implementation plan. Specifically, Marine Corps officials said that they plan to brief Marine Corps installations in June 2018 on the performance measures they plan to collect data from, which will begin in fall 2018. Air Force. Air Force officials said that they are building off the work that the RAND Corporation undertook for the Marine Corps and have also started collaborating with the RAND Corporation. The objective of the Air Force study is to develop an evidence-based evaluation framework for MWR programs that identifies immediate and mid-term outcomes that contribute to airman and family readiness and resilience. Specifically, the goal is to provide the Air Force with logic models and performance measures that are tied to each of the programs and services in the MWR portfolio. Air Force officials said they expect to finish this study by June 2018. However, the officials noted that implementing the performance measures will be a challenge since these types of MWR programs are difficult to measure and hard to capture data for. While both the broad and specific measures established by DOD and the services can provide useful context about the status of individual MWR activities, they do not contain measurable goals that service officials could use to compare program results with costs to determine whether an individual activity is cost-effectively operating. Because the services’ efforts to develop specific performance measures are in early stages of development it is too early to determine whether these efforts will result in measurable goals that can be used to assess the cost-effectiveness of the MWR programs. DOD’s Financial Management Regulation specifies that performance measurement should include program accomplishments in terms of outputs and how those outputs effectively meet intended agency mission goals. Further, cost itself can be a performance metric, but should also be combined with an effectiveness measure, such as the percentage of a goal achieved at a level of expected performance, to ensure that the resulting output is cost effective. Additionally, through our prior work on performance measurement, we have reported that performance goals and measures should align with an agency’s goals and mission. However, in reviewing DOD Instruction 1015.10, we found no mention of any goals, mission, objectives, or purpose for the MWR programs. There is one section entitled “policy” in the instruction that included items that resemble goals. Specifically, the instruction stated that MWR programs: 1. are an integral part of the military and benefits package; 2. build healthy families and communities and provide consistently high- quality support services that are commonly furnished by other employers or by state and local governments to their employees and citizens; 3. encourage positive individual values and aid in recruitment and retention of personnel; and 4. promote esprit de corps and provide for the physical, cultural, and social needs; general well-being; quality of life; and hometown community support of servicemembers and their families. USD(P&R) officials who have responsibility for developing MWR program goals acknowledged that these policy items function as strategic goals but were not clearly identified as such in the instruction and also acknowledged that the instruction does not include measurable goals for assessing cost-effectiveness. In addition, USD(P&R) officials said that they are starting a review of DOD Instruction 1015.10 and did not know yet whether they would make any changes to the goals or expand the reporting requirement to include all 55 activities. Until DOD develops performance measures that include measurable goals, DOD officials and other decision makers, such as Members of Congress, may find it difficult to determine whether the MWR programs and the activities that make up the MWR programs are meeting servicemember needs in a cost-effective manner. Conclusions DOD’s multibillion dollar MWR programs provide a wide range of benefits for servicemembers and their families that ultimately help support military missions and readiness, both in times of war and peace. DOD has established funding targets for providing appropriated funding support for Category A and B MWR programs. However, the funding targets have not been comprehensively evaluated in the last 20 years to determine their current relevance. Until DOD comprehensively evaluates the appropriateness of current funding targets and documents any changes made to the targets, DOD’s funding targets may not reflect the current operating environment, and may be posing an undue burden on the servicemembers. DOD has also not developed performance measures with measureable goals that would allow it to assess the cost- effectiveness of its MWR programs. Without performance measures that include such measurable goals, it will be difficult for DOD and Congress to determine whether the individual activities and overall MWR programs are meeting desired outcomes in a cost-effective manner. Recommendations for Executive Action We are making the following two recommendations to DOD. We recommend that the Secretary of Defense ensure that the USD(P&R), in consultation with the Secretaries of the military departments, comprehensively evaluate the funding targets for Category A and B MWR programs and document any changes made to the targets and the methodology used. (Recommendation 1) We recommend that the Secretary of Defense ensure that the USD(P&R), in consultation with the Secretaries of the military departments, develop measurable goals for its MWR programs’ performance measures to determine the programs’ cost-effectiveness. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. In its comments, DOD concurred with our recommendations and noted actions that it is taking. DOD’s comments are reprinted in their entirety in appendix II. DOD also provided technical comments, which we incorporated into the report as appropriate. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Secretaries of the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; and the Under Secretary of Defense for Personnel and Readiness. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3604 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix III. Appendix I: Department of Defense’s Morale, Welfare, and Recreation Program Categories Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Kimberly A. Mayo, Assistant Director; Rebekah Boone; Mae Frances Jones; Felicia Lopez; Stephanie Moriarty; Cynthia Saunders; John W. Van Schaik; Paul Seely; Carter Stevens; and Roger Stoltz made key contributions to this report.

DOD's MWR programs provide servicemembers and their families with three categories of programs: Category A (e.g., fitness and libraries), Category B (e.g., camping and performing arts), and Category C (e.g., golf). DOD oversees the percentage of appropriated funding allocated to MWR programs by category and measures the military services' compliance with established funding targets. DOD set the targets at 85 percent for Category A and 65 percent for Category B. DOD did not set a target for Category C since this category has the ability to generate revenue from user fees. House Report 115-200 accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 includes a provision for GAO to review DOD' s MWR programs. GAO assessed the extent to which (1) the services have met DOD's established funding targets for each category of MWR programs and DOD has comprehensively evaluated the relevance of its targets, and (2) DOD has oversight structures and performance measures that include measurable goals, including those for cost-effectiveness, by which to review MWR programs. GAO analyzed MWR program information for fiscal years 2012-2017 and compared DOD's MWR policy with guidance for using measures and evaluating goals. The Department of Defense (DOD) established funding targets for two categories of Morale, Welfare, and Recreation (MWR) programs—Category A, which promotes the physical and mental well-being of servicemembers, and Category B, which funds community support systems for servicemembers and their families. These targets are intended to ensure that the military services adequately fund these programs with appropriated funds instead of requiring servicemembers and their families to pay fees out of pocket to cover program costs. However, GAO found the following: In fiscal years 2012-2017, the military services generally met the DOD-set target to provide 85 percent of appropriated funding for Category A programs but not the 65-percent target for Category B programs. Service officials said they are taking steps to meet the Category B target, such as by restoring targeted levels of appropriated funding support in future budget planning. Data GAO reviewed indicate that these steps are helping the services get closer to meeting the target for Category B. DOD has not comprehensively evaluated the targets, established more than 20 years ago, to ensure that they are appropriate. DOD officials said they agree that it is time to evaluate the relevancy of the targets as the current operating environment is fundamentally different than when the targets were established 2 decades ago. Further, DOD officials said that they are unsure of the process or methodology used to originally develop the targets because they have no documentation supporting these decisions. Until DOD comprehensively evaluates the appropriateness of the targets and, based on its evaluation, documents any changes made, it cannot be certain that the targets reflect the current operating environment and do not pose undue financial burden on servicemembers. DOD established oversight structures and performance measures for MWR programs, but has not established measurable goals to assess the cost-effectiveness of the 55 activities that make up MWR programs. DOD's MWR policy identifies six broad performance measure categories for the program. DOD officials responsible for developing MWR program goals acknowledged that DOD's MWR policy does not include measurable goals for assessing the cost-effectiveness of program activities, and do not currently have plans to make any changes to the goals. Service officials told GAO that they collect and use various types of information within the categories to assess specific activities. While both the categories established by DOD and the service-specific efforts provide useful context about the status of individual MWR activities, they do not replace the need for measurable goals that can be used to assess whether the programs are operating cost-effectively. The services are in the early stages of developing more specific performance measures, but it is too early to determine whether these efforts will result in measurable goals that can be used to assess cost-effectiveness. Until DOD develops performance measures that include measurable goals, it cannot ensure that MWR programs meet servicemember needs in a cost-effective manner.

CRS_R45631

R ecent high-profile data breaches and privacy violations have raised national concerns over the legal protections that apply to Americans' electronic data. While some concern over data protection stems from how the government might utilize such data, mounting worries have centered on how the private sector controls digital information, the focus of this report. Inadequate corporate privacy practices and intentional intrusions into private computer networks have exposed the personal information of millions of Americans. At the same time, internet connectivity has increased and varied in form in recent years, expanding from personal computers and mobile phones to everyday objects such as home appliances, "smart" speakers, vehicles, and other internet-connected devices. Americans now transmit their personal data on the internet at an exponentially higher rate than the past. Along with the increased connectivity, a growing number of "consumer facing" actors (such as websites) and "behind the scenes" actors (such as data brokers and advertising companies) collect, maintain, and use consumers' information. While this data collection can benefit consumers—for instance, by allowing companies to offer them more tailored products—it also raises privacy concerns, as consumers often cannot control how these entities use their data. As a consequence, the protection of personal data has emerged as a major issue for congressional consideration. Despite the increased interest in data protection, the legal paradigms governing the security and privacy of personal data are complex and technical, and lack uniformity at the federal level. The Supreme Court has recognized that the Constitution provides various rights protecting individual privacy, but these rights generally guard only against government intrusions and do little to prevent private actors from abusing personal data online. At the federal statutory level, while there are a number of data protection statutes, they primarily regulate certain industries and subcategories of data. The Federal Trade Commission (FTC) fills in some of the statutory gaps by enforcing the federal prohibition against unfair and deceptive data protection practices. But no single federal law comprehensively regulates the collection and use of personal data. In contrast to the "patchwork" nature of federal law, some state and foreign governments have enacted more comprehensive data protection legislation. Some analysts suggest these laws, which include the European Union's (EU's) General Data Protection Regulation (GDPR) and state laws such as the California Consumer Privacy Act (CCPA), will create increasingly overlapping and uneven data protection regimes. This fragmented legal landscape coupled with concerns that existing federal laws are inadequate has led many stakeholders to argue that the federal government should assume a larger role in data protection policy. However, at present, there is no consensus as to what, if any, role the federal government should play, and any legislative efforts at data protection are likely to implicate unique legal concerns such as preemption, standing, and First Amendment rights, among other issues. This report examines the current U.S. legal landscape governing data protection, contrasting the current patchwork of federal data protection laws with the more comprehensive regulatory models in the CCPA and GDPR. The report also examines potential legal considerations for the 116th Congress should it consider crafting more comprehensive federal data protection legislation. The report lastly contains an Appendix , which contains a table summarizing the federal data protection laws discussed in the report. Origins of American Privacy Protections The Common Law and the Privacy Torts Historically, the common law in the United States had little need to protect privacy—as one commentator has observed, "[s]olitude was readily available in colonial America." Although common law had long protected against eavesdropping and trespass, these protections said little to nothing about individual rights to privacy, per se. Over time, gradual changes in the technological and social environment caused a shift in the law. In 1890, Louis Brandeis and Samuel Warren published a groundbreaking article in the Harvard Law Review entitled The Right to Privacy . Reacting to the proliferation of the press and advancements in technology such as more advanced cameras, the article argued that the law should protect individuals' "right to privacy" and shield them from intrusion from other individuals. The authors defined this emergent right as the "right to be let alone." Scholars have argued that this article created a "revolution" in the development of the common law. In the century that followed Brandeis's and Warren's seminal article, most states recognized the so-called "privacy torts"—intrusion upon seclusion, public disclosure of private facts, false light or "publicity," and appropriation. These torts revolve around the central idea that individuals should be able to lead, "to some reasonable extent, a secluded and private life." The Supreme Court described this evolution of privacy tort law as part of a "strong tide" in the twentieth century toward the "so-called right of privacy" in the states. Despite this "strong tide," some scholars have argued that these torts, which were developed largely in the mid-twentieth century, are inadequate to face the privacy and data protection problems of today. Furthermore, some states do not accept all four of these torts or have narrowed and limited the applicability of the torts so as to reduce their effectiveness. As discussed in greater detail below, state common law provides some other remedies and protections relevant to data protection, via tort and contract law. However, while all of this state common law may have some influence on data protection, the impact of this judge-made doctrine is unlikely to be uniform, as courts' application of these laws will likely vary based on the particular facts of the cases in which they are applied and the precedents established in the various states. Constitutional Protections and the Right to Privacy As reflected in the common law's limited remedies, at the time of the founding, concerns about privacy focused mainly on protecting private individuals from government intrusion rather than on protecting private individuals from intrusion by others. Accordingly, the Constitution's Bill of Rights protects individual privacy from government intrusion in a handful of ways and does little to protect from non-governmental actors. Some provisions protect privacy in a relatively narrow sphere, such as the Third Amendment's protection against the quartering of soldiers in private homes or the Fifth Amendment's protection against self-incrimination. The most general and direct protection of individual privacy is contained in the Fourth Amendment, which states that "[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated . . ." For more than 100 years, the Fourth Amendment was generally read to prohibit only entry into private places rather than to provide general right to privacy. However, alongside the developments in the common law, constitutional law evolved over time to place a greater emphasis on protecting an individual's personal privacy. In particular, in 1967, the Supreme Court in Katz v. United States explained that the Fourth Amendment, while not creating a general "right to privacy," nonetheless protected "people, not places," and guarded individual privacy against certain types of governmental intrusion. This principle has continued to evolve over time, and has come to protect, to some extent, individuals' interest in their digital privacy. For example, in the 2018 case of Carpenter v. United States , the Supreme Court concluded that the Fourth Amendment's protection of privacy extended to protecting some information from government intrusion even where that information was shared with a third party. In Carpenter , the Court concluded that individuals maintain an expectation of privacy, protected by the Fourth Amendment, in the record of their movements as recorded by their cellular provider. Carpenter distinguished earlier cases which had relied upon the principle that information shared with third parties was generally not subject to Fourth Amendment scrutiny, concluding that "an individual maintains a legitimate expectation of privacy in the record of his physical movements as captured through [his cellular phone]." The Court's holding means that, in the future, the government must obtain a warrant supported by probable cause to obtain this information. The Fourth Amendment thus provides a limited bulwark against government intrusion into digital privacy. In addition to the protection provided by the Fourth Amendment, in the 1960s and 1970s, the Court concluded that the Fourteenth Amendment's guarantee of "liberty" implied the existence of a more general right of privacy, protecting individuals from government intrusion even outside the "search and seizure" context. In the 1977 case Whalen v. Roe , the Supreme Court explained that this constitutional right of privacy "in fact involve[s] at least two different kinds of interests. One is the individual interest in avoiding disclosure of personal matters, and another is the interest in independence in making certain kinds of important decisions." The second of these interests relates primarily to individual rights concerning the "intimacies of [persons'] physical relationship," as well as the right to abortion, and has little connection to data protection. However, the first of the interests listed in Whalen could potentially relate to data protection. This interest, the right to avoid certain disclosures, has come to be known as the right to "informational privacy." Despite its broad expression in Whalen , every Supreme Court case to consider the informational privacy right has rejected the constitutional claim and upheld the government program alleged to have infringed on the right. In Whalen itself, physicians and patients challenged a New York law that required the recording of the names and addresses of all persons who had obtained certain drugs for which there was both a lawful and unlawful market. Although the Court acknowledged that the statute "threaten[ed] to impair . . . [the plaintiffs'] interest in the nondisclosure of private information," the Court observed that the disclosures were an "essential part of modern medical practice" and the New York law had protections in place against unwarranted disclosure that showed a "proper concern" for the protection of privacy. Together, the Court found these factors sufficient to uphold the law. In the wake of Whalen and Nixon v. Administrator of General Services —a case decided the same year as Whalen that also considered the right to informational privacy—courts have struggled to articulate the precise contours of the right. The most recent Supreme Court case to consider the right to informational privacy, NASA v. Nelson , went so far as to suggest that the right might not exist, "assuming without deciding" that the right existed in the course of rejecting the constitutional claim challenge to a government background check program for hiring. Despite the Supreme Court's lack of clarity about the right to informational privacy, "most federal circuit courts" recognize the right to various extents. All of the constitutional rights involving privacy, like the common law privacy torts, focus on public disclosure of private facts. This focus limits their potential influence on modern data privacy debates, which extends beyond the disclosure issue to more broadly concern how data is collected, protected, and used. Perhaps more importantly, whatever the reach of the constitutional right to privacy, the "state action doctrine" prevents it from being influential outside the realm of government action. Under this doctrine, only government action is subject to scrutiny under the Constitution, but purely private conduct is not proscribed, "no matter how unfair that conduct may be." As a result, neither the common nor constitutional law provides a complete framework for considering many of the potential threats to digital privacy and consumer data. Rather, the most important data protection standards come from statutory law. Federal Data Protection Law Given the inherent limitations in common law and constitutional protections, Congress has enacted a number of federal laws designed to provide statutory protections of individuals' personal information. In contrast with the scheme prevalent in Europe and some other countries, rather than a single comprehensive law, the United States has a "patchwork" of federal laws that govern companies' data protection practices. These laws vary considerably in their purpose and scope. Most impose data protection obligations on specific industry participants—such as financial institutions, health care entities, and communications common carriers—or specific types of data, such as children's data. Other laws, however, supplement the Constitution's limited privacy protections and apply similar principles to private entities. The Stored Communications Act (SCA), for instance, generally prohibits the unauthorized access or disclosure of certain electronic communications stored by internet service providers. Lastly, some laws prohibit broad categories of conduct that, while not confined to data protection, limit how companies may handle personal data. Most notably, the Federal Trade Commission Act (FTC Act) prohibits "unfair or deceptive acts or practices." As some scholars have pointed out, the FTC has used its authority under the FTC Act to develop norms and principles that effectively fill in the gaps left by other privacy statutes. These laws are organized below, beginning with those most narrowly focused on discrete industries and moving toward more generally applicable laws. In light of its gap-filling function, this section lastly discusses the FTC Act—along with the Consumer Financial Protection Act (CFPA), which covers similar types of conduct. The Appendix to this report contains a table summarizing the federal data protection laws discussed. Gramm-Leach-Bliley Act (GLBA) The Gramm-Leach-Bliley Act (GLBA) imposes several data protection obligations on financial institutions. These obligations are centered on a category of data called "consumer" "nonpublic personal information" (NPI), and generally relate to: (1) sharing NPI with third parties, (2) providing privacy notices to consumers, and (3) securing NPI from unauthorized access. First, unless an exception applies, GLBA and its implementing regulations prohibit financial institutions from sharing NPI with non-affiliated third parties unless they first provide the consumers with notice and an opportunity to "opt-out." Furthermore, financial institutions are prohibited altogether from sharing account numbers or credit card numbers to third parties for use in direct marketing. Second, financial institutions must provide "clear and conspicuous" initial and annual notices to customers describing their privacy "policies and practices." These notices must include, among other things, the categories of NPI collected and disclosed, the categories of third parties with which the financial institution shares NPI, and policies and practices with respect to protecting the confidentiality and security of NPI. Third, GLBA and its implementing regulations (often referred to as the "Safeguards Rule" ) require financial institutions to maintain "administrative, technical, and physical safeguards" to "insure the security and confidentiality" of "customer" (as opposed to "consumer") NPI, and to protect against "any anticipated threats or hazards" or "unauthorized access" to such information. Financial institutions regulated by federal banking agencies are further required to implement a program for responding to the unauthorized access of customer NPI. The Consumer Financial Protection Bureau (CFPB), FTC, and federal banking agencies share civil enforcement authority for GLBA's privacy provisions. However, the CFPB has no enforcement authority over GLBA's data security provisions. Under the data security provisions, federal banking regulators have exclusive enforcement authority for depository institutions, and the FTC has exclusive enforcement authority for all non-depository institutions. GLBA does not specify any civil remedies for violations of the Act, but agencies can seek remedies based on the authorities provided in their enabling statutes, as discussed below. GLBA also imposes criminal liability on those who "knowingly and intentionally" obtain or disclose "customer information" through false or fraudulent statements or representations. Criminal liability can result in fines and up to five years' imprisonment. GLBA does not contain a private right of action that would allow affected individuals to sue violators. Health Insurance Portability and Accountability Act (HIPAA) Under the Health Insurance Portability and Accountability Act (HIPAA), the Department of Health and Human Services (HHS) has enacted regulations protecting a category of medical information called "protected health information" (PHI). These regulations apply to health care providers, health plans, and health care clearinghouses (covered entities), as well as certain "business associates" of such entities. The HIPAA regulations generally speak to covered entities': (1) use or sharing of PHI, (2) disclosure of information to consumers, (3) safeguards for securing PHI, and (4) notification of consumers following a breach of PHI. First, with respect to sharing, HIPAA's privacy regulations generally prohibit covered entities from using PHI or sharing it with third parties without patient consent, unless such information is being used or shared for treatment, payment, or "health care operations" purposes, or unless another exception applies. Covered entities generally may not make treatment or services conditional on an individual providing consent. Second, with respect to consumer disclosures, covered entities must provide individuals with "adequate notice of the uses and disclosures of [PHI] that may be made by the covered entity, and of the individual's rights and the covered entity's legal duties with respect to [PHI]." These notices must be provided upon consumer request, and covered entities maintaining websites discussing their services or benefits must "prominently post" the notices on their websites. Furthermore, an individual has the right to request that a covered entity provide him with a copy of his PHI that is maintained by the covered entity. In some cases, an individual may also request that the covered entity provide information regarding specific disclosures of the individual's PHI, including the dates, recipients, and purposes of the disclosures. Third, with respect to data security, covered entities must maintain safeguards to prevent threats or hazards to the security of electronic PHI. Lastly, HIPAA regulations contain a data breach notification requirement, requiring covered entities to, among other things, notify the affected individuals within 60 calendar days after discovering a breach of "unsecured" PHI. Violations of HIPAA's privacy requirements can result in criminal or civil enforcement. HHS possesses civil enforcement authority and may impose civil penalties, with the amount varying based on the level of culpability. The Department of Justice has criminal enforcement authority and may seek fines or imprisonment against a person who, in violation of HIPAA's privacy requirements, "knowingly" obtains or discloses "individually identifiable health information" or "uses or causes to be used a unique health identifier." HIPAA does not, however, contain a private right of action that would allow aggrieved individuals to sue alleged violators. Fair Credit Reporting Act (FCRA) The Fair Credit Reporting Act (FCRA) covers the collection and use of information bearing on a consumer's creditworthiness. FCRA and its implementing regulations govern the activities of three categories of entities: (1) credit reporting agencies (CRAs), (2) entities furnishing information to CRAs (furnishers), and (3) individuals who use credit reports issued by CRAs (users). In contrast to HIPAA or GLBA, there are no privacy provisions in FCRA requiring entities to provide notice to a consumer or to obtain his opt-in or opt-out consent before collecting or disclosing the consumer's data to third parties. FCRA further has no data security provisions requiring entities to maintain safeguards to protect consumer information from unauthorized access. Rather, FCRA's requirements generally focus on ensuring that the consumer information reported by CRAs and furnishers is accurate and that it is used only for certain permissible purposes. With respect to accuracy, CRAs must maintain reasonable procedures to ensure the accuracy of information used in "consumer reports." CRAs must further exclude adverse information, such as "accounts placed in collection" or civil judgements, from consumer reports after a certain amount of time has elapsed. Furnishers must similarly establish reasonable policies and procedures to ensure the accuracy of the information reported to CRAs and may not furnish to a CRA any consumer information if they have reasonable cause to believe that information is inaccurate. Consumers also have the right to review the information CRAs have collected on them to ensure such information is accurate. CRAs must disclose information contained in a consumer's file upon the consumer's request, as well as the sources of the information and the identity of those who have recently procured consumer reports on the consumer. Should a consumer dispute the accuracy of any information in his file, CRAs and furnishers must reinvestigate the accuracy of the contested information. In addition to the accuracy requirements, under FCRA consumer reports may be used only for certain permissible purposes such as credit transactions. Accordingly, a CRA may generally furnish consumer reports to a user only if it "has a reason to believe" the user intends to use it for a permissible purpose. Likewise, users may "use or obtain a consumer report" only for a permissible purpose. Along with the permissible purpose requirement, users must further notify consumers of any "adverse action" taken against the consumer based on the report. Adverse actions include refusing to grant credit on substantially the terms requested, reducing insurance coverage, and denying employment. The FTC and the CFPB share civil enforcement authority over FCRA, with each agency possessing enforcement authority over entities subject to their respective jurisdictions. In addition to government enforcement, FCRA provides a private right of action for consumers injured by willful or negligent violations of the Act. Consumers bringing such actions for negligent violations of the Act may recover actual damages, attorney's fees, and other litigation costs. For willful violations, consumers may recover either actual damages or statutory damages ranging from $100 to $1,000, attorney's fees, other litigation costs, and "such amount of punitive damages as the court may allow." FCRA also imposes criminal liability on any individual who knowingly and willfully obtains consumer information from a CRA under false pretenses and on any officer or employee of a CRA who knowingly and willfully provides consumer information to a person not authorized to receive that information. The Communications Act The Communications Act of 1934 (Communications Act or Act), as amended, established the Federal Communications Commission (FCC) and provides a "comprehensive scheme" for the regulation of interstate communication. Most relevant to this report, the Communications Act includes data protection provisions applicable to common carriers, cable operators, and satellite carriers. Common Carriers The Telecommunications Act of 1996 amended the Communications Act to impose data privacy and data security requirements on entities acting as common carriers. Generally, common carrier activities include telephone and telegraph services but exclude radio broadcasting, television broadcasting, provision of cable television, and provision of broadband internet. The privacy and security requirements imposed on entities acting as common carriers are primarily centered on a category of information referred to as "customer proprietary network information (CPNI)." CPNI is defined as information relating to the "quantity, technical configuration, type, destination, location, and amount of use of a telecommunications service subscribed to by any customer of a telecommunications carrier," and is "made available to the carrier by the customer solely by virtue of the carrier-customer relationship." Section 222(c) of the Communications Act and the FCC's implementing regulations set forth carriers' obligations regarding CPNI. These provisions cover three main issues. First, carriers must comply with certain use and disclosure rules. Section 222(c) imposes a general rule that carriers may not "use, disclose, or permit access to" "individually identifiable" CPNI without customer approval, unless a particular exception applies. Before a carrier may solicit a customer for approval to use or disclose their CPNI, it must notify customers of their legal rights regarding CPNI and provide information regarding the carrier's use and disclosure of CPNI. Second, carriers must implement certain safeguards to ensure the proper use and disclosure of CPNI. These safeguards must include, among other things, a system by which the "status of a customer's CPNI approval can be clearly established" prior to its use, employee training on the authorized use of CPNI, and "reasonable measures" to discover and protect against attempts to gain unauthorized access to CPNI." Lastly, carriers must comply with data breach requirements. Following a "breach" of customers' CPNI, a carrier must disclose such a breach to law enforcement authorities no later than seven days following a "reasonable determination of the breach." After it has "completed the process of notifying law enforcement," it must notify customers whose CPNI has been breached. In addition to the CPNI requirements, the Communications Act contains three other potentially relevant data privacy and security provisions pertaining to common carriers. First, Section 222(a) of the Act states that carriers must "protect the confidentiality of proprietary information" of "customers." Second, Section 201(b) of the Act declares unlawful "any charge, practice, classification, and regulation" in connection with a carrier's communication service that is "unjust or unreasonable." Lastly, Section 202(a) provides that it shall "be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classification, regulations, facilities, or services . . . ." In a 2016 rule, which was subsequently overturned pursuant to the Congressional Review Act, the FCC attempted to rely on these three provisions to regulate a broad category of data called "customer proprietary information" (customer PI). While customer PI is not defined in the statute, the FCC's 2016 rule defined it broadly to include CPNI, as well as other "personally identifiable information" and the "content of communications." The FCC reasoned that Section 222(a) imposes a general duty, independent from Section 222(c), on carriers to protect the confidentiality of customer PI. It further maintained that Sections 201(b) and 202(a) provide independent "backstop authority" to ensure that no gaps are formed in commercial data privacy and security practices, similar to the FTC's authority under the FTC Act. However, given that Congress overturned the 2016 rule, the FCC may be prohibited under the CRA from relying on these three provisions to regulate data privacy and security. Under the CRA, the FCC may not reissue the rule in "substantially the same form" or issue a "new rule that is substantially the same" as the overturned rule "unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule." The FCC is empowered to enforce civil violations of the Communications Act's provisions, including its common carrier provisions. The FCC may impose a "forfeiture penalty" against any person who "willfully or repeatedly" violates the Act or the FCC's implementing regulations. The Communications Act further imposes criminal penalties on those who "willfully and knowingly" violate the statute or the FCC's implementing regulations. Along with its general civil and criminal provisions, the Communications Act provides a private right of action for those aggrieved by violations of its common carrier provisions; in such actions, plaintiffs may seek actual damages and reasonable attorney's fees. Cable Operators and Satellite Carriers In addition to common carriers, the Communications Act imposes a number of data privacy and security requirements on how "cable operators" and "satellite carriers" (i.e., covered entities) treat their subscribers' "personally identifiable information" (PII). These requirements relate to: (1) data collection and disclosure; (2) subscribers' access to, and correction of, their data; (3) data destruction; (4) privacy policy notification; and (5) data security. First, covered entities must obtain the "prior written or electronic consent" of a subscriber before collecting the subscriber's PII or disclosing it to third parties. There are several exceptions to this consent requirement. Among other things, covered entities may collect a subscriber's PII in order to obtain information necessary to render service to the subscriber, and they may disclose a subscriber's PII if the disclosure is necessary to "render or conduct a legitimate business activity" related to the service they provide. Second, covered entities must provide subscribers, at "reasonable times and a convenient place," with access to all of their PII "collected and maintained," and they must further provide subscribers a reasonable opportunity to correct any error in such information. Third, covered entities are obligated to destroy PII if it is "no longer necessary for the purpose for which it is was collected" and there are "no pending requests or orders for access to such information." Fourth, covered entities must provide subscribers with a privacy policy notice at the "time of entering into an agreement" for services and "at least once a year thereafter." These notices must describe, among other things: (1) the nature of the subscriber's PII that has been, or will be, collected, (2) the nature, frequency, and purpose of any disclosure of such information and the types of persons to whom the disclosure is made, and (3) the times and place at which the subscriber may have access to such information. Lastly, the Communications Act imposes a general data security requirement on covered entities; they must "take such actions as are necessary to prevent unauthorized access to [PII] by a person other than the subscriber" or the covered entity. The Communications Act provides a private right of action for "[a]ny person aggrieved by any act" of a covered entity in violation of these requirements. In such actions, a court may award actual damages, punitive damages, and reasonable attorneys' fees and other litigation costs. Additionally, covered entities violating these provisions may be subject to FCC civil enforcement and criminal penalties that, as previously noted, are generally applicable to violations of the Communications Act. Video Privacy Protection Act The Video Privacy Protection Act (VPPA) was enacted in 1988 in order to "preserve personal privacy with respect to the rental, purchase, or delivery of video tapes or similar audio visual materials." The VPPA does not have any data security provisions requiring entities to maintain safeguards to protect consumer information from unauthorized access. However, it does have privacy provisions restricting when covered entities can share certain consumer information. Specifically, the VPPA prohibits "video tape service providers" —a term that includes both digital video streaming services and brick-and-mortar video rental stores —from knowingly disclosing PII concerning any "consumer" without that consumer's opt-in consent. The VPPA provides several exceptions to this general rule. In particular, video tape service providers may disclose PII to "any person if the disclosure is incident to the ordinary course of business." Providers may also disclose PII if the disclosure solely includes a consumer's name and address and does not identify the "title, description, or subject matter of any video tapes or other audio visual material," and the consumer has been provided with an opportunity to opt out of such disclosure. The VPPA does not empower any federal agency to enforce violations of the Act and there are no criminal penalties for violations, but it does provide for a private right of action for persons aggrieved by the Act. In such actions, courts may award actual damages, punitive damages, preliminary and equitable relief, and reasonable attorneys' fees and other litigation costs. Family Educational Rights and Privacy Act (FERPA) The Family Educational Rights and Privacy Act of 1974 (FERPA) creates privacy protections for student education records. "Education records" are defined broadly to generally include any "materials which contain information directly related to a student" and are "maintained by an educational agency or institution." FERPA defines an "educational agency or institution" to include "any public or private agency or institution which is the recipient of funds under any applicable program." FERPA generally requires that any "educational agency or institution" (i.e., covered entities) give parents or, depending on their age, the student (1) control over the disclosure of the student's educational records, (2) an opportunity to review those records, and (3) an opportunity to challenge them as inaccurate. First, with respect to disclosure, covered entities must not have a "policy or practice" of permitting the release of education records or "personally identifiable information contained therein" without the consent of the parent or the adult student. This consent requirement is subject to certain exceptions. Among other things, covered entities may disclose educational records to (1) certain "authorized representatives," (2) school officials with a "legitimate educational interest," or (3) "organizations conducting studies" for covered entities "for the purpose of developing, validating, or administering predictive tests, administering student aid programs, and improving instructions." Covered entities may also disclose the information without consent if it constitutes "directory information" and the entity has given notice and a "reasonable period of time" to opt out of the disclosure. Second, in addition to the disclosure obligations, covered entities must not have a "policy of denying" or "effectively prevent[ing]" parents or an adult student from inspecting and reviewing the underlying educational records. Covered entities must further "establish appropriate procedures" to grant parents' review requests "within a reasonable period of time, but in no case more than forty-five days after the request has been made." Lastly, covered entities must provide an "opportunity for a hearing" to challenge the contents of the student's education records as "inaccurate, misleading, or otherwise in violation of the privacy rights of students." Covered entities must further "provide an opportunity for the correction or deletion of any such inaccurate, misleading or otherwise inappropriate data contained therein and to insert into such records a written explanation of the parents respecting the content of such records." Parents or adult students who believe that their rights under FERPA have been violated may file a complaint with the Department of Education. FERPA authorizes the Secretary of Education to "take appropriate actions," which may include withholding federal education funds, issuing a "cease and desist order," or terminating eligibility to receive any federal education funding. FERPA does not, however, contain any criminal provisions or a private right of action. Federal Securities Laws While federal securities statutes and regulations do not explicitly address data protection, two requirements under these laws have implications for how companies prevent and respond to data breaches. First, federal securities laws may require companies to adopt controls designed to protect against data breaches. Under Section 13(b)(2)(B) of the Securities and Exchange Act of 1934 (Exchange Act), public companies and certain other companies are required to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances" that "transactions are executed in accordance with management's general or specific authorization," and that "access to assets is permitted only in accordance with management's general or specific authorization." In a recent report, the Securities and Exchange Commission (SEC) suggested that, in order to comply with this requirement, companies should consider "cyber-related threats" when formulating accounting controls. The report discussed the SEC's investigation of companies that wrongly transferred millions of dollars in response to fraudulent emails, generally noting that "companies should pay particular attention to the obligations imposed by Section 13(b)(2)(B)" in light of the "risks associated with today's ever expanding digital interconnectedness." Second, federal securities laws may require companies to discuss data breaches when making required disclosures under securities laws. The Exchange Act, Securities Act of 1933 (Securities Act), and their implementing regulations require certain companies to file a number of disclosures with the SEC. Specifically, the Securities Act requires companies issuing securities in a public offering to file detailed statements registering the offering (registration statements), and the Exchange Act requires public companies to file periodic reports on an annual, quarterly, and ongoing basis. These filings must contain certain categories of information, such as a description of the most significant factors that make investing in the company speculative or risky (known as "risk factors") and a description of any "events, trends, or uncertainties that are reasonably likely to have a material effect on its results of operations, liquidity, or financial condition . . . ." Further, when making these filings, or any other statements in connection with the purchase or sale of a security, companies are required to include any "material" information necessary to make the statements made therein "not misleading." In interpretive guidance issued in February 2018, the SEC indicated that, pursuant to these obligations, companies may be required to disclose in their filings cyber incidents such as data breaches. The SEC can enforce violations of the Securities Act and the Exchange Act, including the accounting controls requirement and the disclosure requirements, through civil actions filed in court or administrative "cease and desist" proceedings. The SEC may seek civil penalties, disgorgement, and injunctive relief (in civil actions) or a cease and desist order (in administrative proceedings). Furthermore, under both the Exchange Act and the Securities Act, individuals aggrieved by a company's misrepresentation or omission of a material fact in connection with the purchase or sale of a security may sue the company for actual damages incurred by the individual. There is not, however, a private right of action for violations of the Exchange Act's accounting controls requirement. Lastly, in addition to civil enforcement, both the Securities Act and the Exchange Act impose criminal liability; any person who "willfully" violates the acts or their implementing regulations may be subject to fines and imprisonment. Children's Online Privacy Protection Act (COPPA) The Children's Online Privacy Protection Act (COPPA) and the FTC's implementing regulations regulate the online collection and use of children's information. Specifically, COPPA's requirements apply to: (1) any "operator" of a website or online service that is "directed to children," or (2) any operator that has any "actual knowledge that it is collecting personal information from a child" (i.e., covered operators). Covered operators must comply with various requirements regarding data collection and use, privacy policy notifications, and data security. First, COPPA and the FTC's implementing regulations prohibit covered operators from collecting or using "personal information" from children under the age of thirteen without first obtaining parental consent. Such consent must be "verifiable" and must occur before the information is collected. Second, covered operators must provide parents with direct notice of their privacy policies, describing their data collection and sharing policies. Covered operators must further post a "prominent and clearly labeled link" to an online notice of its privacy policies at the home page of its website and at each area of the website in which it collects personal information from children. Lastly, covered operators that have collected information from children must establish and maintain "reasonable procedures" to protect the "confidentiality, security, and integrity" of the information, including ensuring that the information is provided only to third parties that will similarly protect the information. They must also comply with certain data retention and deletion requirements. Under COPPA's safe harbor provisions, covered operators will be deemed to have satisfied these requirements if they follow self-regulatory guidelines the FTC has approved. COPPA provides that violations of the FTC's implementing regulations will be treated as "a violation of a rule defining an unfair or deceptive act or practice" under the FTC Act. Under the FTC Act, as discussed in more detail below, the FTC has authority to enforce violations of such rules by seeking penalties or equitable relief. COPPA also authorizes state attorneys general to enforce violations affecting residents of their states. COPPA does not contain any criminal penalties or any provision expressly providing a private right of action. Electronic Communications Privacy Act (ECPA) The Electronic Communications Privacy Act (ECPA) was enacted in 1986, and is composed of three acts: the Wiretap Act, the Stored Communications Act (SCA), and the Pen Register Act. Much of ECPA is directed at law enforcement, providing "Fourth Amendment like privacy protections" to electronic communications. However, ECPA's three acts also contain privacy obligations relevant to non-governmental actors. ECPA is perhaps the most comprehensive federal law on electronic privacy, as it is not sector-specific, and many of its provisions apply to a wide range of private and public actors. Nevertheless, its impact on online privacy practices has been limited. As some commentators have observed, ECPA "was designed to regulate wiretapping and electronic snooping rather than commercial data gathering," and litigants attempting to apply ECPA to online data collection have generally been unsuccessful. The Wiretap Act applies to the interception of a communication in transit. A person violates the Act if, among other acts, he "intentionally intercepts . . . any wire, oral, or electronic communication." The Wiretap Act defines an "electronic communication" broadly, and courts have held that the term includes information conveyed over the internet. Several thresholds must be met for an act to qualify as an unlawful "interception." Of particular relevance are three threshold issues. First, the communication must be acquired contemporaneously with the transmission of the communication. Consequently, there is no "interception" where the communication in question is in storage. Furthermore, the acquired information must relate to the "contents" of the communication, defined as information concerning the "substance, purport, or meaning of that communication." As a result, while the Act applies to information like the header or body of an email, the Act does not apply to non-substantive information automatically generated about the characteristics of the communication, such as IP addresses. Third, individuals do not violate the Wiretap Act if they are a "party to the communication" or received "prior consent" from one of the parties to the communication. The party-to-the-communication and consent exceptions have been subject to significant litigation; in particular, courts have often relied on the exceptions to dismiss suits alleging Wiretap Act violations due to online tracking, holding that websites or third-party advertisers who tracked users' online activity were either parties to the communication or received consent from a party to the communication. The SCA prohibits the improper access or disclosure of certain electronic communications in storage. With respect to improper access, a person violates the SCA if he obtains an "electronic communication" in "electronic storage" from "a facility through which an electronic communication service is provided" by either: (1) "intentionally access[ing] [the facility] without authorization" or (2) "intentionally exceed[ing] an authorization." Although the statute does not define the term "facility," most courts have held that the term is limited to a location where network service providers store communications. However, courts have differed over whether a personal computer is a "facility." Most courts have excluded personal computers from the reach of the SCA, but some have disagreed. With respect to improper disclosure, the SCA generally prohibits entities providing "electronic communication services" or "remote computing services" from knowingly divulging the contents of a communication while holding the communication in electronic storage. Similar to the Wiretap Act, the SCA's access and disclosure prohibitions are subject to certain exceptions. In particular, individuals do not violate the SCA if they are the sender or intended recipient of the communication or when a party to the communication consents to the access or disclosure. As with the Wiretap Act, courts have relied on these two exceptions to dismiss suits under the SCA related to online tracking. The Pen Register Act prohibits the installation of a "pen register" or "trap and trace device" without a court order. A pen register is a "device or process" that "records or decodes" outgoing "dialing, routing, addressing, or signaling information," and a trap and trace device is a "device or process" that "captures the incoming . . . dialing, routing, addressing, and signaling information." In contrast to the Wiretap Act, the Pen Register Act applies to the capture of non-content information, as the definitions of pen registers and trap and trace devices both exclude any device or process that captures the "contents of any communication." Furthermore, the Pen Register Act prohibits only the use of a pen register or trap and trace device and does not separately prohibit the disclosure of non-content information obtained through such use. The statute does, however, have several exceptions similar to those contained in the Wiretap Act and SCA. Among other things, providers of an electronic or wire communication service will not violate the Act when they use a pen register or trap and trace device in order to "protect their rights or property" or "where the consent of the user of that service has been obtained." The Wiretap Act and the SCA both provide for private rights of action. Persons aggrieved by violations of either act may bring a civil action for damages, equitable relief, and reasonable attorney's fees. For actions under the Wiretap Act, damages are the greater of: (1) actual damages suffered by the plaintiff, or (2) "statutory damages of whichever is the greater of $100 a day for each day of violation or $10,000." For actions under the SCA, damages are "the sum of the actual damages suffered by the plaintiff and the profits made by the violator," provided that all successful plaintiffs are entitled to receive at least $1,000. Violations of the Wiretap Act and SCA are also subject to criminal prosecution and can result in fines and imprisonment. In contrast, the Pen Register Act does not provide for a private right of action, but knowing violations can result in criminal fines and imprisonment. Computer Fraud and Abuse Act (CFAA) The Computer Fraud and Abuse Act (CFAA) was originally intended as a computer hacking statute and is centrally concerned with prohibiting unauthorized intrusions into computers, rather than addressing other data protection issues such as the collection or use of data. Specifically, the CFAA imposes liability when a person "intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from any protected computer." A "protected computer" is broadly defined as any computer used in or affecting interstate commerce or communications, functionally allowing the statute to apply to any computer that is connected to the internet. Violations of the CFAA are subject to criminal prosecution and can result in fines and imprisonment. The CFAA also allows for a private right of action, allowing aggrieved individuals to seek actual damages and equitable relief, such as an injunction against the defendant. As with ECPA, internet users have attempted to use this private right of action to sue companies tracking their online activity, arguing that companies' use of tracking devices constitutes an unauthorized access of their computers. In this vein, CFAA is theoretically a more generous statute than ECPA for such claims because it requires authorization from the owner of the computer (i.e., the user), rather than allowing any party to a communication (i.e., either the user or the website visited by the user) to give consent to the access. In practice, however, such claims have typically been dismissed due to plaintiffs' failure to meet CFAA's damages threshold. Specifically, as a threshold to bring a private right of action, a plaintiff must show damages in excess of $5,000 or another specific type of damages such as physical injury or impairment to medical care. Federal Trade Commission Act (FTC Act) The FTC Act has emerged as a critical law relevant to data privacy and security. As some commentators have noted, the FTC has used its authority under the Act to become the "go-to agency for privacy," effectively filling in gaps left by the aforementioned federal statutes. While the FTC Act was originally enacted in 1914 to strengthen competition law, the 1938 Wheeler-Lea amendment revised Section 5 of the Act to prohibit a broad range of unscrupulous or misleading practices harmful to consumers. The Act gives the FTC jurisdiction over most individuals and entities, although there are several exemptions. For instance, the FTC Act exempts common carriers, nonprofits, and financial institutions such as banks, savings and loan institutions, and federal credit unions. The key provision of the FTC Act, Section 5, declares unlawful "unfair or deceptive acts or practices" (UDAP) "in or affecting commerce." The statute provides that an act or practice is "unfair" only if it "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition." While the statute does not define "deceptive," the FTC has clarified in guidance that an act or practice is to be considered deceptive if it involves a material "representation, omission, or practice that is likely to mislead [a] consumer" who is "acting reasonably in the circumstances." Under the FTC Act, the agency may enact rules defining specific acts or practices as UDAPs, often referred to as "trade regulation rules" (TRRs) or "Magnuson-Moss" rulemaking. However, to enact TRRs the FTC must comply with several procedures that are not required under the notice-and-comment rulemaking procedures set forth in Section 553 of the Administrative Procedure Act (APA), which are the default rulemaking procedures for federal agencies. Among other things, these additional procedures require the FTC to publish an advance notice of proposed rulemaking (ANPRM), give interested persons an opportunity for an informal hearing, and issue a statement accompanying the rule regarding the "prevalence of the acts or practices treated by the rule." Consequently, the FTC rarely uses its TRR rulemaking authority and has not enacted any TRRs regarding data protection. Rather, as discussed further below, the agency largely uses enforcement actions to signal the types of acts and practices it considers to be impermissible UDAPs. The FTC has brought hundreds of enforcement actions against companies alleging deceptive or unfair data protection practices. Most of these actions result in companies entering into consent decrees requiring the companies to take certain measures to prevent any further violations. While these consent decrees are not legally binding on those who are not a party to them, they are significant because they reflect the type of practices that the FTC views as "unfair" or "deceptive." Indeed, some scholars view the principles arising from them as a type of "common law of privacy." Given the uniquely important role FTC enforcement plays in the U.S. data protection landscape, it is worth noting the types of data protection practices the FTC has viewed as "unfair" or "deceptive." Perhaps the most settled principle of the FTC's "common law of privacy" is that companies are bound by their data privacy and data security promises. The FTC has taken the position that companies act deceptively when they gather, use, or disclose personal information in a way that contradicts their posted privacy policy or other statements, or when they fail to adequately protect personal information from unauthorized access despite promises that that they would do so. In addition to broken promises, the FTC has alleged that companies act deceptively when they make false representations in order to induce disclosure of personal information. For example, in FTC v. Sun Spectrum Commc'ns Org., Inc. , the FTC alleged that several telemarketers acted "deceptively" by misrepresenting themselves as a credit card company and requesting personal information from individuals, ostensibly for the purpose of providing non-existent credit cards to the individuals. The FTC has further maintained that companies act deceptively when their privacy policies or other statements provide insufficient notice of their privacy practices. For instance, in In the Matter of Sears Holdings Management Co. , the FTC alleged that Sears acted deceptively by failing to disclose the extent to which downloadable software would monitor users' internet activity, merely telling users that it would track their "online browsing." Along with "deceptive claims," the FTC has also alleged that certain data privacy or data security practices may be "unfair." Specifically, the FTC has maintained that it is unfair for a company to retroactively apply a materially revised privacy policy to personal data that it collected under a previous policy. The FTC has also taken the position that certain default privacy settings are unfair. In the case FTC v. Frostwire , for example, the FTC alleged that a peer-to-peer file sharing application had unfair privacy settings because, immediately upon installation, the application would share the personal files stored on users' devices unless the users went through a burdensome process of unchecking many pre-checked boxes. With respect to data security, the FTC has more recently maintained that a company's failure to safeguard personal data may be "unfair," even if the company did not contradict its privacy policy or other statements. While at least one court has agreed that such conduct may be "unfair" under the FTC Act, a recent U.S. Court of Appeals for the Eleventh Circuit case, LabMD v. FTC , suggests that any FTC cease and desist order based on a company's "unfair" data security measures must allege specific data failures and specific remedies. In LabMD , the court noted that the FTC's order "contain[ed] no prohibitions" but "command[ed] [the company] to overhaul and replace its data-security program to meet an indeterminable standard of reasonableness." The court concluded that such an order was unenforceable, reasoning that the order "effectually charge[d] the district court [enforcing the order] with managing the overhaul." The court further suggested that penalizing a company for failing to comply with an imprecise standard "may constitute a denial of due process" because it would not give the company fair notice of the prohibited conduct. Ultimately, while LabMD did not decide whether inadequate data security measures may be "unfair" under the FTC Act, the decision is nevertheless a potentially significant limitation on the FTC's ability to remedy such violations of the statute. LabMD is also a notable case because it adds to the relatively sparse case law on the FTC Act's "unfair or deceptive" prohibition. As mentioned, the large majority of the FTC enforcement actions are settled, with parties entering into consent decrees. To the extent FTC allegations are contested, the FTC may either commence administrative enforcement proceedings or civil litigation against alleged violators. In an administrative enforcement proceeding, an Administrative Law Judge (ALJ) hears the FTC's complaint and may issue a cease and desist order prohibiting the respondent from engaging in wrongful conduct. In civil litigation, the FTC may seek equitable relief, such as injunctions or disgorgement, when a party "is violating, or is about to violate," the FTC Act. The FTC may only seek civil penalties, however, if the party has violated a cease and desist order, consent decree, or a TRR. The FTC Act does not provide a private right of action, and it does not impose any criminal penalties for violations of Section 5. Consumer Financial Protection Act (CFPA) Similar to the FTC Act, the CFPA prohibits covered entities from engaging in certain unfair, deceptive, or abusive acts. Enacted in 2010 as Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPA created the Consumer Financial Protection Bureau (CFPB) as an independent agency within the Federal Reserve System. The Act gives the CFPB certain "organic" authorities, including the authority to take any action to prevent any "covered person" from "committing or engaging in an unfair, deceptive, or abusive act or practice" (UDAAP) in connection with offering or providing a "consumer financial product or service." The CFPB's UDAAP authority under the CFPA is very similar to the FTC's UDAP authority under the FTC Act; indeed, the CFPA contains the same definition of "unfair" as in the FTC Act, and the CFPB has adopted the FTC's definition of "deceptive" acts or practices. However, there are several important differences. First, the CFPA's UDAAP prohibition includes "abusive" practices, as well as unfair or deceptive ones. An act or practice is abusive if it either (1) "materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service" or (2) "takes unreasonable advantage of" a consumer's (a) lack of understanding, (b) inability to protect her own interest in selecting or using a consumer financial product or service, or (c) reasonable reliance on a covered person to act in her interest. While abusive conduct may also be unfair or deceptive, abusiveness is a separate standard that may cover additional conduct. Second, the CFPA prohibits UDAAPs only in connection with offering or providing a "consumer financial product or service." A product or service meets this standard if it is one of the specific financial product or services listed in the CFPA and is offered or provided to consumers primarily for personal, family, or household purposes. Lastly, the CFPA applies only to "covered persons" or "service providers." The statute defines "covered persons" as persons who offer or provide a consumer financial product or service, and it defines "service providers" as those who provide a "material service" to a "covered person" in connection with offering or providing a consumer financial product or service. As some commentators have noted, the CFPB could follow in the FTC's footsteps and use its UDAAP authority to regulate data protection. However, the CFPB has generally been inactive in the data privacy and security space. Indeed, to date, it has brought only one such enforcement action, which involved allegations that an online payment platform, Dwolla, Inc., made deceptive statements regarding its data security practices and the safety of its online payments system. To the extent it does use its authority, the CFPB has some powerful procedural advantages in comparison with the FTC. In particular, the CFPB can enact rules identifying and prohibiting particular UDAAP violations through the standard APA rulemaking process, whereas the FTC must follow the more burdensome Magnuson-Moss rulemaking procedures. Regarding enforcement, the CFPA authorizes the CFPB to bring civil or administrative enforcement actions against entities engaging in UDAAPs. Unlike the FTC, the CFPB can seek civil penalties in all such enforcement actions, as well as equitable relief such as disgorgement or injunctions. However, as with the FTC Act, the CFPA does not provide a private right of action that would allow adversely affected individuals to sue companies violating the Act. The statute also does not impose any criminal penalties for UDAAP violations. State Data Protection Law Adding to the complex federal patchwork of data protection statutes are the laws of the fifty states. First and foremost, major regulators of privacy and data protection in the states include the courts, via tort and contract law. With respect to tort law, in addition to the "privacy" causes of action that developed at the state level during the early 20th century (discussed above), negligence and other state tort law claims serve as a means to regulate businesses that are injured from data security issues or otherwise fail to protect their customers from foreseeable harm. Contracts, implied contracts, and other commercial causes of action can also form important bulwarks for privacy. The common law, however, is not perfect: it is subject to variability from state to state, and within states, from judge to judge and jury to jury. In addition to the common law, most states have their own statutory framework which may affect data protection and the use of data by private entities. For example, many states have a consumer protection law, sometimes prohibiting unfair or deceptive practices, often referred to as "little FTC Acts." These laws, like the FTC Act, are increasingly being used to address privacy matters. In addition, each state has passed a data breach response law, requiring some form of response or imposing liability on companies in the event of a breach of their data security. While an examination of every state data security law is beyond the scope of this report, at least one state has undertaken a general and ambitious effort to regulate data security. Specifically, the California Consumer Privacy Act (CCPA), enacted in 2018, has captured significant attention. The California Consumer Privacy Act (CCPA) The CCPA's Scope Unlike the federal patchwork provisions, neither the method of data collection nor the industry that the business operates in limits the potential application of the CCPA. Instead, the CCPA applies to any company that collects the personal information of Californians, is for-profit, does business in California, and satisfies a basic set of thresholds. Analysts have suggested that these thresholds are low enough that the law could reach a considerable number of even "relatively small" businesses with websites accessible in California. The CCPA also does not distinguish between the sources of the data that comes within its scope. Rather, the CCPA regulates all "personal information," which, by the CCPA's definition, covers nearly any information a business would collect from a consumer. The law does not require the presence of any individual identifier, such as a name or address, for data to fall within the meaning of personal information. Rather, the CCPA broadly defines personal information as "information that identifies, relates to, describes, or is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household." Following this definition, the CCPA provides some telling illustrations of what constitutes personal information, including any "electronic network activity [such as] browsing history, search history, and information regarding a consumer's interaction with an Internet Web site, application, or advertisement" and "inferences drawn from any of" this information. The CCPA's Provisions and Requirements The CCPA provides consumers with three main "rights." The first of these is a " right to know " the information that businesses have collected or sold about them. This right requires that businesses must, in advance of any collection, "inform [by mail or electronically] consumers as to the categories of personal information to be collected and the purposes" to which the information will be put. Second, the CCPA provides consumers with the " right to opt out " of the sale of a consumer's information. Under the new law, businesses must inform consumers of this right, and if a consumer so affirmatively opts out, the business cannot again sell the consumer's information unless the consumer subsequently provides the business express authorization. Finally, the CCPA gives consumers the right, in certain circumstances, to request that a business delete any information collected about the consumer (i.e., " right to delete "). Under the law, a business that receives such a request must delete the information collected and direct its "service providers" to do the same. Remedies, Liabilities, and Fines The primary means to enforce the CCPA are actions brought by the California Attorney General. According to the statute, businesses that fail to provide the protections required by the CCPA and fail to cure those violations within 30 days are liable for civil penalties of up to $7,500 per violation. Penalties or settlements collected under the CCPA are to be deposited with the newly created Consumer Privacy Fund, the funds for which are used only to offset costs incurred in connection with the administration of the CCPA. While the CCPA provides for a private cause of action, allowing for individual and class action lawsuits against businesses, this cause of action is only available in the case of a consumer whose "nonencrypted or nonredacted personal information" is subject to "unauthorized access and exfiltration, theft, or disclosure" as a result of a failure to "implement and maintain reasonable security procedures." Further, such actions can be brought only if a consumer provides a business with 30 days' written notice and provides the business with opportunity to cure the violation, unless the consumer suffered actual pecuniary damages. The statute does not specify how a business could "cure" a violation of this type. Consumers may obtain damages under this section of no less than $100 and no more than $750 "per incident," or actual damages, whichever is greater, as well as injunctive relief. The CCPA and the 116th Congress Statements by some Members of Congress during Congressional hearings have already noted the CCPA's likely importance to future federal legislative efforts. Further, some outside commentators have argued explicitly that the CCPA should be preempted by a future federal law. These statements may be motivated by the likely fact that, if left intact, the California law could shape industry and consumer concerns both inside and outside California. First, the law is likely to be the "first in a long line of similar pieces of legislation," all of which may model themselves after the CCPA, or will have to respond to its impact. Second, even though the statute is the product of a single state, its broad jurisdictional reach would bring companies throughout the United States and from around the world into its sweep. These factors combined are likely to make the CCPA important to federal legislators. Furthermore, some of the provisions of the California law could form a model for future federal regulation—although along those lines, another potential model it has to compete with is Europe's GDPR. The EU's General Data Protection Regulation (GDPR) In addition to U.S. states like California, some foreign nations have enacted comprehensive data protection legislation. The EU, in particular, has long applied a more wide-ranging data protection regulatory scheme. Whereas privacy principles in the U.S. Constitution focus on government intrusions into private life and U.S. data privacy statutes generally are sector-specific, European privacy regulations have generally concerned any entity's accumulation of large amounts of data. As a result, foundational EU treaties provide individuals with a general right to "protection of personal data" from all potential interferences. The objective of the EU's most recent data privacy legislation—the GDPR—is to safeguard this right to personal data protection, while ensuring that data moves freely within the EU. European Data Privacy Laws and the Lead-Up to the GDPR Beginning in the 1970s, individual European countries began enacting broad, omnibus national statutes concerning data protection, privacy, and information practices. Although these domestic laws shared certain features, their differing data privacy and protection standards occasionally impeded the free flow of information between European countries. As a consequence, the EU attempted to harmonize its various national privacy laws by adopting an EU-wide data privacy and protection initiative—the 1995 Directive on the Protection of Individuals with Regard to the Processing of Personal Data and on the Free Movement of Such Data (Data Protection Directive). While the Data Protection Directive applied on an EU-wide basis, EU law authorized each member-nation to implement the directive's requirements into the country's national law. By 2012, the European Commission—the executive body of the EU —came to view differing implementations of the Data Protection Directive at the national level as problematic. The Commission concluded that a single regulation should be developed in order to eliminate the fragmentation and administrative burdens created by the directive-based system. The Commission also sought to bring EU law up to date with developments in technology and globalization that changed the way data is collected, accessed, and used. In pursuit of these goals, the EU developed and adopted the GDPR, which replaced the 1995 Data Protection Directive and went into effect on May 25, 2018. GDPR Provisions and Requirements Scope and Territorial Reach The GDPR regulates the processing of personal data that meet its territoriality requirements, discussed below. Processing includes collection, use, storage, organization, disclosure or any other operation or set of operations performed on personal data, unless an exception applies. Personal data is defined as any information relating to an identified or identifiable person, and it can include names, identification numbers, location data, IP addresses, cookies, and any other information through which an individual can be directly or indirectly identified. The GDPR applies different requirements for controllers and processors of personal data. In general, a controller determines the purposes and means of processing personal data, and a processor is responsible for processing data on behalf of a controller. From a territorial perspective, the GDPR applies to organizations that have an "establishment" in the EU and that process personal data in the context of the activities of that establishment. The GDPR does not define "establishment," but states that it "implies the effective and real exercise of activity through stable arrangements." In a pre-GDPR case, the Court of Justice of the European Union stated that the concept of establishment under the 1995 Data Protection Directive extended "to any real and effective activity—even a minimal one—exercised through stable arrangements." Entities that meet the establishment requirement are subject to the GDPR even if their data processing activities take place outside the EU. The GDPR also applies to non-EU-established entities that offer goods or services to individuals in the EU or monitor individuals' behavior in the EU. Because many businesses with an online presence offer goods and services to EU individuals, the GDPR applies to many businesses outside the EU. Key Principles The GDPR lays out seven guiding principles for the processing of personal data. While these principles are not "hard and fast rules" themselves, they inform the interpretation of the GDPR and its more concrete requirements, discussed below. Bases for Processing and Consent Requirements The GDPR requires data controllers and processors to have a lawful basis to process personal data. The regulation delineates six possible legal bases: (1) consent; (2) performance of contract; (3) compliance with a legal obligations; (4) protection of the "vital interests" (i.e., the life) of the data subject or another individual; (5) tasks carried out in the public interest (e.g., by a government entity); and (6) the "legitimate interests" of the controller or a third party, unless the fundamental rights and freedom of the data subject override those interests. Commentators describe the "legitimate interests" category as the most flexible and as the potential basis for a host of common activities, such as processing carried out in the normal course of business, provided that the processing is not unethical, unlawful, or otherwise illegitimate. When data processing is premised on consent, the consent must be freely given, specific, informed, and unambiguous, and it can be withdrawn at any time. Additional consent requirements and restrictions apply to especially sensitive data, such as children's information and data that reveals ethnic origins, political opinions, religious beliefs, union status, sexual orientation, health information, and criminal histories. Individual Rights and Corresponding Obligations The GDPR provides a series of rights to individuals and corresponding obligations for data controllers, unless an exception applies. Data Governance and Security The GDPR requires organizations to implement a range of measures designed to ensure and demonstrate that they are in compliance with the regulation. When proportionate in relation to the processing activities, such measures may include adopting and implementing data protection policies and taking a "data protection by design and default" approach whereby the organization implements compliance measures into all stages of data processing. Measures may also include the following: establishing GDPR-conforming contracts with data processors; maintaining records of processing activities; conducting impact assessments on personal data use that is likely to risk individual rights and freedoms; appointing a data protection officer; and adhering to relevant codes of conduct and compliance certification schemes. The GDPR also requires controllers and processors to implement technical and organizational measures to ensure a level of data security that is "appropriate to the risk" presented by the data processing. In implementing data security measures, organizations must consider the "state of the art, the costs of implementation," the nature, scope, and context, and purposes of processing, and the likelihood and potential severity of an infringement on individual rights if data security were to be violated. The GDPR does not impose a "one-size-fits-all" requirement for data security, and security measures that are "appropriate" (and therefore mandatory) will depend on the specific circumstances and risks. For example, a company with an extensive network system that holds a large amount of sensitive or confidential information presents greater risk, and therefore must install more rigorous data security protections than an entity that holds less data. When appropriate, organizations should consider encryption and pseudonymization —the processing of personal data such that the data can no longer be attributed to a specific individual. Security measures should ensure the confidentiality, integrity, and resilience of processing systems; be able to restore access to personal data in the event of an incident; and include a process for testing security effectiveness. Data Breach Notifications In the event of a personal data breach, the GDPR requires controllers to notify the designated EU government authority "without undue delay" and no later than 72 hours after learning of the breach, unless the breach is "unlikely to result in a risk to the rights and freedoms of natural persons." For example, whereas a company must report the theft of a customer database that contains information that could be used for future identity fraud given the high level of risk to individuals, it may not need to report the loss of more innocuous data, such as a directory of staff office phone numbers. When notification to the government is required, the notification must describe the nature and likely consequences of the breach, identify measures to address the breach, and identify the employee responding to the incident. When data processors experience a breach, they must notify the controller without undue delay. In addition to governmental notification, controllers must notify the individuals whose data has been compromised if the breach is likely to result in a "high risk to the rights and freedoms" of individuals. The "high risk" threshold is higher than the threshold for notifying the government authority, but it could met in circumstances when individuals may need to take steps to protect themselves from the effects of a data breach. According to the United Kingdom's data protection regulatory authority, for example, a hospital that disclosed patient medical records as a result of a data breach may present a "high risk" to individuals, but a university that accidentally deleted, but was able to re-create, an alumni contact information database may not meet the mandatory individual reporting threshold. Notification to the individual must describe the breach in clear and plain language and contain at least the same information as provided in the governmental notifications. Notification to the individual is not required in the following cases: the controller implemented appropriate technical and organizational protection measures, such as encryption, that will render the data unintelligible; the controller took subsequent measures that will ensure that the high risk to individual rights and freedom are no longer likely to materialize; or individual notifications would involve disproportionate efforts, in which case the controller must provide public notice of the breach. Regardless of whether notification is required, controllers must document all data breaches so that government supervisory authorities can verify compliance at a later date. Data Transfer Outside the EU The EU has long regulated the transfer of data from EU member states to foreign countries, and the GDPR continues to restrict such international data transfers. Like the 1995 Data Protection Directive, the GDPR authorizes data transfer from within the EU to a non-EU country if the receiving country ensures an adequate level of protection for personal data. To meet this requirement, the non-EU country must offer a level of protection that is "essentially equivalent to that ensured" by the GDPR. If the European Commission previously made an adequacy decision under the Data Protection Directive's legal framework, that decision remains in force under the GDPR. U.S. and EU officials previously developed a legal framework—the U.S.-EU Privacy Shield—for protecting transatlantic data flow into the United States. Under the Privacy Shield framework, U.S.-based organizations self-certify to the International Trade Administration in the Department of Commerce that they will comply with the framework's requirements for protecting personal data by complying with, among other provisions, notice requirements, data retention limits, security requirements, and data processing purpose principles. In 2016, the European Commission concluded that the Privacy Shield framework provided adequate protections under the Data Protection Directive. That adequacy determination continues to apply under the GDPR, although the European Commission annually reviews whether the Privacy Shield framework continues to provide an adequate level of protection. In the absence of an adequacy decision from the European Commission, the GDPR permits data transfers outside the EU when (1) the recipient of the data has itself established appropriate safeguards , and (2) effective legal remedies exist for individuals to enforce their data privacy and protection rights. Appropriate safeguards include: a legally binding agreement between public authorities or bodies; binding corporate rules; standard contract clauses adopted by the European Commission; and approved codes of conduct and certification mechanisms. U.S. companies that do not participate in Privacy Shield often must rely on standard contract clauses to be able to receive data from the EU. The GDPR also identifies a list of circumstances in which data may be transferred outside the EU even without appropriate safeguards or an adequacy decision. These circumstances include, among other reasons, when: an individual has provided informed consent; transfer is necessary for the performance of certain contracts involving the data subject; or the transfer is necessary for important reasons of public interests. Remedies, Liability, and Fines One of the most commented-upon aspects of the GDPR is its high ceiling for administrative fines. For the most serious infractions of the GDPR, regulatory bodies within individual EU countries may impose fines up to 20 million euro (approximately $22 million) or 4% of global revenue, whichever is higher, for certain violations of the GDPR. The GDPR also provides tools for individuals to enforce compliance with its terms. Individuals whose personal data is processed in a way that does not comport with the GDPR may lodge a complaint with regulatory authorities. Individuals also have the right to an "effective judicial remedy" (i.e., to pursue a lawsuit) against the responsible data processor or controller, and individuals may obtain compensation for their damages from data processors or controllers. The GDPR and the 116th Congress The GDPR may be relevant to the 116th Congress' consideration of data protection initiatives in several ways. Because the GDPR applies to U.S. companies that offer goods and services to individuals in the EU, many U.S. companies have developed new data protection practices in an effort to comply with its requirements. Other businesses reported that they withdrew from the European market rather than attempt to obtain compliance GDPR. For those companies that remained in the European market, some have stated that they will apply their GDPR-compliant practices on a company-wide basis rather than changing their model only when doing business in the EU. Consequently, the GDPR already directly impacts the data protection practices of some U.S. companies. The GDPR also has served as a prototype for comprehensive data protection legislation in other governments. For example, commentators have described China's Personal Information Security Specification, which defines technical standards related to the collection, storage, use, transfer, and disclosure of personal information, as modeled on the GDPR. And the CCPA includes elements similar to the GDPR, such as an enumeration of individual rights related to data privacy. If this trend continues, GDPR-like data protection laws may become more commonplace internationally. Finally, some argue that Congress should consider enacting comprehensive federal data protection legislation similar to the GDPR. As discussed below, however, other observers and some officials in the Trump Administration have criticized the GDPR, describing the regulation as overly prescriptive and likely to result in negative unintended consequences. Regardless of the merits of these positions, the GDPR may remain a focal point of discussion in the debate over whether the United States should develop a more comprehensive data protection policy. The Trump Administration's Proposed Data Privacy Policy Framework Although some commentators argue that the federal government should supplement the current patchwork of federal data protection laws with more comprehensive legislation modeled on the CCPA or GDPR, some Trump Administration officials have criticized these legislative approaches and questioned whether they will improve data privacy outcomes. The Administration has argued that many comprehensive data privacy models have resulted in "long, legal, regulator-focused privacy policies and check boxes, which only help a very small number of users[.]" Rather than pursuing a prescriptive model in which the government defines (or prescribes) data protection rules, the Trump Administration advocates for what it describes as an outcome-based approach whereby the government focuses on the "outcomes of organizational practices, rather than on dictating what those practices should be." In September 2018, the National Telecommunications and Information Administration (NTIA) in the Department of Commerce issued a request for public comments on the Trump Administration's efforts to develop an outcome-based approach to advancing consumer privacy that also protects prosperity and innovation. According to NTIA, changes in technology have led consumers to conclude that they are losing control over their personal information, while at the same time that foreign and state privacy laws have led to a fragmented regulatory landscape that disincentives innovation. Accordingly, NTIA is attempting to develop a set of "user-centric" privacy outcomes and goals that would underpin the protections that should be produced by any federal actions related to consumer privacy. NTIA's proposed policy focuses on a set of outcomes that the Trump Administration seeks to achieve: In addition to identifying desired outcomes, NTIA's request for public comments states that the Trump Administration is in the process of developing "high-level goals for Federal action" related to data privacy. NTIA's proposed privacy framework shares certain elements of prescriptive legal regimes like the GDPR and CCPA. Common features include a right to withdraw consent to certain uses of personal data; accountability for third-party vendors and servicers; and a right to access, amend, complete, correct, or delete personal data. But NTIA's request for public comments does not specifically describe how the Trump Administration intends to accomplish its outcomes and goals. Instead, it states that NTIA "understand[s] that there is considerable work to be done to achieve" the identified objectives. The comment period closed on November 9, 2018, and NTIA received input from more than 200 individuals and entities. Considerations for Congress The debate over whether Congress should consider federal legislation regulating data protection implicates numerous legal variables and options. "Data protection" itself is an expansive concept that melds the fields of data privacy (i.e., how to control the collection, use, and dissemination of personal information) and data security (i.e., how to protect personal information from unauthorized access or use and respond to such unauthorized access or use). There is no single model for data protection legislation in existing federal, state, or foreign law. For example, some state laws focus solely on data security or address a particular security concern, such as data breach notifications. Other state laws isolate a single privacy-related issue, such as the transparency of data brokers—companies that aggregate and sell consumers' information, but that often do not have a direct commercial relationship with consumers. Recent data protection laws such as the CCPA and GDPR appear to indicate a trend toward combining data privacy and security into unified legislative initiatives. These unified data protection paradigms typically are structured on two related features: (1) an enumeration of statutory rights given to individuals related to their personal information and (2) the creation of legal duties imposed on the private entities that possess personal information. The specific list and nature of rights and duties differ depending on the legislation, and some have proposed to define new rights in federal legislation that do not have a clear analog in existing state or foreign law. Consequently, at present, there is no agreed-upon menu of data protection rights and obligations that could be included in federal legislation. Although data protection laws and proposals are constantly evolving, some frequently discussed legal rights include: the right to know what personal data is being collected, used, and disseminated, and how those activities are occurring; the right to control the use and dissemination of personal data, which may include the right to opt out or withhold consent to the collection or sharing of such data; the right to review personal data that has been collected and to delete or correct inaccurate information; the right to obtain a portable copy of personal data; the right to object to improper activities related to personal data; and the right to learn when a data breach occurs; Commonly discussed obligations for companies that collect, use, and disseminate personal data include rules defining: how data is collected from individuals; how companies use data internally; how data is disseminated or disclosed to third parties; what information companies must give individuals related to their data; how data is kept secure; when breaches of security must be reported; the accuracy of data; and reporting requirements to ensure accountability and compliance. Whether to enact federal data protection legislation that includes one or more of these rights and obligations has been the subject of a complex policy debate and multiple hearings in recent Congresses. Part of the legislative debate concerns how to enforce such rights and obligation and raises questions over the role of federal agencies, state attorneys general, and private citizen suits. In addition, some elements of the data protection proposals and models could implicate legal concerns and constitutional limitations. While the policy debate is outside the scope of this report, the following sections discuss legal considerations relevant to federal data protection proposals that the 116th Congress may choose to consider. These sections begin by analyzing legal issues related to the internal structure and definition of data protection-related rights and obligations and then move outward toward an examination of external legal constraints. Prescriptive Versus Outcome-Based Approach A primary conceptual point of debate concerning data protection legislation is whether to utilize the so-called "prescriptive" method or an "outcome-based" approach to achieve a particular law's objectives. Under the prescriptive approach, the government defines data protection rules and requires regulated individuals and entities to comply with those rules. Both the GDPR and CCPA use a prescriptive approach, and some legislation proposed in the 116th Congress would use this method by delineating certain data protection requirements. The Trump Administration, however, has argued that a prescriptive approach can stymie innovation and result in compliance checklists without providing measurable privacy benefits. As an alternative methodology, the Administration advocated for what it described as an outcome-based approach whereby the government focuses on the outcomes of organizational practices, rather than defining the practices themselves. Some federal information technology laws, such as the Federal Information Security Management Act (FISMA), use an outcome-oriented approach to achieve federal objectives, although agency implementation of such laws may become prescriptive in nature. The Administration has not specified how it intends to achieve its desired data protection goals without prescribing data protection rules, but additional direction appears to be forthcoming, according to the NTIA's request for public comment. Defining Protected Information and Addressing Statutory Overlap Another issue that may be considered in crafting federal data protection policy is how to define the contours of the data that the federal government proposes to protect or the specific entities or industries that it proposes to regulate. The patchwork of existing data protection statutes define protected information in a variety of ways, many of which depend on the context of the law. For example, HIPAA is limited to "protected health information" and GLBA governs "financial information" that is personally identifiable but not publicly available. By contrast, GDPR and CCPA regulate all "personal" information—a term defined in both laws as information that is associated with a particular individual or is capable of being associated with an individual. Some federal data proposals would apply a similar scope to those of the GDPR and CCPA. If enacted, such broad data protection laws have the potential to create multiple layers of federal data protection requirements: (1) general data protection requirements for "personal" information and (2) sector-specific requirements for data regulated by the existing "patchwork" of data protection laws. Other legislative proposals have sought to avoid dual layers of regulations by stating that the proposed data protection requirements would not apply to individuals or entities covered by certain existing federal privacy laws. Agency Enforcement Agency enforcement is another key issue to consider when crafting any future federal data protection legislation. As discussed, under the current patchwork of federal data protection laws, there are multiple federal agencies responsible for enforcing the myriad federal statutory protections, such as the FTC, CFPB, FCC, and HHS. Of these agencies, the FTC is often viewed—by industry representatives, privacy advocates, and FTC commissioners themselves —as the appropriate primary enforcer of any future national data protection legislation, given its significant privacy experience. There are, however, several relevant legal constraints on the FTC's enforcement authority. First, the FTC generally lacks the ability to issue fines for first-time offenses. In UDAP enforcement actions, the FTC may issue civil penalties only in certain limited circumstances, such as when a person violates a consent decree or a cease and desist order. Consequently, the FTC often enters into consent decrees addressing a broad range of conduct, such as a company's data security practices, seeking penalties for violations of those decrees. However, as the LabMD case discussed earlier in this report suggests, if the FTC imposes penalties based on imprecise legal standards provided in a rule or order, the Due Process Clause of the Fifth Amendment may constrain the agency's authority. Second, the plain text of the FTC Act deprives the FTC of jurisdiction over several categories of entities, including banks, common carriers, and nonprofits. Third, the FTC generally lacks authority to issue rules under the APA's notice-and-comment process that is typically used by agencies to issue regulations. Rather, the FTC must use a more burdensome—and, consequently, rarely used—process under the Magnuson-Moss Warranty Act. As some FTC Commissioners and commentators have noted, these legal limitations may be significant in determining the appropriate federal enforcement provisions in any national data security legislation. While Congress may not be able to legislate around constitutional constraints, future legislation could address some of these limitations—for instance, by allowing the FTC to seek penalties for first-time violations of rules, expanding its jurisdictions to include currently excluded entities, or providing the FTC notice-and-comment rulemaking authority under the APA. These current legal constraints on FTC authority may also be relevant in determining whether national legislation should allow private causes of action or enforcement authority for state attorneys general, as some commentators have suggested that private causes of action and enforcement by state attorneys general are essential supplements to FTC enforcement. Private Rights of Action and Standing Legislation involving privacy may propose to allow individuals to seek private remedy for violations in the courts. Congress may seek to establish a private right of action allowing a private plaintiff to bring an action against a third party based directly on that party's violation of a public statute. As it has done with many sector-specific privacy laws, Congress, in a data protection statute, could provide not only for this right, but also for specific remedies beyond compensatory damages, such as statutory damages or even treble damages for injured individuals. However, it may be very difficult to prove that someone has been harmed in a clear way by many of the violations that might occur under a hypothetical data protection and privacy regime. Victims of data breaches and other privacy violations, generally speaking, do not experience clear and immediate pecuniary or reputational harm. This obstacle might threaten not only a consumer's ability to obtain monetary relief, but also could run up against the limits of the federal courts' "judicial power" under Article III of the U.S. Constitution. Article III extends the judicial power of the federal courts to only "cases" and "controversies." As part of that limitation, the Supreme Court has stated that courts may adjudicate a case only where a litigant possesses Article III standing. A party seeking relief from a federal court must establish standing. Specifically, the party must show that he has a genuine stake in the relief sought because he has personally suffered (or will suffer): (1) a concrete, particularized and actual or imminent injury; (2) that is traceable to the allegedly unlawful actions of the opposing party; and (3) that is redressable by a favorable judicial decision. These requirements, particularly the requirement of "imminence," form significant barriers for lawsuits based on data protection. Imminence, according to the Supreme Court in Clapper v. Amnesty International , requires that alleged injury be " certainly impending " to constitute injury-in-fact. Speculation and assumptions cannot be the basis of standing. This reasoning has caused courts to dismiss data breach claims where plaintiffs cannot show actual misuse of data, but can only speculate that future thieves may someday cause them direct harm. These requirements are constitutional in nature and apply regardless of whether a statute purports to give a party a right to sue. This constitutional requirement limits Congress' ability to use private rights of action as an enforcement mechanism for federal rights, as the recent Supreme Court case Spokeo, Inc. v. Robins illustrates. Spokeo involved a Federal Credit Reporting Act (FCRA) lawsuit brought by Thomas Robins against a website operator that allowed users to search for particular individuals and obtain personal information harvested from a variety of databases. Robins alleged that Spokeo's information about him was incorrect, in violation of the FCRA requirement that consumer reporting agencies "follow reasonable procedures to assure maximum possible accuracy" of consumer reports. As discussed earlier in this report, FCRA provides for a private right of action making any person who willfully fails to comply with its requirements liable to individuals for, among other remedies, statutory damages. The lower court understood that Robins did not specifically allege any actual damages he had suffered, such as the loss of money resulting from Spokeo's actions. Nonetheless, the court concluded that the plaintiff had standing to seek statutory damages because his injury was sufficiently particular to him—FCRA had created a statutory right for Robins and his personal interest was sufficient for standing. The Supreme Court disagreed with the lower court, however, explaining that the lower court had erred by eliding the difference between Article III's "concreteness" and "particularization" requirements. Specifically, the Court concluded that a plaintiff must demonstrate a concrete injury separate from a particularized injury, meaning that plaintiffs must show that their injury "actually exist[s]." While tangible injuries, like monetary loss, are typically concrete, a plaintiff with an "intangible injury" must show that it is "real" and not "abstract" in order to demonstrate concreteness. For example, the Spokeo Court suggested that the mere publication of an incorrect zip code, although it could violate FCRA, would not be a sufficiently concrete injury for standing purposes. As a result, the Court remanded the case to the lower court to determine if the injury alleged in the case was both particularized and concrete. Spokeo does not eliminate Congress' role in creating standing where it might not otherwise exist. The Supreme Court explained that the concreteness requirement is "grounded in historical practice" and, as a result, Congress' judgment on whether an intangible harm is sufficiently concrete can be "instructive." However, as Spokeo explained, Congress cannot elevate every privacy violation to the status of a concrete injury. Both before and after Spokeo , the lower courts have resolved standing disputes in lawsuits involving privacy and data protection, where parties argue about whether particular injuries are sufficiently concrete for purpose of Article III. Congress can possibly resolve some of these disputes by elevating some otherwise intangible injuries to concrete status. But Spokeo illustrates that there may be a residuum of harmless privacy violations for which Congress cannot provide a judicial remedy. Preemption Another legal issue Congress may need to consider with respect to any federal program involving data protection and privacy is how to structure the federal-state regime—that is, how to balance whatever federal program is enacted with the programs and policies in the states. Federal law, under the Supremacy Clause, has the power to preempt or displace state law. As discussed above, there are a host of different state privacy laws, and some states have begun to legislate aggressively in this area. The CCPA in particular represents a state law that is likely to have a national effect. Ultimately, unless Congress chooses to occupy the entire field of data protection law, it is likely that the state laws will end up continuing to have a role in this area. Further, given that the states are likely to continue to experiment with legislation, the CCPA being a prime example, it is likely that preemption will be a highly significant issue in the debate over future federal privacy legislation. As the Supreme Court has recently explained, preemption can take three forms: "conflict," "express," and "field." Conflict preemption requires any state laws that conflict with a valid federal law to be without effect. Conflict preemption can occur when it is impossible for a private party to simultaneously comply with both federal and state requirements, or when state law amounts to an obstacle to the accomplishment of the full purposes of Congress. Express preemption occurs when Congress expresses its intent in the text of the statute as to which state laws are displaced under the federal scheme. Finally, field preemption occurs when federal law occupies a 'field' of regulation "so comprehensively that it has left no room for supplementary state legislation." Ultimately, the preemptive scope of any federal data protection legislation will turn on the "purpose" of Congress and the specific language used to effectuate that purpose. If Congress seeks to adopt a relatively comprehensive system for data protection, perhaps the most obvious means to preempt a broad swath of state regulation would be to do so "expressly" within the text of the statute by including a specific preemption provision in the law. For example, several existing federal statutes expressly preempt all state law that "relate to" a particular subject matter. The Supreme Court has held that this "related to" language encompasses any state law with a "connection with, or reference to" the subject matter referenced. Similar language can be used to displace all state laws in the digital data privacy sphere to promote a more uniform scheme. Congress could alternatively take a more modest approach to state law. For example, Congress could enact a data protection framework that expressly preserves state laws in some ways and preempts them in others. A number of federal statutes preempt state laws that impose standards "different from" or "in addition to" federal standards, or allow the regulator in charge of the federal scheme some authority to approve certain state regulations. These approaches would generally leave intact state schemes parallel to or narrower than the federal scheme. For example, a statute could permit a state to provide for additional liability or different remedies for violation of a federal standard. Congress could do the same with federal data protection legislation, using statutory language to try to ensure the protection of the provisions of state law that it sought to preserve. First Amendment Although legislation on data protection could take many forms, several approaches that would seek to regulate the collection, use, and dissemination of personal information online may have to confront possible limitations imposed by the First Amendment of the U.S. Constitution. The First Amendment guarantees, among other rights, "freedom of speech." Scholars have split on how the First Amendment should be applied to proposed regulation in the data protection sphere. In one line of thinking, data constitutes speech, and regulation of this speech, even in the commercial context, should be viewed skeptically. Other scholars have argued that an expansive approach would limit the government's ability to regulate ordinary commercial activity, expanding the First Amendment beyond its proper role. This scholarly debate informs the discussion, but does not provide clear guidance on how to consider any particular proposed regulation. The Supreme Court has never interpreted the First Amendment as prohibiting all regulation of communication. Instead, when confronting a First Amendment challenge to a regulation, a court asks a series of questions in order to determine whether a particular law or rule runs afoul of the complicated thicket of case law that has developed in this area. The first question courts face when considering a First Amendment challenge is whether the challenged regulation involves speech or mere non-expressive conduct. As the Supreme Court has explained, simply because regulated activity involves "communication" does not mean that it comes within the ambit of the First Amendment. Where speech is merely a "component" of regulated activity, the government generally can regulate that activity without inviting First Amendment scrutiny. For example, "a law against treason…is violated by telling the enemy the Nation's defense secrets," but that does not bring the law within the ambit of First Amendment scrutiny. Assuming the regulation implicates speech rather than conduct, it typically must pass First Amendment scrutiny. However, not all regulations are subject to the same level of scrutiny. Rather, the Court has applied different tiers of scrutiny to different types of regulations. For example, the Court has long considered political and ideological speech at the "core" of the First Amendment—as a result, laws which implicate such speech generally are subject to strict scrutiny. Pursuant to this standard, the government must show that such laws are narrowly tailored to serve a compelling state interest. By contrast, the Court has historically applied less rigorous scrutiny to laws regulating "commercial speech." Commercial speech is subject to a lower level of scrutiny known as the Central Hudson test, which generally requires the government to show only that its interest is "substantial" and that the regulation "directly advances the governmental interest asserted" without being "more extensive than necessary to serve that interest." These principles have provided general guidance to lower courts in deciding cases that intersect with data protection, but implicit disagreements between these courts have repeatedly demonstrated the difficulty in striking the balance between First Amendment interests and data-protection regulation. For example, in 2001 in Trans Union Corp. v. FTC , the D.C. Circuit upheld an FTC order that prohibited Trans Union from selling marketing lists containing the names and addresses of individuals. The court assumed that disclosing or using the marketing lists was speech, not conduct, but concluded that the FTC's restrictions on the sale of the marketing lists generally concerned "no public issue," and, as such, was subject to "reduced constitutional protection." The court derived its "no public issue" rule from the Supreme Court's case law on defamation, which generally views speech that is solely in the private interest of the speaker as being subject to lower First Amendment protection from defamation suits than speech regarding matters of a public concern. Applying this "reduced constitutional protection" to the context of Trans Union's marketing lists, the court determined that the regulations were appropriately tailored. While the Trans Union court did not cite to Central Hudson , other courts have gone on to apply similar reasoning to uphold data protection laws from constitutional challenge under the ambit of Central Hudson 's commercial speech test. In contrast with the relatively lenient approach applied to a privacy regulation in Trans Union , in U.S. West v. FCC , the Tenth Circuit struck down FCC regulations on the use and disclosure of Consumer Proprietary Network Information (CPNI). The regulations stated that telecommunications carriers could use or disclose CPNI only for the purpose of marketing products to customers if the customer opted in to this use. The court determined that these provisions regulated commercial speech because they limited the ability of carriers to engage in consumer marketing. Applying Central Hudson , the court held that although the government alleged a general interest in protecting consumer privacy, this interest was insufficient to justify the regulations. The panel ruled that the regulations did not materially advance a substantial state interest because the government failed to tie the regulations to specific and real harm, supported by evidence. The court also concluded that a narrower regulation, such as a consumer opt-out, could have served the same general purpose. After the Tenth Circuit's decision in U.S. West , the FCC responded by making minor changes to its regulations, maintaining some elements of the opt-in procedure for the use of CPNI and reissuing them with a new record. After this reissuance, the D.C. Circuit considered these modified-but-similar regulations in a 2009 case. In that case, the D.C. Circuit upheld the regulations without attaching much significance to the FCC's changes, and apparently implicitly disagreeing with the Tenth Circuit about both the importance of the privacy interest at stake and whether the opt-in procedure was proportional to that interest. The Supreme Court's first major examination of the First Amendment in this context came in 2011. That year, the Court decided Sorrell v. IMS Health, Inc. , a case that is likely to be critical to understanding the limits of any future data protection legislation. In Sorrell , the Court considered the constitutionality of a Vermont law that restricted certain sales, disclosures, and uses of pharmacy records. Pharmaceutical manufacturers and data miners challenged this statute on the grounds that it prohibited them from using these records in marketing, thereby imposing what they viewed to be an unconstitutional restriction on their protected expression. Vermont first argued that its law should be upheld because the "sales, transfer, and use of prescriber-identifying information" was mere conduct and not speech. The Court explained that, as a general matter, "the creation and dissemination of information are speech within the meaning of the First Amendment," and thus there was "a strong argument that prescriber identifying information is speech for First Amendment purposes." Ultimately, however, the Court stopped short of fully embracing this conclusion, merely explaining that it did not matter whether the actual transfer of prescriber-identifying information was speech because the law nonetheless impermissibly sought to regulate the content of speech—the marketing that used that data, as well as the identities of speakers—by regulating an input to that speech. As the Court explained, the Vermont law was like "a law prohibiting trade magazines from purchasing or using ink." Second, Vermont argued that, even if it was regulating speech, its regulations passed the lower level of scrutiny applicable to commercial speech. The Court disagreed. The Court explained that the Vermont law enacted "content- and speaker-based restrictions on the sale, disclosure and use of prescriber identifying information" because it specifically targeted pharmaceutical manufacturers and prohibited certain types of pharmaceutical marketing. As the Court stated in a previous case, "[c]ontent-based regulations are presumptively invalid" because they "raise[] the specter that the Government may effectively drive certain ideas or viewpoints from the marketplace." Further, the Sorrell Court observed that the legislature's stated purpose was to diminish the effectiveness of marketing by certain drug manufacturers, in particular those that promoted brand-name drugs, suggesting to the Court that the Vermont law went "beyond mere content discrimination, to actual viewpoint discrimination." As a result, the Court concluded that some form of "heightened scrutiny" applied. Nevertheless, the Court reasoned that, even if Central Hudson 's less rigorous standard of scrutiny applied, the law failed to meet that standard because its justification in protecting physician privacy was not supported by the law's reach in allowing prescriber-identifying information's use "for any reason save" marketing purposes. Most of the lower courts outside the data protection and privacy context that have considered Sorrell have held that Sorrell 's reference to "heightened scrutiny" did not override the Central Hudson test in commercial speech cases, even where those cases include content- or speaker- based restrictions. Others, however, have held that content- and speaker-based restrictions must comport with something more rigorous than the traditional Central Hudson test, but it is not clear what this new standard requires or where it leads to a different outcome than Central Hudson . As a result, while Sorrell 's impact on privacy and data protection regulation has been considered by a few courts, no consensus exists on the impact it will have. However, a few commentators have observed that the case will likely have an important effect on the future of privacy regulation, if nothing else, by having all but concluded that First Amendment principles apply to the regulation of the collection, disclosure, and use of personally identifiable information as speech, not conduct. With respect to such future regulation, policymakers will likely want, at the minimum, to meet the Central Hudson requirement of ensuring that any restrictions on the creation, disclosure or use of information are justified by a substantial interest and that the regulations are no more extensive than necessary to further that interest. To illustrate, the Court in Sorrell identified HIPAA as a permissible "privacy" regulation because it allowed "the information's sale or disclosure in only a few narrow and well-justified circumstances." This dictum suggests that Congress is able to regulate in the data protection sphere as long as it avoids the pitfalls of the law in Sorrell . However, it may not always be easy to determine whether any given law involves speaker or content discrimination. In Sorrell itself, for instance, three dissenting Justices argued that the content and speaker discrimination that took place under the Vermont law was inevitable in any economic regulation. As a result, resolving these issues as data privacy legislation becomes more complex is likely to create new challenges for legislators. Conclusion The current legal landscape governing data protection in the United States is complex and highly technical, but so too are the legal issues implicated by proposals to create unified federal data protection policy. Except in extreme incidents and cases of government access to personal data, the "right to privacy" that developed in the common law and constitutional doctrine provide few safeguards for the average internet user. Although Congress has enacted a number of laws designed to augment individual's data protection rights, the current patchwork of federal law generally is limited to specific industry participants, specific types of data, or data practices that are unfair or deceptive. This patchwork approach also extends to certain state laws. Seeking a more comprehensive data protection system, some governments—such as California and the EU—have enacted wide-ranging laws regulating many forms of personal data. Some argue that Congress should consider creating similar protections in federal law, but others have criticized the EU's and California's approach to data protection. Should the 116th Congress consider a comprehensive federal data protection program, its legislative proposals may involve numerous decision points and legal considerations. An initial decision point is the scope and nature of any legislative proposal. There are numerous data protection issues that could be addressed in any future legislation, and different possible approaches for addressing those issues (such as using a "prescriptive" or "outcome-based" approach). Other decision points may include defining the scope of any protected information and determining the extent to which any future legislation should be enforced by a federal agency. Further, to the extent Congress wants to allow individuals to enforce data protection laws and seek remedies for the violations of such laws in court, it must account for Article III's standing requirements. Under the Supreme Court's 2016 Spokeo Inc. v. Robins decision, plaintiffs must experience more than a "bare procedural violation" of a federal privacy law to satisfy Article III and to sue to rectify a violation of that law. Federal preemption also raises complex legal questions—not only of whether to preempt state law, but what form of preemption Congress should employ. Finally, from a First Amendment perspective, Supreme Court jurisprudence suggests that while some "privacy" regulations are permissible, any federal law that restricts protected speech, particularly if it targets specific speakers or content, may be subject to more stringent review by a reviewing court. Appendix. Summary of Federal Data Protection Laws

Recent high-profile data breaches and other concerns about how third parties protect the privacy of individuals in the digital age have raised national concerns over legal protections of Americans' electronic data. Intentional intrusions into government and private computer networks and inadequate corporate privacy and cybersecurity practices have exposed the personal information of millions of Americans to unwanted recipients. At the same time, internet connectivity has increased and varied in form in recent years. Americans now transmit their personal data on the internet at an exponentially higher rate than in the past, and their data are collected, cultivated, and maintained by a growing number of both "consumer facing" and "behind the scenes" actors such as data brokers. As a consequence, the privacy, cybersecurity and protection of personal data have emerged as a major issue for congressional consideration. Despite the rise in interest in data protection, the legislative paradigms governing cybersecurity and data privacy are complex and technical, and lack uniformity at the federal level. The constitutional "right to privacy" developed over the course of the 20th century, but this right generally guards only against government intrusions and does little to shield the average internet user from private actors. At the federal statutory level, there are a number of statutes that protect individuals' personal data or concern cybersecurity, including the Gramm-Leach-Bliley Act, Health Insurance Portability and Accountability Act, Children's Online Privacy Protection Act, and others. And a number of different agencies, including the Federal Trade Commission (FTC), the Consumer Finance Protection Bureau (CFPB), and the Department of Health and Human Services (HHS), enforce these laws. But these statutes primarily regulate certain industries and subcategories of data. The FTC fills in some of the statutory gaps by enforcing a broad prohibition against unfair and deceptive data protection practices. But no single federal law comprehensively regulates the collection and use of consumers' personal data. Seeking a more fulsome data protection system, some governments—such as California and the European Union (EU)—have recently enacted privacy laws regulating nearly all forms of personal data within their jurisdictional reach. Some argue that Congress should consider creating similar protections in federal law, but others have criticized the EU and California approaches as being overly prescriptive and burdensome. Should the 116th Congress consider a comprehensive federal data protection law, its legislative proposals may involve numerous decision points and legal considerations. Points of consideration may include the conceptual framework of the law (i.e., whether it is prescriptive or outcome-based), the scope of the law and its definition of protected information, and the role of the FTC or other federal enforcement agency. Further, if Congress wants to allow individuals to enforce data protection laws and seek remedies for the violations of such laws in court, it must account for standing requirements in Article III, Section 2 of the Constitution. Federal preemption also raises complex legal questions—not only of whether to preempt state law, but what form of preemption Congress should employ. Finally, from a First Amendment perspective, Supreme Court jurisprudence suggests that while some privacy, cybersecurity, or data security regulations are permissible, any federal law that restricts protected speech, particularly if it targets specific speakers or content, may be subject to more stringent review by a reviewing court.

CRS_R45472

Introduction Human activities, particularly fossil fuel combustion and industrial operations, have raised the atmospheric concentration of carbon dioxide (CO 2 ) and other greenhouse gases (GHG) by about 40% over the past 150 years. Almost all climate scientists agree that these GHG increases have contributed to a warmer climate today and that, if they continue, will contribute to future climate change. Although a range of actions that seek to reduce GHG emissions are currently underway or being developed on the international and sub-national level (e.g., individual state actions or regional partnerships) , federal policymakers and stakeholders have different viewpoints over what to do, if anything, about future climate change and related impacts. Congressional interest in GHG emission control legislation has fluctuated over the last 15 years. Proposals to limit GHG emissions have often focused on market-based approaches, such as a GHG emission cap-and-trade program or a GHG emissions tax (often referred to as a carbon tax) or fee. In general, a market-based approach would place a price on GHG emissions (e.g., through an emissions cap or emission tax or fee), allowing covered entities to determine their pathway of compliance. This report provides a comparison of the legislative proposals from the 108 th through the 116 th Congresses that were and are designed primarily to reduce GHG emissions using market-based approaches such as cap-and-trade or carbon tax/fee programs. During this time frame, Members introduced multiple energy-related proposals that would have likely resulted in reductions in GHG emissions—legislation that promotes renewable energy or encourages carbon capture and sequestration —but these bills are not discussed in this report. In addition, starting in the 112 th Congress, some Members have introduced resolutions in the House and Senate expressing the view that a carbon tax is not in the economic interests of the United States. In September 2018, the House passed a resolution "expressing the sense of Congress that a carbon tax would be detrimental to the United States economy" ( H.Con.Res. 119 ). An analogous resolution was not introduced in the Senate in the 115 th Congress. As Figure 2 illustrates, between the 108 th and 111 th Congresses, most of the introduced bills would have established cap-and-trade systems. Between the 112 th and 115 th Congresses, most of the introduced bills would have established carbon tax or emissions fee programs. In the 111 th Congress, Members offered multiple and varied proposals, ultimately resulting in the House passage of H.R. 2454 , an economy-wide cap-and-trade bill. A companion bill in the Senate ( S. 1733 ) was ordered reported from the Committee on Environment and Public Works, but the bill was never brought to the Senate floor for consideration. In subsequent Congresses, some Members continued to offer GHG emission control legislation, but these proposals saw minimal legislative activity. During that time frame, the U.S. Environmental Protection Agency (EPA) used existing Clean Air Act authorities to promulgate GHG emission standards for key sectors, including the electric power and transportation sectors. EPA rulemakings in this area—particularly the 2015 Clean Power Plan final rule and the 2018 Affordable Clean Energy proposed rule —generated considerable interest and debate in Congress. The proposals from the 116 th Congress range in their scope of emissions covered from CO 2 emissions from fossil fuel combustion to multiple GHG emissions from a broader array of sources. In addition, the proposals differ by how, to whom, and for what purpose the fee revenues or allowance value would be applied. Some economic analyses indicate that policy choices to distribute the tax, fee, or emission allowance revenue would yield greater economic impacts than the direct impacts of the carbon price. The first section of this report provides background information on cap-and-trade and carbon tax or emission fee programs. The second section compares the GHG emission reduction legislation in each Congress (108 th -116 th ). Background Over the last 15 years, broad GHG emission reduction legislation has generally involved market-based approaches—such as cap-and-trade systems or carbon tax programs—that rely on private sector choices and market forces to minimize the costs of emission reductions and spur innovation. Both carbon tax and emissions cap-and-trade programs would place a price—directly or indirectly—on GHG emissions or their inputs (e.g., fossil fuels), both would increase the price of fossil fuels for the consumer, and both would reduce GHG emissions to some degree. Preference between the two approaches ultimately depends on which variable policymakers prefer to precisely control: emission levels or emission prices. As a practical matter, these market-based policies may include complementary or hybrid designs, incorporating elements to increase certainty in price or emissions quantity. For example, legislation could provide mechanisms for adjusting a carbon tax/fee if a targeted range of emissions reductions were not achieved in a given period. Alternatively, legislation could include mechanisms that would bound the range of market prices for a cap-and-trade system's emissions allowances to improve price certainty. What Is a GHG Emissions Cap-and-Trade System? A GHG cap-and-trade system creates an overall limit, or cap, on GHG emissions from certain sources. Cap-and-trade programs can vary by the sources covered, which often include major emitting sectors (e.g., power plants and carbon-intensive industries), fuel producers and/or processors (e.g., coal mines or petroleum refineries), or some combination of both. The emissions cap is partitioned into emission allowances . Typically, in a GHG cap-and-trade system, one emission allowance represents the authority to emit one metric ton of carbon dioxide-equivalent (mtCO 2 e). The emissions cap creates a new commodity—the emission allowance. Policymakers may decide to distribute the emission allowances to covered entities at no cost (based on, for example, previous years' emissions), sell the allowances (e.g., through an auction), or use some combination of these strategies. The distribution of emission allowances is typically a source of significant debate during a cap-and-trade program's development, because the allowances have monetary value. At the end of each established compliance period (e.g., a calendar year or multiple years), covered sources submit emission allowances to an implementing agency to cover the number of tons emitted. If a source did not provide enough allowances to cover its emissions, the source would be subject to penalties. Covered sources would have a financial incentive to make reductions beyond what is required, because they could (1) sell or trade unused emission allowances to entities that face higher costs to reduce their facility emissions, (2) reduce the number of emission allowance they need to purchase, or (3) bank them, if allowed, to use in a future year. The use of emission offsets as a compliance option received attention during debate over cap-and-trade programs. An offset is a measurable reduction, avoidance, or sequestration of GHG emissions from a source not covered by an emission reduction program. Economic analyses of cap-and-trade proposals concluded that offset treatment (i.e., whether or not to allow their use and, if so, to what degree) would have a substantial impact on overall program cost. This is because some emissions and sources often not covered in cap-and-trade programs can reduce emissions at a lower cost per ton than many typically covered sources. However, the use of offsets generates considerable controversy, primarily over the concern that difficult-to-assess or fraudulent offsets could create uncertainty about the quantity of emission reductions. In addition, other mechanisms—such as allowance banking or borrowing—may be included to increase the flexibility of the program and, generally, reduce the costs. What Is a Carbon Tax or Emissions Fee? In a carbon tax or emissions fee program, policymakers attach a price to GHG emissions or the inputs that create them. A carbon tax/fee on emissions or emissions inputs—namely fossil fuels—would increase the relative price of the more carbon-intensive energy sources. This result is expected to spur innovation in less carbon-intensive technologies and stimulate other behavior that may decrease emissions. Economic modeling indicates that a carbon tax/fee approach could achieve emission reductions, the level of which would depend on the scope and stringency (i.e., tax or fee level) of the program. For example, to address emissions from fossil fuel combustion—76% of total U.S. GHG emissions —policymakers could apply a tax/fee to fossil fuels at approximately 3,000 entities, including coal mines, petroleum refineries, and entities required to report natural gas deliveries. A carbon tax/fee would generate a new revenue stream. The magnitude of the revenues would depend on the scope and rate of the tax or fee, the responsiveness of covered entities in reducing their potential emissions, and multiple other market factors. A 2016 Congressional Budget Office study estimated that a $25/ton carbon tax would yield approximately $100 billion in the first year of the program. When designing a carbon tax/fee system, one of the more controversial and challenging questions for policymakers is how, to whom, and for what purpose the new tax or fee revenues could be applied. Congress would face the same issues that would be encountered during a debate over emission allowance value distribution in a cap-and-trade system. When deciding how to allocate the revenues, policymakers would encounter trade-offs among objectives. The central trade-offs involve minimizing economy-wide costs, lessening the costs borne by specific groups—particularly low-income households and displaced workers or communities—and supporting a range of specific policy objectives. A primary argument against a carbon tax/fee system (and a cap-and-trade program) is the concern about the economy-wide costs that a carbon price could impose. The potential costs would depend on a number of factors, including the magnitude, design, and use of revenues of the carbon tax or fee. Others who may oppose a carbon tax system express opposition to federal taxes in general or the possibility that the revenues would enable greater federal spending. Owners of coal resources, in particular, would likely lose asset values under a carbon tax system—as under a cap-and-trade system—to the degree that coal becomes less competitive under the costs of emission reductions. GHG Emission Reduction Legislation by Congress This section compares GHG emission reduction legislation from the 108 th Congress to the 116 th Congress by including a separate legislative table for each Congress. The tables compare the bills by their overall framework, scope, stringency, and selected design elements. Categories of comparison include General framework: the proposed program structure—emissions cap, emissions tax or fee, or some combination of both—and scope in terms of emissions covered (multiple GHG emissions or just CO 2 emissions). Covered entities/materials: the industries, sectors, or materials that would be subject to the program. Emissions limit or target: the GHG or CO 2 emissions target or cap for a particular year. Some targets/caps would apply only to covered sources; others apply to total U.S. GHG emissions. Distribution of allowance value or tax revenue: how emission allowance value or carbon tax or fee revenue would be distributed (if applicable). Offset and international allowance treatment: the degree to which offsets and international allowances could be used for compliance purposes and the types of offset activities that would qualify. Some proposals limit offsets by percentage of required reductions; others limit offsets as a percentage of allowance submissions. Mechanism to address carbon-intensive imports: a central concern with a U.S. GHG reduction program is that it could raise U.S. prices more than goods manufactured abroad, potentially creating a competitive disadvantage for some domestic businesses, particularly carbon-intensive, trade-exposed industries. Policymakers could address these potential impacts in several ways—for example, through border adjustments, tax rebates, or emission allowances provided at no cost to selected industrial sectors. Additional GHG reduction measures: other mechanisms that are designed to further reduce GHG emissions that are not covered in the central program.

Congressional interest in market-based greenhouse gas (GHG) emission control legislation has fluctuated over the past 15 years. During that time, legislation has often involved market-based approaches, such as a cap-and-trade system or a carbon tax or fee program. Both approaches would place a price—directly or indirectly—on GHG emissions or their inputs (e.g., fossil fuels), both would increase the price of fossil fuels, and both would reduce GHG emissions to some degree. Both would allow emission sources to choose the best way to meet their emission requirements or reduce costs, potentially by using market forces to minimize national costs of emission reductions. Preference between the two approaches ultimately depends on which variable policymakers prefer to precisely control—emission levels or emission prices. A primary policy concern with either approach is the economic impacts that may result from the program. Expected energy price increases could have both economy-wide impacts (e.g., on the U.S. gross domestic product) and disproportionate effects on specific industries and particular demographic groups. The degree of these potential effects would depend on a number of factors, including the magnitude, design, and scope of the program and the use of tax or fee revenues or emission allowance values. This report includes a separate table for each Congress, comparing GHG emission reduction legislation by the following characteristics: General framework: the proposed program structure and scope in terms of emissions covered, multiple GHG emissions, or just carbon dioxide (CO2) emissions. Covered entities/materials: a list of the industries, sectors, or materials that would be subject to the program. Emissions limit or target: the GHG or CO2 emissions target or cap for a specified year. Distribution of allowance value or tax revenue: how emission allowance value or carbon tax or fee revenue would be distributed. Offset and international allowance treatment: the degree to which offsets and international allowances could be used for compliance purposes and the types of offset activities that would qualify. Mechanism to address carbon-intensive imports: a U.S. GHG reduction program may create a competitive disadvantage for some domestic businesses, particularly carbon-intensive, trade-exposed industries. Additional GHG reduction measures: other mechanisms designed to further reduce GHG emissions that are not covered in the central program. As the figure below illustrates, between the 108th and 111th Congresses, most of the introduced bills would have established cap-and-trade systems. Between the 112th and 115th Congresses, most of the introduced bills would have established carbon tax or emissions fee programs. The proposals from the 116th Congress range in their scope of emissions covered from CO2 emissions from fossil fuel combustion to multiple GHG emissions from a broader array of sources. In addition, the proposals differ by how, to whom, and for what purpose the fee revenues or allowance value would be applied. Some economic analyses indicate that policy choices to distribute the tax, fee, or emission allowance revenue would yield greater economic impacts than the direct impacts of the carbon price.

CRS_R42565

New Markets Venture Capital Program Overview The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs to enhance small business access to capital; venture capital programs, including the now inactive New Markets Venture Capital (NMVC) program, to foster small business expansion; programs to increase small business opportunities in federal contracting; direct loans for businesses, homeowners, and renters to assist their recovery from natural disasters; and access to entrepreneurial education to assist with business formation and expansion. Authorized by P.L. 106-554 , the Consolidated Appropriations Act, 2001 (Appendix H: the New Markets Venture Capital Program Act of 2000), the NMVC program is designed to promote economic development and the creation of wealth and job opportunities in low-income geographic areas and among individuals living in such areas by encouraging developmental venture capital investments in smaller enterprises primarily located in such areas; and address the unmet equity investment needs of small enterprises located in low-income geographic areas. Modeled on the SBA's Small Business Investment Company (SBIC) program, SBA-selected, privately owned and managed NMVC companies provide funding and operational assistance to small businesses. To do so, they use private capital the NMVC company has raised (called regulatory capital ) and up to 150% of that amount (called leverage ) from the sale of SBA-guaranteed 10-year debentures, or loan obligations , to third parties, subject to the availability of funds. Because the SBA guarantees the debenture, the SBA is able to obtain favorable interest rates. NMVC companies are responsible for meeting the terms and conditions set forth in the debenture. At least 80% of the investments must be in small businesses located in a low-income area, as defined in the statute. Specialized Small Business Investment Companies (SSBICs) established under the SBIC program are also eligible for NMVC operational assistance grants, which are awarded on a dollar-to-dollar matching basis. Six NMVC companies participated in the program. The NMVC program was appropriated $21.952 million in FY2001 to support up to $150 million in SBA-guaranteed debentures and up to $30 million for operational assistance grants for FY2001 through FY2006. The funds were provided in a lump sum in FY2001 and were to remain available until expended. The SBA subsequently provided $72.0 million in leverage to NMVC companies in FY2002 and FY2003 ($12.5 million in FY2002 and $59.5 million in FY2003) and $14.4 million for operational assistance grants ($3.75 million in FY2002 and $10.65 million in FY2003). In 2003, the unobligated balances of $10.5 million for NMVC debenture subsidies and $13.75 million for operational assistance grants were rescinded. The program continued to operate, with the number and amount of financing declining in recent years as the program's initial investments expired and NMVC companies increasingly engaged only in additional follow-on financings with the small businesses in their portfolios. The NMVC program's active unpaid principal balance (which is comprised of the SBA guaranteed portion and the unguaranteed portion of the NMVC companies' unpaid principal balance) peaked at $698 million in FY2008, and then fell each year thereafter until reaching $0 in FY2018. No bills have been introduced since the 112 th Congress concerning the NMVC program. However, more than 30 bills were introduced in previous Congresses to either expand or amend the program. Many of these bills would have increased the program's funding (a list and summary of bills introduced by Congress to provide the program additional funding appears in the Appendix ). For example, during the 112 th Congress, H.R. 2872 , the Job Creation and Urban Revitalization Act of 2011, would have provided the NMVC program such subsidy budget authority as may be necessary to guarantee $75 million of debentures and $15 million for operational assistance grants for FY2012 through FY2013. The bill was referred to the House Committee on Small Business, but no further action was taken on it. This report examines the NMVC program's legislative origins and describes the program's eligibility and performance requirements for NMVC companies, eligibility requirements for small businesses seeking financing, and definition of low-income areas. It also reviews regulations governing the SBA's financial assistance to NMVC companies and provides program statistics. This report concludes with an examination of (1) efforts to eliminate the program based on concerns that it duplicated other SBA programs and is relatively expensive, (2) the rescission of the program's unobligated funding in 2003, and (3) congressional efforts to provide the program additional funds. Legislative Origins 105th Congress On September 15, 1998, the Senate Committee on Small Business conducted a markup of several bills pending before the committee, including H.R. 3412 , the Small Business Investment Company Technical Corrections Act of 1998, which the House had passed. Senator Christopher Bond, chair of the Senate Committee on Small Business, proposed an amendment in the nature of a substitute to H.R. 3412 incorporating the full texts of S. 2372 , the Year 2000 Readiness Act, and S. 2407 , the Small Business Programs Restructuring and Reform Act of 1998, as well as provisions from S. 2448 , the Small Business Loan Enhancement Act. The committee also debated and approved by unanimous voice votes seven amendments to the substitute amendment. One of the seven approved amendments was a precursor of the NMVC program. The Community Development Venture Capital Demonstration Program The amendment, offered by Senator Paul Wellstone, would have authorized a $20 million, four-year technical assistance program—the Community Development Venture Capital Demonstration Program—to provide grants, on a matching dollar-to-dollar basis, to experienced community development venture capital (CDVC) firms that invest in small businesses located in economically distressed areas, such as inner cities and poor rural counties. The grants would be used to provide technical expertise and operating assistance to new, emerging, less experienced CDVC organizations. The program's stated purpose was "to develop and expand a new but growing field of organizations that use the tools of venture capital to create good jobs, productive wealth, and entrepreneurial capacity that benefit disadvantaged people and economically distressed communities." The program's advocates argued that despite difficulties associated with making investments in economically distressed areas, some successful CDVCs had produced "a 'double bottom line' of not only financial returns, but also social benefits in the form of good jobs and healthier communities." On September 15, 1998, the committee reported H.R. 3412 , as amended, by a vote of 18-0. On September 30, 1998, the Senate passed the bill, with an amendment, by unanimous consent. The House did not act on the bill. 106th Congress On January 19, 1999, President Bill Clinton announced during his State of the Union Address support for what was later called the "New Markets Investment Initiative." The proposed initiative was comprised of several programs, including a New Markets Tax Credit program and a New Markets Venture Capital program, to encourage economic development in economically distressed areas. President Clinton subsequently drew attention to the initiative by taking three separate trips to underserved inner city and rural communities, visiting Phoenix, Arizona, and the Pine Ridge Indian Reservation in South Dakota on July 7, 1999, and Los Angeles, California, and Anaheim, California, on July 8, 1999 (trip 1); Newark, New Jersey, and Hartford, Connecticut, on November 4, 1999 (trip 2); and Hermitage, Arkansas, and Chicago, Illinois, on November 5, 1999 (trip 3). During his remarks in Chicago, President Clinton announced that he had reached an agreement with House Speaker Dennis Hastert (who was present) to develop a bipartisan legislative initiative on developing new market investments as a means to revitalize impoverished communities. SBA's Low- or Moderate-Income Initiative In a related development, on February 9, 1999, the SBA proposed several incentives to encourage companies participating in its SBIC program to "expand their investment activity into economically distressed inner cities and rural areas." After receiving public comments on several proposed incentives, the SBA issued a final rule on September 30, 1999, implementing the SBIC low- or moderate-income (LMI) initiative. The ongoing LMI initiative is designed to encourage SBICs to invest in small businesses located in inner cities and rural areas "that have severe shortages of equity capital" because investments in those areas "often are of a type that will not have the potential for yielding returns that are high enough to justify the use of participating securities." SBICs that invest in small businesses with at least 50% of their employees or tangible assets located in a low- or moderate-income area (LMI zone) or at least 35% of their full-time employees with their primary residence in an LMI zone are eligible for the incentives. For example, unlike regular SBIC debentures that typically have a 10-year maturity, LMI debentures are available in 2 maturities, 5 years and 10 years, plus the stub period. The stub period is the time between the debenture's issuance date and the next March 1 or September 1. The stub period allows all LMI debentures to have common March 1 or September 1 maturity dates to simplify administration of the program. In addition, LMI debentures are issued at a discount so that the proceeds an SBIC receives for the sale of a debenture are reduced by (1) the debenture's interest costs for the first five years, plus the stub period; (2) the SBA's annual fee for the debenture's first five years, plus the stub period; and (3) the SBA's 2% leverage fee. As a result, these interest costs and fees are effectively deferred, freeing SBICs from the requirement to make interest payments on LMI debentures or to pay the SBA's annual fees on LMI debentures for the first five years of a debenture, plus the stub period. As shown in Table 1 , in FY2018, SBICs made 609 investments in small businesses located in an LMI zone, totaling $1.026 billion — 18.6% of the total amount invested. The Community Development and Venture Capital Act of 2000 On September 16, 1999, Senator John Kerry introduced S. 1594 , the Community Development and Venture Capital Act of 2000. The bill included several provisions in President Clinton's New Markets Investment Initiative. The bill had three main parts: a New Markets Venture Capital Program, very similar to the present program, to encourage investment in economically distressed communities; a Community Development Venture Capital Assistance Program to expand the number of community development venture capital firms and professionals devoted to investing in economically distressed communities; and BusinessLINC, a mentoring program to link established, successful businesses with small business owners in economically stagnant or deteriorating communities to facilitate the development of small businesses in those areas. After conducting two hearings and sponsoring a roundtable discussion on the Community Development and Venture Capital Act of 2000, the Senate Committee on Small Business reported the bill, as amended, by a vote of 16-1, on July 26, 2000. In the report accompanying the bill, Senator Christopher Bond, chair of the Senate Committee on Small Business, argued that the SBIC program had "proven to be an extremely successful public-private sector partnership with the government" and mentioned the SBA's LMI initiative as a new means to encourage SBICs to make investments in LMI zones. However, he argued that "as successful as the SBIC program is, it does not sufficiently reach areas of our country that need economic development the most." He added that although SBICs invested $771 million in LMI zones in 1999, "the vast majority of those investments were very large and not at all comparable to the type of investments [NMVC] funds would make." Senator Bond argued that the committee was approving the bill because it was necessary to expand the number of smaller investments being made to small businesses in the poorest areas, low-income geographic areas, and to fill another gap in access to capital that small businesses face. Investments for NMVC funds typically will range from $50,000 to $300,000 versus the $300,000 to $5 million range found in the Agency's SBIC program." The Senate did not take further action on the bill. The New Markets Venture Capital Program Act of 2000 On December 14, 2000, Representative (later Senator) Jim Talent, chair of the House Committee on Small Business, introduced H.R. 5663 , the New Markets Venture Capital Program Act of 2000. The bill had two parts: the current New Markets Venture Capital Program and BusinessLINC. The next day, the bill was incorporated by reference in the conference report accompanying H.R. 4577 , the Consolidated Appropriations Act, 2001, which became law ( P.L. 106-554 ) on December 21, 2000. On January 22, 2001, the SBA published an interim final rule in the Federal Registe r indicating its intention to establish the NMVC program. The SBA's final rule, which formally established the NMVC program, was published in the Federal Registe r on May 23, 2001. NMVC Company Eligibility and Performance Requirements P.L. 106-554 specified that venture capital companies interested in participating in the program must submit a detailed application to the SBA that includes, among other items, a business plan describing how the company intends to make successful developmental venture capital investments in identified low-income geographic areas, and information regarding the community development finance or relevant venture capital qualifications and general reputation of the company's management. In addition, an NMVC company must be a newly formed for-profit entity or a newly formed for-profit subsidiary of an existing entity; be organized under state law solely for the purpose of performing the functions and conducting the activities contemplated under the act; be organized either as a corporation, a limited partnership, or a limited liability company; show, to the SBA's satisfaction, that its current or proposed management team is qualified and has the knowledge, experience, and capability in community development finance or relevant venture capital finance necessary for investing in the types of businesses contemplated by the act; and have a primary objective of economic development of low-income areas. On January 22, 2001, the SBA solicited applications from venture capital companies and SSBICs to participate in the NMVC program. The SBA had planned to offer another round of applications for the program during the first quarter of 2003. However, the second round of applications was canceled because, as mentioned previously, P.L. 108-7 , the Consolidated Appropriations Resolution, 2003, which became law on February 20, 2003, rescinded the program's unobligated funding. The SBA received 23 applicants from companies interested in participating in the NMVC program, and conditionally approved 7 of them. Final approval is subject to the applicant meeting several conditions. For example, applicants are required to raise, within 18 months of being conditionally approved, at least $5 million in private capital or in binding capital commitments from one or more investors (other than federal agencies or departments) that meet criteria established by the administrator (the private funds are called regulatory capital ). Applicants also must have in place binding commitments from sources other than the SBA that are payable or available over a multiyear period not to exceed 10 years that amount to not less than 30% of the total amount of regulatory capital and commitments raised (30% of $5 million = $1.5 million). This additional funding is necessary to guarantee the applicant's ability to meet the required dollar-to-dollar matching contribution for operational assistance grants. Six of the seven companies granted conditional approval subsequently met all of the program requirements (one in April 2002, three in March 2003, one in April 2003, and one in August 2003) and were accepted into the program after signing a formal participation agreement with the SBA. The six NMVC companies initially raised $48 million in private capital and were subsequently provided $72 million in leverage. The companies are Adena Ventures, L.P., Athens, Ohio, approved on April 24, 2002, with targeted low-income areas in Ohio, West Virginia, and Maryland; New Markets Venture Partners, College Park, Maryland, approved on March 5, 2003, with targeted low-income areas in Maryland, Virginia, and the District of Columbia; CEI Community Ventures Fund, LLC, Portland, Maine, approved on March 21, 2003, with targeted low-income areas in Maine, New Hampshire, and Vermont; Murex Investments I, L.P., Philadelphia, Pennsylvania, approved on March 31, 2003, with targeted low-income areas in Pennsylvania, New Jersey, and Delaware; Penn Venture Partners, LP, Harrisburg, Pennsylvania, approved on April 23, 2003, with targeted low-income areas in Pennsylvania; Southern Appalachian Fund, L.P., London, Kentucky, approved on August 8, 2003, with targeted low-income areas in Kentucky, Tennessee, Georgia, Alabama, and Mississippi. NMVC companies are subject to various reporting requirements. For example, for each fiscal year, NMVC companies must file an annual financial statement with the SBA that has been audited by an independent public accountant acceptable to the SBA. The statement must include an assessment of the social, economic, or community development impact of each financing; the number of full-time equivalent jobs created as a result of the financing; the impact on the revenues and profits of the business being financed; and the impact on the taxes paid by the business being financed and by its employees. The statement must also include a listing of the number and percentage of the business's employees that reside in a low-income area. In addition, NMVC companies are required to submit to the SBA a portfolio financing report for each financing made within 30 days of the closing date. Eligibility of Small Businesses and Low-Income Geographic Areas NMVC companies are required to provide financial assistance and operational assistance only to small businesses as defined under the SBA's SBIC program. The business must either meet the SBA's size standard for the industry in which it is primarily engaged or have a maximum net worth of no more than $19.5 million and average after-tax net income for the preceding two years of not more than $6.5 million. All of the company's subsidiaries, parent companies, and affiliates are considered in the size standard determination. In addition, at the close of each NMVC company's fiscal year, at least 80% of the company's total financings (in total dollars) and 80% of the total number of concerns in that company's portfolio must be small businesses that, at the time of the financing, had their principal offices located in a low-income area (low-income enterprises). NMVC companies that fail to reach these required percentages at the end of any fiscal year must be in compliance by the end of the following fiscal year. They are not eligible for additional leverage from the SBA until they reach the required percentages. The act defines a low-income area as any census tract, or equivalent county division as defined by the Bureau of the Census, that meets any of the following criteria: a poverty rate of 20% or more; if located in a metropolitan area, at least 50% of its households have an income that is below 60% of the area median gross income; if not located in a metropolitan area, has a median household income that does not exceed 80% of the statewide median household income; is located within a historically underutilized business zone (HUBZone); is located in an urban empowerment zone or urban enterprise community as designated by the Department of Housing and Urban Development; or is located in a rural empowerment zone or rural enterprise community as designated by the Department of Agriculture. NMVC Leverage NMVC companies invest funds they have raised themselves, their regulatory capital, in small businesses. In addition, they can receive up to 150% of that amount from the SBA, subject to the availability of funds. NMVC companies follow essentially the same process for obtaining SBA funding as prescribed under the SBIC program. The SBA's funding, or leverage, comes from the sale to third parties of 10-year securities (or debentures), which are backed by the full faith and credit of the United States. Because the SBA guarantees the timely payment of the principal and interest due on the securities, the SBA is able to obtain favorable interest rates. NMVC companies are responsible for meeting the terms and conditions set forth in the debenture. NMVC debentures are deferred-interest debentures issued at a discount (less than face value) equal to the first five years' interest to eliminate the need for NMVC companies to make interest payments during that period. As a result, NMVC companies make no payments on the debenture for five years from the date of issuance, plus the stub period, which ensures that all NMVC debentures have common prepayment and maturity dates of either March 1 or September 1. NMVC companies make semiannual interest payments on the face amount of the debenture during years 6 to 10, and they are responsible for paying the debenture's principal amount when the debenture reaches its maturity date. NMVC companies receive leverage from the SBA in a two-step process. First, they submit a request to the SBA for a conditional commitment to reserve a specific amount of leverage for future use. This request authorizes the SBA to sell the requested debenture amount to a third party at an interest rate approved by the SBA or to pool the requested debenture amount with other requests, providing each request with the same maturity date, interest rates, and conditions. The NMVC companies then apply to the SBA to draw against the SBA's leverage commitment. These requests may come at any time during the term of the SBA's leverage commitment. Although authorized to do so, the SBA does not pool NMVC debentures. Through an agreement with the SBA, the Federal Home Loan Bank of Chicago (FHLB) has purchased and held all outstanding NMVC debentures since issuance. The interest rate on each NMVC debenture was determined by FHLB using a spread over FHLB's cost of funds as of the date of each issuance. The SBA does not allow NMVC companies to prepay their draws for a period of 12 months (plus the stub period) after issuance. Prepayments are permitted after that waiting period, but only on March 1 or September 1 of each year. The cost of prepayment is the present value of the NMVC debenture on the semiannual date chosen for prepayment. After receiving funds, NMVC companies make equity investments in small businesses of their choice. Equity investments are typically in the form of common or preferred stock and sometimes in the form of subordinated debt with equity features (as long as the debt is not amortized and provides for interest payments contingent upon and limited to the extent of earnings) or limited partnership interests, options, warrants, and similar equity investment instruments. Operational Assistance Grants The SBA is authorized to award grants to NMVC companies and SSBICs to provide free operational assistance to small businesses financed, or expected to be financed, under the program. The grants must be used to provide management, marketing, and other technical assistance to help a small business with its business development. The grants have a dollar-to-dollar matching requirement and cannot be used for general and administrative expenses, including overhead. Matching resources may be in the form of (1) cash; (2) in-kind contributions; (3) binding commitments for cash or in-kind contributions that are payable or available over a multiyear period acceptable to the SBA but not to exceed 10 years; or (4) an annuity, purchased with funds other than regulatory capital, from an insurance company acceptable to the SBA that may be payable over a multiyear period acceptable to the SBA but not to exceed 10 years. NMVC companies and SSBICs are eligible for an operational assistance grant award equal to the amount of matching resources the company has raised, subject to the availability of funds. NMVC companies must use at least 80% of both the grant funds and their matching resources to provide free operational assistance to small businesses located in a low-income area. SSBICs must use both the grant funds awarded by the SBA and their matching resources to provide free operational assistance to small businesses "in connection with a low-income investment made by the SSBIC with regulatory capital raised after September 21, 2000." Program Statistics As shown in Table 2 , NMVC companies received operational assistance grants in FY2002 and FY2003 and started making equity investments in small businesses in FY2002. Since the program's inception, NMVC companies invested more than $81.4 million in 71 different small businesses. The program reached its peak, in terms of the amount of financings, in FY2007, investing nearly $16.3 million in 35 different small businesses that year. Since then, the amount of financings each year generally declined—falling to no new financings in FY2016 as the program's initial investments expired and NMVC companies engaged only in additional follow-on financings with the small businesses in their portfolios. As mentioned previously, the NMVC program's active unpaid principal balance (including both the SBA guaranteed portion and the unguaranteed portion of the NMVC companies' unpaid principal balance) peaked at $698 million in FY2008, and then fell each year thereafter until reaching $0 in FY2018. Congressional Issues The NMVC program has not received any additional funding since 2001. Opposition to the program within Congress began to gain momentum when President George W. Bush recommended in his FY2002 budget request that the NMVC program be eliminated, arguing that the program is relatively expensive and duplicative of other federal programs: The Administration supports the objectives of the New Markets Venture Capital (NMVC) program but believes those objectives can be achieved more efficiently and at a lower cost through other existing programs. Several vehicles and incentives to direct investment into economically distressed communities already exist. Communities targeted by NMVC have access to a wide range of private for-profit and economic development programs, including the federally supported community development financial institutions administered through the Department of Treasury. In addition, SBA's SBIC program, which has 412 licensed venture capital companies with total capital resources amounting to $17.7 billion, is implementing incentives to encourage investment in economically distressed areas. The NMVC program is also expensive relative to the impact that it is expected to have. The total cost of the program in FY2001 is $52 million, not including administrative cost of running the program. Since the program is expected to generate $150-$200 million of investment activity, it will yield only $3.00-$4.00 of investment for every taxpayer dollar spent. In comparison, under the Small Business Investment Company (SBIC) program, there is no cost associated with the debenture portion of the program. Others argued that the NMVC program's targeted clientele of small businesses located in economically distressed areas is inherently too risky for government involvement. In their view, NMVC companies are "designed and chartered to operate (as profit-making firms) in a market niche that mainstream venture capital firms will not touch." The program's advocates contended that the NMVC program is necessary precisely because mainstream venture capital firms generally avoided investments in small businesses located in economically distressed areas. In their view, the NMVC program is an essential part of a larger federal effort, which includes tax incentives, to fill a market niche in private-sector venture capital investments and, in the process, help to revitalize areas experiencing long-term economic difficulties. They also objected to the Bush Administration's argument that the program is duplicative of other federal programs. In their view, the NMVC program is targeted at a clientele that is not being adequately served by other federal programs. The Bush Administration continued to recommend the program's elimination in each of its subsequent budget requests. As mentioned previously, during congressional consideration of the FY2003 budget the unobligated balances of $10.5 million for NMVC debenture subsidies and $13.75 million for operational assistance grants were rescinded. Since then, more than 30 bills have been introduced to amend the NMVC program, including bills to reduce the amount of capital NMVC companies must raise to become eligible for operational assistance grants, eliminate the matching requirement for operational assistance grants, create an Office of New Markets Venture Capital within the SBA, require the SBA to provide conditionally approved NMVC companies a full two years to meet all program requirements, provide increased financing to small manufacturers, and amend the program's definition for low-income area to correspond with the definition used by the New Market Tax Credits program (Section 45D(e) of the Internal Revenue Code of 1986) (26 U.S.C. 45D(e)). Many of these bills also included provisions to provide the NMVC program additional funding. Legislative Efforts to Provide Additional NMVC Funding As shown in Table A-1 in the Appendix , during the 108 th Congress, two bills were introduced, one in the House and one in the Senate, to provide the NMVC program "such subsidy budget authority as may be necessary to guarantee $75 million of debentures" and $15 million for operational assistance grants over FY2004 and FY2005. Neither bill was enacted. During the 109 th Congress, an amendment was offered during the House during floor debate on H.R. 2862 , the Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006, to provide "$30 million in debenture guarantees and $5 million for operational assistance grants to fund the creation of a fresh round of New Market Venture Capital companies … paid for by using funds from the Small Business Administration's salary and expense account." The amendment failed by voice vote. A bill introduced in the House would have authorized an expansion of the NMVC program to include the selection of an NMVC company whose primary objective would be the economic development of small businesses located in Hurricane Katrina-affected areas. The bill would have authorized "such subsidy budget authority as may be necessary to guarantee … $50 million of debentures issued by the Gulf Region New Markets Venture Capital Company … and $10 million for grants to the Gulf Region New Markets Venture Capital Company." Another House bill would have provided the NMVC program "such subsidy budget authority as may be necessary to guarantee $100 million of debentures and $25 million for operational assistance grants for FY2006 through FY2008." Neither bill was enacted. During the 110 th Congress, four bills were introduced, two in the House and two in the Senate, to provide the NMVC program additional funding. One of the House bills would have provided the NMVC program such subsidy budget authority as may be necessary to guarantee $100 million of debentures and $25 million for operational assistance grants for FY2007 through FY2009. The other House bill would have provided the NMVC program such subsidy budget authority as may be necessary to guarantee $30 million of debentures and $5 million for operational assistance grants for FY2008 through FY2010. The two Senate bills would have provided the NMVC program $20 million for operational assistance grants. None of these bills was enacted. During the 111 th Congress, two bills were introduced in the House to provide the NMVC program additional funding. One of the bills would have provided the NMVC program such subsidy budget authority as may be necessary to guarantee $100 million of debentures and $25 million for operational assistance grants for FY2009 through FY2011. The other bill would have provided the NMVC program such subsidy budget authority as may be necessary to guarantee $100 million of debentures and $20 million for operational assistance grants for FY2010 through FY2011. During the 112 th Congress, one bill was introduced to provide additional funding for the NMVC program. Representative Nydia Velázquez introduced H.R. 2872 , the Job Creation and Urban Revitalization Act of 2011, on September 8, 2011. The bill would have provided the NMVC program such subsidy budget authority as may be necessary to guarantee $75 million of debentures and $15 million for operational assistance grants for FY2012 through FY2013. The bill was referred to the House Committee on Small Business on September 8, 2011. No further action was taken on the bill. As mentioned earlier, no bills have been introduced since the 112 th Congress concerning the NMVC program. Related SBIC Program Developments P.L. 111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), included provisions designed to encourage SBIC investments in low-income areas. The act allowed an SBIC licensed on or after October 1, 2009, to elect to have a maximum leverage amount of $175 million instead of $150 million (later increased to $175 million) if that SBIC has invested at least 50% of its financings in low-income geographic areas, as defined under the NMVC program, and certified that at least 50% of its future investments will be in low-income geographic areas. ARRA also increased the maximum amount of leverage available for two or more licenses under common control to $250 million from $225 million if these requirements are met. In addition, on April 7, 2011, the SBA announced a $1 billion impact investment SBIC initiative (providing up to $150 million in leverage in FY2012 and up to $200 million in leverage per fiscal year thereafter until the limit is reached). Under this initiative, SBA-licensed impact investment debenture SBICs are required to invest at least 50% of their financings, "which target areas of critical national priority including underserved markets and communities facing barriers to access to credit and capital." To receive an impact investment, a small business must meet at least one of the following criteria: be located in or, at the time of the initial investment, have at least 35% of its full-time employees residing in an LMI zone as defined in 13 C.F.R. Section 107.50 or be located in an economically distressed area as defined by Section 3011 of the Public Works and Economic Development Act of 1965, as amended (an area with per capita income of 80% or less of the national average or an unemployment rate that is, for the most recent 24-month period for which data are available, at least 1% greater than the national average unemployment rate); or be in an industrial sector that the SBA has identified as a national priority (currently clean energy, education, and advanced manufacturing). Initially, an impact investment SBIC could receive up to $80 million in SBA leverage. On June 6, 2013, the SBA announced that it was increasing the maximum leverage available to impact investment SBICs to $150 million. On September 25, 2014, the SBA announced several changes to the impact investment program designed to "broaden access to the fund." The agency announced that it was continuing the program beyond FY2016. Additionally, effective October 1, 2014, among other changes, the SBA eliminated the program's $200 million collective, per-fiscal-year leverage cap; added advanced manufacturing to the list of eligible sectors; provided eligibility to businesses that receive Small Business Innovation Research or Small Business Technology Transfer grants; and permitted, through December 1, 2014, existing debenture SBICs to apply to opt into the program if they meet the program's requirements. Subject to the SBA's approval, impact investment SBICs may devise a customized definition of an "impact investment" during the licensing process. On February 3, 2016, the SBA published a proposed rule in the Federal Register to provide regulations for impact investment SBICs regarding licensing, leverage eligibility, fees, and reporting and compliance requirements. The proposed regulations were an indication of the SBA's intent at that time to continue the impact investment SBIC initiative indefinitely. At the end of FY2018, there were nine licensed, impact investment SBICs (two in 2011, one in 2012, two in 2014, two in 2015, and two in 2016). As of September 30, 2018, they managed more than $905 million in assets and had investments in 81 small businesses. During FY2018, these SBICs invested $106.8 million in 35 small businesses. After reviewing the impact investment SBIC initiative's performance, on September 28, 2017, the SBA's Office of Investment and Innovation (OII) published a letter addressed to SBIC participants, applicants, and all other interested parties indicating that as of November 1, 2017, it would no longer accept new management assessment questionnaires from applicants interested in participating in the impact investment SBIC initiative. The letter indicated that the SBA was also terminating the 2011/2012 Impact Investment Fund Policy letter that the SBA had used to form the initiative's impact investment fund. The OII's letter indicated that the SBA was taking these actions for several reasons, including that "few qualified funds applied to be licensed as Impact SBICs," that "many of these SBICs would have applied to the SBIC program regardless of the existence of the Impact Policy," and "the results produced were not commensurate with the time and resources expended by SBA to maintain it." In addition, on June 11, 2018, the SBA published a notice in the Federal Register withdrawing the proposed rule published on February 3, 2016, that would have created regulations for the impact investment SBIC initiative because the "SBA has determined that the cost is not commensurate with the benefits." Concluding Observations The SBA's LMI and impact investment initiatives are designed to encourage SBIC investments in LMI areas. In recent years, the amount of SBIC program investments in LMI zones has generally increased (see Table 1 ). The NMVC program is no longer active (it does not have any active unpaid principal balance) and the amount and number of its financings were lower than anticipated by its original sponsors and below levels desired by its advocates. Some argue that the increased levels of SBIC investments in LMI areas in recent years, coupled with the SBA's efforts to encourage SBIC investments in such areas, may diminish the need for the NMVC program. NMVC advocates disagree. In FY2018, SBICs provided 609 financings totaling $1.026 billion to small businesses located in a LMI income area, an average investment of $1.685 million. NMVC advocates argue, as Senator Bond did when the NMVC program was proposed, that the NMVC program targets small businesses seeking much smaller investments. The debate over the NMVC program's future, particularly whether the program should be provided additional funding, is, in many ways, reflective of broader disagreements about the role of government, and the SBA, in private enterprise. Some believe the federal government and the SBA should take an active role in assisting small businesses to access capital—through the provision of loan guarantees, equity financing, and management training—to further the economic recovery. In their view, the SBA's programs fill a market niche by providing loans to small businesses unable to get credit elsewhere, equity financings to small businesses often overlooked by private investors, and training for new and aspiring entrepreneurs unable to find affordable training elsewhere. They assert that increasing funding for the NMVC program will create jobs by making capital available to entrepreneurs unable to find it in the private marketplace. Others worry about the long-term adverse economic effects of the federal deficit. Instead of supporting increased funding for federal spending programs, they advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses, generate economic growth, and create jobs. They are particularly interested in achieving greater government efficiency by eliminating federal spending programs, such as the NMVC program, that they perceive are duplicative of others. Appendix. Legislative Efforts to Provide Additional Funding for the NMVC Program

Authorized by P.L. 106-554, the Consolidated Appropriations Act, 2001 (Appendix H: the New Markets Venture Capital Program Act of 2000), the New Markets Venture Capital (NMVC) program, which is no longer active, is designed to promote economic development and the creation of wealth and job opportunities in low-income geographic areas by addressing the unmet equity investments needs of small businesses located in those areas. Modeled on the Small Business Association's (SBA's) Small Business Investment Company (SBIC) program, SBA-selected, privately owned and managed NMVC companies provide funding and operational assistance to small businesses. To do so, they use private capital the NMVC company has raised (called regulatory capital) and up to 150% of that amount (called leverage) from the sale of SBA-guaranteed 10-year debentures, or loan obligations, to third parties, subject to the availability of funds. Because the SBA guarantees the debenture, the SBA is able to obtain favorable interest rates. NMVC companies are responsible for meeting the terms and conditions set forth in the debenture. At least 80% of the investments must be in small businesses located in a low-income area. Specialized Small Business Investment Companies (SSBICs) established under the SBIC program are also eligible for NMVC operational assistance grants, which are awarded on a dollar-to-dollar matching basis. Six companies participated in the NMVC program. The NMVC program was appropriated $21.952 million in FY2001 to support up to $150 million in SBA-guaranteed debentures and $30 million to fund operational assistance grants for FY2001 through FY2006. The funds were provided in a lump sum in FY2001 and were to remain available until expended. In 2003, the unobligated balances of $10.5 million for the NMVC debenture subsidies and $13.75 million for operational assistance grants were rescinded. The program continued to operate, with the number and amount of financing declining in recent years as the program's initial investments expired and NMVC companies increasingly engaged only in additional follow-on financings with the small businesses in their portfolios. The NMVC program's active unpaid principal balance peaked at $698 million in FY2008, and then fell each year thereafter until reaching $0 in FY2018. This report examines the NMVC program's legislative origins and describes the program's eligibility and performance requirements for NMVC companies, eligibility requirements for small businesses seeking financing, and definition of low-income areas. It also reviews regulations governing the SBA's financial assistance to NMVC companies and provides program statistics. The report concludes with an examination of (1) efforts to eliminate the program based on concerns that it duplicated other SBA programs and is relatively expensive, (2) the rescission of the program's unobligated funding in 2003, and (3) congressional efforts to provide the program additional funds.

GAO_GAO-18-420

Background The federal government is the largest real property owner in the United States with a vast inventory costing billions of dollars annually to operate and maintain. Federally owned buildings include courthouses, offices, warehouses, schools, hospitals, housing, data centers, and laboratories, among other things. GSA acts as the federal government’s landlord, and is responsible for designing, constructing, and managing federal buildings for other federal agencies and the judiciary to occupy. There are currently approximately 1,600 federally owned buildings under GSA’s custody and control. According to the Office of Management and Budget (OMB), agencies, including GSA, should have accurate information on acquisition and “lifecycle” costs of current and proposed assets, including costs for designing and constructing the building, O&M, and disposal. For example, when planning and designing new federal buildings, GSA must analyze building energy and water systems (e.g., for air conditioning and heating) to identify those with the lowest acquisition and operating costs. In addition, once the building is constructed, GSA building managers and O&M contractors are responsible for maintaining the building, which includes tasks related to recurring maintenance and repair (e.g., on heating and cooling systems), maintaining the property’s roads and grounds, cleaning and janitorial services, and paying for utilities. In 1994, GSA instituted the Design Excellence Program, a process for designing, constructing, renovating, altering, and repairing federal courthouses and office buildings. This program was developed in response to criticisms that federal buildings lacked architectural distinction. It stresses creativity in the design of buildings with the intent of constructing spaces that meet the tenant’s functional needs while also becoming public landmarks. More specifically, the program aims to meet several guidelines—called the Guiding Principles for Federal Architecture— including designing spaces that: reflect the dignity, enterprise, vigor, and stability of the U.S. government; avoid uniformity; and are built in locations in which federal buildings can be incorporated into the existing public streets and landscape. According to GSA officials, the Design Excellence Program also streamlines how GSA selects and manages the private-sector architects and engineering firms it hires for new projects. The process consists of four primary stages: planning for the prospective tenant’s needs and general project details (e.g., request for proposal announcement); selecting and working with an architectural and engineering firm to design the building; selecting a contractor to construct the building; and occupancy by the tenants. The process is overseen by a GSA project team, consisting of a project manager, contracting officer, officials from GSA’s Office of the Chief Architect, and additional subject matter experts, who work with the federal tenant that plans to occupy the space. A large number of the federal courthouses and office buildings constructed and controlled by GSA in the last 20 years have been completed under the Design Excellence Program. Under the program, GSA has constructed 78 facilities including 62 courthouses and 16 federal office buildings, including a data center and laboratories. These buildings account for more than 36-million square feet of space, are located in 33 states and the District of Columbia, and many have won architecture and design awards. Figure 1 shows examples of federal courthouses and office buildings constructed under the Design Excellence Program. GSA Made Design Choices That Decreased and Increased O&M Costs Some GSA Design Choices Have Decreased O&M Costs According to interviews with GSA officials and building tenants, GSA has made choices in some Design Excellence buildings intended to reduce long-term O&M costs. For example: Increased natural light. All 10 of the Design Excellence buildings we visited were designed to include interior natural light, which some building managers reported reduced energy costs. According to GSA officials, natural light is not only aesthetically pleasing; it also improves lighting quality for building tenants and reduces lighting costs. For example, the First Street Federal Courthouse (Los Angeles, California) has a light well as part of its atrium and a serrated glass façade that maximizes natural light. Building officials said that 22 of the 24 courtrooms in the building receive natural light from multiple sources, reducing energy usage and requiring less frequent replacement of lighting. In addition, building officials at the Albert Armendariz, Sr., U.S. Courthouse (El Paso, Texas) reported extensive natural light from a three story window wall and the front atrium; both features provide ample light for building tenants. (See fig. 2). Durable and easily maintained materials and finishes. In most of the 10 Design Excellence buildings we visited, GSA officials and building tenants reported selecting materials and finishes that (1) are highly durable and easy and inexpensive to clean; (2) are expected to last a long time; and (3) required little maintenance. For example, the lobby walls and floors of the Ronald Reagan Federal Building and Courthouse (Santa Ana, California) are made out of travertine, a very durable stone, which has lasted more than 15 years without the need for repairs or replacement. In addition, officials at a few buildings noted that the decision to install carpet tiles in lieu of large patches of carpet has made it very easy and relatively inexpensive to maintain and repair office spaces and courtrooms. Low-maintenance landscaping. Several of the 10 Design Excellence buildings we visited incorporated native flora into the landscape design, which can reduce energy and water costs. For example, officials planted native, drought resistant plants around the First Street Federal Courthouse (Los Angeles, California). Building officials at the Las Cruces U.S. Courthouse (Las Cruces, New Mexico), which is located in a desert environment, also reported most of the native landscape around the courthouse does not require watering. Some GSA Design Choices Have Increased O&M Costs According to our survey respondents—building managers at all 78 Design Excellence buildings included in our review—certain GSA design choices, such as multistory atriums and custom windows, have resulted in increased O&M costs compared to an average GSA building without those features. Almost all Design Excellence building managers (76 out of 78) reported that certain design choices resulted in increased O&M costs that would not have occurred had that design choice not been selected. For example, 67 out of 78 building managers for Design Excellence buildings stated that the effect of including multistory open spaces, like atriums, increased O&M costs due to the challenges associated with heating and cooling, making needed repairs, and cleaning these spaces. (See table 1). Building managers and tenants we spoke with confirmed our survey results, and provided examples of design choices that resulted in unexpected O&M cost increases. For example, officials noted increased O&M costs associated with separate structures and multistory atriums that were difficult to access for cleaning and repairs. Separate Structures. Managers from only 21 of 78 Design Excellence buildings reported having an attached, but separate structure (e.g., pavilions, rotundas, restaurants, and other additional spaces connected to the building), but managers at 19 of those buildings stated that the effect of such design features increased O&M costs. For example, one federal building we visited had a rotunda with a domed roof that, according to building managers, has multiple gutter leaks that are not currently accessible due to the design of the space. As a result, maintenance staff continuously patch the ceiling without addressing the cause of the leaks (see fig. 3). Atriums and Lobbies. Managers from 67 of 78 Design Excellence buildings reported their buildings’ multistory atriums and lobbies increased O&M costs. Several GSA managers we interviewed identified additional costs to maintain a multistory atrium or lobby, including costs for renting expensive scaffolding or mechanical lifts. For example, one Design Excellence building we visited has water leaks in the lobby ceiling, which can only be reached by extensive and expensive scaffolding (see fig. 4). Large, Custom Windows. Managers from 65 of 78 Design Excellence buildings reported that the effect of design choices related to their buildings’ windows increased O&M costs. In addition, several Design Excellence buildings we visited had custom or uniquely shaped windows, which occasionally increased the costs to replace, repair, or maintain them. For example, GSA officials at one courthouse reported repairing one two-story, custom-made window pane, which cost $80,000 to fabricate and $50,000 to install. The courthouse had eight of these windows, and a GSA official stated that the windows are an attractive feature of the building that introduced natural light, but a different window choice would have been cheaper to maintain (see fig. 5). Mission Spaces. Managers from 48 Design Excellence buildings reported that the effect of design choices related to mission spaces (i.e., spaces in which federal employees conduct work) increased O&M costs. Specifically, managers from 32 buildings stated that design choices made in mission spaces increased repair costs, and managers from 30 buildings reported increased cleaning costs. GSA officials at several buildings we visited discussed challenges accessing and maintaining mechanical systems incorporated into tenant mission spaces. For example, one Design Excellence building includes a heating, ventilation, and air-conditioning (HVAC) system that is hidden under a raised floor within mission spaces. Because building managers cannot easily access the system, there are maintenance delays and challenges identifying and making necessary repairs, which ultimately result in higher O&M costs. Building officials reported they considered replacing the HVAC system, but doing so would cost approximately $55 million. (See fig. 6). Other Design Choices. According to Design Excellence building managers that responded to our survey and at locations we visited, the effect of several other design choices including energy efficient elements (e.g., solar panels and green roofs), courtyards, floors, and circulation (e.g., hallways, stairways, and elevators) increased O&M costs. For example, according to these officials, (1) the design of green roofs led to water leaks; (2) the design of courtyards led to problems maintaining unique landscaping; (3) flooring choices, specifically selected materials, led to premature scuffing and cracking; and (4) the design of hallways and stairways made them difficult to maintain. GSA Does Not Fully Consider O&M and Functionality Effects When Making Design Choices With the Design Excellence Program, GSA aims to create buildings that are cost-effective and function well for tenants. However, GSA makes design choices for Design Excellence buildings during the planning and design stages of new projects without fully considering the effect of these choices on O&M costs and functionality. GSA Does Not Fully Consider How Design Choices Affect O&M Costs GSA does not estimate most O&M costs during planning and design. Specifically, according to GSA officials we interviewed and planning documents we reviewed, when planning and designing new buildings, officials estimate the costs of major energy systems, such as boilers and chillers. However, based on our review of GSA and industry data, these systems only account for about one-third of O&M costs in Design Excellence buildings. GSA officials stated that they do not estimate the remaining two-thirds of O&M costs—which include maintenance, cleaning, and landscaping—until late in the building’s construction. However, GSA officials also said that it would be costly to make significant design changes at that point in the process. In addition, the O&M estimates for maintenance, cleaning, and landscaping are for the purpose of selecting a contractor to provide these services, not as a means for addressing or reducing future O&M costs, according to officials. GSA building and regional managers who are responsible for addressing the O&M consequences of design choices told us that they were not always integrated or asked to participate in planning and designing new Design Excellence buildings. Specifically, GSA building and regional managers at several of the buildings we visited stated that they were never, or seldom, consulted on O&M costs and issues during the design process, nor did they have an opportunity to review design documents. A few GSA building managers we spoke with stated that on rare occasions when they were consulted their input was rarely incorporated, or was requested too late in the construction stage to allow for necessary changes. According to these officials, if given the chance, they could have highlighted issues with certain design choices that would significantly increase O&M costs and could have offered potential solutions to reduce those costs. Officials responsible for overseeing the Design Excellence Program told us that other officials with an understanding of issues surrounding O&M are involved in the process for designing new buildings through, for example, subject matter reviews of the design concepts. Officials agreed, however, that more could be done to formally involve the perspective of facilities staff, such as building managers, who are responsible for the day-to-day management of O&M. We found that GSA’s lack of consideration of how design choices may affect the O&M costs of Design Excellence buildings could be attributed to existing procedures that do not emphasize the need to consider such costs during the planning and design stage. Specifically, GSA’s procedures for planning, designing, and constructing new Design Excellence buildings focus on design creativity, construction challenges, budget, and schedule and do not direct GSA to estimate O&M costs during planning and design. While these procedures promote several factors to consider in a building’s design—including aesthetics, functionality, and constructability—and generally require firms to submit documentation on budget and schedule, they do not call for information on expected O&M costs. In addition, these procedures do not include seeking input on design decisions from facilities personnel who will have responsibility for the ongoing O&M once the building is occupied. Federal standards for internal control state that federal agencies should use complete and relevant information when making decisions and design control activities, including procedures, to achieve objectives. These federal standards also state that federal agencies should ensure the communication of information internally, for example through procedures that allow management to receive quality information from personnel, to help achieve the entity’s objectives. In addition, guidance from GSA and the Office of Management and Budget directs officials to consider and strive for the lowest possible costs, including O&M costs, when designing buildings. Information on how specific design choices could affect ongoing O&M costs would allow GSA to better understand the impact of those choices. Such information is critical as O&M accounts for a significant proportion of resources dedicated to federal buildings over the long-term. According to GSA and industry associations, O&M costs are significantly higher over time than all other costs, including for construction, and typically account for between 60 and 80 percent of building lifecycle costs. To illustrate this point, we analyzed GSA construction and O&M data for Design Excellence buildings. As figure 7 shows, we estimate that over an average building’s age (60 years) the total construction and O&M costs for GSA’s 78 existing Design Excellence buildings could be about $18 billion—$8.1 billion for construction (45 percent) and $9.9 billion for O&M (55 percent). Because GSA’s procedures do not direct officials to estimate about two-thirds of O&M costs or fully integrate officials with an understanding of the O&M consequences of design decisions, officials may not have been aware of how design choices would affect approximately $6.6 billion (two-thirds of $9.9 billion) in O&M costs. In addition, without procedures that clearly emphasize the need to more fully consider O&M costs in Design Excellence buildings during the planning and design stage, GSA and other stakeholders may not have a complete picture of all relevant information necessary to make informed decisions on how to best design future federal buildings. GSA realizes that the focus of Design Excellence projects has been on design and construction, not O&M costs, and, in September 2017, initiated a process, called “Operational Excellence”, to more fully consider O&M costs. This process includes considering ways to more fully consider O&M costs during planning and design, including developing a cost tool that would estimate future O&M costs. In addition, GSA is considering ways to update existing procedures for designing and constructing new buildings to include a more comprehensive evaluation of potential O&M costs, for example, by more fully integrating knowledgeable personnel at key stages. However, according to GSA officials, they are still in the early stages of determining what needs to be done in part due to a small staff, which includes one full-time employee and one part-time employee. As of March 2018, GSA has not established a schedule for updating its procedures to require considering O&M during design. Design Excellence Buildings Generally Function Well, but Some Costly Design Choices Did Not Improve Functionality Most design choices made for Design Excellence buildings, including the shape and size of courtrooms and the lighting in hallways, have had a positive effect on overall building functionality (i.e., helped the tenant agency achieve its mission), according to officials we surveyed and interviewed. For example, GSA building managers we surveyed reported the functionality of at least one design choice in most buildings (72 of 78 buildings) as good or very good. Specifically, they reported that in most buildings, the overall functionality of design choices was good in many of the areas we asked them about. In addition, building managers reported that the functionality of the following design choices was also good or very good: selected material color (53 buildings) and lighting (58 buildings); shape and size of the space (61 buildings); pedestrian circulation (61 buildings); and temperature control in the areas critical for a building’s operation, such as courtrooms or office space (46 buildings). GSA and tenant agency officials whom we interviewed were also positive about how the design choices affected the functionality of their buildings, especially the use of windows and atriums to allow natural light. Tenants also reported they enjoyed other features of the new buildings, including commissioned artwork and the design of the interior and exterior. Tenants’ satisfaction with the function of Design Excellence buildings may, in part, reflect the condition of their previous office space. For example, one tenant noted that moving from temporary trailers into a state-of-the-art courthouse was a substantial functional improvement. However, we found that increased spending on certain design choices did not always provide improved functionality for the building tenant. For example, GSA building managers reported that in many buildings (67 of 78) atriums and lobbies (i.e., vertical penetrations) have increased O&M costs due to higher repair, cleaning, and energy costs. At the same time, building managers reported that in 51 of those 67 buildings, choices made in the design of multistory atriums and lobbies, e.g., material color and lighting, did not have a positive effect on building functionality (see table 2). Similarly, the decision to install solar panels and green roofs (e.g., energy efficient elements), increased O&M costs in several areas, particularly repair costs, but in over half of the buildings with these features, building managers did not report an improvement in functionality. For example, in two courthouses we visited solar panels installed with the intention of saving on energy costs are not supplying as much power as expected and, therefore, have not yet provided the expected energy benefits. Tenants we interviewed also noted that in some cases, design choices have not functioned well and are costly to maintain and operate. According to a tenant at one Design Excellence office building, while the decision to construct a multistory atrium has added aesthetic value for federal employees, it has also resulted in challenges balancing air pressure between the atrium and the adjacent office spaces. These differences in air pressure have resulted in uncomfortable working conditions, such as fluctuating temperatures, which have hampered productivity. Another tenant told us about design choices such as long hallways and elevators that do not stop at all floors, making it difficult for tenant employees to move efficiently through the building. Some of these design choices, such as elevators with mechanical systems at the bottom of the elevator shaft, have proven costly to maintain as they age more quickly. Other tenants noted that the selection of heating and cooling systems, which automatically adjust building temperatures based on time of day, for example, have not functioned as planned, resulting in variable temperatures and employee discomfort. In addition, GSA has sometimes made design choices in buildings that do not apply to one of the primary functional goals of the Design Excellence Program—to serve as a landmark that positively represents the federal government to the public. Specifically, GSA does not consider that some buildings, due to their purpose or location, are unlikely to function as landmarks because they have limited interaction with or limited visibility by the public. In this regard, we found that most Design Excellence buildings (66 of 78) are visible and accessible to the general public, i.e., “public-facing”. Many of these buildings have succeeded in becoming public landmarks and several have won awards for their design. Specifically, 62 serve as courthouses, which are visible from public streets and people may enter to observe judicial proceedings or conduct personal business. See figure 8 for an example of a Design Excellence courthouse with publicly visible exteriors and interiors. Four serve as office buildings for various federal agencies that are publicly accessible. In contrast, we found that 12 Design Excellence office buildings restrict the public from accessing interior spaces. Specifically, Seven can be seen from public sidewalks or roads, even though the building is not open to the public, such as the U.S. Secret Service Headquarters and FBI field office buildings. As a result, these buildings’ exteriors could be public landmarks that represent the federal government, but the interior design features are not publicly accessible. For example, the Ronald H. Brown U.S. Mission to the United Nations Building in New York City has an impressive and publicly visible exterior façade but restricts public access to a multi- story rotunda and art space (see fig. 9). Five have obstructed views from public roads and sidewalks in addition to restricting public access to the interior. Neither the exterior nor interior design choices, which can be expensive to operate and maintain, in these buildings can be seen or appreciated by the public. For example, according to the tenant agency and GSA officials, the visually impressive interior atrium and courtyard at the Ariel Rios Federal Building have proven logistically challenging and expensive to maintain and are not accessible to the public. In addition, the façade of the National Oceanic and Atmospheric Administration Satellite Operations Facility, which, according to GSA officials, is expensive to maintain and repair, is not accessible by the public. (See fig. 10). According to GSA officials, when they carry out their planning and design for Design Excellence buildings, they do not differentiate between buildings that will be public-facing and those that will not. This approach may be in part due to the fact that GSA’s procedures for planning and designing new Design Excellence buildings do not call for consideration of how design choices may have different functional benefits, including whether the interior and exterior of planned buildings would be accessible to the public. Federal standards for internal control state that federal agencies should use complete and relevant information when making decisions and designing control activities, including procedures to achieve objectives. By taking a “one size fits all” approach and not considering the functionality of design choices, such as how a building’s location and intended use will affect the public’s ability to see the exterior and interior, GSA may be selecting design choices that increase O&M costs without improving functionality. GSA Does Not Systematically Collect and Share Information on Common O&M Cost Experiences That Could Affect Design Choices According to GSA officials, GSA currently does not systematically collect and share information on how design choices made for previous Design Excellence projects have affected O&M costs with the project teams— consisting of a project manager, contracting officer, and other GSA officials—that are responsible for overseeing the planning and design of new buildings. GSA has evaluated what is and is not working effectively in some existing Design Excellence buildings and has on occasion shared these evaluations with project teams. For example, GSA has evaluated the performance of 6 out of 78 Design Excellence buildings. These evaluations included identifying design decisions that led to higher O&M costs and, on one occasion, developed a formal presentation to share these lessons with the team working on a new Design Excellence project. According to officials, GSA requires agency personnel with subject matter expertise to review building design concepts provided by private-sector architects and engineers. GSA also fosters information sharing through procedures that encourage project teams to exchange ideas, lessons learned, and concerns. However, these processes either (1) are not done in a consistent or systematic way, or (2) require information sharing among a small group of officials, i.e., a project team, which might not have visibility over the extensive design choices made in all existing buildings. While all of these information-sharing initiatives offer benefits, GSA’s procedures do not include a systematic collection and sharing of information with the project teams responsible for managing new Design Excellence projects on how design choices affected O&M costs in existing Design Excellence buildings. According to GSA officials, they are considering formalizing this sort of information collection and sharing as part of the Operational Excellence process, but as previously noted, GSA is in the early stages of setting up this initiative and has not established a schedule for completing its actions or updating its procedures. As discussed, some design choices in existing Design Excellence buildings have decreased or increased O&M costs. Since GSA does not systematically share how these types of design choices affected O&M costs with teams responsible for planning and designing new buildings, similar issues could occur in future buildings. For example, we previously mentioned that building managers indicated that using durable materials, low maintenance landscaping, and energy-efficient lighting can reduce long-term O&M costs. Building managers also reported common issues caused by design choices that led to increased costs including: Inefficiently located mechanical systems. Building managers reported the location of mechanical systems in Design Excellence buildings often led to increased cost. Specifically, building managers reported the location of these systems increased repair costs (41 out of 77 buildings) and energy costs (32 out of 77 buildings). In the Design Excellence buildings we visited, building managers and tenants reported issues with the location of mechanical systems (4 buildings). For example, officials indicated that air-conditioning systems were placed in inefficient locations that required more energy usage because water had to be pumped unnecessarily far distances (see fig. 11). Difficult-to-access lights. Building managers reported that design choices for the location of interior lights increased maintenance costs in the majority of Design Excellence buildings (55). In particular, managers reported that the location of lights in atriums and lobbies (38 buildings) and courtrooms and other mission spaces (33 buildings) increased costs. In addition, GSA officials at locations we visited said that lights above tall staircases, ceiling lights in atriums and auditoriums, and lights directly above permanent structures led to additional costs, including the need to use scaffolding or rent large equipment to maintain these lights. (See fig. 12). One way that a majority of GSA building managers (61) we surveyed are attempting to mitigate high maintenance cost for lighting issues is to install energy efficient equipment, such as light-emitting diode (LED) lights. Difficult-to-maintain materials and finishes. In 68 Design Excellence buildings, building managers reported that materials or finishes were chosen that are easily worn. Similarly, in buildings we visited (4 buildings), GSA officials reported that decisions on the materials used or configuration of exterior surfaces (e.g., the roof or façade) of a Design Excellence building led to repair and maintenance problems, particularly water leaks. (See fig. 13). Hard to clean surfaces. Cleaning surfaces, especially in atriums, can be a challenge for maintaining Design Excellence buildings. For example, building managers we surveyed reported that the decision to install certain types of window treatments increased cleaning costs (49 buildings). In three buildings we visited, building managers and tenants also said Design Excellence buildings required special equipment or scaffolding to clean windows or surfaces, which led to increased cleaning costs. (See fig. 14). According to federal standards for internal control, agencies should use and communicate complete and relevant information when designing control activities, including procedures to achieve objectives. Without a formalized process for systematically collecting and sharing how design choices affected O&M costs in existing buildings, designs for future Design Excellence buildings may not benefit from the successful strategies used by others to reduce O&M costs or may continue to repeat problematic choices that may result in increased O&M costs. Conclusions Through the Design Excellence Program, GSA has achieved excellence in architecture and the design of federal buildings. Buildings constructed under the Design Excellence Program have created unique and aesthetically pleasing workspaces, have met the functional needs of tenant agencies, and have become public landmarks. However, because GSA does not have program procedures that call for consideration of how certain design features may affect O&M, it may not be fully aware of the costs of including these features in its building design and plans. Specifically, GSA does not estimate or gather all perspectives from building and regional managers on the full O&M costs of design choices, or consider the extent to which they will improve the functionality of the building for tenants and the public. For example, GSA’s one-size fits all approach in designing these buildings does not consider whether non- public buildings need the same costly architectural elements as buildings intended to serve as public landmarks. Further, GSA is missing opportunities to improve future building designs by not systematically gathering and sharing information on the common design choices that had both positive and negative effects on O&M costs. Without a clear picture of the ongoing costs of these choices, GSA and other stakeholders are missing critical information to better inform the design and construction of new buildings. While GSA has just begun an Operational Excellence initiative to help identify future O&M costs, it is not clear what actions GSA will take to improve consideration of O&M costs during planning and design or when it will take those actions. Recommendations for Executive Action We are making the following four recommendations to GSA: The Administrator of the General Services Administration should update existing procedures to require GSA officials to estimate the full operations and maintenance costs of design choices in the planning and design process for new Design Excellence buildings. (Recommendation 1) The Administrator of the General Services Administration should update existing procedures to require GSA officials to obtain information from personnel responsible for addressing the operations and maintenance consequences of design choices at key decision points during the planning and design of new Design Excellence buildings. (Recommendation 2) The Administrator of the General Services Administration should update existing procedures to require GSA officials to further consider and document, during the planning and design of new Design Excellence buildings, how design choices may affect building functionality, such as whether a building is publicly visible and accessible. (Recommendation 3) The Administrator of the General Services Administration should update existing procedures to require GSA officials to systematically collect and share information with project teams responsible for overseeing the planning and design of new buildings on the positive and negative effects of common design choices on operations and maintenance costs in existing Design Excellence buildings. (Recommendation 4) Agency Comments We provided a draft of this report to GSA, the U.S. Administrative Office of Courts, the Department of Homeland Security, the Department of Justice, and the Department of Commerce for comment. In written comments, reproduced in appendix IV, GSA stated that it agreed with our recommendations and provided several technical comments. GSA clarified its policies for selecting and analyzing the lifecycle costs of building systems. In addition, GSA stated that table 2 in our report did not capture the full functional benefits and reasons for making certain design choices. As we noted in the report, this table does not preclude that a specific design choice may be functional or have functional benefits. We also included several of the examples GSA highlighted in their comments, such as the functional need for a separate structure, which may serve key security functions. GSA also stated that our conclusions did not indicate that most Design Excellence buildings functioned well. We added language to the conclusions to clarify this point. The U.S. Administrative Office of Courts, the Department of Homeland Security, the Department of Justice, and the Department of Commerce did not provide comments. We are sending copies of this report to the appropriate congressional committees, the Administrator of the General Services Administration, Director of the Administrative Office of U.S. Courts, Attorney General, and the Secretaries of Homeland Security and Commerce. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology This report assesses the extent to which: (1) the General Services Administration (GSA) made design choices that affect operations and maintenance (O&M) costs; (2) GSA considers O&M costs and functionality when planning and designing buildings; and (3) GSA systematically collects and shares information on O&M costs related to design choices in existing buildings. To address all of our objectives, we reviewed applicable federal regulations; GSA procedures, policies, and standards for designing, constructing, and operating federal facilities, including specific policies and procedures for Design Excellence buildings; our prior work; and reports by other federal agencies and related professional organizations on topics, including the standard costs of operating and maintaining office buildings. Our review examined 78 federal buildings and courthouses that GSA constructed under the Design Excellence Program—referred to as “Design Excellence buildings”—since the program started in 1994. At our request, GSA provided a list of all buildings under the agency’s custody and control that were constructed under the Design Excellence Program. Based on input from GSA officials indicating that large campuses were unlikely to have reliable O&M data, we excluded nine buildings that are part of the White Oak Campus in Silver Spring, Maryland. We reviewed relevant GSA documents pertaining to the remaining 78 Design Excellence buildings, including the most recent Asset Business Plans detailing investment needs for maintenance and repairs, strategies for efficient operations, building use, and tenant satisfaction. We analyzed GSA-provided historical data on construction and O&M costs from 2000 to 2016 for the buildings in our review and projected O&M future costs. To calculate our projection, we made several assumptions, including (1) that annual O&M costs would increase at the same level as 2016 O&M costs ($174 million), and (2) that Design Excellence buildings will reach the average age of all current GSA buildings (60 years). We assessed the reliability of these data through electronic testing and reviewing documentation on the data. We determined that the data provided were sufficiently reliable for the purpose of illustrating the extent to which O&M costs make up total building costs. We also conducted a web-based survey of GSA building managers responsible for overseeing O&M for the 78 Design Excellence buildings included in our review. The survey addressed the extent to which certain design choices affect O&M costs and building functionality. We developed the survey based on our objectives, prior GAO work, and site visits to 10 Design Excellence buildings. We pretested the survey with GSA officials at three Design Excellence buildings, which were selected based on building age, location, total square feet, fiscal year 2016 O&M costs, and the building’s primary use (e.g., office or courthouse). As part of our pretesting, we asked GSA building managers to explain their understanding of survey questions and made edits based on their comments. We conducted the survey from November 2017 to March 2018 and our response rate was 100 percent (78 out of 78). See appendix III for a copy of the survey and summarized responses. We visited 10 Design Excellence buildings in three GSA regions to view design choices and O&M activities. As part of these site visits, we conducted interviews that included tenant agencies located in these buildings, GSA building managers responsible for managing these buildings and officials from GSA regional offices with oversight responsibilities for these buildings. To select our site visit locations and ensure geographic and agency diversity, we considered several factors including building operating costs, size, location, and the tenant agency. Based on these criteria we selected the buildings listed in table 3. The interviews and tours we conducted during our site visits do not allow us to generalize the findings to all Design Excellence buildings. Information gathered from our site visits did allow us to show how O&M costs were considered in specific Design Excellence buildings and the effects of design choices. We also interviewed GSA officials located in GSA Headquarters within the Office of Design and Construction, including the Chief Architect, and the Office of Facilities Management. We also interviewed GSA regional officials within the Office of Facilities Management in four of GSA’s 11 regional offices: Greater Southwest Region, National Capital Region, Pacific Rim Region, and Southeast Sunbelt Region. We selected regional offices based on the location of our site visits and included one additional regional office based on it having the highest total O&M operating costs of the eight remaining regional offices. We discussed several topics with GSA officials, including how O&M costs were considered during planning and design and how information on the O&M costs of design choices are shared. To determine the extent to which GSA considers O&M costs and functionality when planning and designing buildings, we analyzed Federal Real Property Profile (FRPP) data. Our analysis of U.S. government- owned office buildings that are less than 40 years old, occupied, and needed for a tenant’s mission, identified five potentially relevant variables to explain variation in the O&M costs: building type (i.e., whether a building was constructed under the Design Excellence Program), size, age, and condition of the building, as well as the median hourly wage of O&M services in the building’s location. After controlling for these variables, we found that size and median hourly wage but not building type had a statistically significant relationship to O&M costs. We assessed the reliability of these data through electronic testing as well as a review of documentation for each federal data source. We determined that the data provided were sufficiently reliable for the purpose of describing our attempts to identify factors that influence O&M costs in federal buildings. We also requested and received additional information from the building managers of Design Excellence federal office buildings. Specifically we asked for information on the extent to which these federal office buildings are public-facing, have restrictions on public entry and are visible from public sidewalks or roads, and what the daily volume of public visitors was. We compared GSA’s efforts to consider O&M costs in the planning and design of Design Excellence buildings to pertinent Standards for Internal Control in the Federal Government on using complete and relevant information when making decisions and design control activities, including procedures, to achieve objectives, as well as on communicating information internally. In addition, we compared GSA’s efforts to consider these costs in the planning and design of Design Excellence buildings to guidance from GSA and the Office of Management and Budget that directs agency officials to consider and strive for the lowest possible costs, including O&M costs, when designing buildings. We also compared GSA’s efforts to consider functionality when planning and designing these buildings to pertinent Standards for Internal Control in the Federal Government on using complete and relevant information when making decisions and design control activities, including procedures, to achieve objectives. To assess the extent to which GSA systematically collects and shares information on O&M costs related to design choices in existing Design Excellence buildings, we reviewed Post Occupancy Evaluations commissioned by GSA on six Design Excellence buildings. These evaluations contain information, such as how GSA buildings are performing and the extent to which they comply with GSA’s federal standards for public buildings. These evaluations can include reviews of operations and maintenance documentation, interviews and surveys with building occupants, and interviews with relevant GSA staff, architectural and engineering design team staff, and an on-site evaluation. We also compared GSA’s process for collecting and sharing how design choices affected O&M costs in existing buildings to pertinent Standards for Internal Control in the Federal Government on using and communicating complete and relevant information when designing control activities, including procedures, to achieve objectives. We conducted this performance audit from May 2017 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Buildings Constructed under the General Services Administration’s (GSA) Design Excellence Program GSA created the Design Excellence Program in 1994. Under this program, GSA has constructed 78 buildings in 33 states and the District of Columbia, buildings that range in size from about 35,000- to over 3- million gross square feet (see table 4). Appendix III: Survey of General Services Administration (GSA) Building Managers and Summarized Results This appendix provides a copy of the survey completed by managers for all 78 buildings constructed under GSA’s Design Excellence Program included in our review. The appendix also includes the responses received for each of the close- ended questions (1a, 1b, 1c, 1e, 2a, 3a, and 4a); it does not include information on open-ended responses (1d, 1f, 2b, 3b, 3c, 4b, and 5). The purpose of this survey was to gather responses on how design choices affected operation and maintenance (O&M) costs and building function. See appendix I for additional information on our survey methodology. Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Lori Rectanus, (202) 512-2834 or [email protected]. Staff Acknowledgments In addition to the contact named above, Keith Cunningham (Assistant Director); Matthew Cook (Analyst in Charge); Eli Albagli; Sarah Arnett; Colin Ashwood; Melissa Bodeau; Lacey Coppage; Caitlin Cusati; Terrence Lam; Joshua Ormond; Dae Park; Minette Richardson; Kelly Rubin; Ardith Spence; and Dave Wise made key contributions to this report.

Since 1994, GSA has spent more than $8 billion to construct 78 new federal buildings through its Design Excellence program. Some design choices can affect a building's O&M costs and functionality. GAO was asked to review GSA's ability to manage O&M costs under the Design Excellence program. This report assesses the extent to which: (1) GSA's design choices affect O&M costs; (2) GSA considers O&M costs and functionality when planning and designing buildings; and (3) GSA systematically collects and shares information on O&M costs. GAO conducted a web-based survey of building managers for the 78 Design Excellence buildings. GAO also visited 10 Design Excellence buildings in three GSA regions selected based on several factors, including geographic and agency diversity. GAO reviewed GSA documents, and interviewed GSA officials and building tenants. Information obtained through site visits and interviews is not generalizable. The goals of the General Services Administration's (GSA) Design Excellence Program are to creatively design federal buildings that meet federal agencies' functional needs and become public landmarks. Some design choices for Design Excellence buildings have decreased ongoing operations and maintenance (O&M) costs, but others have increased those costs. GSA's building managers and tenants told GAO that design choices that have reduced O&M costs include the use of durable materials and low maintenance landscaping. Other design choices have increased O&M costs. For example, according to GAO's survey of 78 building managers of Design Excellence buildings, multistory atriums often led to additional O&M costs, including the need to erect expensive scaffolding for maintenance. While GSA aims to create Design Excellence buildings that are cost-effective and functional, it makes design choices without fully considering their effect on O&M costs and functionality. For example, GSA officials do not estimate the majority of O&M costs, such as the building maintenance associated with their design choices until the design is almost finalized. This outcome is partly because GSA procedures do not direct GSA officials to develop such estimates during the design and planning of Design Excellence buildings and because building and regional managers responsible for addressing the O&M consequences are also not involved in the design and planning process. As a result, important cost information that could help building project teams make the most cost-effective design choices is not available to help them. In addition, while building managers GAO surveyed reported that GSA's design choices generally support a building's functionality, they also reported that some design choices increased O&M costs without improving functionality. For example, they identified design choices related to material color and lighting that increased O&M costs but did not enhance the functionality of the building for the tenants. Although GSA has developed some information on how design choices can affect O&M costs, it does not consistently collect and share such information. For example, GSA has evaluated the performance of only six Design Excellence buildings, and does not systematically collect information on how design choices have affected O&M costs in all existing buildings. Without a process to collect and share such information, future buildings may not benefit from these lessons, and problematic choices may be repeated.

CRS_R41153

Introduction The diminishment of Arctic sea ice has led to increased human activities in the Arctic, and has heightened interest in, and concerns about, the region's future. Issues such as Arctic territorial disputes; commercial shipping through the Arctic; Arctic oil, gas, and mineral exploration; endangered Arctic species; and increased military operations in the Arctic could cause the region in coming years to become an arena of international cooperation or competition. The United States, by virtue of Alaska, is an Arctic country and has substantial political, economic, energy, environmental, and other interests in the region. Decisions that Congress makes on Arctic-related issues could significantly affect these interests. This report provides an overview of Arctic-related issues for Congress, and refers readers to more in-depth CRS reports on specific Arctic-related issues. Congressional readers with questions about an issue discussed in this report should contact the author or authors of the section discussing that issue. The authors are identified by footnote at the start of each section. This report does not track legislation on specific Arctic-related issues. For tracking of legislative activity, see the CRS reports relating to specific Arctic-related issues that are listed at the end of this report, just prior to Appendix A . Background1 Definitions of the Arctic There are multiple definitions of the Arctic that result in differing descriptions of the land and sea areas encompassed by the term. Policy discussions of the Arctic can employ varying definitions of the region, and readers should bear in mind that the definition used in one discussion may differ from that used in another. This CRS report does not rely on any one definition. Arctic Circle Definition and Resulting Arctic Countries The most common and basic definition of the Arctic defines the region as the land and sea area north of the Arctic Circle (a circle of latitude at about 66.34 o North). For surface locations within this zone, the sun is generally above the horizon for 24 continuous hours at least once per year (at the summer solstice) and below the horizon for 24 continuous hours at least once per year (at the winter solstice). The Arctic Circle definition includes the northernmost third or so of Alaska, as well as the Chukchi Sea, which separates that part of Alaska from Russia, and U.S. territorial and Exclusive Economic Zone (EEZ) waters north of Alaska. It does not include the lower two-thirds or so of Alaska or the Bering Sea, which separates that lower part of the state from Russia. The area within the Arctic Circle is about 14.5 million square kilometers, or about 5.6 million square miles. This equates to about 2.8%, or about 1/36 th , of the world's surface. About 4 million people, or about 0.05% of the world's population, live in the Arctic, of which roughly half (roughly 2 million) live in Russia's part of the Arctic. Eight countries have territory north of the Arctic Circle: the United States (Alaska), Canada, Russia, Norway, Denmark (by virtue of Greenland, a member country of the Kingdom of Denmark), Finland, Sweden, and Iceland. These eight countries are often referred to as the Arctic countries, and they are the member states of the Arctic Council, which is discussed further below. A subset of the eight Arctic countries are the five countries that are considered Arctic coastal states: the United States, Canada, Russia, Norway, and Denmark (by virtue of Greenland). Definition in Arctic Research and Policy Act (ARPA) of 1984 Section 112 of the Arctic Research and Policy Act (ARPA) of 1984 (Title I of P.L. 98-373 of July 31, 1984) defines the Arctic as follows: As used in this title, the term "Arctic" means all United States and foreign territory north of the Arctic Circle and all United States territory north and west of the boundary formed by the Porcupine, Yukon, and Kuskokwim Rivers [in Alaska]; all contiguous seas, including the Arctic Ocean and the Beaufort, Bering, and Chukchi Seas; and the Aleutian chain. This definition, which is codified at 15 U.S.C. 4111, includes certain parts of Alaska below the Arctic Circle, including the Aleutian Islands and portions of central and western mainland Alaska, such as the Seward Peninsula and the Yukon Delta. Figure 1 below shows the Arctic area of Alaska as defined by ARPA; Figure 2 shows the entire Arctic area as defined by ARPA. Other Definitions Other definitions of the Arctic are based on factors such as average temperature, the northern tree line, the extent of permafrost on land, the extent of sea ice on the ocean, or jurisdictional or administrative boundaries. A definition based on a climate-related factor could circumscribe differing areas over time as a result of climate change. The 10 o C isotherm definition of the Arctic defines the region as the land and sea area in the northern hemisphere where the average temperature for the warmest month (July) is below 10 o Celsius, or 50 o Fahrenheit. This definition results in an irregularly shaped Arctic region that excludes some land and sea areas north of the Arctic Circle but includes some land and sea areas south of the Arctic Circle. This definition currently excludes all of Finland and Sweden, as well as some of Alaska above the Arctic Circle, while including virtually all of the Bering Sea and Alaska's Aleutian Islands. The definition of the Arctic adopted by the Arctic Monitoring and Assessment Programme (AMAP)—a working group of the Arctic Council—"essentially includes the terrestrial and marine areas north of the Arctic Circle (66°32' N), and north of 62° N in Asia and 60° N in North America, modified to include the marine areas north of the Aleutian chain, Hudson Bay, and parts of the North Atlantic, including the Labrador Sea." The AMAP website includes a map showing the Arctic Circle, 10o C isotherm, tree line, and AMAP definitions of the Arctic. Some observers use the term "high north" as a way of referring to the Arctic. Some observers make a distinction between the "high Arctic"—meaning, in general, the colder portions of the Arctic that are closer to the North Pole—and other areas of the Arctic that are generally less cold and further away from the North Pole, which are sometimes described as the low Arctic or the subarctic. U.S. Identity as an Arctic Nation As mentioned earlier, the United States, by virtue of Alaska, is an Arctic country and has substantial political, economic, energy, environmental, and other interests in the region. Even so, Alaska is geographically separated and somewhat distant from the other 49 states, and relatively few Americans—fewer than 68,000 as of July 1, 2017—live in the Arctic part of Alaska as shown in Figure 2 . A November 8, 2018, research paper on the Arctic in U.S. national identity, based on data collected in online surveys conducted in October and December 2017, stated the following: We found that Americans on average continue mildly to disagree with the canonical assertion of U.S. Arctic identity and interests as articulated in government policy. On a scale from 1 to 7, with higher numbers indicating stronger agreement, Americans' average rating was 3.51, up slightly from 3.16 in 2015, but still below the scale midpoint [of 4.0]. A plurality of respondents (27%) answered with a score of one, indicating the strongest disagreement. Men and older individuals showed greater inclination to agree with the assertion of Arctic identity and interests than women or younger respondents, a pattern also observed in 2015. No region of the country showed particularly greater inclination to agree or disagree, except Alaskans[, who] showed substantially greater agreement. We also conducted a series of comparative surveys and found that Canadians, with an average rating of 4.87, had a much greater sense of being an Arctic nation than did Americans. American respondents, however, did register somewhat higher agreement than British and Australians in judging their country an Arctic nation with strong Arctic interests. In a separate comparative survey, Americans indicated a stronger sense of being a Pacific nation than an Arctic one. U.S. Arctic Research Arctic Research and Policy Act (ARPA) of 1984, As Amended The Arctic Research and Policy Act (ARPA) of 1984 (Title I of P.L. 98-373 of July 31, 1984) "provide[s] for a comprehensive national policy dealing with national research needs and objectives in the Arctic." The act, among other things made a series of findings concerning the importance of the Arctic and Arctic research; established the U.S. Arctic Research Commission (USARC) to promote Arctic research and recommend Arctic research policy; designated the National Science Foundation (NSF) as the lead federal agency for implementing Arctic research policy; established the Interagency Arctic Research Policy Committee (IARPC) to develop a national Arctic research policy and a five-year plan to implement that policy, and designated the NSF representative on the IARPC as its chairperson; and defined the term "Arctic" for purposes of the act. The Arctic Research and Policy Act of 1984 was amended by P.L. 101-609 of November 16, 1990. For the texts of the Arctic Research and Policy Act of 1984 and P.L. 101-609 , see Appendix A and Appendix B , respectively. FY2019 NSF Budget Request for Arctic Research NSF—the lead federal agency for implementing Arctic research policy—carries out Arctic research activities through its Office of Polar Programs (OPP), which operates as part of the Directorate for Geosciences (GEO). NSF is requesting a total of $534.5 million for OPP for FY2019, an increase of 30.6% over the $409.18 million requested for FY2018, and an increase of 14.3% over the $467.85 million actual for FY2017. Within the $534.54 million requested for OPP for FY2019 is $113.56 million for research in both the Arctic and Antarctic, an increase of 2.7% over the $110.58 million requested for FY2018, and a reduction of 4.6% from the $119.05 million actual for FY2017. Also within the $534.54 million requested for OPP for FY2019 is $39.33 million for Arctic research and support logistics, an increase of 8.9% over the $36.11 million requested for FY2018, and a reduction of 12.7% from the $45.06 actual for FY2017. NSF states in the overview of its FY2019 budget request that In 2019, NSF will support 10 Big Ideas, which are bold ideas that identify areas for future, long-term investment at the frontiers of science and engineering. With its broad portfolio of investments, NSF is uniquely suited to advance this set of cutting-edge research agendas and processes that will require collaborations with industry, private foundations, other agencies, science academies and societies, and universities and other education institutions. The Big Ideas represent unique opportunities to position our Nation at the frontiers—indeed to define the frontiers—of global science and engineering leadership and to invest in fundamental research that advances America's economic competitiveness and security. Among the 10 big ideas, NSF states in its overview that number 6 is Navigating the New Arctic (NNA) —Establishing an observing network of mobile and fixed platforms and tools across the Arctic to document and understand the Arctic's rapid biological, physical, chemical, and social changes. For FY2019, NSF is requesting $30.0 million for NNA under Integrative & Collaborative Education and Research (ICER) effort of GEO. NSF states that a number of GEO programs contribute directly to NSF's overarching theme of Navigating the New Arctic (NNA).... As part of NNA, and in partnership with the other research directorates and offices, GEO will invest funds in its ICER division to support convergent activities that transcend the traditional disciplinary boundaries of individual NSF directorates and offices. These activities will enable pursuit of fundamental research in Arctic regions. While budget management and reporting for this investment will be the responsibility of GEO, the convergent activities will be overseen and managed collaboratively by the multi-directorate/office NNA leadership team. Regarding its FY2019 budget request for OPP, NSF states that The Office of Polar Programs (OPP) is the primary U.S. supporter of fundamental research in the polar regions. In the Arctic, NSF helps coordinate research planning as directed by the Arctic Research Policy Act of 1984, and the NSF Director chairs the Interagency Arctic Research Policy Committee (IARPC) created for this purpose.... OPP supports investments in research and education and provides support for research infrastructure, such as permanent stations and temporary field camps in the Antarctic and the Arctic. OPP's FY 2019 Budget Request is influenced by three key priorities: (1) supporting critical facilities that enable frontier research in the Earth's polar regions; (2) maintaining strong disciplinary programs that provide a base for our investments in cross-disciplinary system science programs and; (3) maintaining U.S. research community activities in polar system science. As part of priority one, OPP will start the construction phase of the multi-year Antarctic Infrastructure Modernization for Science (AIMS) project. OPP will also prioritize investment in two of the Big Ideas: Navigating the New Arctic where OPP leads NSF efforts, and Windows on the Universe where OPP invests in underpinning activities. All of these priorities reflect opportunities for fundamental scientific discovery uniquely possible in polar regions, as well as studies to investigate the causes and future trajectory of environmental and ecosystem changes now being observed at the poles that could impact global systems. This work will implement the Foundation's lead-agency role in facilitating the Nation's investment in polar science. In addition to shared cross-directorate basic research objectives, OPP investments will be guided by recent sponsored studies to identify priority areas and ensure effective polar research programs: • For the Arctic, IARPC's Arctic Research Plan: FY 2017-20211 , and the World Meteorological Organization's Year of Polar Prediction Implementation Plan inform science investment priorities. Efforts to build an integrated research capacity to address the potential opportunities and challenges of Arctic change for the Nation's security and economics and well-being of Arctic residents will continue. Regarding the $39.33 million requested for FY2019 for Arctic Research Support and Logistics within OPP, NSF states the following: The Research Support and Logistics program in the Arctic Sciences section of OPP responds to science supported by the section. Funding is provided directly to grantees or to key organizations that provide or manage Arctic research support and logistics. A contractor provides research support and logistics services for NSF-sponsored activities in the Arctic. Additional major support components include: access to USCG and other icebreakers, University-National Oceanographic Laboratory (UNOLS) vessels and coastal boats; access to fixed- and rotary-wing airlift support; assets at Toolik Field Station, University of Alaska Fairbanks' field station for ecological research on Alaska's North Slope; safety training for field researchers and funding for field safety experts; global satellite telephones for emergency response and improved logistics coordination; and development of a network of strategically placed U.S. observatories linked to similar efforts in Europe and Canada.... Arctic Sciences personnel support merit-reviewed research proposals in social, earth systems, and a broad range of natural sciences; its Research Support & Logistics program responds to research by assisting researchers with access to the Arctic and sharing of plans and results with local Arctic communities. Major U.S. Policy Documents Relating to the Arctic January 2009 Arctic Policy Directive (NSPD 66/HSPD 25) On January 12, 2009, the George W. Bush Administration released a presidential directive establishing a new U.S. policy for the Arctic region. The directive, dated January 9, 2009, was issued as National Security Presidential Directive 66/Homeland Security Presidential Directive 25 (NSPD 66/HSPD 25). The directive was the result of an interagency review, and it superseded for the Arctic (but not the Antarctic) a 1994 presidential directive on Arctic and Antarctic policy. The directive, among other things, states that the United States is an Arctic nation, with varied and compelling interests in the region; sets forth a six-element overall U.S. policy for the region; describes U.S. national security and homeland security interests in the Arctic; and discusses a number of issues as they relate to the Arctic, including international governance; the extended continental shelf and boundary issues; promotion of international scientific cooperation; maritime transportation; economic issues, including energy; and environmental protection and conservation of natural resources. For the text of NSPD 66/HSPD 25, see Appendix C . May 2010 National Security Strategy In May 2010, the Obama Administration released a national security strategy document that states the following: The United States is an Arctic Nation with broad and fundamental interests in the Arctic region, where we seek to meet our national security needs, protect the environment, responsibly manage resources, account for indigenous communities, support scientific research, and strengthen international cooperation on a wide range of issues. May 2013 National Strategy for Arctic Region On May 10, 2013, the Obama Administration released a document entitled National Strategy for the Arctic Region . The document appears to supplement rather than supersede the January 2009 Arctic policy directive (NSPD 66/HSPD 25) discussed above. The executive summary of National Strategy for the Arctic Region begins by quoting the above statement from the May 2010 national security strategy document, and then states the following: The National Strategy for the Arctic Region sets forth the United States Government's strategic priorities for the Arctic region. This strategy is intended to position the United States to respond effectively to challenges and emerging opportunities arising from significant increases in Arctic activity due to the diminishment of sea ice and the emergence of a new Arctic environment. It defines U.S. national security interests in the Arctic region and identifies prioritized lines of effort, building upon existing initiatives by Federal, state, local, and tribal authorities, the private sector, and international partners, and aims to focus efforts where opportunities exist and action is needed. It is designed to meet the reality of a changing Arctic environment, while we simultaneously pursue our global objective of combating the climatic changes that are driving these environmental conditions. Our strategy is built on three lines of effort: 1. Advance United States Security Interests – We will enable our vessels and aircraft to operate, consistent with international law, through, under, and over the airspace and waters of the Arctic, support lawful commerce, achieve a greater awareness of activity in the region, and intelligently evolve our Arctic infrastructure and capabilities, including ice-capable platforms as needed. U.S. security in the Arctic encompasses a broad spectrum of activities, ranging from those supporting safe commercial and scientific operations to national defense. 2. Pursue Responsible Arctic Region Stewardship – We will continue to protect the Arctic environment and conserve its resources; establish and institutionalize an integrated Arctic management framework; chart the Arctic region; and employ scientific research and traditional knowledge to increase understanding of the Arctic. 3. Strengthen International Cooperation – Working through bilateral relationships and multilateral bodies, including the Arctic Council, we will pursue arrangements that advance collective interests, promote shared Arctic state prosperity, protect the Arctic environment, and enhance regional security, and we will work toward U.S. accession to the United Nations Convention on the Law of the Sea (Law of the Sea Convention). Our approach will be informed by the following guiding principles: • Safeguard Peace and Stability – Seek to maintain and preserve the Arctic region as an area free of conflict, acting in concert with allies, partners, and other interested parties. Support and preserve: international legal principles of freedom of navigation and overflight and other uses of the sea and airspace related to these freedoms, unimpeded lawful commerce, and the peaceful resolution of disputes for all nations. • Make Decisions Using the Best Available Information – Across all lines of effort, decisions need to be based on the most current science and traditional knowledge. • Pursue Innovative Arrangements – Foster partnerships with the state of Alaska, Arctic states, other international partners, and the private sector to more efficiently develop, resource, and manage capabilities, where appropriate and feasible, to better advance our strategic priorities in this austere fiscal environment. • Consult and Coordinate with Alaska Natives – Engage in a consultation process with Alaska Natives, recognizing tribal governments' unique legal relationship with the United States and providing for meaningful and timely opportunity to inform Federal policy affecting Alaskan Native communities. For the main text of the document, see Appendix D . January 2014 Implementation Plan for National Strategy for Arctic Region On January 30, 2014, the Obama Administration released an implementation plan for the May 2013 national strategy for the Arctic region. The plan states that it complements and builds upon existing initiatives by Federal, State, local, and tribal authorities, the private sector, and international partners, and focuses efforts where opportunities exist and action is most needed. The Implementation Plan reflects the reality of a changing Arctic environment and upholds national interests in safety, security, and environmental protection, and works with international partners to pursue global objectives of addressing climatic changes. This Implementation Plan follows the structure and objectives of the Strategy's three lines of effort and is consistent with the guiding principles. The lines of effort of the Strategy and the Implementation Plan are as follows: • Advance United States Security Interests • Pursue Responsible Arctic Region Stewardship • Strengthen International Cooperation These lines of effort and guiding principles are meant to be implemented as a coherent whole. The plan also states the following: Climate change is already affecting the entire global population, and Alaska residents are experiencing the impacts in the Arctic. To ensure a cohesive Federal approach, implementation activities must be aligned with the Executive Order on Preparing the United States for the Impacts of Climate Change while executing the Strategy. In addition to the guiding principles, the following approaches are important in implementing the activities across all of the lines of effort: • Foster Partnerships with Arctic Stakeholders. As outlined in the Strategy, all lines of effort must involve Arctic partners, particularly the State of Alaska and Alaska Natives in the Arctic region. Federal agencies, the State of Alaska, tribal communities, local governments, and academia will work with other nations, industry stakeholders, non-governmental organizations, and research partners to address emerging challenges and opportunities in the Arctic environment. The Federal Government should strive to maintain the free flow of communication and cooperation with the State of Alaska to support national priorities. • Coordinate and Integrate Activities across the Federal Government. Multiple Federal bodies currently have authority for Arctic policy (e.g., the National Ocean Council (NOC), Arctic Policy Group, and Interagency Arctic Research Policy Committee (IARPC)). The National Security Council Staff will develop an Executive Order through the interagency process to maximize efficiency, align interagency initiatives, and create unity of effort among all Federal entities conducting activities in the Arctic. The plan outlines about 36 specific initiatives. For each, it presents a brief statement of the objective, a list of next steps to be taken, a brief statement about measuring progress in achieving the objective, and the names of the lead and supporting federal agencies to be involved. On March 9, 2016, the Obama Administration released three documents discussing the implementation of the national strategy for the Arctic: (1) a report entitled 2015 Year in Review—Progress Report on the Implementation of the National Strategy for the Arctic Region ; (2) an appendix to that report entitled Appendix A, Implementation Framework for the National Strategy for the Arctic Region : and (3) another appendix to that report entitled Appendix B, Interagency Arctic Research Policy Committee 5-Year Plan Collaboration Teams: 2015 Summary of Accomplishments and 2016 Priorities . January 2015 Executive Order for Enhancing Coordination of Arctic Efforts On January 21, 2015, then-President Obama issued Executive Order 13689, entitled "Enhancing Coordination of National Efforts in the Arctic." The order states the following in part: As the United States assumes the Chairmanship of the Arctic Council, it is more important than ever that we have a coordinated national effort that takes advantage of our combined expertise and efforts in the Arctic region to promote our shared values and priorities. As the Arctic has changed, the number of Federal working groups created to address the growing strategic importance and accessibility of this critical region has increased. Although these groups have made significant progress and achieved important milestones, managing the broad range of interagency activity in the Arctic requires coordinated planning by the Federal Government, with input by partners and stakeholders, to facilitate Federal, State, local, and Alaska Native tribal government and similar Alaska Native organization, as well as private and nonprofit sector, efforts in the Arctic.... There is established an Arctic Executive Steering Committee (Steering Committee), which shall provide guidance to executive departments and agencies (agencies) and enhance coordination of Federal Arctic policies across agencies and offices, and, where applicable, with State, local, and Alaska Native tribal governments and similar Alaska Native organizations, academic and research institutions, and the private and nonprofit sectors.... ... the Steering Committee will meet quarterly, or as appropriate, to shape priorities, establish strategic direction, oversee implementation, and ensure coordination of Federal activities in the Arctic.... The Steering Committee, in coordination with the heads of relevant agencies and under the direction of the Chair, shall: (a) provide guidance and coordinate efforts to implement the priorities, objectives, activities, and responsibilities identified in National Security Presidential Directive 66/Homeland Security Presidential Directive 25, Arctic Region Policy, the National Strategy for the Arctic Region and its Implementation Plan, and related agency plans; (b) provide guidance on prioritizing Federal activities, consistent with agency authorities, while the United States is Chair of the Arctic Council, including, where appropriate, recommendations for resources to use in carrying out those activities; and (c) establish a working group to provide a report to the Steering Committee by May 1, 2015, that: (i) identifies potential areas of overlap between and within agencies with respect to implementation of Arctic policy and strategic priorities and provides recommendations to increase coordination and reduce any duplication of effort, which may include ways to increase the effectiveness of existing groups; and (ii) provides recommendations to address any potential gaps in implementation.... It is in the best interest of the Nation for the Federal Government to maximize transparency and promote collaboration where possible with the State of Alaska, Alaska Native tribal governments and similar Alaska Native organizations, and local, private-sector, and nonprofit-sector stakeholders. To facilitate consultation and partnerships with the State of Alaska and Alaska Native tribal governments and similar Alaska Native organizations, the Steering Committee shall: (a) develop a process to improve coordination and the sharing of information and knowledge among Federal, State, local, and Alaska Native tribal governments and similar Alaska Native organizations, and private-sector and nonprofit-sector groups on Arctic issues; (b) establish a process to ensure tribal consultation and collaboration, consistent with my memorandum of November 5, 2009 (Tribal Consultation). This process shall ensure meaningful consultation and collaboration with Alaska Native tribal governments and similar Alaska Native organizations in the development of Federal policies that have Alaska Native implications, as applicable, and provide feedback and recommendations to the Steering Committee; (c) identify an appropriate Federal entity to be the point of contact for Arctic matters with the State of Alaska and with Alaska Native tribal governments and similar Alaska Native organizations to support collaboration and communication; and (d) invite members of State, local, and Alaska Native tribal governments and similar Alaska Native organizations, and academic and research institutions to consult on issues or participate in discussions, as appropriate and consistent with applicable law. As stated in the above-quoted passage, Executive Order 13689, among other things, established an Arctic Executive Steering Committee (AESC) to "provide guidance to executive departments and agencies (agencies) and enhance coordination of Federal Arctic policies across agencies and offices, and, where applicable, with State, local, and Alaska Native tribal governments and similar Alaska Native organizations, academic and research institutions, and the private and nonprofit sectors." Regarding the AESC, a February 28, 2019, press report states the following: "Although the [executive] order has not been rescinded, the Trump administration has left the committee dormant for the past two years." U.S. Special Representative for the Arctic (Currently Vacant) On July 16, 2014, during the Obama Administration, then-Secretary of State John Kerry announced the appointment of retired Coast Guard Admiral Robert J. Papp Jr., who served as Commandant of the Coast Guard from May 2010 to May 2014, as the first U.S. Special Representative for the Arctic. Under the Obama Administration, the duties of this position involved, among other things, interacting with ambassadors to the Arctic region from other countries. Papp served as the U.S. Special Representative until January 20, 2017, the final day of the Obama Administration and the first day of the Trump Administration; the position has gone unfilled since then. Arctic Council37 Overview A series of meetings initiated by Finland in 1989 led in 1996 to the creation of the Arctic Council via the Ottawa Declaration of September 19, 1996. The council is "the leading intergovernmental forum promoting cooperation, coordination and interaction among the Arctic States, Arctic indigenous communities and other Arctic inhabitants on common Arctic issues, in particular on issues of sustainable development and environmental protection in the Arctic." Specific issues addressed by the council include regional development, the environment, emergency response, climate change, and natural resource extraction. The council states that its mandate, "as articulated in the Ottawa Declaration, explicitly excludes military security." The council's standing Secretariat formally became operational in 2013 in Tromsø, Norway. Organization and Operations Eight Member States The Arctic Council's membership consists of the eight countries that have sovereign territory within the Arctic Circle: the United States, Canada, Russia, Iceland, Norway, Sweden, Finland, and Denmark (by virtue of its territory Greenland). The council states that "decisions at all levels in the Arctic Council are the exclusive right and responsibility" of these eight states. Indigenous Permanent Participants In addition to the eight member states, "six organizations representing Arctic indigenous peoples have status as Permanent Participants. The category of Permanent Participant was created to provide for active participation and full consultation with the Arctic indigenous peoples within the council. They include: the Aleut International Association, the Arctic Athabaskan Council, Gwich'in Council International, the Inuit Circumpolar Council, Russian Association of Indigenous Peoples of the North and the Saami Council." Observers Thirteen states have been approved as observers to the Arctic Council: Germany, the Netherlands, Poland, and the United Kingdom (approved in 1998); France (2000); Spain (2006); China, India, Italy, Japan, Singapore, and South Korea (2013); and Switzerland (2017). In addition, 13 intergovernmental and interparliamentary organizations and 13 nongovernmental organizations have been approved as observers, making for a total of 39 observer states or organizations. Working Groups The Arctic Council's work is carried out primarily in six working groups that focus on Arctic contaminants; Arctic monitoring and assessment; conservation of Arctic flora and fauna; emergency prevention, preparedness and response; protection of the Arctic marine environment; and sustainable development. The council may also establish task forces or expert groups for specific projects. Chairmanships The council has a two-year chairmanship that rotates among the eight member states. The United States held the chairmanship from April 24, 2015, to May 11, 2017, a period which began during the Obama Administration and continued into the first 16 weeks of the Trump Administration. The United States had previously held the chairmanship from 1998 to 2000, and will next hold it in 2031-2033. During the Obama Administration's portion of the period of U.S. chairmanship, the U.S. chairmanship team was led by then-Secretary of State John Kerry. For a statement from the Obama Administration regarding U.S. goals for the Obama Administration's portion of the U.S. period of chairmanship, see Appendix E . On May 11, 2017, the chairmanship of the Arctic Council was transferred from the United States to Finland. A May 11, 2017, press report states the following: "Finland's chairmanship program emphasizes climate change and ways the Paris emissions targets can mitigate it, said Timo Soini, Finland's foreign minister. 'We recognize that global warming is the main driver of change in the Arctic,' Soini said." Senior Arctic Officials (SAOs) Each member state is represented by a Senior Arctic Official (SAO), who is usually drawn from that country's foreign ministry. The SAOs hold meetings every six months. The council convenes ministerial-level meetings every two years, at the end of each chairmanship, while the working groups meet more frequently. Limits of Arctic Council as a Governing Body Regarding the limits of the Arctic Council as a governing body, the council states that it "does not and cannot implement or enforce its guidelines, assessments or recommendations. That responsibility belongs to each individual Arctic State." In addition, as mentioned earlier, the council states that "the Arctic Council's mandate, as articulated in the [1996] Ottawa Declaration [establishing the Council], explicitly excludes military security." The Arctic and the U.N. Convention on Law of the Sea (UNCLOS)49 Background to UNCLOS In November 1994, the United Nations Convention on the Law of the Sea (UNCLOS) entered into force. UNCLOS establishes a treaty regime to govern activities on, over, and under the world's oceans. It builds on four 1958 law of the sea conventions to which the United States is a party, and sets forth a framework for future activities in parts of the oceans that are beyond national jurisdiction. As of December 13, 2018, 168 nations were party to the treaty. The 1982 Convention and its 1994 Agreement relating to Implementation of Part XI of the Convention were transmitted to the Senate on October 6, 1994. In the absence of Senate advice and consent to adherence, the United States is not a party to the convention and agreement. Part VI of UNCLOS and Commission on Limits of Continental Shelf Part VI of the convention, dealing with the Continental Shelf, and Annex II, which established a Commission on the Limits of the Continental Shelf, are most pertinent to the Arctic as it becomes more accessible ocean space, bordered by five coastal states. The convention gives a coastal state sovereign jurisdiction over the resources, including oil and gas, of its continental shelf. Under Article 76 of the convention, a coastal state with a broad continental margin may establish a shelf limit beyond 200 nautical miles. This jurisdiction is subject to the submission of the particulars of the intended limit and supporting scientific and technical data by the coastal state to the commission for review and recommendation. The commission reviews the documentation and, by a two-thirds majority, approves its recommendations to the submitting state. Coastal states agree to establish the outer limits of their continental shelf, in accordance with this process and with their national laws. In instances of disagreement with the commission's recommendations, the coastal state may make a revised or new submission. The actions of the commission "shall not prejudice matters relating to delimitation of boundaries between States with opposite or adjacent coasts." The "limits established by a coastal State on the basis of these recommendations shall be final and binding." Extended Continental Shelf and United States as a Nonparty to UNCLOS The U.S. government's State Department-led interagency Extended Continental Shelf Project makes the following points regarding the extended continental shelf and the United States as a nonparty to UNCLOS: As a nonparty to UNCLOS, U.S. nationals may not serve as members of the Commission on the Limits of the Continental Shelf. The question of whether nonparties may make a submission to the commission has not been resolved. Becoming a party to UNCLOS would help the United States maximize international recognition and legal certainty regarding the outer limits of the U.S. continental shelf. Even for nonparties to UNCLOS, however, customary international law, as reflected in UNCLOS, confers on coastal states rights and obligations relating to the continental shelf. This view is well supported in international law. The International Court of Justice, for example, has already declared Article 76(1) to have the status of customary international law (Nicaragua v. Colombia, 2012). Article 76(1) provides that the continental shelf extends to "the outer edge of the continental margin or to a distance of 200 nautical miles," whichever is further. Paragraphs 2 through 7 of Article 76 set forth the detailed rules for determining the precise outer limits of the continental shelf in those areas where the continental margin extends beyond 200 nautical miles from shore. The United States, like other countries, is using these provisions to determine its continental shelf limits. As a matter of customary international law, the United States also respects the continental shelf limits of other countries that abide by Article 76. The commission is not a claims process, and continental shelf entitlement does not depend on going through this procedure. The mandate of the commission is instead to make "recommendations" on the "outer limits" of the continental shelf. The word "claim" does not appear in Article 76, Annex II, or the commission's rules. Article 77(3) and the case law of the International Court of Justice indicate that continental shelf rights exist as a matter of fact and do not need to be expressly claimed. Delineating the continental shelf is a very complex and technical exercise, and the commission's process is important for obtaining international recognition and legal certainty of the outer limits of the continental shelf. The United States has potentially overlapping extended continental shelf areas with two countries in the Arctic—Russia and Canada. The United States and the Soviet Union (now Russia) agreed to a maritime boundary, including in the Arctic, in 1990. The treaty was approved by the U.S. Senate in 1991; it has not been approved by Russia's Duma. Pending the treaty's entry into force, the two countries continue to provisionally apply the terms of the treaty. In determining its extended continental shelf limits, Russia has respected this agreement. Russia has not asserted an extended continental shelf in any areas that might be considered part of the U.S. extended continental shelf. The Russian submission to the commission respects the U.S.-Russia maritime boundary. Canada and the United States have not yet established a maritime boundary in the Arctic. The United States and Canada have cooperated extensively to collect the data necessary to define the continental shelf in the Arctic Ocean. The areas where the continental shelf of the United States and Canada overlap will not be fully known until both countries determine the extent of their extended continental shelf in the Arctic Ocean. Once those areas are identified, the United States and Canada will address the maritime boundary on a bilateral basis at an appropriate time. Over the years, the United States has submitted observations on submissions to the commission made by other states, requesting that those observations be made available online and to the commission. In addition, since 2001, the United States has gathered and analyzed data to determine the outer limits of its extended continental shelf. Starting in 2007, this effort became the Extended Continental Shelf Project. Additional Points Some observers have suggested that a separate international legal regime be negotiated to address the changing circumstances in the Arctic. They maintain that these changing circumstances were not envisioned at the time UNCLOS was negotiated. Other observers suggest that the Arctic region above a certain parallel be designated a wilderness area. As precedent, they cite Article 4 of the Antarctic Treaty, under which any current claims to sovereign territory are frozen and No acts or activities taking place while the present Treaty is in force shall constitute a basis for asserting, supporting or denying a claim to territorial sovereignty in Antarctica or create any rights of sovereignty in Antarctica. No new claim, or enlargement of an existing claim, to territorial sovereignty in Antarctica shall be asserted while the present Treaty is in force. Supporters of UNCLOS maintain that changing circumstances in the Arctic strengthen their argument that the United States should become a party to the convention. In this way, they argue, the United States can be best situated to protect and serve its national interests, under both Article 76 and other parts of UNCLOS. The Obama Administration's January 2014 implementation plan for its national strategy for the Arctic region (see discussion above) includes, as one of its 36 or so initiatives, one entitled "Accede to the Law of the Sea Convention." Under this initiative, the State Department and other federal agencies are to "continue to seek the Senate's advice and consent to accede to the Law of the Sea Convention." The document states that "the [Obama] Administration is committed, like the last three Administrations, to pursuing accession to the Convention on the Law of the Sea and will continue to place a priority on attaining Senate advice and consent to accession." Senate Arctic Caucus On March 4 and 5, 2015, Senator Lisa Murkowski and Senator Angus King announced the formation of a Senate Arctic Caucus "to spotlight this region and open up a wider conversation about the nation's future in the region as America prepares to accede to the Chair of the Arctic Council." Issues for Congress Climate Change and Loss of Arctic Sea Ice64 Record low extents of Arctic sea ice in 2012 and 2007 have focused scientific and policy attention on climate changes in the high north, and on the implications of projected ice-free seasons in the Arctic within decades. The Arctic has been projected by several scientists to be ice-free in most late summers as soon as the 2030s. This opens opportunities for transport through the Northwest Passage and the Northern Sea Route, extraction of potential oil and gas resources, and expanded fishing and tourism ( Figure 3 ). More broadly, physical changes in the Arctic include warming ocean, soil, and air temperatures; melting permafrost; shifting vegetation and animal abundances; and altered characteristics of Arctic cyclones. All these changes are expected to affect traditional livelihoods and cultures in the region and survival of polar bear and other animal populations, and raise risks of pollution, food supply, safety, cultural losses, and national security. Moreover, linkages ("teleconnections") between warming Arctic conditions and extreme events in the mid-latitude continents are increasingly evident, identified in such extreme events as the heat waves and fires in Russia in 2010; severe winters in the eastern United States and Europe in 2009/2010 and in Europe in 2011/2012; and Indian summer monsoons and droughts. Hence, changing climate in the Arctic suggests important implications both locally and across the Hemisphere. Like the rest of the globe, temperatures in the Arctic have varied but show a significant warming trend since the 1970s, and particularly since 1995. The annual average temperature for the Arctic region (from 60 o to 90 o N) is now about 1.8 o F warmer than the "climate normal" (the average from 1961 to 1990). Temperatures in October-November are now about 9 o F above the seasonal normal. Scientists have concluded that most of the global warming of the last three decades is very likely caused by human-related emissions of greenhouse gases (GHG, mostly carbon dioxide); they expect the GHG-induced warming to continue for decades, even if, and after, GHG concentrations in the atmosphere have been stabilized. The extra heat in the Arctic is amplified by processes there (the "polar amplification") and may result in irreversible changes on human timescales. The observed warmer temperatures along with rising cyclone size and strength in the Arctic have reduced sea ice extent, thickness, and ice that persists year-round ("perennial ice"); natural climate variability has likely contributed to the record low ice extents of 2007 and 2012. The 2007 minimum sea ice extent was influenced by warm Arctic temperatures and warm, moist winds blowing from the North Pacific into the central Arctic, contributing to melting and pushing ice toward and into the Atlantic past Greenland. Warm winds did not account for the near-record sea ice minimum in 2008. In early August 2012, an unusually large storm with low pressure developed over the Arctic, helping to disperse the already weak ice into warmer waters and accelerating its melt rate. By August 24, 2012, sea ice extent had shrunk below the previous observed minimum of late September 2007. Modeling of GHG-induced climate change is particularly challenging for the Arctic, but it consistently projects warming through the 21 st century, with annual average Arctic temperature increases ranging from +1° to +9.0° C (+2° to +19.0° F), depending on the GHG scenario and model used. While such warming is projected by most models throughout the Arctic, some models project slight cooling localized in the North Atlantic Ocean just south of Greenland and Iceland. Most warming would occur in autumn and winter, "with very little temperature change projected over the Arctic Ocean" in summer months. Due to observed and projected climate change, scientists have concluded that the Arctic will have changed from an ice-covered environment to a recurrent ice-free ocean (in summers) as soon as the late 2030s. The character of ice cover is expected to change as well, with the ice being thinner, more fragile, and more regionally variable. The variability in recent years of both ice quantity and location could be expected to continue. Extended Continental Shelf Submissions, Territorial Disputes, and Sovereignty Issues74 Extended Continental Shelf Submissions Motivated in part by a desire to exercise sovereign control over the Arctic region's increasingly accessible oil and gas reserves (see " Oil, Gas, and Mineral Exploration "), the four Arctic coastal states other than the United States—Canada, Russia, Norway, and Denmark (of which Greenland is a territory)—have made or are in the process of preparing submissions to the Commission on the Limits of the Continental Shelf regarding the outer limits of their extended continental shelves. (For further discussion of the commission, see " Extended Continental Shelf and United States as a Nonparty to UNCLOS .") Russia has been attempting to chart the Arctic Ocean's enormous underwater Lomonosov Ridge in an attempt to show that it is an extension of Russia's continental margin. The ridge spans a considerable distance across the Arctic Ocean. A 2001 submission by Russia was rejected as insufficiently documented. Canada views a portion of the ridge as part of its own continental shelf. In August 2007, a Russian submersible on a research expedition deposited an encased Russian Federation flag on the seabed of the presumed site of the North Pole. The action captured worldwide attention, but analysts note that it did not constitute an official claim to the Arctic seabed or the waters above it, that it has no legal effect, and that it therefore was a purely symbolic act. At a May 2008 meeting in Ilulissat, Greenland, the five Arctic coastal states reaffirmed their commitment to the UNCLOS legal framework for the establishment of extended continental shelf limits in the Arctic. (For further discussion, see " Extent of the Continental Margin " in " Oil, Gas, and Mineral Exploration .") Territorial Disputes and Sovereignty Issues In addition to this process, there are four unresolved Arctic territorial disputes: Scientists have forecast that in coming decades, global warming will reduce the ice pack in Canada's northern archipelago sufficiently to permit ships to use the trans-Arctic shipping route known as the Northwest Passage during the summer months (see " Commercial Sea Transportation "). The prospect of such traffic raises a major jurisdictional question. Ottawa maintains that such a passage would be an inland waterway, and would therefore be sovereign Canadian territory subject to Ottawa's surveillance, regulation, and control. The United States, the European Union, and others assert that the passage would constitute an international strait between two high seas. The United States and Canada are negotiating over a binational boundary in the Beaufort Sea. The United States and Russia in 1990 signed an agreement regarding a disputed area of the Bering Sea; the U.S. Senate ratified the pact the following year, but the Russian Duma has yet to approve the accord. Denmark and Canada disagree over which country has the territorial right to Hans Island, a tiny, barren piece of rock between Greenland and Canada's Ellesmere Island. Some analysts believe the two countries are vying for control over a future sea lane that might be created if the Arctic ice were to melt sufficiently to create a Northwest Passage. Others claim that the governments are staking out territorial claims in the event that future natural resource discoveries make the region economically valuable. In addition to these disputes, Norway and Russia had been at odds for decades over the boundary between the two in the so-called "Grey Zone" in the Barents Sea, an area believed to hold rich undersea deposits of petroleum. On September 15, 2010, Norwegian Prime Minister Jens Stoltenberg and Russian President Dmitry Medvedev signed an agreement in Murmansk, a Russian city near the Norwegian border. The accord awards roughly half of the 175,000-square-kilometer area to each country; it spells out fishing rights, and provides for the joint development of future oil and gas finds that straddle the boundary line. Some observers believe it is noteworthy that Russia would concede sovereignty over such a large, resource-rich area to a small, neighboring country. But others have noted that Moscow may be hoping for Norwegian cooperation in developing offshore resources, and eventually in winning approval when Russia makes its Article 76 UNCLOS submission. In August 2010, Canadian Foreign Minister Lawrence Cannon announced a new "Statement of Canada's Arctic Policy," which reaffirmed the government's commitment to Canada's sovereignty in the region, to economic and social development, to environmental protection, and to empowerment of the peoples in the north. The statement also emphasized the government's intention to negotiate settlements to its disputes with the United States over the Beaufort Sea boundary, and with Denmark over Hans Island. Minister Cannon declared that "making progress on outstanding boundary issues will be a top priority." Also, despite their dispute over Hans Island, Canada and Denmark have been working together on Arctic issues. In May 2010, the two countries' military chiefs of staffs signed a memorandum of understanding on Arctic Defense, Security, and Operational Cooperation, committing the two countries to "enhanced consultation, information exchange, visits, and exercises." Commercial Sea Transportation81 Background The search for a shorter route from the Atlantic to Asia has been the quest of maritime powers since the Middle Ages. The melting of Arctic ice raises the possibility of saving several thousands of miles and several days of sailing between major trading blocs. If the Arctic were to become a viable shipping route, the ramifications could extend far beyond the Arctic. For example, lower shipping costs could be advantageous for China (at least its northeast region), Japan, and South Korea because their manufactured products exported to Europe or North America could become less expensive relative to other emerging manufacturing centers in Southeast Asia, such as India. Melting ice could potentially open up two trans-Arctic routes (see Figure 3 ): The Northern Sea Route (NSR, a.k.a. the "Northeast Passage"), along Russia's northern border from Murmansk to Provideniya, is about 2,600 nautical miles in length. It was opened by the Soviet Union to domestic shipping in 1931 and to transit by foreign vessels in 1991. This route would be applicable for trade between northeast Asia (north of Singapore) and northern Europe. In recent summers, less than a handful of large, non-Russian-flagged cargo ships have transited the NSR. Russia reportedly seeks to reserve carriage of oil and gas extracted along the NSR to Russian-flagged ships. The Northwest Passage (NWP) runs through the Canadian Arctic Islands. The NWP actually consists of several potential routes. The southern route is through Peel Sound in Nunavut, which has been open in recent summers and contains mostly one-year ice. However, this route is circuitous, contains some narrow channels, and is shallow enough to impose draft restrictions on ships. The more northern route, through McClure Strait from Baffin Bay to the Beaufort Sea north of Alaska, is much more direct and therefore more appealing to ocean carriers, but more prone to ice blockage. The NWP is potentially applicable for trade between northeast Asia (north of Shanghai) and the northeast of North America, but it is less commercially viable than the NSR. Cargo ship transits have been extremely rare but cruise vessel excursions and research vessels are more common. Destination Traffic, Not Trans-Arctic Traffic Most cargo ship activity currently taking place in the Arctic is to transport natural resources from the Arctic or to deliver general cargo and supplies to communities and natural resource extraction facilities. Thus, cargo ship traffic in the Arctic presently is mostly regional, not trans-Arctic. While there has been a recent uptick in Arctic shipping activity, this activity has more to do with a spike in commodity prices than it does with the melting of Arctic ice. Even so, fewer ships ply the Arctic seas now than in the past. The NSR continues to account for the bulk of Arctic shipping activity. Unpredictable Ice Conditions Hinder Trans-Arctic Shipping Arctic waters do not necessarily have to be ice free to be open to shipping. Multiyear ice can be over 10 feet thick and problematic even for icebreakers, but one-year ice is typically 3 feet thick or less. This thinner ice can be more readily broken up by icebreakers or ice-class ships (cargo ships with reinforced hulls and other features for navigating in ice-infested waters). However, more open water in the Arctic has resulted in another potential obstacle to shipping: unpredictable ice flows. In the NWP, melting ice and the opening of waters that were once covered with one-year ice has allowed blocks of multiyear ice from farther north and icebergs from Greenland to flow into potential sea lanes. The source of this multiyear ice is not predicted to dissipate in spite of climate change. Moreover, the flow patterns of these ice blocks are very difficult to forecast. Thus, the lack of ice in potential sea lanes during the summer months can add even greater unpredictability to Arctic shipping. This is in addition to the extent of ice versus open water, which is also highly variable from one year to the next and seasonally. The unpredictability of ice conditions is a major hindrance for trans-Arctic shipping in general, but can be more of a concern for some types of ships than it is for others. For instance, it would be less of a concern for cruise ships, which may have the objective of merely visiting the Arctic rather than passing through and could change their route and itinerary depending on ice conditions. On the other hand, unpredictability is of the utmost concern for container ships that carry thousands of containers from hundreds of different customers, all of whom expect to unload or load their cargo upon the ship's arrival at various ports as indicated on the ship's advertised schedule. The presence of even small blocks of ice or icebergs from a melting Greenland ice sheet requires slow sailing and could play havoc with schedules. Ships carrying a single commodity in bulk from one port to another for just one customer have more flexibility in terms of delivery windows, but would not likely risk an Arctic passage under prevailing conditions. Ice is not the sole impediment to Arctic shipping. The region frequently experiences adverse weather, including not only severe storms, but also intense cold, which can impair deck machinery. During the summer months when sea lanes are open, heavy fog is common in the Arctic. Commercial ships would face higher operating costs on Arctic routes than elsewhere. Ship size is an important factor in reducing freight costs. Many ships currently used in other waters would require two icebreakers to break a path wide enough for them to sail through; ship owners could reduce that cost by using smaller vessels in the Arctic, but this would raise the cost per container or per ton of freight. Also, icebreakers or ice-class cargo vessels burn more fuel than ships designed for more temperate waters and would have to sail at slower speeds. The shipping season in the Arctic only lasts for a few weeks, so icebreakers and other special required equipment would sit idle the remainder of the year. None of these impediments by themselves may be enough to discourage Arctic passage but they do raise costs, perhaps enough to negate the savings of a shorter route. Thus, from the perspective of a shipper or a ship owner, shorter via the Arctic does not necessarily mean cheaper and faster. Basic Navigation Infrastructure Is Lacking Considerable investment in navigation-related infrastructure would be required if trans-Arctic shipping were to become a reality. Channel marking buoys and other floating visual aids are not possible in Arctic waters because moving ice sheets will continuously shift their positions. Therefore, vessel captains would need to rely on marine surveys and ice charts. For some areas in the Arctic, however, these surveys and charts are out of date or not sufficiently accurate. To remedy this problem, aviation reconnaissance of ice conditions and satellite images would need to become readily available for ship operators. Ship-to-shore communication infrastructure would need to be installed where possible. Refueling stations may be needed, as well as, perhaps, transshipment ports where cargo could be transferred to and from ice-capable vessels at both ends of Arctic routes. Shipping lines would need to develop a larger pool of mariners with ice navigation experience. Marine insurers would need to calculate the proper level of risk premium for polar routes, which would require more detailed information about Arctic accidents and incidents in the past. The U.S. Army Corps of Engineers, along with the state of Alaska, has studied the feasibility of a "deep-draft" port in the Arctic (accommodating ships with a draft of up to 35 feet). The northern and northwestern coastlines of Alaska are exceptionally shallow, generally limiting harbor and near-shore traffic to shallow-draft barges. Coast Guard cutters and icebreakers have drafts of 35 to 40 feet while NOAA research vessels have drafts of 16 to 28 feet, so at present these vessels are based outside the Arctic and must sail considerable distances to reach Arctic duty stations. Supply vessels supporting offshore oil rigs typically have drafts over 20 feet. A deep-draft port could serve as a base of operations for larger vessels, facilitating commercial maritime traffic in the Arctic. The study concluded that the existing harbors of Nome or Port Clarence on Alaska's west coast may be the most suitable for deepening because of their proximity to the Bering Strait and deeper water. However, at a July 2016 hearing, the Coast Guard indicated its preferred strategy was to rely on mobile assets (vessels and aircraft) and seasonal bases of operation rather than pursue a permanent port in the Arctic. The U.S. Committee on the Marine Transportation System, a Cabinet-level committee of federal agencies with responsibilities for marine transportation, identified a list of infrastructure improvements for Arctic navigation in a 2013 report. The report prioritizes improvements to information infrastructure (weather forecasting, nautical charting, ship tracking) and emergency response capabilities for ships in distress. Regulation of Arctic Shipping Due to the international nature of the shipping industry, maritime trading nations have adopted international treaties that establish standards for ocean carriers in terms of safety, pollution prevention, and security. These standards are agreed upon by shipping nations through the International Maritime Organization (IMO), a United Nations agency that first met in 1959. Key conventions that the 168 IMO member nations have adopted include the Safety of Life at Sea Convention (SOLAS), which was originally adopted in response to the Titanic disaster in 1912 but has since been revised several times; the Prevention of Pollution from Ships (MARPOL), which was adopted in 1973 and modified in 1978; and the Standards for Training, Certification, and Watchkeeping for Seafarers (SCTW), which was adopted in 1978 and amended in 1995. It is up to ratifying nations to enforce these standards. The United States is a party to these conventions, and the U.S. Coast Guard enforces them when it boards and inspects ships and crews arriving at U.S. ports and the very few ships engaged in international trade that sail under the U.S. flag. Like the United States, most of the other major maritime trading nations lack the ability to enforce these regulations as a "flag state" because much of the world's merchant fleet is registered under so-called "flags of convenience." While most ship owners and operators are headquartered in major economies, they often register their ships in Panama, Liberia, the Bahamas, the Marshall Islands, Malta, and Cyprus, among other "open registries," because these nations offer more attractive tax and employment regulatory regimes. Because of this development, most maritime trading nations enforce shipping regulations under a "port state control" regime—that is, they require compliance with these regulations as a condition of calling at their ports. The fragmented nature of ship ownership and operation can be a further hurdle to regulatory enforcement. It is common for cargo ships to be owned by one company, operated by a second company (which markets the ship's space), and managed by a third (which may supply the crew and other services a ship requires to sail), each of which could be headquartered in different countries. New Arctic Polar Code While SOLAS and other IMO conventions include provisions regarding the operation of ships in ice-infested waters, they were not specific to the polar regions. To supplement these requirements, a new IMO polar code went into effect on January 1, 2017. The code applies to passenger and cargo ships of 500 gross tons or more engaged in international voyages. It does not apply to fishing vessels, military vessels, pleasure yachts, or smaller cargo ships. The polar requirements are intended to improve safety and prevent pollution in the Arctic, and they include provisions on ship construction, ship equipment related to navigation, and crew training and ship operation. The code requires ships to carry fully or partially enclosed lifeboats. The code requires that the crew have training in ice navigation. Nations can enforce additional requirements on ships arriving at their ports or sailing through their coastal waters. For instance, U.S. Coast Guard regulations largely follow IMO conventions but mandate additional requirements in some areas. U.S. coastal states can require ships calling at their ports to take additional safety and pollution prevention safeguards. Canada and Russia have additional pollution regulations for Arctic waters exceeding MARPOL. The U.S. Coast Guard has studied and has recommended a specific vessel traffic separation scheme for the Bering Strait between Alaska and Russia, which experiences over 400 transits per year. The U.S. Coast Guard is seeking IMO approval of this routing scheme. Oil, Gas, and Mineral Exploration102 Decreases in summer polar ice may alter options for oil, gas, and mineral exploration in Arctic offshore or onshore areas. Offshore of Alaska, the U.S. outer continental shelf (OCS) covers more than 1 billion acres, including some areas with high oil and gas potential. Even with warmer temperatures, exploration and development in the Arctic are still subject to harsh conditions, especially in winter. This makes it costly and challenging to develop the infrastructure necessary to produce, store, and transport oil, gas, and minerals from newly discovered deposits. Severe weather poses challenges to several ongoing offshore operations as well as to new exploration. Offshore oil and gas exploration is affected by efforts to map the margins of the U.S. OCS. Shrinking sea ice cover in the Arctic has intensified interest in surveying and mapping the continental margins of multiple countries with lands in the Arctic. Delineating the extent of the continental margins beyond the 200 nautical mile Exclusive Economic Zone (EEZ) could lead to consideration of development on substantial amounts of submerged lands. Mapping projects are underway, by individual countries and through cooperative government studies, to support submissions to the Commission on the Limits of the Continental Shelf, including for areas that may contain large amounts of oil, natural gas, methane hydrates, or minerals. With respect to onshore development, shrinking glaciers could expose land containing economic deposits of gold, iron ore, or other minerals previously covered by glacial ice. At the same time, warming that causes permafrost to melt could pose challenges to oil, gas, and mineral activities because ground structures, such as pipelines and other infrastructure that depend on footings sunk into the permafrost for support, could be compromised. In addition, warmer temperatures shorten the ice road transport seasons for oil, gas, and mineral development, creating transportation challenges. Offshore Oil and Gas Exploration The shrinking Arctic ice cap, or conversely, the growing amount of ice-free ocean in the summertime, has increased interest in exploring for offshore oil and gas in the Arctic. Reduced sea ice in the summer means that ships towing seismic arrays can explore regions of the Arctic Ocean, Chukchi Sea, Beaufort Sea, and other offshore regions for longer periods of time with less risk of colliding with floating sea ice. Less sea ice over longer periods compared to previous decades also means that the seasonal window for offshore Arctic drilling remains open longer in the summer, increasing the chances for making a discovery. In addition to the improved access to larger portions of the Arctic afforded by shrinking sea ice, interest in Arctic oil and gas was fueled by a 2008 U.S. Geological Survey (USGS) appraisal of undiscovered oil and gas north of the Arctic Circle. The USGS stated that the "extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth." In the report, the USGS estimated that 90 billion barrels of oil, nearly 1,700 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids may remain to be discovered in the Arctic (including both U.S. and international resources north of the Arctic Circle). A 2009 article in Science magazine indicated that 30% of the world's undiscovered natural gas and 13% of the world's undiscovered oil may be found north of the Arctic Circle. In terms of U.S. resources specifically, DOI's Bureau of Ocean Energy Management (BOEM) estimated in 2016 that the Alaska portions of the U.S. OCS contain undiscovered, technically recoverable resources of approximately 27 billion barrels of oil and 131 trillion cubic feet of natural gas (although not all of these resources may be economically viable to recover). A 2015 report by the National Petroleum Council stated that U.S. offshore oil and gas exploration in the Arctic over the next 35 years "would help sustain domestic supplies as production of U.S. shale oil and tight oil may decline." Despite the warming trend in the Arctic, severe weather and sea ice continue to pose challenges to exploration. In addition, any discovery of new oil and gas deposits far from existing storage, pipelines, and shipping facilities could not be developed until infrastructure is built to extract and transport the petroleum. Some have expressed interest in expanding America's ocean energy portfolio in the region. Currently, among 15 federal planning areas in the region, the Beaufort Sea and Cook Inlet are the only two areas with active federal leases, and only the Beaufort Sea has any producing wells in federal waters (from a joint federal-state unit). The Trump Administration has stated its interest in promoting offshore development in the region. In January 2018, the Administration issued a draft five-year offshore oil and gas leasing program for 2019-2024 that would schedule lease sales in all 15 Alaska planning areas, including three sales in the Beaufort Sea and three in the Chukchi Sea. Current lease sales on the Alaska OCS are governed by the Obama Administration's leasing program for 2017-2022, which includes one lease sale in the Cook Inlet (scheduled for 2021) and none in other Alaska planning areas. Activities on existing federal leases in the region have fluctuated as industry weighs changing oil prices, development costs, and regulations. For example, in 2015, Shell Oil Company announced its decision to cease exploration in offshore Alaska for the foreseeable future. Shell cited several reasons for the decision, including insufficient indications of oil and gas at its Burger J well in the Chukchi Sea, the high costs associated with Arctic exploration, and the "challenging and unpredictable" federal regulatory environment for offshore Alaska. BOEM also reported that, between February and November 2016, companies relinquished more than 90% of leases they had held in the Beaufort and Chukchi Sea planning areas, in the midst of a slump in oil prices. While there were 450 active leases in the Chukchi Sea planning area at the end of 2015, at the end of 2018 there were none. More recently, some activities have indicated stronger industry interest in the region. For example, in November 2017, the Trump Administration approved an application for permit to drill (APD) on a lease in the Beaufort Sea held by the Eni U.S. Operating Company. In October 2018, BOEM issued conditional approval to Hilcorp Alaska LLC for an oil and gas development and production plan in the Beaufort Sea, which would be the region's first production facility entirely in federal waters. The evolving federal regulatory environment for Arctic offshore activities has been shaped by concerns about industry's ability to respond to potential oil spills, given the region's remoteness and harsh conditions. The section of this report on " Oil Pollution Implications of Arctic Change " discusses this issue in greater detail. In July 2016, BOEM and the Bureau of Safety and Environmental Enforcement (BSEE) released final safety regulations for Arctic exploratory drilling that include multiple requirements for companies to reduce the risks of potential oil spills—for example, the requirement that companies have a separate rig available at drill sites to drill a relief well in case of a loss of well control. Some Members of Congress and industry stakeholders opposed the regulations as overly prescriptive and unnecessarily burdensome, while other Members and environmental organizations asserted that the rules did not go far enough in protecting the region from potential environmental damage and addressing the potential contributions of Arctic oil and gas activities to climate change. In a 2017 executive order, President Trump directed the Secretary of the Interior to review the Arctic regulations, and in 2018 the Department of the Interior announced work on rule revisions. Legislation was introduced in the 115 th Congress both to repeal the Obama Administration's version of the Arctic rule and, conversely, to codify it in law. Concerns about the impacts of oil and gas activities have led in the past to bans by both Congress and the President on leasing in certain Arctic Ocean areas deemed especially sensitive. For example, congressional and presidential moratoria since the 1980s effectively banned federally regulated planning and permitting in the Bristol Bay area of the North Aleutian Basin. Congress allowed most statutory bans in the region to expire in 2004. President Obama reinstated the moratorium in the North Aleutian Basin, indefinitely withdrawing acreage located in Bristol Bay from eligibility for oil and gas leasing. Also, in December 2016, President Obama indefinitely withdrew from leasing disposition other large portions of the U.S. Arctic, including the entire Chukchi Sea planning area and almost all of the Beaufort Sea planning area. President Obama separately withdrew from leasing consideration planning areas in the North Bering Sea. In April 2017, President Trump issued Executive Order 13795, which modified President Obama's withdrawals so as to open all of these areas for leasing consideration except for the North Aleutian Basin. Extent of the Continental Margin Increased interest in developing offshore resources in the Arctic has sparked efforts by nations bordering the Arctic Ocean to map the extent of their continental margins beyond the 200-mile EEZ limit. As discussed earlier (see " Extended Continental Shelf and United States as a Nonparty to UNCLOS "), under Article 76 of UNCLOS, nations can make a submission to the Commission on the Limits of the Continental Shelf (hereinafter referred to as the Commission) concerning the extent of their continental shelves. Under Article 76, the extent of the continental margin beyond the 200-mile limit depends on the position of the foot of the continental slope, the thickness of sediments, and the depth of water. Also, the continental margin could include geologic features that extend from the continent out to sea, which may include undersea ridges continuing for hundreds of miles offshore. Arctic border countries have conducted complex investigations needed to support submissions to the Commission for an extended continental shelf in the Arctic. Submissions have been made by several countries, including the Russian Federation, which made its initial UNCLOS submission to a portion of the Arctic continental shelf in 2001. Russia's 2001 submission included the Lomonosov Ridge, an undersea feature spanning the Arctic from Russia to Canada, as an extension of its continental margin. The submission demonstrated Russia's bid to extend activities in Arctic regions. The Russian Federation presented a revised submission in 2015 to the Commission that included not only the Lomonosov Ridge but also the Mendeleev Rise—another subsea feature claimed by Russia to be a natural part of their continental margin—as components of the extended Russian continental shelf. The Commission has not rendered a decision on the revised Russian Federation submission as of early 2018. The United States has started to gather and analyze data for a potential submission through an initiative called the Extended Continental Shelf (ECS) Project. The U.S. ECS project has also assisted more than 30 countries with their efforts to delineate their extended continental shelves worldwide. Canada and the United States share overlapping regions of the seabed as part of the extended continental margin of both nations. Much of the data to delineate the ECS for both countries was collected in a two-ship operation involving the U.S. Coast Guard Cutter Healy and the Canadian Coast Guard ship Louis S. Saint Laurent . The two-ship operation collected more than 13,000 linear kilometers (about 8,078 miles) of seismic data over four field seasons in the Arctic beginning in 2007. The data collected will help each country delineate the extent of their own ECS, which should then enable the countries to determine the amount of overlap in the seabed and ultimately establish a maritime boundary in the Arctic. The United States also has potentially overlapping ECS areas with Russia. Russia (then the Soviet Union) and the United States agreed to a maritime boundary in 1990, and so far Russia has not asserted its ECS in any areas that might be considered part of the U.S. ECS. Onshore Mineral Development A warming Arctic means new opportunities and challenges for mineral exploration and development onshore. Receding glaciers expose previously ice-covered land that could host economic mineral deposits that were previously undetectable and unmineable below the ice. Longer summers would also extend exploration seasons for areas that are not currently ice-covered but are only accessible for ground surveys during the warmer months. In some parts of the Arctic, such as Baffin Island, Canada, less sea ice allows ships to transport heavy equipment to remote locations, and to convey ore from mines to the market further south. Some railway and mining operators are considering developing railroads and other infrastructure to transport ore year-round. As with onshore oil and gas development, however, mining infrastructure that depends on footings sunk into permafrost could become unstable if the permafrost melts in response to warmer temperatures. Also, as with oil and gas development, mineral deposits that may be technically recoverable with current technology may not be economically profitable. Some industry commentators suggest that mining might offer better long-term economic development opportunities compared to oil and gas development because of a larger permanent workforce and project lifetimes of several decades. Similar to oil and gas, however, industry observers note that uncertainties and knowledge gaps exist in the understanding of environmental change in the Arctic, and how to deal with the risks associated with significant Arctic industrial activity. One important part of the current infrastructure in the Arctic that supports oil, gas, and mineral development is the construction and use of ice roads—built and used during the winter, but not passable during the warmer months. Warmer temperatures are shortening the ice road transport seasons and creating transportation challenges. For example, the opening date for tundra roads in northern Alaska usually occurred in early November prior to 1991 and has shifted to January in recent years. Oil Pollution and Pollution Response142 Oil Pollution Implications of Arctic Change Climate change impacts in the Arctic, particularly the decline of sea ice and retreating glaciers, have stimulated human activities in the region, many of which have the potential to create oil pollution. A primary concern is the threat of a large oil spill in the area. Although a major oil spill has not occurred in the Arctic region, recent economic activity, such as oil and gas exploration and tourism (cruise ships), increases the risk of oil pollution (and other kinds of pollution) in the Arctic. Significant spills in high northern latitudes (e.g., the 1989 Exxon Valdez spill in Alaska and spills in the North Sea) suggest that the "potential impacts of an Arctic spill are likely to be severe for Arctic species and ecosystems." Risk of Oil Pollution in the Arctic A primary factor determining the risk of oil pollution in the Arctic is the level and type of human activity being conducted in the region. Although climate changes in the Arctic are expected to increase access to natural resources and shipping lanes, the region will continue to present logistical challenges that may hinder human activity in the region. For example (as discussed in another section of this report), the unpredictable ice conditions may discourage trans-Arctic shipping. If trans-Arctic shipping were to occur on a frequent basis, it would represent a considerable portion of the overall risk of oil pollution in the region. In recent decades, many of the world's largest oil spills have been from oil tankers, which can carry millions of gallons of oil. Although the level of trans-Arctic shipping is uncertain, many expect oil exploration and extraction activities to intensify in the region. Oil well blowouts from offshore oil extraction operations have been a source of major oil spills, eclipsing the largest tanker spills. The largest unintentional oil spill in recent history was from the 2010 Deepwater Horizon incident in the Gulf of Mexico. During that incident, the uncontrolled well released (over an 87-day period) approximately 200 million gallons of crude oil. The second-largest unintentional oil spill in recent history—the IXTOC I , estimated at 140 million gallons—was due to an oil well blowout in Mexican Gulf Coast waters in 1979. Until the 2010 Deepwater Horizon incident, the spill record for offshore platforms in U.S. federal waters had shown improvement from prior years. A 2003 National Research Council (NRC) study of oil and gas activities on Alaska's North Slope stated "blowouts that result in large spills are unlikely." Similar conclusions were made in federal agency documents regarding deepwater drilling in the Gulf of Mexico before the 2010 Deepwater Horizon event. Some would likely contend that the underlying analyses behind these conclusions should be adjusted to account for the 2010 Gulf oil spill. However, others may argue that the proposed activities in U.S. Arctic waters present less risk of an oil well blowout than was encountered by the Deepwater Horizon drill rig, because the proposed U.S. Arctic operations would be in shallower waters (150 feet) than the deepwater well (approximately 5,000 feet) that was involved in the 2010 Gulf oil spill. In addition, Shell Oil has stated that the pressures in the Chukchi Sea (the location of Shell's recent interest) would be two to three times less than they were in well involved in the 2010 Gulf oil spill. Regardless of these differences, even under the most stringent control systems, some oil spills and other accidents are likely to occur from equipment failure or human error. Potential Impacts No oil spill is entirely benign. Even a relatively minor spill, depending on the timing and location, can cause significant harm to individual organisms and entire populations. Regarding aquatic spills, marine mammals, birds, bottom-dwelling and intertidal species, and organisms in early developmental stages—eggs or larvae—are especially vulnerable. However, the effects of oil spills can vary greatly. Oil spills can cause impacts over a range of time scales, from only a few days to several years, or even decades in some cases. Conditions in the Arctic may have implications for toxicological effects that are not yet understood. For example, oil spills on permafrost may persist in an ecosystem for relatively long periods of time, potentially harming plant life through their root systems. Moreover, little is known about the effects of oil spills on species that are unique to the Arctic, particularly, species' abilities to thrive in a cold environment and the effect temperature has on toxicity. The effects of oil spills in high-latitude, cold-ocean environments may last longer and cause greater damage than expected. Some recent studies have found that oil spills in lower latitudes have persisted for longer than initially expected, thus raising the concern that the persistence of oil in the Arctic may be understated. In terms of wildlife, population recovery may take longer in the Arctic because many of the species have longer life spans and reproduce at a slower rate. Response and Cleanup Challenges in the Arctic Region Climate changes in the Arctic are expected to increase human activities in the region, many of which impose a risk of oil pollution, particularly from oil spills. Conditions in the Arctic region impose unique challenges for personnel charged with (1) oil spill response, the process of getting people and equipment to the incident, and (2) cleanup duties, either recovering the spilled oil or mitigating the contamination so that it poses less harm to the ecosystem. These challenges may play a role in the policy development for economic activities in the Arctic. Spill Response Challenges Response time is a critical factor for oil spill recovery. With each hour, spilled oil becomes more difficult to track, contain, and recover, particularly in icy conditions, where oil can migrate under or mix with surrounding ice. Most response techniques call for quick action, which may pose logistical challenges in areas without prior staging equipment or trained response professionals. Many stakeholders are concerned about a "response gap" for oil spills in the Arctic region. A response gap is a period of time in which oil spill response activities would be unsafe or infeasible. The response gap for the northern Arctic latitudes is likely to be extremely high compared to other regions. According to a 2014 National Research Council (NRC) report, "the lack of infrastructure in the Arctic would be a significant liability in the event of a large oil." The Coast Guard has no designated air stations north of Kodiak, AK, which is almost 1,000 miles from the northernmost point of land along the Alaskan coast in Point Barrow, AK. Although some of the communities have airstrips capable of landing cargo planes, no roads connect these communities. Vessel infrastructure is also limited. The nearest major port is in the Aleutian Islands, approximately 1,300 miles from Point Barrow. Two of the major nonmechanical recovery methods—in situ burning and dispersant application—may be limited (or "precluded") by the Arctic conditions and lack of logistical support: aircraft, vessels, and other infrastructure. A 2010 Government Accountability Office (GAO) report identified further logistical obstacles that would hinder an oil spill response in the region, including "inadequate" ocean and weather information for the Arctic and technological problems with communications. A 2014 GAO report highlighted steps taken by some groups (e.g., the National Oceanic and Atmospheric Administration) to improve some of these logistical elements. Oil Spill Cleanup Challenges The history of oil spill response in the Aleutian Islands highlights the challenges and concerns for potential spills in the Arctic region: The past 20 years of data on response to spills in the Aleutians has also shown that almost no oil has been recovered during events where attempts have been made by the responsible parties or government agencies, and that in many cases, weather and other conditions have prevented any response at all. The behavior of oil spills in cold and icy waters is not as well understood as oil spills in more temperate climates. The 2014 NRC report highlights some recent advancements in understanding oil spill behavior in arctic climates. At the same time, the report recommends further study in multiple areas. The 2014 NRC report states that in colder water temperatures or sea ice, "the processes that control oil weathering—such as spreading, evaporation, photo-oxidation, emulsification, and natural dispersion—are slowed down or eliminated for extended periods of time." In some respects, the slower weathering processes may provide more time for response strategies, such as in situ burning or skimming. On the other hand, the longer the oil remains in an ecosystem, the more opportunity there is for exposure. In addition, the 2014 report states the following: Arctic conditions impose many challenges for oil spill response—low temperatures and extended periods of darkness in the winter, oil that is encapsulated under ice or trapped in ridges and leads, oil spreading due to sea ice drift and surface currents, reduced effectiveness of conventional containment and recovery systems in measurable ice concentrations, and issues of life and safety of responders. Existing Policy Framework Considering both the recent increase in human activity in the region (and expectation of further interest) and the response and recovery challenges that an oil spill would impose in Arctic waters, many would assert that the region warrants particular attention in terms of governance. However, the existing framework for international governance of maritime operations in the Arctic region lacks legally binding requirements. While the Safety of Life at Sea Convention (SOLAS) and other International Maritime Organization (IMO) conventions include provisions regarding ships in icy waters, the provisions are not specific to the polar regions. Although the IMO has "Guidelines for Ships Operating in Arctic," a 2009 NOAA report described the nonbinding IMO provisions as "inconsistent with the hazards of Arctic navigation and the potential for environmental damage from such an incident." In 2013, the member states of the Arctic Council signed an Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in the Arctic. The agreement's objective is to "strengthen cooperation, coordination, and mutual assistance ... on oil pollution preparedness and response in the Arctic." In addition, the United States has separate bilateral agreements with Canada and Russia that address oil spill response operations. The agreement with Canada was established in 1974 for the Great Lakes and has been amended several times to add more geographic areas, including Arctic waters. According to the 2014 NRC report: "Formal contingency planning and exercises with Canada have enabled both the United States and Canada to refine procedures and legal requirements for cross-border movement of technical experts and equipment in the event of an emergency." The U.S.-Russian agreement was made in 1989 and applies to oil spills in Arctic waters. However, the 2014 NRC report asserts that the agreement has not been tested to the same extent as the U.S.-Canada agreement. Fisheries171 The effects of climate change such as increasing sea surface temperatures and decreasing permanent sea ice are altering the composition of marine ecosystems in the Arctic. These changes are likely to affect the ranges and productivity of living marine resources including species that support marine fisheries. Furthermore, as a greater portion of the waters in the central Arctic Ocean become open for longer periods, the region's resources will become more accessible to commercial fishing. Large commercial fisheries already exist in the Arctic, including in the Barents and Norwegian Seas north of Europe, the Central North Atlantic off Greenland and Iceland, the Bering Sea off Russia and the United States (Alaska), and the Newfoundland and Labrador Seas off northeastern Canada. As environmental changes occur, fisheries managers will be challenged to adjust management measures for existing fisheries. Uncertainties related to these changes and potential new fisheries in the central Arctic Ocean have prompted many fishery managers to support precautionary approaches to fisheries management in the region. On June 1, 2008, Congress passed a joint resolution ( P.L. 110-243 ) that directed "the United States to initiate international discussions and take necessary steps with other nations to negotiate an agreement for managing migratory and transboundary fish stocks in the Arctic Ocean." The joint resolution also supported establishment of a new international fisheries management organization or organizations for the region. International cooperation is necessary to manage Arctic resources because fish stocks are shared to some degree among the five adjacent jurisdictional zones of the Arctic rim nations. Further, a large portion of the central Arctic Ocean lies outside the Exclusive Economic Zones (EEZ) of these nations. Ideally, regional management would recognize the need to coordinate management for those fish populations that move among these national jurisdictional zones and high seas. For waters under U.S. jurisdiction, in 2009, the National Marine Fisheries Service in the Department of Commerce's National Oceanic and Atmospheric Administration implemented the North Pacific Council's Fishery Management Plan for Fish Resources of the Arctic Management Area. The management area includes marine waters in the U.S. EEZ of the Chukchi and Beaufort Seas. The plan initially prohibits commercial fishing in the Arctic Management Area and moves the northern boundary of the Bering Sea/Aleutian Islands king and tanner crab fishery management plan out of the Arctic Management Area south to the Bering Strait. The plan takes a precautionary approach by requiring the collection of more information before developing commercial fisheries in the region. On July 16, 2015, the five nations that surround the Arctic Ocean signed a declaration to prevent unregulated commercial fishing in the high seas portion of the central Arctic Ocean. The five nations agree that a precautionary approach to fishing is needed because there is limited scientific knowledge of marine resources in the region. Currently, there is no commercial fishing in central Arctic Ocean and it is questionable whether existing fisheries resources could sustain a fishery. The declaration includes the following interim measures: to authorize our vessels to conduct commercial fishing in the high seas area only pursuant to one or more marine regional or subregional fisheries management organizations or arrangements that are or may be established to manage such fishing in accordance with recognized international standards; to establish a joint program of scientific research with the aim of improving understanding of the ecosystems of this area and promote cooperation with relevant scientific bodies; to promote compliance with these interim measures and with relevant international law, including by coordinating our monitoring, control, and surveillance activities in this area; and to ensure that any noncommercial fishing in this area does not undermine the purpose of the interim measures, is based on scientific advice and is monitored, and that data obtained through any such fishing is shared. The declaration also recognizes the interests of indigenous peoples and the need to encourage other countries to take actions that are consistent with the interim measures. It appears that future management arrangements may include China, the EU, Iceland, Japan, and South Korea. Iceland has stated it regrets that although it has repeatedly asked to participate in the collaboration, the five states decided to keep Iceland outside consultations on the declaration. It remains an open question as to whether an Arctic Ocean regional fishery management organization will be established, which countries would be included in such an arrangement, and if commercial fisheries will be developed in the central Arctic Ocean. Protected Species177 Concern over development of the Arctic relates to how such development might affect threatened and endangered species. Under the Endangered Species Act (ESA, 16 U.S.C. §§1531-1543), the polar bear was listed as threatened on May 15, 2008. The failure by the Fish and Wildlife Service (FWS) to make a 90-day finding on a 2008 petition to list Pacific walrus led to submission of 60-days' notice of a future citizen suit. However, eventually walruses were listed as candidate species under ESA; this status means that federal agencies carrying out actions that may affect the species must confer with FWS though they are not necessarily obliged to modify their actions. Both polar bears and walruses are heavily dependent during their life cycles on thick sea ice, making them especially susceptible to the shrinking Arctic ice cap. On December 30, 2008, the National Marine Fisheries Service (NMFS) determined that a listing of ribbon seal as threatened or endangered was not warranted. On October 22, 2010, NMFS listed the southern distinct population segment (DPS) of spotted seals as threatened. Listing of two other DPS (Okhotsk and Bering Sea) had earlier been determined to not be warranted. On December 10, 2010, NMFS proposed that (1) four subspecies of ringed seal be listed as threatened, and (2) that two DPS of one subspecies of bearded seal be listed as threatened. In either terrestrial or marine environments, the extreme pace of change makes a biological response many times more difficult. For species with adaptations for a specific optimum temperature for egg development, or production of young timed to match the availability of a favored prey species, or seed dispersal in predictable fire regimes, etc., evolutionary responses may well not keep pace with the rate of change. While species of plants and animals farther south might migrate, drift, or be transplanted from warming habitats to more northerly sites that may continue to be suitable, once a terrestrial species reaches the Arctic Ocean, it is very literally at the end of the line. No more northern or colder habitat is available. The Marine Mammal Protection Act (MMPA; 16 U.S.C. §§1361 et seq.) protects whales, seals, walruses, and polar bears. The MMPA established a moratorium on the "taking" of marine mammals in U.S. waters and by U.S. nationals on the high seas, including the Arctic. The MMPA protects marine mammals from "clubbing, mutilation, poisoning, capture in nets, and other human actions that lead to extinction." Under the MMPA, the Secretary of Commerce, acting through National Marine Fisheries Service, is responsible for the conservation and management of whales and seals. The Secretary of the Interior, acting through the Fish and Wildlife Service, is responsible for walruses and polar bears. Despite the MMPA's general moratorium on taking, the MMPA allows U.S. citizens to apply for and obtain authorization for taking small numbers of mammals incidental to activities other than commercial fishing (e.g., offshore oil and gas exploration and development) if the taking would have only a negligible impact on any marine mammal species or stock, provided that monitoring requirements and other conditions are met. Indigenous People Living in the Arctic187 People have been living in the Arctic for thousands of years, and indigenous peoples developed highly specialized cultures and economies based on the physical and biological conditions of the long-isolated region. However, with trade, the influx of additional populations especially since the 19 th century, and ongoing physical changes in the Arctic, indigenous populations have already experienced substantial change in their lifestyles and economies. Over the past two decades, greater political organization across indigenous populations has increased their demands for international recognition and broader rights, as well as attention to the economic, health, and safety implications of climate change in the North. Background Seven of the eight Arctic nations have indigenous peoples, whose predecessors were present in parts of the Arctic over 10,000 years ago, well before the arrival of peoples with European backgrounds. Current Arctic indigenous peoples comprise dozens of diverse cultures and speak dozens of languages from eight or more non-Indo-European language families. Before the arrival of Europeans, Arctic indigenous peoples lived in economies that were chiefly dependent, in varying proportions, on hunting land and marine mammals, catching salt- and fresh-water fish, herding reindeer (in Eurasia), and gathering, for their food, clothing, and other products. Indigenous peoples' interaction with and knowledge of Arctic wildlife and environments has developed over millennia and is the foundation of their cultures. The length of time that Arctic indigenous peoples were in contact with Europeans varied across the Arctic. As recorded by Europeans, contact began as early as the 9 th century CE, if not before, in Fennoscandia and northwestern Russia, chiefly for reasons of commerce (especially furs); it progressed mostly west-to-east across northern Asia, reaching northeastern Arctic Asia by the 17 th century. North American Arctic indigenous peoples' contact with Europeans started in Labrador in the 16 th century and in Alaska in the 18 th century, and was not completed until the early 20 th century. Greenland's indigenous peoples first saw European-origin peoples in the late 10 th century, but those Europeans died out during the 15 th or 16 th century and Europeans did not return permanently until the 18 th century. Contact led to significant changes in Arctic indigenous economies, political structures, foods, cultures, and populations, starting especially in the 20 th century. For example, life expectancy among Alaska Natives has increased from 47 years in 1950 to over 69 years in 2000 (though it still lags behind that of U.S. residents overall, at 77 years). Also, at present, most Arctic indigenous peoples have become minorities in their countries' Arctic areas, except in Greenland and Canada. (One source estimates that, around 2003, about 10% of an estimated 3.7 million people in the Arctic were indigenous.) While many Arctic indigenous communities remain heavily dependent on hunting, fishing, and herding and are more likely to depend on traditional foods than nonindigenous Arctic inhabitants, there is much variation. Most Arctic indigenous people may no longer consume traditional foods as their chief sources of energy and nutrition. Major economic change is also relatively recent but ongoing. Many Arctic indigenous communities have developed a mixture of traditional economic activities and wage employment. The economics of subsistence and globalization will be key factors in the effects of climate change on Arctic indigenous peoples, and on their reactions to Arctic climate change. Arctic indigenous peoples' current political structures vary, as do their relationships with their national governments. Some indigenous groups govern their own unique land areas within the national structure, as in the United States and Canada; others have special representative bodies, such as the Saami parliaments in Norway, Finland, and Sweden; a few areas have general governments with indigenous majorities, such as Greenland (a member country of Denmark), Nunavut territory in Canada, and the North Slope and Northwest Arctic boroughs in Alaska. Control of land, through claims and ownership, also varies among Arctic indigenous peoples, as do rights to fishing, hunting, and resources. Arctic indigenous peoples' political relationships to their national and local governments, and their ownership or claims regarding land, are also significant factors in the responses to Arctic climate change by the indigenous peoples and by Arctic nations' governments. Effects of Climate Change Arctic climate change is expected to affect the economies, population, subsistence, health, infrastructure, societies, and cultures of Arctic indigenous peoples. Changes in sea ice and sea level, permafrost, tundra, weather, and vegetation distributions, as well as increased commercial shipping, mineral extraction, and tourism, will affect the distribution of land and sea mammals, of freshwater and marine fish, and of forage for reindeer. These will in turn affect traditional subsistence activities and related indigenous lifestyles. Arctic indigenous peoples' harvesting of animals is likely to become riskier and less predictable, which may increase food insecurity, change diets, and increase dependency on outside, nontraditional foods. Food cellars in many locations have thawed during summers, threatening food safety. Related health risks of diabetes, obesity, and mental illness have been associated with these changes. Sea, shoreline ice, and permafrost changes have damaged infrastructure and increased coastal and inland erosion, especially in Alaska, where GAO found in 2003 that "coastal villages are becoming more susceptible to flooding and erosion caused in part by rising temperatures." In response, Congress funded the U.S. Army Corps of Engineers to conduct a Baseline Erosion Assessment that identified and prioritized among the 178 communities identified at risk from erosion. (Risks from flooding were not examined.) GAO concluded in 2009 that many Native villages must relocate, but even those facing imminent threats have been impeded by various barriers, including difficulties identifying appropriate new sites, piecemeal programs for state and federal assistance, and obstacles to eligibility for certain federal programs. The Alaska Federation of Natives placed among its 2010 federal priorities a request to Congress to mitigate flooding and erosion in Alaska Native villages and to fund relocation of villages where necessary. However, "the cost is extraordinary," acknowledges Senator Lisa Murkowski. Oil, gas, and mineral exploration and development are expected to increase, as are other economic activities, such as forestry and tourism, and these are expected to increase economic opportunities for all Arctic residents, including indigenous peoples. Pressures to increase participation in the wage economy, however, may speed up changes in indigenous cultures. Increased economic opportunities may also lead to a rise in the nonindigenous population, which may further change the circumstances of indigenous cultures. Some representatives of Arctic indigenous people have related a "conflicting desire between combating climate change and embracing the potential for economic growth through foreign investment." Although important advances in public health have occurred in indigenous communities over past decades, some health problems may increase with continued Arctic climate change. Economic development may exacerbate Arctic pollution problems, including higher exposure to mercury, air pollution, and food contamination. The influx and redistribution of contaminants in the air, oceans, and land may change in ways that are now poorly understood. Warmer temperatures and longer warm seasons may increase insect- and wildlife-borne diseases. Climate change may lead to damage to water and sanitation systems, reducing protection against waterborne diseases. Changes in Arctic indigenous cultures may increase mental stress and behavioral problems. The response to climate change by Arctic indigenous peoples has included international activities by Arctic indigenous organizations and advocacy before their national governments. As one report noted, "the rise of solidarity among indigenous peoples organizations in the region is surely a development to be reckoned with by all those interested in policy issues in the Arctic." Six national or international indigenous organizations are permanent participants of the Arctic Council, the regional intergovernmental forum. Due in part to advocacy by Arctic indigenous people, the United Nations General Assembly adopted in 2007 the Declaration on the Rights of Indigenous Peoples. In April 2009, the Inuit Circumpolar Council (an organization of Inuit in the Arctic regions of Alaska, Canada, Greenland, and Russia) hosted in Alaska the worldwide "Indigenous Peoples Global Summit on Climate Change." The conference report, forwarded to the Copenhagen Conference of the Parties of the U.N. Framework Convention on Climate Change (December 2009), noted "accelerating" climate change caused by "unsustainable development" and, among several recommendations, called for a greater indigenous role in national and international decisions on climate change, including a greater role for indigenous knowledge in climate change research, monitoring, and mitigation. Polar Icebreaking225 Polar Icebreaker Operations Within the U.S. government, the Coast Guard is the U.S. agency responsible for polar icebreaking. U.S. polar ice operations conducted in large part by the Coast Guard's polar icebreakers support nine of the Coast Guard's 11 statutory missions. The roles of U.S. polar icebreakers can be summarized as follows: conducting and supporting scientific research in the Arctic and Antarctic; defending U.S. sovereignty in the Arctic by helping to maintain a U.S. presence in U.S. territorial waters in the region; defending other U.S. interests in polar regions, including economic interests in waters that are within the U.S. exclusive economic zone (EEZ) north of Alaska; monitoring sea traffic in the Arctic, including ships bound for the United States; and conducting other typical Coast Guard missions (such as search and rescue, law enforcement, and protection of marine resources) in Arctic waters, including U.S. territorial waters north of Alaska. The Coast Guard's large icebreakers are called polar icebreakers rather than Arctic icebreakers because they perform missions in both the Arctic and Antarctic. Operations to support National Science Foundation (NSF) research activities in both polar regions account for a significant portion of U.S. polar icebreaker operations. Supporting NSF research in the Antarctic focuses on performing an annual mission, called Operation Deep Freeze (ODF), to break through Antarctic sea ice so as to reach and resupply McMurdo Station, the large U.S. Antarctic research station located on the shore of McMurdo Sound, near the Ross Ice Shelf. The Coast Guard states that Polar Star , the Coast Guard's only currently operational heavy polar icebreaker, "spends the [northern hemisphere] winter [i.e., the southern hemisphere summer] breaking ice near Antarctica in order to refuel and resupply McMurdo Station. When the mission is complete, the Polar Star returns to dry dock [in Seattle] in order to complete critical maintenance and prepare it for the next ODF mission. Once out of dry dock, it's back to Antarctica, and the cycle repeats itself." In terms of the maximum thickness of the ice to be broken, the annual McMurdo resupply mission generally poses the greatest icebreaking challenge for U.S. polar icebreakers, though Arctic ice can frequently pose its own significant icebreaking challenges for U.S. polar icebreakers. The Coast Guard's medium polar icebreaker, Healy , spends most of its operational time in the Arctic supporting NSF research activities and performing other operations. Although polar ice is diminishing due to climate change, observers generally expect that this development will not eliminate the need for U.S. polar icebreakers, and in some respects might increase mission demands for them. Even with the diminishment of polar ice, there are still significant ice-covered areas in the polar regions, and diminishment of polar ice could lead in coming years to increased commercial ship, cruise ship, and naval surface ship operations, as well as increased exploration for oil and other resources, in the Arctic—activities that could require increased levels of support from polar icebreakers, particularly since waters described as "ice free" can actually still have some amount of ice. Changing ice conditions in Antarctic waters have made the McMurdo resupply mission more challenging since 2000. Current Polar Icebreaker Fleet The operational U.S. polar icebreaking fleet currently consists of one heavy polar icebreaker, Polar Star , and one medium polar icebreaker, Healy . In addition to Polar Star , the Coast Guard has a second heavy polar icebreaker, Polar Sea . Polar Sea , however, suffered an engine casualty in June 2010 and has been nonoperational since then. Polar Star and Polar Sea entered service in 1976 and 1978, respectively, and are now well beyond their originally intended 30-year service lives. The Coast Guard has used Polar Sea as a source of spare parts for keeping Polar Star operational. Polar Security Cutter (PSC) Program A Department of Homeland Security (DHS) Mission Need Statement (MNS) approved in June 2013 states that "current requirements and future projections ... indicate the Coast Guard will need to expand its icebreaking capacity, potentially requiring a fleet of up to six icebreakers (3 heavy and 3 medium) to adequately meet mission demands in the high latitudes...." The Coast Guard initiated in its FY2013 budget a program to acquire three new heavy polar icebreakers, to be followed by the acquisition of up to three new medium polar icebreakers. The program was originally referred to as the polar icebreaker program but is now referred to as the Polar Security Cutter (PSC) program. The Coast Guard wants to begin construction of the first new heavy polar icebreaker in FY2019 and have it enter service in 2023. The acquisition cost of a new heavy polar icebreaker had earlier been estimated informally at roughly $1 billion, but the Coast Guard and Navy now believe that three heavy polar icebreakers could be acquired for a total cost of about $2.1 billion, or an average of about $700 million per ship. The first ship will cost more than the other two because it will incorporate design costs for the class and be at the start of the production learning curve for the class. The PSC program received about $359.6 million in procurement funding through FY2018, including $300 million provided through the Navy's shipbuilding account (which is part of the Department of Defense's budget) and $59.6 million provided through the Coast Guard's procurement account (which is part of the Department of Homeland Security's [DHS's] budget). The FY2019 DHS appropriations act (Division A of H.J.Res 31 / P.L. 116-6 of February 15, 2019) provides an additional $675 million for the PSC program through the Coast Guard's procurement account, including $20 million for the procurement of long leadtime materials (LLTM) for the second ship in the program. The PSC program has thus received a total of $1,034.6 million (i.e., about $1.0 billion) in procurement funding through FY2019. Excluding the $20 million provided for the procurement of LLTM for the second ship in the program, the remaining total of $1,014.6 million appears to be enough (or perhaps more than enough) to fully fund the design and construction of the first ship in the program while also funding FY2019 and prior-year program administrative expenses. The Coast Guard's FY2019 five-year (FY2019-FY2023) Capital Investment Plan (CIP) projected that the Coast Guard's FY2020 budget would request an additional $125 million in FY2020 procurement funding for the PSC program, most of which would presumably be used as a second increment of procurement funding for the second ship in the class. Issues for Congress for the PSC program include, inter alia, whether to approve, reject, or modify the Coast Guard's annual procurement funding requests for the program; whether to use a contract with options or a block buy contract to procure the ships; whether to continue providing at least some of the procurement funding for the PSC program through the Navy's shipbuilding account; technical, schedule, and cost risk in the PSC program; and whether to procure heavy and medium polar icebreakers to a common basic design. Search and Rescue (SAR)233 Overview Increasing sea and air traffic through Arctic waters has increased concerns regarding Arctic-area search and rescue (SAR) capabilities. Table 1 presents figures on ship casualties in Arctic Circle waters from 2005 to 2014, as shown in the 2015 edition of an annual report on shipping and safety by the insurance company Allianz Global Corporate & Specialty. Given the location of current U.S. Coast Guard operating bases, it could take Coast Guard aircraft several hours, and Coast Guard cutters days or even weeks, to reach a ship in distress or a downed aircraft in Arctic waters. In addition, the harsh climate complicates SAR operations in the region. Particular concern has been expressed about cruise ships carrying large numbers of civilian passengers that may experience problems and need assistance. There have already been incidents of this kind with cruise ships in recent years in waters off Antarctica, and a Russian-flagged passenger ship with 162 people on board ran aground on Canada's Northwest Passage on August 24, 2018. Coast Guard officials have noted the long times that would be needed to respond to potential emergency situations in certain parts the Arctic. The Coast Guard is participating in exercises focused on improving Arctic SAR capabilities. Increasing U.S. Coast Guard SAR capabilities for the Arctic could require one or more of the following: enhancing or creating new Coast Guard operating bases in the region; procuring additional Arctic-capable aircraft, cutters, and rescue boats for the Coast Guard; and adding systems to improve Arctic maritime communications, navigation, and domain awareness. It may also entail enhanced forms of cooperation with navies and coast guards of other Arctic countries. 2017 Arctic SAR Capabilities Survey A 2017 survey of Arctic SAR capabilities conducted as part of the Finnish Border Guard's Arctic Maritime Safety Cooperation project in cooperation with the Arctic Coast Guard Forum stated the following: The key challenges for Arctic search and rescue identified in this survey include long distances, severe weather, ice and cold conditions, a poor communications network, lack of infrastructure and lack of resource presence in the region. In addition, the capacity to host patients, achieving situational awareness, and unsuitable evacuation and survival equipment pose major challenges for maritime safety and SAR in the Arctic. The Arctic SAR authorities have recognized a need to further develop advanced information sharing between coast guards, emergency authorities, and other stakeholders involved in SAR operations. In addition, joint training and systematic sharing of lessons learned, as well as technological innovation in communications networks and connections, navigation, survival and rescue equipment, and healthcare services are being called for in order to improve SAR capabilities in the Arctic. The survey recommends enhancing practical cooperation between various stakeholders involved in Arctic SAR such as coast guards, rescue centers, other authorities, industry groups, private operators, academia and volunteer organizations. It encourages further information sharing on infrastructure projects and resource assets, Automatic Identification System and weather data, emergency plans and standard operating procedures, as well as exercises and lessons learned via a common database. Furthermore, developing joint courses specifically intended for Arctic SAR and establishing a working group that examines new innovations and technological developments, are recommended as potential initiatives for improving practical international cooperation. May 2011 Arctic Council Agreement on Arctic SAR On May 12, 2011, representatives from the member states of the Arctic Council, meeting in Nuuk, Greenland, signed an agreement on cooperation on aeronautical and maritime SAR in the Arctic. Key features of the agreement include the following: Article 3 and the associated Annex to the agreement essentially divide the Arctic into SAR areas within which each party has primary responsibility for conducting SAR operations, stating that "the delimitation of search and rescue regions is not related to and shall not prejudice the delimitation of any boundary between States or their sovereignty, sovereign rights or jurisdiction," and that "each Party shall promote the establishment, operation and maintenance of an adequate and effective search and rescue capability within its area." Article 4 and the associated Appendix I to the agreement identify the competent authority for each party. For the United States, the competent authority is the Coast Guard. Article 5 and the associated Appendix II to the agreement identify the agencies responsible for aeronautical and maritime SAR for each party. For the United States, those agencies are the Coast Guard and the Department of Defense. Article 6 and the associated Appendix III to the agreement identify the aeronautical and/or maritime rescue coordination centers (RCCs) for each party. For the United States, the RCCs are Joint Rescue Coordination Center Juneau (JRCC Juneau) and Aviation Rescue Coordination Center Elmendorf (ARCC Elmendorf). Article 12 states that "unless otherwise agreed, each Party shall bear its own costs deriving from its implementation of this Agreement," and that "implementation of this Agreement shall be subject to the availability of relevant resources." Figure 4 shows an illustrative map of the national areas of SAR responsibility based on the geographic coordinates listed in the Annex to the agreement. An October 12, 2015, press report states the following: More people are wishing to explore icy environments, says Peter Hellberg, manager responsible for the SAR process at the Swedish Maritime Administration. Hellberg is part of an IMO/International Civil Aviation Organization (ICAO) working group that is re-evaluating search and rescue (SAR) operations in Polar waters as a result of this push. The working group includes both a maritime and aeronautical perspective, and it has identified a need for more detailed guidance for SAR organizations which will be achieved through an update of the International Aeronautical and Maritime Search and Rescue Manual (IAMSAR) planned for 2019. While the IAMSAR manual is not mandatory, it is followed by most SAR organizations around the world. It provides the framework for setting up a multi-national SAR, giving different parties guidance on the necessary arrangements for Arctic areas. The guidance will be expanded on based on the Polar Code and other recent IMO regulatory updates, and from an aeronautical perspective, from lessons learned after the disappearance of Malaysian Airlines' MH370. John S. McCain National Defense Authorization Act for Fiscal Year 2019 (H.R. 5515/S. 2987) The Senate Armed Services Committee, in its report ( S.Rept. 115-262 of June 5, 2018) on S. 2987 , states the following: Arctic search and rescue The committee is aware that growing international interest and changing environmental conditions in the Arctic have led to increased commercial and governmental activity in the High North. With this steady surge, the committee remains concerned by the limited capabilities of the United States to conduct search-and-rescue operations throughout the Arctic region. The committee notes that the Department of Defense's Report to Congress on Strategy to Protect United States National Security Interests in the Arctic Region, a report required in section 1068 of the National Defense Authorization Act for Fiscal Year 2016 (Public-Law 114–92), identified the need for additional personnel recovery capability in this region. Specifically, the report calls for "forward-deployed/based assets in a sustainable location and/or rapidly deployable air drop response/sustainment packages suitable to remote land, cold water, or ice pack operating environments." (Pages 139-140) The committee understands that the 176th Wing of the Alaska National Guard is the closest dedicated response force with the only refueling capability to respond to a search-and-rescue incident in the Arctic. The unit currently possesses two air-dropped, palletized Arctic Sustainment Packages (ASPs) to enable the survival of 50 individuals for 3 or more days in extreme Arctic conditions. The ASP is rapidly deployable over varied terrain, and allows personnel to survive and operate in the High North. Each ASP requires considerable resources for sustainability, demanding 500 man-hours to re-pack ASPs after testing and to continually keep contents viable. In light of the increased activity in this region, the committee believes that this capability could benefit from additional sustainment funding to maintain the two existing ASPs, and encourages the Secretary of Defense to prioritize its resourcing. (Pages 139-140) Geopolitical Environment242 Shift to Era of Renewed Great Power Competition A principal factor affecting the geopolitical environment for the Arctic is the shift that has occurred in recent years from the post-Cold War era that began in the late 1980s and early 1990s, also sometimes known as the unipolar moment (with the United States as the unipolar power), to a new and different international security environment that features, among other things, renewed great power competition with China and Russia and challenges by these two countries and others to elements of the U.S.-led international order that has operated since World War II. This shift in the international security environment, combined with the diminishment of Arctic ice and the resulting increase in human activities in the Arctic, has several potential implications for the geopolitical environment for the Arctic, which are discussed in the following sections. Arctic Tradition of Cooperation and Low Tensions The shift in the international security environment has raised a basic question as to whether the Arctic in coming years will continue to be a region generally characterized by cooperation and low tensions, as it was during the post-Cold War era, or instead become a region characterized at least in part by competition and increased tensions, as it was during the Cold War. In this regard, the shift in the international security environment poses a potential challenge to the tradition of cooperation, low tensions, peaceful resolution of disputes, and respect for international law that has characterized the approach used by the Arctic states, particularly since the founding of the Arctic Council in 1996, for managing Arctic issues. Some observers argue that the Arctic states and other Arctic stakeholders should attempt to maintain the region's tradition of cooperation and low tensions, and work to prevent the competition and tensions that have emerged in Europe, Asia, and elsewhere in recent years from crossing over into the Arctic. These observers argue that the Arctic tradition of cooperation and low tensions has proven successful in promoting the interests of the Arctic states and other Arctic stakeholders on a range of issues, that it has served as a useful model for other parts of the world to follow, and that in light of tensions and competition elsewhere in the world, this model is needed more now than ever. Other observers could argue that, notwithstanding the efforts of Arctic states and other Arctic stakeholders to maintain the Arctic as a region of cooperation and low tensions, it is unreasonable to expect that the Arctic can be kept fully isolated from the competition and tensions that have arisen in other parts of the world. As a consequence, these observers could argue, the Arctic states and other Arctic stakeholders should begin taking steps to prepare for increased competition and higher tensions in the Arctic, precisely so that Arctic issues can continue to be resolved as successfully as conditions may permit, even in a situation of competition and increased tensions. Still other observers might argue that a policy of attempting to maintain the Arctic as a region of cooperation and low tensions, though well-intentioned, could actually help encourage aggressive behavior by Russia or China in other parts of the world by giving those two countries confidence that their aggressive behavior in other parts of the world would not result in punitive costs being imposed on them in the Arctic. These observers might argue that maintaining the Arctic as a region of cooperation and low tensions in spite of aggressive Russian or Chinese actions elsewhere could help legitimize those aggressive actions and provide little support to peaceful countries elsewhere that might be attempting to resist them. This, they could argue, could facilitate a divide-and-conquer strategy by Russia or China in their relations with other countries, which in the long run could leave Arctic states with fewer allies and partners in other parts of the world for resisting unwanted Russian or Chinese actions in the Arctic. Still others might argue that there is merit in some or all of the above perspectives, and that the challenge is to devise an approach that best mixes the potential strengths of each perspective. Arctic Governance Spotlight on Arctic Governance and Limits of Arctic Council The shift in the international security environment to a situation of renewed great power competition may put more of a spotlight on the issue of Arctic governance and the limits of the Arctic Council as a governing body. As noted earlier in this report, regarding the limits of the Arctic Council as a governing body, the council states that it "does not and cannot implement or enforce its guidelines, assessments or recommendations. That responsibility belongs to each individual Arctic State." In addition, the council states that "the Arctic Council's mandate, as articulated in the [1996] Ottawa Declaration [establishing the Council], explicitly excludes military security." During the post-Cold War era—the period when the Arctic Council was established and began operating—the limits of the Arctic Council as a governing body may have been less evident or problematic, due to the post-Cold War era's general situation of lower tensions and reduced overt competition between the great powers. In the new situation of renewed great power competition, however, it is possible that these limits could become more evident or problematic, particularly with regard to addressing Arctic-related security issues. If the limits of the Arctic Council as a governing body are judged as having become more evident or problematic, one option might be to amend the rules of the council to provide for some mechanism for enforcing its guidelines, assessments, or recommendations. Another option might be to expand the council's mandate to include an ability to address military security issues. Supporters of such options might argue that they could help the council adapt to the major change in the Arctic's geopolitical environment brought about the shift in the international security environment, and thereby help maintain the council's continued relevance in coming years. They might also argue that continuing to exclude military security from the council's mandate risks either leaving Arctic military security issues unaddressed, or shifting them to a different forum that might have traditions weaker than those of the Arctic Council for resolving disputes peacefully and with respect for international law. Opponents of such options might argue that they could put at risk council's ability to continue addressing successfully nonmilitary security issues pertaining to the Arctic. They might argue that there is little evidence to date that the council's limits as a governing body have become problematic, and that in light of the council's successes since its founding, the council should be viewed as an example of the admonition, "if it isn't broke, don't fix it." Some relatively little-publicized multilateral discussions of Arctic security issues have taken place. For example, in mid-2011, the U.S. European Command (EUCOM), in cooperation with the Norwegian Ministry of Defense, established the Arctic Security Forces Roundtable (ASFR), consisting of high-ranking military officers from the eight members of the Arctic Council, plus France, Germany, the Netherlands, and the UK. Another newly formed venue at which military leaders discuss Arctic issues is the Northern Chiefs of Defense conference, which held its first meeting in May 2012, with military representatives from the eight Arctic Council governments in attendance. A February 9, 2019, blog post stated The function of the Arctic Council has been largely defined by the form imposed upon it in the [1996] Ottawa Declaration on the Establishment of the Arctic Council. Arguably, among its most distinctive features are: • The inheritance of the Working Groups from the 1991 Arctic Environmental Protection Strategy; • A lack of legal personality as an international organisation; • A lack of defined financial contributions; • The inclusion of Indigenous representatives as Permanent Participants; • Its constitution as a consensus based forum; and • The exclusion of military security from its agenda. The Arctic and the global context have evolved substantially since regional cooperation was initiated over two decades ago. Therefore, it is worthwhile to ask what reforms of the Arctic Council are required given the governance needs of the contemporary political situation, yet still practicable given the constraints of path dependence. The Arctic Council itself has recognized the need to reassess its form to allow for improved function. Most recently, the 2017 Fairbanks Declaration saw the Arctic States Recognize that the Arctic Council continues to evolve, responding to new opportunities and challenges in the Arctic, and instruct the Senior Arctic Officials to develop a strategic plan based on the Arctic Council's foundational documents and subsidiary body strategies and guiding documents, for approval by Ministers in 2019. It is in this context that we submit for consideration an analysis of what works well in the Arctic Council, where there are inadequacies, and what role it can most effectively play in Arctic politics…. Although the Arctic Council has a good foundation, it is constrained in significant ways. The first of these is funding. While the Arctic Council Secretariat seems adequately funded (1.24 million USD in 2017, with Norway contributing half), it has very little discretionary funding. Similarly, the Working Groups rely on one or two states to fund a secretariat but have limited ongoing project funds. Almost all activities are funded on an ad hoc basis by the states who advocated for them and by individual experts who secure their own funding through national channels. Thus, all too often it is funding that drives projects, not projects that drive funding…. While the Arctic Council has made good progress on becoming more transparent in recent years through its open access archive, it still struggles to be accountable to stakeholders, northerners, and taxpayers.… There has been perennial confusion about the role and relationship of Observers, especially with regard to non-Arctic states…. Related to this is the rather muted role of northern regional governments such as Alaska, Greenland, the Canadian territories, northern Nordic municipalities, and Russian Arctic okrugs, republics, krais, and oblasts…. Respecting sustainable development, it would be difficult to argue that the Arctic Council has had a broad impact.… in practice environmental protection has received the lion's share of attention, resources and outcomes. Education, health services, and local infrastructure—the fundamentals of developmen—are expensive public services that the Arctic Council has neither the funding nor the mandate to address. Development in the Arctic has a local and subnational nature that any international-level organization is unsuited to address.… With regards to economic development, the very topic was relatively taboo in regional politics until recent years, as it was synonymous in the Arctic with resource exploitation. Efforts to promote economic development have been mostly relegated to the Arctic Economic Council (AEC), an independent organization of business representatives facilitated by the Arctic Council in 2014. The AEC has limited capacity and its relationship with the Arctic Council—participation, reporting, support, etc.—remains ambiguous…. The elephant in the room in regional Arctic politics is climate change.… the Arctic Council has no expert group, no task force, and no working group devoted exclusively to it. The frequent reluctance of American and Russian, and occasionally other, governments to openly accept and commit to mitigating climate change through reducing greenhouse gases, let alone discuss the challenges of adapting to a necessary post-petroleum future, has precluded the Council from addressing one of the major threats to sustainable development and environmental protection in the region…. The Working Group structure was inherited from the 1991 Arctic Environmental Protection Strategy (AEPS)… [it is] a product of the particular challenges and opportunities that were becoming apparent at the time of the fall of the Soviet Union, especially regarding pollution in the Barents region and long-range transport of persistent pollutants…. The Ottawa Declaration called on states to "oversee and coordinate the programs established under the AEPS"; nonetheless, as a forum, it proscribed no formal reporting structure or hierarchy. As it happened, the Working Groups have developed unique and divergent organizational designs, largely dependent on the incorporation laws of the states which host their secretariats and the amount of funding they receive. Working Groups conduct many projects and meetings, but it is difficult to measure their relative effectiveness. As mentioned, the category of Task Force was established in 2009 seemingly to provide the Arctic Council with a better means by which to advance time-sensitive, policy-oriented initiatives…. Much has been made about the Arctic Council's lack of legal personality as an international organization; as a condition of US involvement in the 1990s, the Arctic Council was established as a consensus-based forum, not a treaty organization. States have not committed to abide by its decisions nor have they granted the organization any independent law-making authority. Thus, there are no 'votes' because no state is obliged to go along with the will of the majority of the group. The three legally binding agreements to come out of the Arctic Council are described as falling 'under its auspices'. There is an argument to be made that a more formal legal structure would strengthen the Arctic Council, and allow it to be more vigorous in implementing and monitoring policies such as environmental regulations. However, the informal nature of the partnership has allowed it to be flexible, accommodate the interests of different states, and adapt to varying levels of readiness to adopt and enforce new national legislation (e.g. stricter environmental regulations). Importantly, it has also allowed for the full involvement of the Permanent Participants, whereas a legal international institution would by definition exclude them from decision-making, as they have no obligations under international law. It is also worth noting that the Arctic Council's lack of a legal personality as an international organization has not prevented it from being involved in discussions, primarily through its Working Groups, that have led the Arctic states to enter into legally binding agreements outside of the forum's parameters…. The Ottawa Declaration set in place the Arctic Council's two year rotating Chairmanship, which began with Canada in 1998 and ended with Sweden in 2013 before beginning the cycle anew. The short-term length has its detractors, as it has led to a lack of continuity in the Arctic Council's work…. At the same time, the rotating Chairmanship has ensured that every state, at least periodically, becomes heavily invested in the success of the Council, and develops familiarity with the forum and its inner workings. The establishment of the permanent Secretariat in Tromsø in 2013 removed many of the most glaring issues with the rotating Chairmanship…. Based on this assessment of the Arctic Council's strengths and weaknesses, we offer these recommendations to improve the Arctic Council's form and function as it undergoes a strategic planning process: 1. Evaluate, and if warranted overhaul, the Working Group structure…. 2. Ensure that the Arctic Council has the appropriate capacity and resources, through a Working Group, Task Force or some other dedicated mechanism, to take on the key challenge of climate change mitigation. 3. Address capacity issues with more stable core funding and the creation of a substantial project fund to enhance the timeliness, sustainability, and effectiveness of what are determined to be the Council's most vital activities.… 4. Limit the Arctic Council's role to functions which only it can perform, and be more comfortable devolving work and resources to more appropriate bodies as needed (as has been done with e.g. fisheries and shipping). 5. More formally engage with sub-national governments by encouraging states to support their participation in relevant Working Groups projects. 6. Expand the Amarok tracking tool to more comprehensively evaluate, rather than simply track, the performance and outcomes of Arctic Council projects. Avoid having reports as a project outcome in and of themselves. 7. Embrace a knowledge transfer role, as opposed to a policy development role, on relevant issues of sustainable development, such as sanitation, local energy infrastructure, internet connectivity, economic development, cold climate technologies, and adaptation to future changes in climate and the global energy system. 8. Continue to maintain good international relations and compartmentalize global geopolitical issues outside the Council. China and Arctic Governance The shift in the international security environment to a situation of renewed great power competition may put more of a spotlight on differing perspectives between China and the eight member states of the Arctic Council regarding Arctic governance. A July 6, 2018, press report states that Russia and China diverge on the fundamental question of who makes international law in the Arctic. For a long time, admittedly, China wasn't interested: Way back in 1925, the Nationalist government [of China] signed the critical Spitsbergen Treaty granting non-Arctic nations rights in the northern seas, [said Sun Yun, the Stimson's Center's China program director], but his Communist successors didn't actually realize they'd inherited those rights until 1991, [which was] "a pleasant surprise." In the '90s, however, the eight Arctic Council nations—the US, Canada, Iceland, Finland, Russia, Sweden, Norway, and Denmark, which owns Greenland—set up a system of governance that largely sidelined other states. 13 countries do rate observer status on the Council, including China as of 2013 (even stranger bedfellows include Italy, India, and Singapore). But the eight voting members are generally not keen on diluting their control. China, by contrast, sees itself as a rising global superpower with commensurate influence everywhere on earth. It declared itself a near-Arctic state in January [2018]—a term actually coined by Great Britain but not widely recognized. China wants non-Arctic nations, especially "near-Arctic" ones, to have greater influence and more rights in the Arctic, with binding international law based on the UN Convention on the Law of the Sea (UNCLOS) rather than the current patchwork of mostly voluntary regional arrangements. Indeed, said Sun, "what they would like to argue is the format and the content of the Arctic governance system currently is not effective." Naturally the Russians, US, Canada, and Nordics disagree. "The Arctic states would argue there is very little governance gap," said Norway-based expert Elana Wilson Rowe, as they did in 2008 when they rejected an Antarctica-style treaty regime. Though the key agreements up north are admittedly non-binding, she said, the Arctic has become "a fairly heavily governed landscape." An October 15, 2018, blog post states that China's interest in the Arctic extends beyond the purely economic: it is also pressing for a greater role in its governance. Compared to the Antarctic—where governance is heavily institutionalized, governance of the Arctic is much less developed, largely due to their distinctly different natures…. The legal framework [for the Arctic] is a patchwork affair, drawn from various treaties of global application (including the UN Charter and the UN Convention on the Law of the Sea), the Svalbard Treaty(recognizing Norway's sovereignty over the eponymous Arctic archipelago), as well as customary international law and general principles of law. So far, the Arctic Council has been the forum for the conclusion of only three legally binding agreements. China sees a gap for new ideas, rules and participants in this space. A white paper released by the government in January [2018] contains sophisticated and detailed analysis of the international legal framework applicable to the Arctic and demonstrates China's increasing knowledge and capability in this area, as reflected in the growing number of Chinese international lawyers specializing in Arctic matters. The white paper seeks to justify China's involvement in Arctic affairs as a 'near Arctic state', noting that the Arctic's climate, environment and ecology are of concern for all states. The white paper uses familiar phrases from China's vision for its foreign policy—such as the 'shared future of mankind' and 'mutual benefit'—to argue for a pluralist (i.e. global, regional and bilateral) approach to Arctic governance…. … As an observer state, China has very limited rights in the council, but has been creatively using other routes to influence Arctic governance, including active engagement within the International Maritime Organization (IMO) and the International Seabed Commission. China participated in the formation of the IMO's Polar Code of January 2017, which sets out rules for ships operating in polar waters. China was also one of ten states involved in the recent adoption of the Agreement to Prevent Unregulated High Seas Fisheries in the Central Arctic Ocean, which took place outside the umbrella of the Arctic Council. At a recent roundtable in Beijing co-hosted by Chatham House, Chinese experts noted China's aspirations to develop the international rule of law in the Arctic through playing an active role in developing new rules in areas currently under (or un-) regulated, for example, through a treaty to strengthen environmental protection in the region. It was also suggested that China may also seek to clarify the meaning of existing rules through its own practice. China also has ambitions to contribute to the research of the Arctic Council's Working Groups, which develop proposals for Arctic Council projects and rules. It remains to be seen to what extent Arctic states, protective of theirown national interests in an increasingly fertile area, will cede space for China to participate. China's push to be a rule shaper in the Arctic fits into a wider pattern of China seeking a more influential role in matters of global governance. This trend is particularly apparent in areas where the rules are still emerging and thus where China feels more confident than in areas traditionally dominated by Western powers. A similar assertiveness by China is increasingly visible in other emerging areas of international law, such as the international legal framework applicable to cyber operations and international dispute settlement mechanisms relating to trade and investment. China's approach to Arctic governance offers an interesting litmus test as to how far China intends to deploy international law to assert itself on governance issues with significant global economic, environmental, and security implications – along with the degree to which it will be perceived as acting in the common interest in doing so. A November 22, 2018, press report states China has become a "rule maker" in the global governance of the Arctic, a blue paper said Thursday, calling on the country to "stay calm" and respond with action in the face of the hyped-up "China threat" theory. Jointly released by Beijing-based Social Sciences Academic Press and Qingdao-based Ocean University of China on Thursday, the blue paper said China's role in promoting global governance in the region cannot be ignored. In terms of global governance of the Arctic, China's role has shifted from a "rule follower" to a "rule maker," said the blue paper. China has led the governance philosophy and is taking the initiative in shaping the global governance agenda in the Arctic, it stressed. China is a "near-Arctic country" geographically. The natural conditions and changes in the Arctic have a direct impact on China' s climate system and ecological environment, which in turn affects China's economic interests in the fields of agriculture, forestry, fisheries and oceans, the blue paper said. Arctic countries also have concerns, of which China is aware, said the blue paper, stressing that maintaining regional security and promoting world peace has been the basic rule of China's diplomatic policies. The associate editor of the blue paper, Dong Yue, who is the deputy head of the Law School of Ocean University of China, told the Global Times on Thursday that the paper's call for China to "stay calm" means China won't take any "radical" action. The paper said that China holds the principle of respecting the sovereignty of Arctic states, not hurting their basic rights and guaranteeing the decision-making powers of the Arctic Council. China has been an observer member at the council since 2013. The "China threat theory" may mean other countries will unfairly raise the threshold for Chinese enterprises to become involved in the development of the Arctic, Zhang Xia, director of the Shanghai-based Polar Strategy Center at the Polar Research Institute of China, told the Global Times on Thursday. A November 29, 2018, statement to a committee of the Canadian parliament states that China is not the only non-Arctic state to develop an Arctic policy and look for a deeper commitment to the region. Most other observer states to the Arctic Council have an Arctic strategy, a polar strategy, or at least some official guidelines regarding their Arctic policy.… It remains to be seen whether, like China, these non-Arctic nations see themselves as "near Arctic states" that cannot leave the leadership of a strategic region to eight nations only; and whether they might find it advantageous to coalesce as a group of like-minded countries to seek more political and decisional weight both within the Arctic Council and in other international fora. So far, the approach of Arctic states has been to coopt non-Arctic states rather than exclude them. Most have been eventually accepted as observer states in the Arctic Council, and they are participating in the development of new rules for the Arctic.… Yet Arctic nations have made clear that the broader legal background for such development should remain the United Nations Convention on the Law of the Sea and other existing principles of international law. As stated in the 2008 Ilulissat Declaration, they reject the development of new international rules specifically for the Arctic—an equivalent of the Antarctica Treaty—as such a treaty would require painful negotiations and would likely be less advantageous for them than the current system. Arctic and World Order Another potential implication for the Arctic of the shift in the international security environment concerns the new environment's challenges to elements of the U.S.-led international order that has operated since World War II. One element of the U.S.-led international order that has come under challenge is the principle that force or threat of force should not be used as a routine or first-resort measure for settling disputes between countries. Another is the principle of freedom of the seas (i.e., that the world's oceans are to be treated as an international commons). If either of these elements of the U.S.-led international order is weakened or overturned, it could have potentially major implications for the future of the Arctic, given the Arctic's tradition of peaceful resolution of disputes and respect for international law and the nature of the Arctic as a region with an ocean at its center that washes up against most of the Arctic states. More broadly, some observers assess that the U.S.-led international order in general may be eroding or collapsing, and that the nature of the successor international order that could emerge in its wake is uncertain. An erosion or collapse of the U.S.-led international order, and its replacement by a new international order of some kind, could have significant implications for the Arctic, since the Arctic's tradition of cooperation and low tensions, and the Arctic Council itself, can be viewed as outgrowths of the U.S.-led order. Relative Priority of Arctic in U.S. Policymaking The shift in the international security environment has raised a question concerning the priority that should be given to the Arctic in overall U.S. policymaking. During the post-Cold War era, when the Arctic was generally a region of cooperation and low tensions, there may have been less need to devote U.S. policymaker attention and resources to the Arctic. Given how renewed great power competition and challenges to elements of the U.S.-led international order might be expressed in the Arctic in terms of issues like resource exploration, disputes over sovereignty and navigation rights, and military forces and operations, it might be argued that there is now, other things held equal, more need for devoting U.S. policymaker attention and resources to the Arctic. On the other hand, renewed great power competition and challenges to elements of the U.S.-led international order are also being expressed in Europe, the Middle East, the Indo-Pacific, Africa, and Latin America. As a consequence, it might be argued, some or all these other regions might similarly be in need of increased U.S. policymaker attention and resources. In a situation of constraints on total U.S. policymaker attention and resources, the Arctic would need to compete against these other regions for U.S. policymaker attention and resources. U.S., Canadian, and Nordic Relations with Russia in Arctic The shift in the international security environment to a situation of renewed great power competition raises a question for U.S., Canadian, and Nordic policymakers regarding the mix of cooperation and competition to pursue (or expect to experience) with Russia in the Arctic. In considering this question, geographic points that can be noted include the following: Russia, according to one assessment, "has at least half of the Arctic in terms of area, coastline, population and probably mineral wealth." Russia has numerous cities and towns in its Arctic, uses its coastal Arctic waters as a maritime highway for supporting its Arctic communities, is promoting the Northern Sea Route that runs along Russia's Arctic coast for use by others, and is keen to capitalize on natural resource development in the region, both onshore and offshore. In this sense, of all the Arctic states, Russia might have the most at stake in the Arctic in absolute terms. Arctic ice is diminishing more rapidly or fully on the Russian side of the Arctic than it is on the Canadian side. Consequently, the Northern Sea Route along Russia's coast is opening up more quickly for trans-Arctic shipping than is the Northwest Passage through the Canadian archipelago. On the one hand, the United States, Canada, and the Nordic countries continue cooperate with Russia on a range of issues in the Arctic, including, to cite just one example, search and rescue (SAR) under the May 2011 Arctic Council agreement on Arctic SAR (see " Search and Rescue (SAR) "). More recently, the United States and Russia cooperated in creating a scheme for managing two-way shipping traffic through the Bering Strait and Bering Sea. A July 17, 2018, opinion piece states that It's likely that few, if any, of either [President Trump's or President Putin's] advisors, let alone commentators, are looking to the Arctic—yes, the Arctic—as a starting point for common ground and improving relations going forward…. Yet, other than the International Space Station, the Far North is perhaps the only setting in which the United States and the Russian Federation cooperate today on a wide variety of issues. These two practical examples of cooperation might provide a foundation upon which both sides can regain some trust and positive momentum in their bilateral relationship (that is, if there is will on both sides to do so). If such momentum could be sustained over any meaningful period of time, it may create a more functional context to address other pressing and multilateral issues of global importance…. Clearly the recent agreements on Central Arctic Ocean fishing and research provide pathways for cooperation. Perhaps a joint Arctic marine expedition in the remote Central Arctic Ocean in support of the new fisheries agreement could be proposed? The U.S. and Russia could take the lead in the Arctic Coast Guard Forum (now chaired by Finland) in exploring enforcement issues with the new IMO International Code for Ships Operating in Polar Waters. Renewed military-to-military cooperation could be feasible if the joint meetings were to focus on Arctic emergency operations, something more likely as shipping and development activities increase. Presidents Trump and Putin could support renewed friendship flights and cultural exchanges between the indigenous communities that border our shared Bering and Chukchi Seas. On the other hand, as discussed later in this report, a significant increase in Russian military capabilities and operations in the Arctic in recent years has prompted growing concerns among U.S., Canadian, and Nordic observers that the Arctic might once again become a region of military tension and competition, as well as concerns about whether the United States, Canada, and the Nordic countries are adequately prepared militarily to defend their interests in the region. In protest of Russia's forcible occupation and annexation of Crimea and its actions elsewhere in Ukraine, Canada announced that it would not participate in an April 2014 working-level-group Arctic Council meeting in Moscow. In addition, former Secretary of State Hillary Clinton, during whose tenure a "reset" in relations with Russia was sought, reportedly stated that Arctic cooperation may be jeopardized if Russia pursues expansionist policies in the high north. More recently, economic sanctions that the United States imposed on Russia in response to Russian actions in Ukraine could affect Russian Arctic offshore oil exploration. Another potential concern for U.S. policymakers in connection with Russia in the Arctic relates to the Northern Sea Route. Russia considers certain parts of the Northern Sea Route to be internal Russian waters—a position that creates a potential source of tension with the United States, which may consider at least some of those waters to be international waters. A dispute over this issue could have implications not only for the Arctic, but for other parts of the world as well, since international law is universal in its application, and a successful challenge to international waters in one part of the world can serve as a precedent for challenging it in other parts of the world. A November 30, 2018, press report states Russia plans to restrict the passage of foreign warships in the Arctic Ocean next year, a top defense official has said…. On Friday [November 30], Defense Ministry spokesman Mikhail Mizintsev said that Russia's ministries were working on amending legislation that would require foreign warships to notify Russia before being able to pass through the Arctic. The work will be completed by the time the waters are navigable in 2019, Mizintsev was cited by Interfax as saying at a conference on Friday. NATO, the EU, and the Arctic The shift in the international security environment has led to a renewal of NATO interest in NATO's more northerly areas. During the Cold War, NATO member Norway and its adjacent sea areas were considered to be the northern flank of NATO's defensive line against potential aggression by the Soviet-led Warsaw Pact alliance. With the end of the Cold War and the shift to the post-Cold War era, NATO planning efforts shifted away from defending against potential aggression by Russia, which was considered highly unlikely, and toward other concerns, such as the question of how NATO countries might be able to contribute to their own security and that of other countries by participating in out-of-area operations, meaning operations in areas outside Europe. With the ending of the post-Cold War era and the shift in the international security environment to a period of renewed great power competition, NATO is now once again focusing more on the question of how to deter potential Russian aggression against NATO countries. As one consequence of that, Norway and its adjacent sea areas are once again receiving more attention in NATO planning. For example, a NATO exercise called Trident Juncture 18 that was held from October 25 to November 7, 2018, in Norway and adjacent waters of the Baltic and the Norwegian Sea, with participation by all 29 NATO members plus Sweden and Finland, was described as NATO's largest exercise since the Cold War, and featured a strong Arctic element, including the first deployment of a U.S. Navy aircraft carrier above the Arctic Circle since 1991. The question of NATO's overall involvement in the Arctic, however, has been a matter of debate within NATO. A 2012 report stated that "[t]here is currently no consensus within the alliance that NATO has any role to play in the Arctic, as Canada strongly opposes any NATO involvement on sovereignty grounds and other NATO members are concerned with negative Russian reaction." A 2013 NATO Parliamentary Assembly report noted that "50% of the territory surrounding the Arctic Sea is a territory of a NATO member state," and suggested that "NATO could serve as a forum for dialogue on military issues.... " The report argued that the alliance is well-equipped to play a key role in addressing security challenges that will likely emerge, particularly those that involve surveillance, search-and-rescue, and environmental cleanup. However, observers stated that the lack of unanimity over a NATO presence in the Arctic was reflected by the fact that the high north was not mentioned in either in NATO's 2010 strategic concept, nor in the final declaration of NATO's 2012 Chicago summit. On May 8, 2013, following a visit to Norway, then-NATO Secretary General Rasmussen stated that "at the present time," the alliance had "no intention of raising its presence and activities in the High North." In May 2017, it was reported that NATO "may revive a Cold War naval command to counter Moscow's increased submarine activity in the Arctic and protect Atlantic sea lanes in the event of a conflict, according to allied diplomats and officials briefed on the planning work." An April 4, 2018, press report states the following: Despite rising tensions with Russia in Eastern Europe, the Baltics and more recently in the United Kingdom, NATO would like to keep the Arctic an area of low tensions, the chief of the North Atlantic Alliance said Wednesday [April 4]. "We used to say that in the High North we have low tensions," NATO Secretary General Jens Stoltenberg told reporters during a joint press conference with Prime Minister Justin Trudeau. "And I think we should continue to strive for avoiding an arms race and higher tensions in the High North." At the same time the alliance needs to respond to the increased Russian military presence in the North Atlantic and the Arctic regions with more of its own naval forces, said Stoltenberg who was in Ottawa for a two-day visit. "Therefore part of the adaptation of NATO is that we are also increasing our naval capabilities, including the High North," Stoltenberg said. Two observers state in a June 27, 2018, policy paper that The North Atlantic Treaty Organization (NATO) summit in Brussels on July 11 and 12 is an opportunity for the Alliance to finally focus on a region it has long ignored: the Arctic…. NATO has no agreed common position on its role in the Arctic region. The [July 2016 NATO] Warsaw Summit Declaration did not mention the word Arctic, and neither does the Alliance's most recent Strategic Concept published in 2010. NATO has been internally divided on the role that the Alliance should play in the High North. Norway is the leading voice inside the Alliance for promoting NATO's role in the Arctic. It is the only country in the world that has its permanent military headquarters above the Arctic Circle, and it has invested extensively in Arctic defense capabilities. Canada has likewise invested heavily in Arctic defense capabilities. However, unlike Norway, Canada has stymied past efforts by NATO to take a larger role in the region. Generally speaking, there is a concern inside Canada that an Alliance role in the Arctic would afford non-Arctic NATO countries influence in an area where they otherwise would have none. A July 2, 2018, opinion piece by another observer stated the following: Since 2014, the alliance has adapted to focus on Russia's actions in eastern Europe, notably in the Baltic region and in Poland…. But strengthening NATO's eastern flank is not enough. Little has been done to work out a coherent vision for how to protect NATO interests in the Arctic or in the Black Sea. This is worrying since Russia is emboldened in both regions, as seen through brinksmanship such as provocative air manoeuvring, an assertive force posture and constant military drilling…. The Kremlin defined its Arctic strategy back in 2008 and named the High North a region of strategic importance in its 2017 naval doctrine…. NATO by contrast lacks any comparable strategy for the High North: its 2010 Strategic Concept does not even mention the region and discussions on the North Atlantic do not automatically include the High North. The creation of a new NATO North Atlantic Joint Force Command this February, without a proper Arctic angle, proves this point. Furthermore, the 'GIUK gap' (Greenland, Iceland and the UK), connecting the North Atlantic to the Arctic region, is often overlooked. The European Union (EU) is also showing increased interest in the Arctic. A February 20, 2019, press report states that Just as it is in Russia and in China, the Arctic is rapidly rising to the top of the political agenda of the European Union. Increased geopolitical focus on the Arctic is creating renewed urgency in Brussels when it comes to securing a proper role for the EU in the Arctic and to increasing European access to Arctic oil, gas, minerals, fish stocks and shipping routes.… The EU has played for a number of years an increasing, if somewhat disjointed role in the Arctic. Sweden and Finland, both members of the EU, embrace large Arctic regions that are subject to EU legislation. The Kingdom of Denmark consists of Denmark, which is a EU member country, and the Faroe Islands and Greenland, both territories that are not part of the EU.… The Faroe Islands and Greenland are both influenced by economic ties to the EU and by a number of international agreements involving the EU. The two non-EU-countries Norway and Iceland, both members of the Arctic Council, are members of the European Economic Area and thus part of the inner market of the European Union and its customs regime. The EU is an important importer of Arctic fish, shrimp, minerals and gas and a central sponsor of Arctic science programs. The EU is a key signatory to the recent moratorium on fishing in the central parts of the Arctic Ocean, the Polar Code of the IMO and several other key international regimes (and European industry contributes significantly to emission of carbon dioxide and black carbon that accelerates climate change in the Arctic). But recently, the EU has taken a more urgent interest in the region, Vilen says. EU Commission President Jean Claude Juncker has personally positioned the Arctic in the very foreground of policy making in Brussels by commissioning a policy paper on the EU's Arctic priorities. The timing of this initiative is a point in itself. The forthcoming policy paper, due in the early part of May [2019], will have the potential to influence not only electoral campaigns prior to the elections to the European Parliament later that month, but also the next EU Commission, which is to be formed most likely late this year, and the next seven-year budget of the European Union, which is currently very much on the table…. "The Arctic policy importance comes with the change of the geopolitical setting of the Arctic," Vilen told me. "The position of the Arctic is different today due to China's increased interest, Russia's increased interest, increased American policy positions and because of the needs and demand for natural resources, gas, oils, minerals and fishing stocks. The Arctic has changed, but what has not changed is the European positions and assessments on how we should be engaged. I am trying to argue that the European Union should be ready to take a leadership role in the Arctic, because if we don't do it, someone else will try to."… After years of preparation, the European Commission and the EU's High Representative for Foreign Affairs and Security Policy adopted in 2016 the European Union's first comprehensive Arctic strategy, the "Integrated Arctic Policy," legally binding for all 28 member states. Such a policy would normally not be overhauled for another four or five years, but Juncker has obviously seen a need for a quicker update. The upcoming policy paper will not be legally binding for the member states, nor will it formally change the policy adopted in 2016, but as Vilen explained it will likely strengthen focus, priorities and overall attention to the Arctic in Brussels at a conspicuous moment in European affairs…. The wish to secure European access to oil, gas, minerals, fishing stocks, shipping routes and other Arctic resources is a main pillar of Vilen's approach…. Traditionally, the EU has not involved itself in Arctic security and Vilen has no intention to change this approach. The EU is engaged in a prolonged and deep sanctions standoff with Russia following Russia's military annexation of Crimea in 2014, but like the Arctic states and the Arctic Council, the EU still treasures its dialogue with Russia on Arctic affairs; this allows for the dialogue that is otherwise missing. Russia is still blocking the EU's admission as a formal observer to the Arctic Council, but Vilen downplays this aspect of the EU's Russia relations: "In practice, it has not affected the European Union's engagement in any way. We continue to work as a de facto observer in the working groups [of the Arctic Council], and a lot of the material information to the groups come from the European Commission services and also a lot of the financing for the projects. So we are in. The de jure position is not here, but our de facto position is in place," he said. China in the Arctic China's Growing Activities in Arctic China's activities in the Arctic have grown steadily in recent years. As noted earlier in this report, China was one of six non-Arctic states that were approved for observer status by the Arctic Council in 2013. China in recent years has engaged in growing diplomatic activities with the Nordic countries, and has increased the size of its diplomatic presences in some of them. In April 2013, China and Iceland signed a free trade agreement—China's first such pact with a European government—and has pursued the possibility of oil exploration in waters off Iceland. China has also engaged in growing economic discussions with Greenland, a territory of Denmark that might be moving toward eventual independence. China has an Arctic-capable icebreaker, Xue Long (Snow Dragon), that in recent years has made several transits of Arctic waters—operations that China describes as research expeditions. China is completing construction of its second Arctic-capable icebreaker (the first that China has built domestically), to be named Xue Long 2 , and has announced an intention to eventually build a 30,000-ton nuclear-powered icebreaker, which would make China only the second country (along with Russia) to operate a nuclear-powered icebreaker. Like several other nations, China has established a research station in the Svalbard archipelago. China in January 2018 released a white paper on China's Arctic policy that refers to China as a "near-Arctic state." (China's northernmost territory, northeast of Mongolia, is at about the same latitude as the Aleutian Islands in Alaska, which, as noted earlier in this report, the United States includes in its definition of the Arctic for purposes of U.S. law.) The white paper refers to trans-Arctic shipping routes as the Polar Silk Road, and identifies these routes as a third major transportation corridor for the Belt and Road Initiative (BRI), China's major geopolitical initiative, first announced by China in 2013, to knit Eurasia and parts of Africa together in a Chinese-anchored or Chinese-led infrastructure and economic network. China appears to be interested in using the Northern Sea Route (NSR) linking Europe and Asia via waters running along Russia's Arctic coast to shorten commercial shipping times between Europe and China and perhaps also to reduce China's dependence on southern sea routes (including those going to the Persian Gulf) that pass through the Strait of Malacca—a maritime choke point that China appears to regard as vulnerable to being closed off by other parties (such as the United States) in time of crisis or conflict. China reportedly reached an agreement with Russia on July 4, 2017, to create an "Ice Silk Road," and in June 2018, China and Russia agreed to a credit agreement between Russia's Vnesheconombank (VEB) and the China Development Bank that could provide up to $9.5 billion in Chinese funds for the construction of select infrastructure projects, including in particular projects along the NSR. In September 2013, the Yong Shen , a Chinese cargo ship, became the first commercial vessel to complete the voyage from Asia to Rotterdam via the NSR. China is interested in oil and gas exploration in the Arctic, and has made significant investments in Russia's Arctic oil and gas industry. In March 2013, it was announced that Russia and China had signed an agreement under which China would purchase oil from Russia in exchange for exploration licenses in the Arctic. China's investments in Russia's Arctic oil and gas industry include an ownership stake of at least 20% in the Yamal natural gas megaproject located on Russia's Yamal Peninsula in the Arctic. The facility includes onshore and offshore natural gas wells, a deepwater port, liquefied natural gas (LNG) storage and feeder lines, permafrost-resilient support buildings, and rail lines. In July 2018, an LNG shipment reportedly arrived in China from the Yamal LNG facility, via the NSR, for the first time. China is also interested in mining opportunities in the Arctic seabed and in Greenland. Given Greenland's very small population, China may view Greenland as an entity that China can seek to engage using an approach similar to ones that China has used for engaging with small Pacific and Indian Ocean island states. China may also be interested in Arctic fishing grounds. China's growing activities in the Arctic may also reflect a view that as a major world power, China should, like other major world powers, be active in the polar regions for conducting research and other purposes. (Along with its growing activities in the Arctic, China has recently increased the number of research stations in maintains in the Antarctic.) Particularly since China published its Arctic white paper in January 2018, observers have expressed curiosity or concern about China's exact mix of motivations for its growing activities in the Arctic, and about what China's ultimate goals for the Arctic might be. Arctic States' Response The shift in the international security environment to a situation of renewed great power competition underscores a question for the Arctic states regarding whether and how to respond to China's growing activities in the Arctic. China's growing activities in the Arctic could create new opportunities for cooperation between China and the Arctic states. They also, however, have the potential for posing challenges to the Arctic states in terms of defending their own interests in the Arctic. For U.S. policymakers, a general question is how to integrate China's activities in the Arctic into the overall equation of U.S.-China relations, and whether and how, in U.S. policymaking, to link China's activities in the Arctic to its activities in other parts of the world. One specific question concerns potential areas for U.S.-Chinese cooperation in the Arctic. Another specific question could be whether to impose punitive costs on China in the Arctic for unwanted actions that China takes elsewhere. As one hypothetical example of such a cost-imposing action, U.S. policymakers could consider moving to suspend China's observer status on the Arctic Council as a punitive cost-imposing measure for unwanted Chinese actions in the South China Sea. In February 2019, it was reported that the United States in 2018 had urged Denmark to finance airports that China had offered to build in Greenland, so as to counter China's attempts to increase its presence and influence there. For Russia, the question of whether and how to respond to China's activities in the Arctic may pose particular complexities. On the one hand, Russia is promoting the NSR for use by others, in part because Russia sees significant economic opportunities in offering icebreaker escorts, refueling posts, and supplies to the commercial ships that will ply the waterway. In that regard, Russia presumably would welcome increased use of the route by ships moving between Europe and China. More broadly, Russia and China have increased their cooperation on security and other issues in recent years, in no small part as a means of balancing or countering the United States in international affairs, and Russian-Chinese cooperation in the Arctic can both reflect and contribute to that cooperation. On the other hand, Russian officials are said to be wary of China's continued growth in wealth and power, and of how that might eventually lead to China becoming the dominant power in Eurasia, and to Russia being relegated to a secondary or subordinate status in Eurasian affairs relative to China. Increased use by China of the NSR could accelerate the realization of that scenario: As noted above, the NSR forms part of China's geopolitical Belt and Road Initiative (BRI). Some observers argue that actual levels of Sino-Russian cooperation in the Arctic are not as great as Chinese or Russian announcements about such cooperation might suggest. A July 6, 2018, press report states the following: China and Russia are working together ever more closely in the Arctic, exploiting a policy vacuum in the US, an international panel of experts said here. But Sino-Russian cooperation is almost entirely commercial, focused on trade routes, offshore oil, telecommunications (most satellites don't cover the Arctic), and tourism. A military alliance is unlikely given Russia's deep ambivalence about China's growing influence in general and their very different views on who should run the Arctic in particular: the eight circumpolar countries alone—including both Russia and the US [through the Arctic Council]—or a larger group that includes self-declared "near-Arctic" nations like China. A July 12, 2018, press report states the following: China's actions both before and especially since [it published its Arctic white paper in January 2018] suggest that it is actually seeking not equality with others in the global frozen North, but rather a dominant position. And this prospect has already prompted some Russian commentators to suggest China wants to reduce Russia to the status of "a younger brother" in the Arctic…. China's expansive moves in the region have, to date, taken three forms. First, it is increasing its share of orders for goods carried across Arctic waters by the ships of other countries—especially those of the Russian Federation—something that gives it clout in Moscow in particular…. Moreover, China is boosting its ownership stake in ships flying the Russian flag. Second, it has launched a program to build both ice breakers and ice-capable ships so that it will be able to carry more of the goods and raw materials it wants with its own vessels rather than having to rely on anyone else's. And third—and perhaps most dramatically in terms of Beijing's long-term goals—Chinese firms are establishing drilling platforms in areas of the Arctic Ocean that Moscow claims as part of its exclusive economic zone (EEZ). Similarly, it is building port facilities on Russian territory that are located far from China and that may soon eclipse Russian ones. All three of these developments merit close attention, both for what they say about China's intentions as well as Beijing's increasing upper hand regarding a region and waterway Moscow has long insisted are exclusively Russian. A November 7, 2018, press report states An article published on October 5 by the Russian International Affairs Council (RIAC) discusses Russia's strategy in the Arctic region and the evolving role of China therein…. It frames the United States and the European Union as Russia's main regional competitor. But China is notably presented as a "strategic partner" for whom "the Arctic region is not a top strategic priority" and whose efforts to build up its naval strength are related to a desire to challenge the US, not Russia. The sentiments expressed in the above-mentioned RIAC article appear to reflect how Moscow views the prior concrete steps the Russian Federation and People's Republic of China (PRC) have been taking to strengthen bilateral cooperation in the Arctic.… Nonetheless, Chinese ambitions in the Arctic seem to extend beyond the level of such joint initiatives…. … Russia's expectations in this matter are premised on three assumptions: – China will save Russia's stagnant north… – China has no alternatives but to work with Russia …. – China will be unable to "sideline" Russia (Topwar.ru, January 30, 2018), given Russia's dominant position in the Arctic and the nature of relations between Beijing and Moscow…. However, these assumptions appear questionable at best: First, the NEP [Northeast Passage, aka Northern Sea Route] still requires a staggering amount of infrastructure investment—realistic estimates run in the trillions of US dollars—before it can start yielding profits…. Moreover, the facts do not bear out the Russian conviction that Beijing can choose only between the NEP and the NWP, with no available alternative…. Second, Russia is not China's only potential partner in the Arctic. The PRC white paper clearly points to the fact that Chinese involvement there will be a multilateral, not a bilateral affair…. Third, China is likely to ultimately sideline Russia. As rightfully pointed out by Dr. Pavel Gudev, a senior research fellow at the Institute of World Economy and International Relations (IMEMO), China's strategy in the Arctic region is dictated by the desire to "downplay exclusivity in relations between Arctic nations" and "internationalize the Arctic as much as possible," which "runs counter to Russia's national interests in the region"…. And finally, international competition by other Arctic players may further outflank Russian efforts. A November 29, 2018, statement to a committee of the Canadian parliament states So far, Arctic nations have cautiously welcomed China's willingness to play a larger role in the Arctic.… Arctic nations are also setting limits. In 2011, Iceland blocked the sale of a large plot of land to a Chinese investor; in 2016, Denmark declined to sell a vacant naval base in Greenland to a Chinese mining company; and in that same year, a projected Chinese resort in Svalbard, under Norwegian sovereignty, was canceled. Each Arctic state—often under public pressure—is setting its own limits when it comes to welcoming Chinese presence. Russia's approach toward China shows a similar mix of interest and caution. China is a key investor in Russia's Yamal LNG project, and Chinese funds are particularly welcome, as Russia has been shunned by some of its more traditional investors since its annexation of Crimea. Russia also welcomes Chinese interest in developing port infrastructure along the NSR. Yet Russia is also very much intent on keeping the NSR under its control. This may eventually create tensions with China, as China sees the NSR as one element of the Belt and Road Initiative and will resent obstacles to its free use of the route (the alternative route, the Northwestern Passage along the northern shore of Canada, is not considered a viable replacement because of poor navigation conditions and a lack of infrastructure). While Russia and China are formally allies through the Shanghai Cooperation Organization, Russia remains wary of China's military power on its southern border and, as an Arctic nation, is irritated by the intrusion in Arctic affairs of non-Arctic states, as evidenced by its long-standing reluctance to grant observer status to these countries in the Arctic Council. A policy paper released in December 2018 states Since 2017, a series of events have raised optimism about the potential for Sino-Russian cooperation in the Arctic region, including unilateral and bilateral statements between Beijing and Moscow about their shared vision for and commitment to joint development of the Arctic energy resources and shipping lane. China's economic interests in natural resources extractions and alternative transportation routes largely align with Russia's stated goals to revitalize its Arctic territory…. Despite the rhetorical enthusiasm from the two governments, concrete, substantive joint projects on the Northern Sea Route are lacking, especially in key areas such as infrastructure development. A careful examination of Chinese views on joint development of the Northern Sea Route reveals divergent interests, conflicting calculations and vastly different cost-benefit analyses. From the Chinese perspective, the joint development of the Northern Sea Route is a Russian proposal to which China reacted primarily out of strategic and political considerations rather than practical economic ones. While China is in principle interested in the Northern Sea Route, the potential and practicality of this alternative transportation route remains tentative and yet to be realized. For China, their diverging interests, especially over what constitutes mutually beneficial compromises, will be the biggest obstacle to future progress. Moscow needs to demonstrate much more sincerity or flexibility in terms of improving China's cost-benefit spreadsheet. In this sense, expectations and assessments of the impact of Sino-Russian cooperation specifically on the Northern Sea Route should be focused on moderate, concrete plans rather than glorified rhetoric…. Although the Chinese are fond of optimistically discussing the potential for Sino-Russian cooperation on the Northern Sea Route, they have been unable to reach an optimistic conclusion for its viability, feasibility, and practicality. China and Russia have identified their converging interests in such cooperation. However, their diverging interests, especially over what constitutes mutually beneficial compromises, will be the biggest obstacle to future progress. China's view of the economic practicality of the Northern Sea Route remains a lofty future ambition that is steeped in hopes of the project's potential. In the best-case scenario, few Chinese experts see the Northern Sea Route as a viable substitute/alternative to traditional shipping routes. Instead, the Northern Sea Route is seen primarily as a potential supplement. The unfavorable assessment of the economic practicality of the Northern Sea Route underscores the fact that there has been more discussion about development than actual projects on the ground. China has demonstrated greater interest in other areas of infrastructure cooperation, such as on the Primorye International Transportation Corridor and energy development projects. However, interest regarding joint development of the Northern Sea Route has been markedly less impressive or present. China's apparent enthusiasm on Northern Sea Route cooperation with Russia is motivated primarily by political and strategic considerations. Cooperation helps to pave China's entry into the otherwise relatively exclusive Arctic region and affords China an advantaged and prioritized position in the projects for which Russia is accepting or seeking international cooperation. Russia's options for other international partners might expand after international sanctions are lifted and/or if the United States identifies China as the biggest threat and Russia as a partner in the Sino-U.S.-Russian strategic triangle. However, such hypotheticals do not appear to be coming to fruition anytime soon. A 2019 report on China's strategic ambitions stated the following: The Sino-Russian partnership has both supported China's Arctic ambitions and at times acted as a check on them. Broadly speaking, the region serves as a testing ground for key goals of [Chinese leader] Xi Jinping's foreign policy agenda…. Focusing on climate change, sustainable development, and global governance, [China's Arctic] white paper downplays China's security interests in the region, especially the link between the projection of power in the polar region and the development of naval capabilities needed for great-power status. The PLA [People's Liberation Army—China's military], however, has been integral to the development of China's Arctic capabilities, and the changing Arctic (and China's evolving role in it) are becoming a key part of the country's maritime strategy…. China faces several obstacles to fulfilling its Arctic ambitions. At present, the country has limited experience in cold-water navigation and polar research, though the Chinese government has been making substantial investments, particularly in the latter. In the short term, fears about Russia in Northern Europe may contribute to greater receptivity to China's activities in the Arctic, but this may no longer be the case if China seeks to play a more substantial role…. China's ambitions in the Arctic could also complicate its relations with Russia. China's entry into the region has been importantly facilitated by Russia's acceptance of Chinese investments and provision of Arctic navigation training (though… Russia was initially wary of China's quest for observer status in the Arctic Council). Yet China may not need a gatekeeper in the region for much longer if Arctic ice continues to recede. If the NSR [Northern Sea Route] is no longer frozen, then Russia may lose its legal rationale for administering the waterway, potentially leading to tensions with China and other users hoping to avoid Russian oversight and fees…. … China's relationship with Russia is central to its Arctic ambitions, though Russia's positions on Arctic shipping also set limits to the Chinese role…. Although Russia is China's key partner in the Arctic, Chinese officials have sought to improve relations with all the Arctic states. As an observer in the Arctic Council, China depends on members to put forward its proposals and will only be able to participate in Arctic resource development in cooperation with these states…. China's Arctic ambitions have elicited concern among regional states for two sets of reasons. First, countries like Russia that view Arctic coastal waterways as subject to their own jurisdiction are apprehensive about China's position. Second, most of the Arctic states have significant resource deposits or coastal access to such stores and are concerned about the consequences of China's investments and economic power in the region. This is particularly acute for smaller Arctic states such as Iceland, where a large infusion of Chinese funds might have an outsized political and economic impact…. While Canada, which views the Northwest Passage as internal waters, and Russia, with its assertion of administrative rights over the still ice-covered NSR, have had some reservations about China playing a greater role in the Arctic, Nordic countries have largely welcomed its growing interest in the region. Chinese policy toward these states has involved multilateralism, as well as bilateral diplomacy and investments under BRI [the Belt and Road Initiative]…. Chinese investments in Greenland have been especially controversial due to its strategic location and domestic pressures for political independence from Denmark…. While Chinese officials and analysts have been cautiously avoiding discussion of Greenland's political future, China's approach to the Nordic states is in keeping with its general approach to Europe…. China is playing a long game in the Arctic, slowly building up its presence, scientific capacity, and naval capabilities in anticipation of future economic bounties as the ice recedes. China has had to tread carefully as an outsider, however "near-Arctic" it claims to be, because even small steps by Chinese investors could have a big impact on small Arctic states. While somewhat wary of China's intentions and protective of its own status as an Arctic littoral state, Russia has provided an important entry point, via transit through the NSR and investment opportunities in the Russian Arctic. Nonetheless, China has to balance its aspirations with the need to be mindful of Russian sensitivities on Arctic issues…. For China, the Arctic is a promised land of untapped resources and an opportunity to exert its influence in global governance, yet these benefits are largely promised to insiders. However loudly China proclaims itself to be a near-Arctic state, it nonetheless has to demonstrate its presence through economic, scientific, and political activities. These same activities raise concerns among Arctic states about China's intentions and willingness to accept the status quo, which for Russia means the authority to administer currently ice-covered waterways. The Arctic is not a static environment, however, and its melting ice will have profound political consequences as well as environmental ones. For Xi, the Arctic and polar regions more broadly are the testing grounds for his global ambitions, both as a maritime power and as a participant in the development of new forms of global governance. Linkages Between Arctic and South China Sea Another potential implication of the shift in the international security environment to a situation of great power competition is a linkage that is sometimes made between the Arctic and the South China Sea relating to international law of the sea or the general issue of international cooperation and competition. One aspect of this linkage relates to whether China's degree of compliance with international law of the sea in the South China Sea has any implications for understanding potential Chinese behavior regarding its compliance with international law of the sea (and international law generally) in the Arctic. A second aspect of this linkage, mentioned earlier, is whether the United States should consider the option of moving to suspend China's observer status on the Arctic Council as a punitive cost-imposing measure for unwanted Chinese actions in the South China Sea. A third aspect of this linkage concerns the question of whether the United States should become a party to UNCLOS: Discussions of that issue sometimes mention both the situation in the South China Sea and the extended continental shelf issue in the Arctic (see " Extended Continental Shelf and United States as a Nonparty to UNCLOS "). U.S. Military Forces and Operations307 Overview During the Cold War, the Arctic was an arena of military competition between the United States and the Soviet Union, with both countries, for example, operating nuclear-powered submarines, long-range bombers, and tactical aircraft in the region. The end of the Cold War and the collapse of most elements of the Russian military establishment following the dissolution of the Soviet Union in December 1991 greatly reduced this competition and led to a reduced emphasis on the Arctic in U.S. military planning. Renewed tensions with Russia following its seizure and annexation of Crimea in March 2014, combined with a significant increase in Russian military capabilities and operations in the Arctic in recent years, have led to growing concerns among observers that the Arctic is once again becoming a region of military tension and competition, and to concerns about whether the United States is adequately prepared militarily to defend its interests in the region. U.S. military officials, military officials from other Arctic states, and other observers have stressed the cooperative aspects of how the Arctic states have addressed Arctic issues, and have sometimes suggested that the competitive aspects of the situation have been exaggerated in some press accounts. Some observers argue that that Russia's recent military investment in the Arctic is being exaggerated, or reflects normal modernization of aging capabilities, or is intended partly for domestic Russian consumption. Even so, U.S. military forces (and U.S. intelligence agencies) are paying renewed attention to the Arctic. This is particularly true in the case of the Navy and Coast Guard, for whom diminishment of Arctic sea ice is opening up potential new operating areas for their surface ships. The U.S. Air Force, Army, and Marine Corps, too, are now focusing more on Arctic operations. Canada, the UK, and the Nordic countries are taking or contemplating steps to increase their own military presence and operations in the region. DOD in General 2010 QDR (Submitted February 2010) DOD's report on the 2010 QDR, submitted to Congress in February 2010, states the following: The effect of changing climate on the Department's operating environment is evident in the maritime commons of the Arctic. The opening of the Arctic waters in the decades ahead[,] which will permit seasonal commerce and transit[,] presents a unique opportunity to work collaboratively in multilateral forums to promote a balanced approach to improving human and environmental security in the region. In that effort, DoD must work with the Coast Guard and the Department of Homeland Security to address gaps in Arctic communications, domain awareness, search and rescue, and environmental observation and forecasting capabilities to support both current and future planning and operations. To support cooperative engagement in the Arctic, DoD strongly supports accession to the United Nations Convention on the Law of the Sea. April 2011 Change to DOD Unified Command Plan In April 2011, President Obama assigned responsibility for the Arctic to U.S. Northern Command. Previously, U.S. Northern Command, U.S. European Command, and U.S. Pacific Command had shared responsibility for the Arctic. The April 2011 change in DOD's Unified Command Plan also assigned Alaska to U.S. Northern Command. Previously, U.S. Northern Command and U.S. Pacific Command had shared responsibility for Alaska and adjacent waters. May 2011 DOD Report to Congress In May 2011, DOD submitted a report to Congress on Arctic operations and the Northwest Passage that was prepared at congressional direction. A January 2012 GAO report reviewed the May 2011 DOD report. November 2013 DOD Arctic Strategy On November 22, 2013, DOD released a DOD strategy for the Arctic that was subsequently updated by the December 2016 report to Congress on Arctic strategy discussed below. January 2014 Implementation Plan for National Strategy for Arctic Region The Obama Administration's January 2014 implementation plan for its national strategy for the Arctic region (see " Background ") makes DOD the lead federal agency for one of the plan's 36 or so specific initiatives, and a supporting agency for 18 others. The initiative for which DOD is designated the lead federal agency is entitled "Develop a framework of observations and modeling to support forecasting and prediction of sea ice." 2014 Quadrennial Defense Review (QDR) (Submitted March 2014) The Department of Defense's (DOD's) report on the 2014 Quadrennial Defense Review (QDR), submitted to Congress in March 2014, states the following: Climate change also creates both a need and an opportunity for nations to work together, which the Department will seize through a range of initiatives. We are developing new policies, strategies, and plans, including the Department's Arctic Strategy and our work in building humanitarian assistance and disaster response capabilities, both within the Department and with our allies and partners. 2015 National Security Strategy The February 2015 National Security Strategy mentions the Arctic three times, stating that "the present day effects of climate change are being felt from the Arctic to the Midwest. Increased sea levels and storm surges threaten coastal regions, infrastructure, and property." It also states that "we seek to build on the unprecedented international cooperation of the last few years, especially in the Arctic as well as in combatting piracy off the Horn of Africa and drug-smuggling in the Caribbean Sea and across Southeast Asia," and that "we will also stay engaged with global suppliers and our partners to reduce the potential for energy-related conflict in places like the Arctic and Asia." June 2015 GAO Report A June 2015 Government Accountability Office (GAO) report states the following: Recent strategic guidance on the Arctic issued by the [Obama] administration and the Department of Defense (DOD) establish a supporting role for the department relative to other federal agencies, based on a low level of military threat expected in the region. In January 2014 the [Obama] administration issued the Implementation Plan to the National Strategy for the Arctic Region that designated DOD as having a largely supporting role for the activities outlined in the plan. Additionally, DOD's Arctic Strategy issued in November 2013 and the Navy's Arctic Roadmap 2014-2030 issued in February 2014 emphasize that, as sea ice diminishes and the Arctic Ocean opens to more activity, the department may be called upon more frequently to support other federal agencies and work with partners to ensure a secure and stable region. To further its role, DOD participates in a number of forums focused on military security cooperation in the Arctic, including the Arctic Security Forces Roundtable, a senior-level event aimed at encouraging discussion among the security forces of Arctic and non-Arctic nations. In addition, DOD leads training exercises focused on building partner capacity in the region, including Arctic Zephyr, a multilateral scenario-based exercise. DOD continues to monitor the security environment in the region and is tracking indicators that could change its threat assessment and affect DOD's future role. DOD has taken actions, along with interagency partners, to address some near-term capabilities needed in the Arctic, such as maritime domain awareness and communications. In recent years, DOD has conducted a number of studies to identify near-term capabilities the department needs to operate in the Arctic. The Implementation Plan to the National Strategy for the Arctic Region created an interagency framework and identified activities to address many of these needed capabilities. For example, as the lead agency for Arctic sea ice forecasting, DOD has established an interagency team to focus on improved sea ice modeling. DOD has also begun other efforts within the department to address capability needs. For example, the Navy's Arctic Roadmap prioritizes near-term actions to enhance its ability to operate in the Arctic and includes an implementation plan and timeline for operations and training, facilities, equipment, and maritime domain awareness, among other capabilities. U.S. Northern Command—the DOD advocate for Arctic capabilities—stated that it is in the process of updating its regional plans for the Arctic and is conducting analysis to determine future capability needs. For example, Northern Command is updating the Commander's Estimate for the Arctic, which establishes the commander's intent and missions in the Arctic and identifies near-, mid-, and long-term goals. Additionally, the command is conducting studies of various Arctic mission areas, such as maritime homeland defense and undersea surveillance, to identify future capability needs. However, according to DOD's Arctic Strategy, uncertainty remains around the pace of change and commercial activity in the region that may affect its planning timelines. Difficulty in developing accurate sea ice models, variability in the Arctic's climate, and the uncertain rate of activity in the region create challenges for DOD to balance the risk of having inadequate capabilities or insufficient capacity when required to operate in the region with the cost of making premature or unnecessary investments. According to its Arctic Strategy, DOD plans to mitigate this risk by monitoring the changing Arctic conditions to determine the appropriate timing for capability investments. June 2016 DOD Report on Funding for 2013 Arctic Strategy A June 2016 DOD report to Congress on resourcing the Arctic Strategy states that DOD is making investments in research, military infrastructure, and capabilities to execute the 2013 Arctic Strategy and support the development of the Arctic as a secure and stable region where U.S. national interests are safeguarded, the U.S. homeland is protected, and nations work cooperatively to address challenges. Fiscal year (FY) 2017 investments focus mainly on capabilities, followed by long-term investments in research and development of next-generation capabilities. The Department's challenge is balancing the risk of being late-to-need with the opportunity cost of making Arctic investments for potential future contingencies at the expense of resourcing other urgent military requirements.... Data provided by the Combatant Commands and Military Departments from the FY 2017 budget identifies about $6 billion of FY 2017 investments.... The report includes a summary table showing that of $6.032 billion requested by DOD for FY2017 for implementing the Arctic strategy, about $461.3 million is for Army, Navy, and Air Force research and development work, $362.2 million is for Air Force military construction (MILCON) work, and about $5.209 billion is for Army, Navy, Air Force, defense-wide, and classified capabilities. Within the $5.209 billion figure, about 85% is accounted for by Air Force operations and maintenance (O&M), with about $2.281 billion, Air Force procurement, with about $1.109 billion, and Army military personnel (MILPERS) costs, with about $1.036 billion. December 2016 Report to Congress on Arctic Strategy A December 2016 report to Congress on strategy to protect U.S. national security interests in the Arctic region that was required by Section 1068 of FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015) states the following (italics and bold as in original): The Department of Defense (DoD) remains committed to working collaboratively with allies and partners to promote a balanced approach to improving security in the Arctic region. DoD's strategy in the Arctic builds upon the 2009 National Security Presidential Directive 66/Homeland Security Presidential Directive 25, Arctic Region Policy , and the 2013 National Strategy for the Arctic Region (NSAR). DoD's 2013 Arctic Strategy nested under those two overarching national-level guidance documents. DoD's 2016 Arctic Strategy updates DoD's 2013 Arctic Strategy as required by Section 1068 of the National Defense Authorization Act for FY 2016 ( P.L. 114-92 ) in light of significant changes in the international security environment. It refines DoD's desired end-state for the Arctic: a secure and stable region where U.S. national interests are safeguarded, the U.S. homeland is defended, and nations work cooperatively to address challenges. The two main supporting objectives remain unchanged: 1) Ensure security, support safety, promote defense cooperation; and 2) prepare to respond to a wide range of challenges and contingencies—operating in conjunction with like-minded nations when possible and independently if necessary—in order to maintain stability in the region. This update also adds a classified annex. In this strategy, near-term refers to the timeframe from the present to 2023, during which DoD will operate with current forces and execute resources programmed across the Future Years Defense Program (FYDP). The mid-term (2023-2030) and far-term (beyond 2030) are also addressed where relevant to global posture and force development. Timeframes are approximate due to uncertainty about future environmental, economic, and geopolitical conditions and the pace at which human activity in the Arctic region will increase. The 2016 Arctic Strategy also updates the ways and means DoD intends to use to achieve its objectives as it implements the NSAR. These include --Enhance the capability of U.S. forces to defend the homeland and exercise sovereignty; --Strengthen deterrence at home and abroad; --Strengthen alliances and partnerships; --Preserve freedom of the seas in the Arctic; --Engage public, private, and international partners to improve domain awareness in the Arctic; --Evolve DoD Arctic infrastructure and capabilities consistent with changing conditions and needs; --Provide support to civil authorities, as directed; --Partner with other departments, agencies, and nations to support human and environmental security; and --Support international institutions that promote regional cooperation and the rule of law. DoD's strategic approach is guided by its main objectives of ensuring security, supporting safety, and promoting defense cooperation as it prepares to respond to a wide range of challenges and contingencies in the Arctic in the years to come. Alliances and strategic partnerships remain the center of gravity in achieving DoD's desired end-state and ensuring that the Arctic remains a secure and stable region. Wherever possible, DoD will continue to seek innovative, cost-effective, small-footprint ways to achieve its objectives. DoD will also continue to apply the four overarching principles articulated in the NSAR: working with allies and partners to safeguard peace and stability; making decisions using the best available scientific information; pursuing innovative partnerships to develop needed capabilities and capacity over time; and following established Federal and DoD tribal consultation policy as applicable. FY2018 National Defense Authorization Act (H.R. 2810/P.L. 115-91) Section 1054 of the conference version ( H.Rept. 115-404 of November 9, 2017) of H.R. 2810 / P.L. 115-91 of December 12, 2017, requires DOD to submit a report on steps DOD is taking to resolve Arctic security capability and resource gaps, and the requirements and investment plans for military infrastructure required to protect U.S. national security interests in the Arctic region. 2017 National Security Strategy The December 2017 National Security Strategy mentions the Arctic once, stating that "a range of international institutions establishes the rules for how states, businesses, and individuals interact with each other, across land and sea, the Arctic, outer space, and the digital realm. It is vital to U.S. prosperity and security that these institutions uphold the rules that help keep these common domains open and free." 2018 National Defense Strategy The January 2018 unclassified summary of the 2018 National Defense Strategy does not specifically mention the Arctic. John S. McCain National Defense Authorization Act for Fiscal Year 2019 (H.R. 5515/S. 2987) In the conference report ( H.Rept. 115-874 of July 25, 2018) on H.R. 5515 , Section 1071 states the following: SEC. 1071. REPORT ON AN UPDATED ARCTIC STRATEGY. (a) REPORT ON AN UPDATED STRATEGY.—Not later than June 1, 2019, the Secretary of Defense shall submit to the congressional defense committees a report on an updated Arctic strategy to improve and enhance joint operations. (b) ELEMENTS.—The report required by subsection (a) shall include the following: (1) A description of United States national security interests in the Arctic region. (2) An assessment of the threats and security challenges posed by adversaries operating in the Arctic region, including descriptions of such adversaries' intents and investments in Arctic capabilities. (3) A description of the roles and missions of each military service in the Arctic region in the context of joint operations to support the Arctic strategy, including— (A) a description of a joint Arctic strategy for sea operations, including all military and Coast Guard vessels available for Arctic operations; (B) a description of a joint Arctic strategy for air operations, including all rotor and fixed wing military aircraft platforms available for Arctic operations; and (C) a description of a joint Arctic strategy for ground operations, including all military ground forces available for Arctic operations. (4) A description of near-term and long-term training, capability, and resource gaps that must be addressed to fully execute each mission described in the Arctic strategy against an increasing threat environment. (5) A description of the level of cooperation between the Department of Defense, any other departments and agencies of the United States Government, State and local governments, and tribal entities related to the defense of the Arctic region. (c) FORM OF REPORT.—The report required by subsection (a) shall be submitted in unclassified form, but may include a classified annex. H.Rept. 115-874 also states the following: The conferees direct the Secretary of Defense to submit a report to the congressional defense committees not later than 180 days after the date of enactment of this Act on current cold weather capabilities and readiness of the United States Armed Forces. The report shall contain the following elements: (1) A description of current cold weather capabilities and training to support United States military operations in cold climates across the joint force; (2) A description of anticipated requirements for United States military operations in cold and extreme cold weather in the Arctic, Northeast Asia, and Northern and Eastern Europe; (3) A description of the current cold weather readiness of the joint force, the ability to increase cold weather training across the joint force, and any equipment, infrastructure, personnel, or resource limitations or gaps that may exist; (4) An analysis of potential opportunities to expand cold weather training for the Army, the Navy, the Air Force, and the Marine Corps and the resources or infrastructure required for such expansion; and (5) An analysis of potential partnerships with State, local, Tribal, and private entities to maximize training potential and to utilize local expertise, including traditional indigenous knowledge. (Pages 835-836) FY2019 DOD Appropriations Act (S. 3159) The Senate Appropriations Committee, in its report ( S.Rept. 115-290 of June 28, 2018) on S. 3159 , states the following: Arctic Broadband Infrastructure .—The Committee is concerned that broadband infrastructure in the Arctic, particularly in northern Alaska and the Aleutian Islands, is not capable of supporting current military operations. Therefore, the Committee directs the Secretary of Defense to conduct an evaluation of broadband infrastructure in the United States Arctic and provide a report to the congressional defense committees not later than 180 days after enactment of this act. The report shall list an inventory of all existing broadband and communications infrastructure in the Aleutian Is land chain and Alaska's northwest and northern slope communities, as well as present limitations and needs for the future. (Pages 35-36) DOD Cooperation with Canada and Other Countries DOD has been taking a number of steps in recent years to strengthen U.S.-Canadian cooperation and coordination regarding military operations in the Arctic. Navy and Coast Guard in General The Navy and Coast Guard are exploring the potential implications that increased human activities in the Arctic may have for Navy and Coast Guard required numbers of ships and aircraft, ship and aircraft characteristics, new or enlarged Arctic bases, and supporting systems, such as navigation and communication systems. The Navy and Coast Guard have sponsored or participated in studies and conferences to explore these implications, the Coast Guard annually deploys cutters and aircraft into the region to perform missions and better understand the implications of operating such units there, and the Navy has deployed ships to the region. Points or themes that have emerged in studies, conferences, and deployments regarding the potential implications for the U.S. Navy and Coast Guard of diminished Arctic sea ice include but are not limited to the following: The diminishment of Arctic ice is creating potential new operating areas in the Arctic for Navy surface ships and Coast Guard cutters. U.S. national security interests in the Arctic include "such matters as missile defense and early warning; deployment of sea and air systems for strategic sealift, strategic deterrence, maritime presence, and maritime security operations; and ensuring freedom of navigation and overflight." SAR in the Arctic is a mission of increasing importance, particularly for the Coast Guard, and one that poses potentially significant operational challenges (see " Search and Rescue (SAR) " above). More complete and detailed information on the Arctic is needed to more properly support expanded Navy and Coast Guard ship and aircraft operations in the Arctic. The Navy and the Coast Guard currently have limited infrastructure in place in the Arctic to support expanded ship and aircraft operations in the Arctic. Expanded ship and aircraft operations in the Arctic may require altering ship and aircraft designs and operating methods. Cooperation with other Arctic countries will be valuable in achieving defense and homeland security goals. Navy November 2009 Navy Arctic Roadmap The Navy issued its first Arctic roadmap on November 10, 2009. The document, dated October 2009, was intended to guide the service's activities regarding the Arctic for the period FY2010-FY2014. The document has now been succeeded by the 2014-2030 Navy Arctic roadmap (see discussion below). August 2011 Navy Arctic Environmental Assessment and Outlook Report In August 2011, the Navy released an Arctic environment assessment and outlook report. The report states the following: As the Arctic environment continues to change and human activity increases, the U.S. Navy must be prepared to operate in this region. It is important to note that even though the Arctic is opening up, it will continue to be a harsh and challenging environment for the foreseeable future due to hazardous sea ice, freezing temperatures and extreme weather. Although the Navy submarine fleet has decades of experience operating in the Arctic, the surface fleet, air assets, and U.S. Marine Corps ground troops have limited experience there. The Navy must now consider the Arctic in terms of future policy, strategy, force structure, and investments. November 2013 DOD Arctic Strategy The November 2013 DOD Arctic strategy (see discussion above in the section on DOD) states that "The Department of the Navy, in its role as DoD Executive Agent for Maritime Domain Awareness, will lead DoD coordination on maritime detection and tracking," and that "DoD will take steps to work with other Federal departments and agencies to improve nautical charts, enhance relevant atmospheric and oceanic models, improve accuracy of estimates of ice extent and thickness, and detect and monitor climate change indicators. In particular, the Department of the Navy will work in partnership with other Federal departments and agencies (e.g., DHS, the Department of Commerce) and international partners to improve hydrographic charting and oceanographic surveys in the Arctic." January 2014 Implementation Plan for National Strategy for Arctic Region The Obama Administration's January 2014 implementation plan for its national strategy for the Arctic region (see " Background ") mentions the Navy by name only once, as one of several agencies that will "collaborate to improve marine charting in the Arctic (Integrated Ocean and Coastal Mapping) and topographic mapping (Alaska Mapping Executive Committee)." As noted above in the discussion of DOD in general, however, the January 2014 implementation plan makes DOD the lead federal agency for one of the plan's 36 or so specific initiatives and a supporting agency for 18 others. The Navy will likely be a prominent participant in DOD's activities for a number of these 19 initiatives. February 2014 Updated Navy Arctic Roadmap for 2014-2030 On February 24, 2014, the Navy released an updated Arctic roadmap intended to guide Navy activities regarding the Arctic for the period 2014-2030. The document is the successor to the November 2009 Navy Arctic roadmap (see discussion above). The executive summary of the 2014-2030 Navy Arctic roadmap states the following: The United States Navy, as the maritime component of the Department of Defense, has global leadership responsibilities to provide ready forces for current operations and contingency response that include the Arctic Ocean. The Arctic Region remains a challenging operating environment, with a harsh climate, vast distances, and little infrastructure. These issues, coupled with limited operational experience, are just a few substantial challenges the Navy will have to overcome in the Arctic Region. While the Region is expected to remain a low threat security environment where nations resolve differences peacefully, the Navy will be prepared to prevent conflict and ensure national interests are protected.... Navy functions in the Arctic Region are no different from those in other maritime regions; however, the Arctic Region environment makes the execution of many of these functions much more challenging.... In support of National and Department of Defense aims, the Navy will pursue the following strategic objectives: • Ensure United States Arctic sovereignty and provide homeland defense ; • Provide ready naval forces to respond to crisis and contingencies; • Preserve freedom of the seas ; and • Promote partnerships within the United States Government and with international allies and partners.... Resource constraints and competing near-term mission demands require that naval investments be informed, focused, and deliberate. Proactive planning today allows the Navy to prepare its forces for Arctic Region operations. This Roadmap emphasizes low-cost, long-lead activities that position the Navy to meet future demands. In the near to mid-term, the Navy will concentrate on improving operational capabilities, expertise, and capacity, extending reach, and will leverage interagency and international partners to achieve its strategic objectives. The Roadmap recognizes the need to guide investments by prudently balancing regional requirements with national goals.... This Roadmap provides direction to the Navy for the near-term (present-2020), mid-term (2020-2030), and far-term (beyond 2030), placing particular emphasis on near-term actions necessary to enhance Navy's ability to operate in the Arctic Region in the future. In the near-term, there will be low demand for additional naval involvement in the Region. Current Navy capabilities are sufficient to meet near-term operational needs. Navy will refine doctrine, operating procedures, and tactics, techniques, and procedures to guide future potential operations in the Arctic Region. In the mid-term, the Navy will provide support to the Combatant Commanders, United States Coast Guard, and other United States Government agencies. In the far-term, increased periods of ice-free conditions could require the Navy to expand this support on a more routine basis. Regarding "United States Navy Ways and Means for Near-Term, Mid-Term, and Far-Term Operations," the roadmap states the following: Near-term: Present to 2020. The Navy will continue to provide capability and presence primarily through undersea and air assets. Surface ship operations will be limited to open water operations in the near-term. Even in open water conditions, weather factors, including sea ice, must be considered in operational risk assessments. During shoulder seasons, the Navy may employ ice strengthened Military Sealift Command (MSC) ships to conduct Navy missions. By 2020, the Navy will increase the number of personnel trained in Arctic operations. The Navy will grow expertise in all domains by continuing to participate in exercises, scientific missions, and personnel exchanges in Arctic-like conditions. Personnel exchanges will provide Sailors with opportunities to learn best practices from other United States' military services, interagency partners, and international allies and partners. The Navy will refine or develop the necessary strategy, policy, plans, and requirements for the Arctic Region. Additionally, the Navy will continue to study and make informed decisions on pursuing investments to better facilitate Arctic operations. The Navy will emphasize low cost, long-lead time activities to match capability and capacity to future demands. The Navy will update operating requirements and procedures for personnel, ships, and aircraft to operate in the Region with interagency partners and allies. Through ongoing exercises, such as Ice Exercise (ICEX) and Scientific Ice Expeditions (SCICEX) research, and transits through the region by Navy submarines, aircraft and surface vessels, the Navy will continue to learn more about the evolving operating environment. The Navy will focus on areas where it provides unique capabilities and will leverage joint and coalition partners to fill identified gaps and seams. Mid-term: 2020 to 2030. By 2030, the Navy will have the necessary training and personnel to respond to contingencies and emergencies affecting national security. As the Arctic Ocean becomes increasingly ice-free, surface vessels will operate in the expanding open water areas. The Navy will improve its capabilities by participating in increasingly complex exercises and training with regional partners. While primary risks in the mid-term will likely be meeting search and rescue or disaster response mission demands, the Navy may also be called upon to ensure freedom of navigation in Arctic Ocean waters. The Navy will work to mitigate the gaps and seams and transition its Arctic Ocean operations from a capability to provide periodic presence to a capability to operate deliberately for sustained periods when needed. Far-term: Beyond 2030. In the far-term, Navy will be capable of supporting sustained operations in the Arctic Region as needed to meet national policy guidance. The Navy will provide trained and equipped personnel, along with surface, subsurface, and air capabilities, to achieve Combatant Commander's objectives. The high confidence of diminished ice coverage and navigable waterways for much of the year will enable naval forces to operate forward, ready to respond to any potential threat to national security, or to provide contingency response. Far-term risks include increased potential for search and rescue and DSCA [Defense Support of Civil Authorities], but may also require naval forces to have a greater focus on maritime security and freedom of navigation in the Region. 2018 Reestablishment of 2nd Fleet for North Atlantic and Arctic In May 2018, the Navy announced that it would reestablish the 2 nd Fleet, which was the Navy's fleet during the Cold War for countering Soviet naval forces in the North Atlantic. The fleet's formal reestablishment occurred in August 2018. The 2 nd Fleet was created in 1950 and disestablished in September 2011. In its newly reestablished form, it is described as focusing on countering Russian naval forces not only in the North Atlantic but in the Arctic as well. Upcoming Freedom of Navigation (FON) Operation in Arctic In January 2019, the Navy announced that "in coming months" it will send a Navy warship through Arctic waters on a freedom of navigation (FON) operation to assert U.S. navigational rights under international law in Arctic waters. The U.S. government's FON program was established in 1979 and annually includes multiple U.S. Navy FON operations conducted in various parts of the world. The upcoming FON operation in the Arctic, however, will reportedly be the Navy's first ever FON operation in the Arctic. Coast Guard Overview—November 2015 Coast Guard Testimony At a November 17, 2015, hearing on Arctic operations before two subcommittees of the House Foreign Affairs Committee, the Coast Guard testified that The Coast Guard has been operating in the Arctic Ocean since 1867, when Alaska was purchased from Russia. Then, as now, our mission is to enforce U.S. laws and regulations, conduct search and rescue, assist scientific exploration, and foster navigation safety and environmental stewardship. The Coast Guard uses mobile command and control platforms including large cutters and ocean-going ice-strengthened buoy tenders, as well as seasonal air and communications capabilities to execute these missions within more than 950,000 square miles of ocean off the Alaskan coast. Since 2008, the Coast Guard has conducted operations in the Arctic Region to assess our capabilities and mission requirements as maritime activity and environmental conditions warrant. These operations have included establishing small, temporary Forward Operating Locations along the North Slope to test our capabilities with boats, helicopters, and personnel. Each year from April to November we also fly aerial sorties to evaluate activities in the region. We will continue to deploy a suite of Coast Guard cutters to test our equipment, train our crews, and increase our awareness of Arctic activity. Coast Guard High Latitude Study Provided to Congress in July 2011 In July 2011, the Coast Guard provided to Congress a study on the Coast Guard's missions and capabilities for operations in high-latitude (i.e., polar) areas. The study, commonly known as the High Latitude Study, is dated July 2010 on its cover. The High Latitude Study concluded the following: [The study] concludes that future [Coast Guard] capability and capacity gaps will significantly impact four [Coast Guard] mission areas in the Arctic: Defense Readiness, Ice Operations, Marine Environmental Protection, and Ports, Waterways, and Coastal Security. These mission areas address the protection of important national interests in a geographic area where other nations are actively pursuing their own national goals. U.S. national policy and laws define the requirements to assert the nation's jurisdiction over its territory and interests; to ensure the security of its people and critical infrastructure; to participate fully in the collection of scientific knowledge; to support commercial enterprises with public utility; and to ensure that the Arctic environment is not degraded by increased human activity. The Coast Guard's ability to support Defense Readiness mission requirements in the Arctic is closely linked to DoD responsibilities. The Coast Guard presently possesses the only surface vessels capable of operating in ice-covered and ice-diminished waters. The Coast Guard supports (1) DoD missions such as the resupply of Thule Air Base in Greenland and logistics support (backup) for McMurdo Station in Antarctica and (2) Department of State (DoS) directed Freedom of Navigation Operations. These unique Coast Guard capabilities have been noted by the Joint Chiefs of Staff, the Navy's Task Force Climate Change, and the recently issued Naval Operations Concept 2010. The common and dominant contributor to these significant mission impacts is the gap in polar icebreaking capability.... Other capability gaps contributing to the impact on Coast Guard ability to carry out its missions in the Arctic include • Communications System Capability – Continuous coverage along Alaska's West Coast, the Bering Strait, and throughout the North Slope is required for exchanging voice and data communications with Coast Guard units and other government and commercial platforms offshore. • Forward Operating Locations - No suitable facilities currently exist on the North Slope or near the Bering Strait with facilities sufficient to support extended aircraft servicing and maintenance. Aircraft must travel long distances and expend significant time transiting to and from adequate facilities. This gap reduces on-scene presence and capability to support sustained operations in the region. • Environmental response in ice-covered waters - The technology and procedures for assessment and mitigation measures for oil spills in ice-covered waters are not fully developed or tested. Capability gaps in the Arctic region have moderate impacts on [the Coast Guard's] Aids to Navigation (AtoN), Search and Rescue (SAR), and Other Law Enforcement (OLE) missions. Both AtoN and SAR involve the safety of mariners and will gain more importance not only as commerce and tourism cause an increase in maritime traffic, but as U.S. citizens in northern Alaska face more unpredictable conditions. Performance of OLE will be increasingly necessary to ensure the integrity of U.S. living marine resources from outside pressures.... In addition to the assessment of polar icebreaking needs, the Arctic mission analysis examined a set of theoretical mixes (force packages) of Coast Guard assets consisting of icebreakers, their embarked helicopters, and deployment alternatives using aviation forward operating locations in Arctic Alaska.... All [six] of the force mixes [considered in the study] add assets to the existing Coast Guard Alaska Patrol consisting of (1) a high-endurance cutter (not an icebreaker) deployed in the Bering Sea carrying a short range recovery helicopter, and (2) medium range recovery helicopters located at Kodiak in the Gulf of Alaska, and seasonally deployed to locations in Cold Bay and St. Paul Island.... These force packages and associated risk assessment provide a framework for acquisition planning as the Coast Guard implements a strategy for closing the capability gaps. By first recapitalizing the aging icebreakers, the Coast Guard provides a foundation for buildout of these force mixes. In addition to the cost of the icebreakers, the force packages require investment in forward operating locations and in medium range helicopters. The mission analysis reports developed rough order-of-magnitude cost estimates for forward operating locations at approximately $36M [million] each and for helicopters at $9M each.... The analysis shows that the current Coast Guard deployment posture is not capable of effective response in northern Alaska and that response may be improved through a mix of deployed cutters, aircraft, and supporting infrastructure including forward operating locations and communications/navigation systems. May 2013 Coast Guard Arctic Strategy On May 21, 2013, the Coast Guard released a strategy document for the Arctic. The executive summary of the document states the following in part: The U.S. Coast Guard, as the maritime component of the U.S. Department of Homeland Security (DHS), has specific statutory responsibilities in U.S. Arctic waters. This strategy outlines the ends, ways, and means for achieving strategic objectives in the Arctic over the next 10 years. The Coast Guard is responsible for ensuring safe, secure, and environmentally responsible maritime activity in U.S. Arctic waters. Our efforts must be accomplished in close coordination with DHS components, and involve facilitating commerce, managing borders, and improving resilience to disasters. The Coast Guard's current suite of cutters, boats, aircraft, and shore infrastructure must meet a number of near-term mission demands. The Coast Guard employs mobile command and control platforms such as large cutters and ocean-going ice-strengthened buoy tenders, as well as seasonal air and communications capabilities through leased or deployable assets and facilities. These mobile and seasonal assets and facilities have proven to be important enablers for front-line priorities in the region, including search and rescue operations, securing the maritime border, collecting critical intelligence, responding to potential disasters, and protecting the marine environment.... Although winter sea travel is still severely limited due to extensive ice coverage across the region, recent summer and early autumn sea ice extent record lows have made seasonal maritime navigation more feasible. Economic development, in the forms of resource extraction, adventure tourism, and trans-Arctic shipping drives much of the current maritime activity in the region. [Oil and gas exploration] activities [in the region] bring risk, which can be mitigated through appropriate maritime governance. Additionally, tourism is increasing rapidly in the Arctic. Due to undeveloped shore-based infrastructure, much of the increased tourism is expected to involve transportation via passenger vessel, further increasing near- and offshore activities in Arctic waters. This document outlines three strategic objectives in the Arctic for the U.S. Coast Guard over the next 10 years: • Improving Awareness • Modernizing Governance • Broadening Partnerships Improving Awareness: Coast Guard operations require precise and ongoing awareness of activities in the maritime domain. Maritime awareness in the Arctic is currently restricted due to limited surveillance, monitoring, and information system capabilities. Persistent awareness enables identification of threats, information-sharing with front-line partners, and improved risk management. Improving awareness requires close collaboration within DHS, as well as with the Departments of State, Defense, Interior, the National Science Foundation and other stakeholders to enhance integration, innovation, and fielding of emerging technologies. The Intelligence Community and non-federal partners are also vital stakeholders. Modernizing Governance: The concept of governance involves institutions, structures of authority, and capabilities necessary to oversee maritime activities while safeguarding national interests. Limited awareness and oversight challenge maritime sovereignty, including the protection of natural resources and control of maritime borders. The Coast Guard will work within its authorities to foster collective efforts, both domestically and internationally, to improve Arctic governance. In so doing, the Coast Guard will review its own institutions and regimes of governance to prepare for future missions throughout the Arctic. Broadening Partnerships: Success in the Arctic requires a collective effort across both the public and private sectors. Such a collective effort must be inclusive of domestic regulatory regimes; international collaborative forums such as the Arctic Council, International Maritime Organization (IMO), and Inuit Circumpolar Council; domestic and international partnerships; and local engagements in Arctic communities focusing on training and volunteer service. Success in the Arctic also depends upon close intergovernmental cooperation to support national interests, including working closely within DHS, as well as with the Department of State, Department of Interior and other Federal partners as the U.S. prepares to assume Chairmanship of the Arctic Council in 2015. Beyond these three strategic objectives, there are a number of additional factors that will position the Coast Guard for long-term success. These factors include building national awareness of the Arctic and its opportunities, strengthening maritime regimes, improving public-private relationships through a national concept of operations, seeking necessary authorities, and identifying future requirements and resources to shape trends favorably. This strategy outlines a number of priorities, ranging from capabilities and requirements to advances in science and technology that will facilitate our Nation's success in the region. Specifically, the strategy advocates to leverage the entire DHS enterprise and component capabilities to secure our borders, prevent terrorism, adapt to changing environmental conditions, enable community resilience and inform future policy. Operating in the Arctic is not a new venture for the Coast Guard. However, adapting to changing conditions will require foresight, focus, and clear priorities. This strategy will ensure we attain the aim of safe, secure, and environmentally responsible maritime activity in the Arctic by improving awareness, modernizing governance, and broadening partnerships to ensure long-term success. January 2014 Implementation Plan for National Strategy for Arctic Region The Obama Administration's January 2014 implementation plan for its national strategy for the Arctic region (see " Background ") makes "Department of Homeland Security (United States Coast Guard)" the lead federal agency for 6 of the plan's 36 or so specific initiatives, and a supporting agency for 13 others. The six initiatives where the Coast Guard is designated the lead federal agency include enhance Arctic domain awareness; improve hazardous material spill prevention, containment, and response; promote Arctic oil pollution preparedness, prevention, and response internationally; enhance Arctic SAR; expedite International Maritime Organization (IMO) Polar Code development and adoption; and promote Arctic waterways management. For the second initiative above—"Improve Hazardous Material Spill Prevention, Containment, and Response"—the Coast Guard shares lead-agency status with the Environmental Protection Agency (EPA), with the Coast Guard being the lead federal agency for open ocean and coastal spills, and EPA being the lead federal agency for inland spills. October 2015 Agreement on Arctic Coast Guard Forum (ACGF) The Coast Guard, working with coast guards of other Arctic nations, in October 2015 established an Arctic Coast Guard Forum (ACGF). The Coast Guard states that The Arctic Coast Guard Forum (ACGF), modeled after the successful North Pacific Coast Guard Forum, is a unique maritime governance group where Principals of all eight Arctic countries discuss coordination of exercises, strengthen relationships, and share best practices. Complimentary to the Arctic Council, the chairmanship of the ACGF will reside with the country holding the rotating chair of the Arctic Council. The first "experts-level" meetings of the ACGF in 2014 garnered enthusiastic approval of the concept. Representatives of the eight Arctic nations finalized and agreed on a Terms of Reference document, determined working groups (Secretariat and Combined Operations), and drafted a Joint Statement. The first ever "Heads of Arctic Coast Guards" meeting took place on October 28-30, 2015 at the U.S. Coast Guard Academy, and the participating nations approved the Terms of Reference and released the Joint Statement. June 2016 GAO Report on Coast Guard Arctic Capabilities A June 2016 GAO report on Coast Guard Arctic capabilities states the following: The U.S. Coast Guard, within the Department of Homeland Security, reported making progress implementing its Arctic strategy. For example, the Coast Guard reported conducting exercises related to Arctic oil spill response and search and rescue, and facilitating the formation of a safety committee in the Arctic, among other tasks in its strategy. To track the status of these efforts, the Coast Guard is developing a web-based tool and anticipates finalizing the tool in mid-2016. The Coast Guard assessed its capability to perform its Arctic missions and identified various capability gaps—including communications, infrastructure, and icebreaking, and has worked to mitigate these gaps with its Arctic partners, such as other federal agencies. Specifically, Coast Guard officials stated that the agency's actions to implement the various Arctic strategies and carry out annual Arctic operations have helped to mitigate Arctic capability gaps. However, the Coast Guard has not systematically assessed the extent to which its actions agency-wide have helped to mitigate these gaps. Coast Guard officials attributed this, in part, to not being able to unilaterally close the gaps. While mitigating these gaps requires joint efforts among Arctic partners, the Coast Guard has taken actions in the Arctic that are specific to its missions and therefore has responsibility for assessing the extent to which these actions have helped to mitigate capability gaps. By systematically assessing and measuring its progress, the Coast Guard will better understand the status of these gaps and be better positioned to effectively plan its Arctic operations. The Coast Guard has been unable to fulfill some of its polar icebreaking responsibilities with its aging icebreaker fleet, which currently includes two active polar icebreakers. In 2011 and 2012, the Coast Guard was unable to maintain assured, year-round access to the Arctic and did not meet 4 of 11 requests for polar icebreaking services. With its one active heavy icebreaker—which has greater icebreaking capability—nearing the end of its service life, the Coast Guard initiated a program in 2013 to acquire a new one and is working to determine the optimal acquisition strategy. However, the Coast Guard's efforts to acquire an icebreaker, whether by lease or purchase, will be limited by legal and operational requirements. In addition, current projections show that the Coast Guard is likely to have a 3- to 6-year gap in its heavy icebreaking capability before a new icebreaker becomes operational.... The Coast Guard is developing a strategy to determine how to best address this expected gap. March 2017 Arctic Coast Guard Forum Joint Statement A March 24, 2017, press report states the following: Coast guard leaders from the world's eight Arctic nations met in Boston Friday [March 24] to sign a joint statement for cooperation on emergency maritime response and combined operations in the high northern seas. U.S. Coast Guard Commandant Adm. Paul Zukunft joined leaders representing Canada, Denmark, Finland, Iceland, Norway, Sweden and the Russian Federation in the signing, and a ceremony handing off chairmanship of the group from the U.S. to the Finnish Border Guard. Maritime and environmental groups alike have stressed the need for closer international cooperation, as more Arctic shipping routes became navigable with retreating ice, opening access for shipping, energy and mineral exploration and commercial tourism. The statement adopts doctrine, tactics, procedures and information-sharing protocols for emergency maritime response and combined operations in the Arctic. It culminated two years of international collaboration, as working groups established strategies, objectives and tactics aimed towards achieving common operational goals in the region. So far, nation representatives have participated in table top exercises in Reykjavik, Iceland, and the District of Columbia. A live exercise in the Arctic is planned for later this year. Coast Guard officials describe the forum as "an operationally-focused, consensus-based organization with the purpose of leveraging collective resources to foster safe, secure and environmentally responsible maritime activity in the Arctic." "This forum — one of many ways in which the Coast Guard uses our unique roles to enhance our Nation's diplomacy — has quickly established itself as a premier platform for fostering safe, secure and environmentally responsible maritime activity in the Arctic," said Zukunft. In testimony to U.S. senators earlier this week, Zukunft spoke of the need to engage with other Arctic nations, characterizing it as a clear preference for cooperation over competition. Nevertheless, he stressed the need for the U.S. to press forward with building a new fleet of three heavy and three medium icebreakers. FY2019 DHS Appropriations Act (S. 3109) The Senate Appropriations Committee, in its report ( S.Rept. 115-283 of June 21, 2108) on S. 3109 , states the following: Arctic Program Office .—Recognizing the growing national security imperatives for an enhanced U.S. presence in the Arctic, the Committee is pleased that the Coast Guard has established an Arctic Strategy, an Arctic Strategy Implementation Plan, and an Arctic Program Office. This office has furthered the Nation's national defense and security interests in the Arctic through its extensive participation, coordination, and collaboration with other international, Federal, and SLTT partners to improve awareness, broaden partnerships, and modernize governance in the Arctic. Most recently, the office supported the completion of the Bering Strait Port Access Route Study, a study that resulted in a joint recommendation by the United States and the Russian Federation to the International Maritime Organization [IMO] to establish a common vessel traffic measure. Recently approved by the IMO, the traffic measure is the first IMO-approved measure for navigation safety in polar waters. The Coast Guard is to report to the Committee if additional resources are needed for the Arctic Program Office to further its important mission. (Pages 61-62) CRS Reports on Specific Arctic-Related Issues CRS Report RL34266, Climate Change: Science Highlights , by Jane A. Leggett CRS Report RS21890, The U.N. Law of the Sea Convention and the United States: Developments Since October 2003 , by Marjorie Ann Browne CRS Report RL33872, Arctic National Wildlife Refuge (ANWR): An Overview , by M. Lynne Corn, Michael Ratner, and Laura B. Comay CRS Report RL32838, Arctic National Wildlife Refuge (ANWR): Votes and Legislative Actions Since the 95th Congress , by M. Lynne Corn and Beth Cook CRS Report RL34547, Possible Federal Revenue from Oil Development of ANWR and Nearby Areas , by Salvatore Lazzari CRS Report RL33705, Oil Spills: Background and Governance , by Jonathan L. Ramseur CRS Report RL33941, Polar Bears: Listing Under the Endangered Species Act , by Eugene H. Buck, M. Lynne Corn, and Kristina Alexander CRS Report RL34391, Coast Guard Polar Security Cutter (Polar Icebreaker) Program: Background and Issues for Congress , by Ronald O'Rourke CRS Report RL34342, Homeland Security: Roles and Missions for United States Northern Command , by William Knight Appendix A. Arctic Research and Policy Act (ARPA) of 1984 (Title I of P.L. 98-373 ) The text of the Arctic Research and Policy Act (ARPA) of 1984 (Title I of P.L. 98-373 of July 31, 1984) is as follows: TITLE I – ARCTIC RESEARCH AND POLICY SHORT TITLE SEC. 101. This title may be cited as the "Arctic Research and Policy Act of 1984". FINDINGS AND PURPOSES SEC. 102. (a) The Congress finds and declares that- (1) the Arctic, onshore and offshore, contains vital energy resources that can reduce the Nation's dependence on foreign oil and improve the national balance of payments; (2) as the Nation's only common border with the Soviet Union, the Arctic is critical to national defense; (3) the renewable resources of the Arctic, specifically fish and other seafood, represent one of the Nation's greatest commercial assets; (4) Arctic conditions directly affect global weather patterns and must be understood in order to promote better agricultural management throughout the United States; (5) industrial pollution not originating in the Arctic region collects in the polar air mass, has the potential to disrupt global weather patterns, and must be controlled through international cooperation and consultation; (6) the Arctic is a natural laboratory for research into human health and adaptation, physical and psychological, to climates of extreme cold and isolation and may provide information crucial for future defense needs; (7) atmospheric conditions peculiar to the Arctic make the Arctic a unique testing ground for research into high latitude communications, which is likely to be crucial for future defense needs; (8) Arctic marine technology is critical to cost-effective recovery and transportation of energy resources and to the national defense; (9) the United States has important security, economic, and environmental interests in developing and maintaining a fleet of icebreaking vessels capable of operating effectively in the heavy ice regions of the Arctic; (10) most Arctic-rim countries, particularly the Soviet Union, possess Arctic technologies far more advanced than those currently available in the United States; (11) Federal Arctic research is fragmented and uncoordinated at the present time, leading to the neglect of certain areas of research and to unnecessary duplication of effort in other areas of research; (12) improved logistical coordination and support for Arctic research and better dissemination of research data and information is necessary to increase the efficiency and utility of national Arctic research efforts; (13) a comprehensive national policy and program plan to organize and fund currently neglected scientific research with respect to the Arctic is necessary to fulfill national objectives in Arctic research; (14) the Federal Government, in cooperation with State and local governments, should focus its efforts on the collection and characterization of basic data related to biological, materials, geophysical, social, and behavioral phenomena in the Arctic; (15) research into the long-range health, environmental, and social effects of development in the Arctic is necessary to mitigate the adverse consequences of that development to the land and its residents; (16) Arctic research expands knowledge of the Arctic, which can enhance the lives of Arctic residents, increase opportunities for international cooperation among Arctic-rim countries, and facilitate the formulation of national policy for the Arctic; and (17) the Alaskan Arctic provides an essential habitat for marine mammals, migratory waterfowl, and other forms of wildlife which are important to the Nation and which are essential to Arctic residents. (b) The purposes of this title are- (1) to establish national policy, priorities, and goals and to provide a Federal program plan for basic and applied scientific research with respect to the Arctic, including natural resources and materials, physical, biological and health sciences, and social and behavioral sciences; (2) to establish an Arctic Research Commission to promote Arctic research and to recommend Arctic research policy; (3) to designate the National Science Foundation as the lead agency responsible for implementing Arctic research policy; and (4) to establish an Interagency Arctic Research Policy Committee to develop a national Arctic research policy and a five year plan to implement that policy. ARCTIC RESEARCH COMMISSION SEC. 103. (a) The President shall establish an Arctic Research Commission (hereafter referred to as the "Commission"). (b)(1) The Commission shall be composed of five members appointed by the President, with the Director of the National Science Foundation serving as a nonvoting, ex officio member. The members appointed by the President shall include- (A) three members appointed from among individuals from academic or other research institutions with expertise in areas of research relating to the Arctic, including the physical, biological, health, environmental, social, and behavioral sciences; (B) one member appointed from among indigenous residents of the Arctic who are representative of the needs and interests of Arctic residents and who live in areas directly affected by Arctic resource development; and (C) one member appointed from among individuals familiar with the Arctic and representative of the needs and interests of private industry undertaking resource development in the Arctic. (2) The President shall designate one of the appointed members of the Commission to be chairperson of the Commission. (c)(1) Except as provided in paragraph (2) of this subsection, the term of office of each member of the Commission appointed under subsection (b)(1) shall be four years. (2) Of the members of the Commission originally appointed under subsection (b)(1)- (A) one shall be appointed for a term of two years; (B) two shall be appointed for a term of three years; and (C) two shall be appointed for a term of four years. (3) Any vacancy occurring in the membership of the Commission shall be filled, after notice of the vacancy is published in the Federal Register, in the manner provided by the preceding provisions of this section, for the remainder of the unexpired term. (4) A member may serve after the expiration of the member's term of office until the President appoints a successor. (5) A member may serve consecutive terms beyond the member's original appointment. (d)(1) Members of the Commission may be allowed travel expenses, including per diem in lieu of subsistence, as authorized by section 5703 of title 5, United States Code. A member of the Commission not presently employed for compensation shall be compensated at a rate equal to the daily equivalent of the rate for GS-16 of the General Schedule under section 5332 of title 5, United States Code, for each day the member is engaged in the actual performance of his duties as a member of the Commission, not to exceed 90 days of service each year. Except for the purposes of chapter 81 of title 5 (relating to compensation for work injuries) and chapter 171 of title 28 (relating to tort claims), a member of the Commission shall not be considered an employee of the United States for any purpose. (2) The Commission shall meet at the call of its Chairman or a majority of its members. (3) Each Federal agency referred to in section 107(b) may designate a representative to participate as an observer with the Commission. These representatives shall report to and advise the Commission on the activities relating to Arctic research of their agencies. (4) The Commission shall conduct at least one public meeting in the State of Alaska annually. DUTIES OF COMMISSION SEC. 104. (a) The Commission shall- (1) develop and recommend an integrated national Arctic research policy; (2) in cooperation with the Interagency Arctic Research Policy Committee established under section 107, assist in establishing a national Arctic research program plan to implement the Arctic research policy; (3) facilitate cooperation between the Federal Government and State and local governments with respect to Arctic research; (4) review Federal research programs in the Arctic and suggest improvements in coordination among programs; (5) recommend methods to improve logistical planning and support for Arctic research as may be appropriate and in accordance with the findings and purposes of this title; (6) suggest methods for improving efficient sharing and dissemination of data and information on the Arctic among interested public and private institutions; (7) offer other recommendations and advice to the Interagency Committee established under section 107 as it may find appropriate; and (8) cooperate with the Governor of the State of Alaska and with agencies and organizations of that State which the Governor may designate with respect to the formulation of Arctic research policy. (b) Not later than January 31 of each year, the Commission shall- (1) publish a statement of goals and objectives with respect to Arctic research to guide the Interagency Committee established under section 107 in the performance of its duties; and (2) submit to the President and to the Congress a report describing the activities and accomplishments of the Commission during the immediately preceding fiscal year. COOPERATION WITH THE COMMISSION SEC. 105. (a)(1) The Commission may acquire from the head of any Federal agency unclassified data, reports, and other nonproprietary information with respect to Arctic research in the possession of the agency which the Commission considers useful in the discharge of its duties. (2) Each agency shall cooperate with the Commission and furnish all data, reports, and other information requested by the Commission to the extent permitted by law; except that no agency need furnish any information which it is permitted to withhold under section 552 of title 5, United States Code. (b) With the consent of the appropriate agency head, the Commission may utilize the facilities and services of any Federal agency to the extent that the facilities and services are needed for the establishment and development of an Arctic research policy, upon reimbursement to be agreed upon by the Commission and the agency head and taking every feasible step to avoid duplication of effort. (c) All Federal agencies shall consult with the Commission before undertaking major Federal actions relating to Arctic research. ADMINISTRATION OF THE COMMISSION SEC. 106. The Commission may- (1) in accordance with the civil service laws and subchapter III of chapter 53 of title 5, United States Code, appoint and fix the compensation of an Executive Director and necessary additional staff personnel, but not to exceed a total of seven compensated personnel; (2) procure temporary and intermittent services as authorized by section 3109 of title 5, United States Code; (3) enter into contracts and procure supplies, services, and personal property; and (4) enter into agreements with the General Services Administration for the procurement of necessary financial and administrative services, for which payment shall be made by reimbursement from funds of the Commission in amounts to be agreed upon by the Commission and the Administrator of the General Services Administration. LEAD AGENCY AND INTERAGENCY ARCTIC RESEARCH POLICY COMMITTEE SEC. 107. (a) The National Science Foundation is designated as the lead agency responsible for implementing Arctic research policy, and the Director of the National Science Foundation shall insure that the requirements of section 108 are fulfilled. (b)(1) The President shall establish an Interagency Arctic Research Policy Committee (hereinafter referred to as the "Interagency Committee"). (2) The Interagency Committee shall be composed of representatives of the following Federal agencies or offices: (A) the National Science Foundation; (B) the Department of Commerce; (C) the Department of Defense; (D) the Department of Energy; (E) the Department of the Interior; (F) the Department of State; (G) the Department of Transportation; (H) the Department of Health and Human Services; (I) the National Aeronautics and Space Administration; (J) the Environmental Protection Agency; and (K) any other agency or office deemed appropriate. (3) The representative of the National Science Foundation shall serve as the Chairperson of the Interagency Committee. DUTIES OF THE INTERAGENCY COMMITTEE SEC. 108. (a) The Interagency Committee shall- (1) survey Arctic research conducted by Federal, State, and local agencies, universities, and other public and private institutions to help determine priorities for future Arctic research, including natural resources and materials, physical and biological sciences, and social and behavioral sciences; (2) work with the Commission to develop and establish an integrated national Arctic research policy that will guide Federal agencies in developing and implementing their research programs in the Arctic; (3) consult with the Commission on- (A) the development of the national Arctic research policy and the 5-year plan implementing the policy; (B) Arctic research programs of Federal agencies; (C) recommendations of the Commission on future Arctic research; and (D) guidelines for Federal agencies for awarding and administering Arctic research grants; (4) develop a 5-year plan to implement the national policy, as provided for in section 109; (5) provide the necessary coordination, data, and assistance for the preparation of a single integrated, coherent, and multiagency budget request for Arctic research as provided for in section 110; (6) facilitate cooperation between the Federal Government and State and local governments in Arctic research, and recommend the undertaking of neglected areas of research in accordance with the findings and purposes of this title; (7) coordinate and promote cooperative Arctic scientific research programs with other nations, subject to the foreign policy guidance of the Secretary of State; (8) cooperate with the Governor of the State of Alaska in fulfilling its responsibilities under this title; (9) promote Federal interagency coordination of all Arctic research activities, including- (A) logistical planning and coordination; and (B) the sharing of data and information associated with Arctic research, subject to section 552 of title 5, United States Code; and (10) provide public notice of its meetings and an opportunity for the public to participate in the development and implementation of national Arctic research policy. (b) Not later than January 31, 1986, and biennially thereafter, the Interagency Committee shall submit to the Congress through the President, a brief, concise report containing- (1) a statement of the activities and accomplishments of the Interagency Committee since its last report; and (2) a description of the activities of the Commission, detailing with particularity the recommendations of the Commission with respect to Federal activities in Arctic research. 5-YEAR ARCTIC RESEARCH PLAN SEC. 109. (a) The Interagency Committee, in consultation with the Commission, the Governor of the State of Alaska, the residents of the Arctic, the private sector, and public interest groups, shall prepare a comprehensive 5-year program plan (hereinafter referred to as the "Plan") for the overall Federal effort in Arctic research. The Plan shall be prepared and submitted to the President for transmittal to the Congress within one year after the enactment of this Act and shall be revised biennially thereafter. (b) The Plan shall contain but need not be limited to the following elements: (1) an assessment of national needs and problems regarding the Arctic and the research necessary to address those needs or problems; (2) a statement of the goals and objectives of the Interagency Committee for national Arctic research; (3) a detailed listing of all existing Federal programs relating to Arctic research, including the existing goals, funding levels for each of the 5 following fiscal years, and the funds currently being expended to conduct the programs; (4) recommendations for necessary program changes and other proposals to meet the requirements of the policy and goals as set forth by the Commission and in the Plan as currently in effect; and (5) a description of the actions taken by the Interagency Committee to coordinate the budget review process in order to ensure interagency coordination and cooperation in (A) carrying out Federal Arctic research programs, and (B) eliminating unnecessary duplication of effort among these programs. COORDINATION AND REVIEW OF BUDGET REQUESTS SEC. 110. (a) The Office of Science and Technology Policy shall- (1) review all agency and department budget requests related to the Arctic transmitted pursuant to section 108(a)(5), in accordance with the national Arctic research policy and the 5-year program under section 108(a)(2) and section 109, respectively; and (2) consult closely with the Interagency Committee and the Commission to guide the Office of Science and Technology Policy's efforts. (b)(1) The Office of Management and Budget shall consider all Federal agency requests for research related to the Arctic as one integrated, coherent, and multiagency request which shall be reviewed by the Office of Management and Budget prior to submission of the President's annual budget request for its adherence to the Plan. The Commission shall, after submission of the President's annual budget request, review the request and report to Congress on adherence to the Plan. (2) The Office of Management and Budget shall seek to facilitate planning for the design, procurement, maintenance, deployment, and operations of icebreakers needed to provide a platform for Arctic research by allocating all funds necessary to support icebreaking operations, except for recurring incremental costs associated with specific projects, to the Coast Guard. AUTHORIZATION OF APPROPRIATIONS; NEW SPENDING AUTHORITY SEC. 111. (a) There are authorized to be appropriated such sums as may be necessary for carrying out this title. (b) Any new spending authority (within the meaning of section 401 of the Congressional Budget Act of 1974) which is provided under this title shall be effective for any fiscal year only to such extent or in such amounts as may be provided in appropriation Acts. DEFINITION SEC. 112. As used in this title, the term "Arctic" means all United States and foreign territory north of the Arctic Circle and all United States territory north and west of the boundary formed by the Porcupine, Yukon, and Kuskokwim Rivers; all contiguous seas, including the Arctic Ocean and the Beaufort, Bering, and Chukchi Seas; and the Aleutian chain. Appendix B. P.L. 101-609 of 1990, Amending Arctic Research and Policy Act (ARPA) of 1984 The Arctic Research and Policy Act (ARPA) of 1984 (see Appendix A ) was amended by P.L. 101-609 of November 16, 1990. The text of P.L. 101-609 is as follows: SECTION 1. Except as specifically provided in this Act, whenever in this Act an amendment or repeal is expressed as an amendment to, or repeal of a provision, the reference shall be deemed to be made to the Arctic Research and Policy Act of 1984. SEC. 2. Section 103(b)(1) (15 U.S.C. 4102(b)(1)) is amended— (1) in the text above clause (A), by striking out `five' and inserting in lieu thereof `seven'; (2) in clause (A), by striking out `three' and inserting in lieu thereof `four'; and (3) in clause (C), by striking out `one member' and inserting in lieu thereof `two members'. SEC. 3. Section 103(d)(1) (15 U.S.C. 4102(d)(1)) is amended by striking out `GS-16' and inserting in lieu thereof `GS-18'. SEC. 4. (a) Section 104(a) (15 U.S.C. 4102(a)) is amended— (1) in paragraph (4), by striking out `suggest' and inserting in lieu thereof `recommend'; (2) in paragraph (6), by striking out `suggest' and inserting in lieu thereof `recommend'; (3) in paragraph (7), by striking out `and' at the end thereof; (4) in paragraph (8), by striking out the period and inserting in lieu thereof a semicolon; and (5) by adding at the end thereof the following new paragraphs: '(9) recommend to the Interagency Committee the means for developing international scientific cooperation in the Arctic; and '(10) not later than January 31, 1991, and every 2 years thereafter, publish a statement of goals and objectives with respect to Arctic research to guide the Interagency Committee established under section 107 in the performance of its duties.'. (b) Section 104(b) is amended to read as follows: '(b) Not later than January 31 of each year, the Commission shall submit to the President and to the Congress a report describing the activities and accomplishments of the Commission during the immediately preceding fiscal year.'. SEC. 5. Section 106 (15 U.S.C. 4105) is amended— (1) in paragraph (3), by striking out 'and' at the end thereof; (2) in paragraph (4), by striking out the period at the end thereof and inserting in lieu thereof; and'; and (3) by adding at the end thereof the following new paragraph: '(5) appoint, and accept without compensation the services of, scientists and engineering specialists to be advisors to the Commission. Each advisor may be allowed travel expenses, including per diem in lieu of subsistence, as authorized by section 5703 of title 5, United States Code. Except for the purposes of chapter 81 of title 5 (relating to compensation for work injuries) and chapter 171 of title 28 (relating to tort claims) of the United States Code, an advisor appointed under this paragraph shall not be considered an employee of the United States for any purpose.' SEC. 6. Subsection (b)(2) of section 108 (15 U.S.C. 4107(b)(2)) is amended to read as follows: '(2) a statement detailing with particularity the recommendations of the Commission with respect to Federal interagency activities in Arctic research and the disposition and responses to those recommendations.' Appendix C. January 2009 Arctic Policy Directive (NSPD 66/HSPD 25) On January 12, 2009, the George W. Bush Administration released a presidential directive establishing a new U.S. policy for the Arctic region. The directive, dated January 9, 2009, was issued as National Security Presidential Directive 66/Homeland Security Presidential Directive 25 (NSPD 66/HSPD 25). The text of NSPD 66/HSPD 25 is as follows: SUBJECT: Arctic Region Policy I. PURPOSE A. This directive establishes the policy of the United States with respect to the Arctic region and directs related implementation actions. This directive supersedes Presidential Decision Directive/NSC-26 (PDD-26; issued 1994) with respect to Arctic policy but not Antarctic policy; PDD-26 remains in effect for Antarctic policy only. B. This directive shall be implemented in a manner consistent with the Constitution and laws of the United States, with the obligations of the United States under the treaties and other international agreements to which the United States is a party, and with customary international law as recognized by the United States, including with respect to the law of the sea. II. BACKGROUND A. The United States is an Arctic nation, with varied and compelling interests in that region. This directive takes into account several developments, including, among others: 1. Altered national policies on homeland security and defense; 2. The effects of climate change and increasing human activity in the Arctic region; 3. The establishment and ongoing work of the Arctic Council; and 4. A growing awareness that the Arctic region is both fragile and rich in resources. III. POLICY A. It is the policy of the United States to: 1. Meet national security and homeland security needs relevant to the Arctic region; 2. Protect the Arctic environment and conserve its biological resources; 3. Ensure that natural resource management and economic development in the region are environmentally sustainable; 4. Strengthen institutions for cooperation among the eight Arctic nations (the United States, Canada, Denmark, Finland, Iceland, Norway, the Russian Federation, and Sweden); 5. Involve the Arctic's indigenous communities in decisions that affect them; and 6. Enhance scientific monitoring and research into local, regional, and global environmental issues. B. National Security and Homeland Security Interests in the Arctic 1. The United States has broad and fundamental national security interests in the Arctic region and is prepared to operate either independently or in conjunction with other states to safeguard these interests. These interests include such matters as missile defense and early warning; deployment of sea and air systems for strategic sealift, strategic deterrence, maritime presence, and maritime security operations; and ensuring freedom of navigation and overflight. 2. The United States also has fundamental homeland security interests in preventing terrorist attacks and mitigating those criminal or hostile acts that could increase the United States vulnerability to terrorism in the Arctic region. 3. The Arctic region is primarily a maritime domain; as such, existing policies and authorities relating to maritime areas continue to apply, including those relating to law enforcement.[1] Human activity in the Arctic region is increasing and is projected to increase further in coming years. This requires the United States to assert a more active and influential national presence to protect its Arctic interests and to project sea power throughout the region. 4. The United States exercises authority in accordance with lawful claims of United States sovereignty, sovereign rights, and jurisdiction in the Arctic region, including sovereignty within the territorial sea, sovereign rights and jurisdiction within the United States exclusive economic zone and on the continental shelf, and appropriate control in the United States contiguous zone. 5. Freedom of the seas is a top national priority. The Northwest Passage is a strait used for international navigation, and the Northern Sea Route includes straits used for international navigation; the regime of transit passage applies to passage through those straits. Preserving the rights and duties relating to navigation and overflight in the Arctic region supports our ability to exercise these rights throughout the world, including through strategic straits. 6. Implementation: In carrying out this policy as it relates to national security and homeland security interests in the Arctic, the Secretaries of State, Defense, and Homeland Security, in coordination with heads of other relevant executive departments and agencies, shall: a. Develop greater capabilities and capacity, as necessary, to protect United States air, land, and sea borders in the Arctic region; b. Increase Arctic maritime domain awareness in order to protect maritime commerce, critical infrastructure, and key resources; c. Preserve the global mobility of United States military and civilian vessels and aircraft throughout the Arctic region; d. Project a sovereign United States maritime presence in the Arctic in support of essential United States interests; and e. Encourage the peaceful resolution of disputes in the Arctic region. C. International Governance 1. The United States participates in a variety of fora, international organizations, and bilateral contacts that promote United States interests in the Arctic. These include the Arctic Council, the International Maritime Organization (IMO), wildlife conservation and management agreements, and many other mechanisms. As the Arctic changes and human activity in the region increases, the United States and other governments should consider, as appropriate, new international arrangements or enhancements to existing arrangements. 2. The Arctic Council has produced positive results for the United States by working within its limited mandate of environmental protection and sustainable development. Its subsidiary bodies, with help from many United States agencies, have developed and undertaken projects on a wide range of topics. The Council also provides a beneficial venue for interaction with indigenous groups. It is the position of the United States that the Arctic Council should remain a high-level forum devoted to issues within its current mandate and not be transformed into a formal international organization, particularly one with assessed contributions. The United States is nevertheless open to updating the structure of the Council, including consolidation of, or making operational changes to, its subsidiary bodies, to the extent such changes can clearly improve the Council's work and are consistent with the general mandate of the Council. 3. The geopolitical circumstances of the Arctic region differ sufficiently from those of the Antarctic region such that an "Arctic Treaty" of broad scope—along the lines of the Antarctic Treaty—is not appropriate or necessary. 4. The Senate should act favorably on U.S. accession to the U.N. Convention on the Law of the Sea promptly, to protect and advance U.S. interests, including with respect to the Arctic. Joining will serve the national security interests of the United States, including the maritime mobility of our Armed Forces worldwide. It will secure U.S. sovereign rights over extensive marine areas, including the valuable natural resources they contain. Accession will promote U.S. interests in the environmental health of the oceans. And it will give the United States a seat at the table when the rights that are vital to our interests are debated and interpreted. 5. Implementation: In carrying out this policy as it relates to international governance, the Secretary of State, in coordination with heads of other relevant executive departments and agencies, shall: a. Continue to cooperate with other countries on Arctic issues through the United Nations (U.N.) and its specialized agencies, as well as through treaties such as the U.N. Framework Convention on Climate Change, the Convention on International Trade in Endangered Species of Wild Fauna and Flora, the Convention on Long Range Transboundary Air Pollution and its protocols, and the Montreal Protocol on Substances that Deplete the Ozone Layer; b. Consider, as appropriate, new or enhanced international arrangements for the Arctic to address issues likely to arise from expected increases in human activity in that region, including shipping, local development and subsistence, exploitation of living marine resources, development of energy and other resources, and tourism; c. Review Arctic Council policy recommendations developed within the ambit of the Council's scientific reviews and ensure the policy recommendations are subject to review by Arctic governments; and d. Continue to seek advice and consent of the United States Senate to accede to the 1982 Law of the Sea Convention. D. Extended Continental Shelf and Boundary Issues 1. Defining with certainty the area of the Arctic seabed and subsoil in which the United States may exercise its sovereign rights over natural resources such as oil, natural gas, methane hydrates, minerals, and living marine species is critical to our national interests in energy security, resource management, and environmental protection. The most effective way to achieve international recognition and legal certainty for our extended continental shelf is through the procedure available to States Parties to the U.N. Convention on the Law of the Sea. 2. The United States and Canada have an unresolved boundary in the Beaufort Sea. United States policy recognizes a boundary in this area based on equidistance. The United States recognizes that the boundary area may contain oil, natural gas, and other resources. 3. The United States and Russia are abiding by the terms of a maritime boundary treaty concluded in 1990, pending its entry into force. The United States is prepared to enter the agreement into force once ratified by the Russian Federation. 4. Implementation: In carrying out this policy as it relates to extended continental shelf and boundary issues, the Secretary of State, in coordination with heads of other relevant executive departments and agencies, shall: a. Take all actions necessary to establish the outer limit of the continental shelf appertaining to the United States, in the Arctic and in other regions, to the fullest extent permitted under international law; b. Consider the conservation and management of natural resources during the process of delimiting the extended continental shelf; and c. Continue to urge the Russian Federation to ratify the 1990 United States-Russia maritime boundary agreement. E. Promoting International Scientific Cooperation 1. Scientific research is vital for the promotion of United States interests in the Arctic region. Successful conduct of U.S. research in the Arctic region requires access throughout the Arctic Ocean and to terrestrial sites, as well as viable international mechanisms for sharing access to research platforms and timely exchange of samples, data, and analyses. Better coordination with the Russian Federation, facilitating access to its domain, is particularly important. 2. The United States promotes the sharing of Arctic research platforms with other countries in support of collaborative research that advances fundamental understanding of the Arctic region in general and potential Arctic change in particular. This could include collaboration with bodies such as the Nordic Council and the European Polar Consortium, as well as with individual nations. 3. Accurate prediction of future environmental and climate change on a regional basis, and the delivery of near real-time information to end-users, requires obtaining, analyzing, and disseminating accurate data from the entire Arctic region, including both paleoclimatic data and observational data. The United States has made significant investments in the infrastructure needed to collect environmental data in the Arctic region, including the establishment of portions of an Arctic circumpolar observing network through a partnership among United States agencies, academic collaborators, and Arctic residents. The United States promotes active involvement of all Arctic nations in these efforts in order to advance scientific understanding that could provide the basis for assessing future impacts and proposed response strategies. 4. United States platforms capable of supporting forefront research in the Arctic Ocean, including portions expected to be ice-covered for the foreseeable future, as well as seasonally ice-free regions, should work with those of other nations through the establishment of an Arctic circumpolar observing network. All Arctic nations are members of the Group on Earth Observations partnership, which provides a framework for organizing an international approach to environmental observations in the region. In addition, the United States recognizes that academic and research institutions are vital partners in promoting and conducting Arctic research. 5. Implementation: In carrying out this policy as it relates to promoting scientific international cooperation, the Secretaries of State, the Interior, and Commerce and the Director of the National Science Foundation, in coordination with heads of other relevant executive departments and agencies, shall: a. Continue to play a leadership role in research throughout the Arctic region; b. Actively promote full and appropriate access by scientists to Arctic research sites through bilateral and multilateral measures and by other means; c. Lead the effort to establish an effective Arctic circumpolar observing network with broad partnership from other relevant nations; d. Promote regular meetings of Arctic science ministers or research council heads to share information concerning scientific research opportunities and to improve coordination of international Arctic research programs; e. Work with the Interagency Arctic Research Policy Committee (IARPC) to promote research that is strategically linked to U.S. policies articulated in this directive, with input from the Arctic Research Commission; and f. Strengthen partnerships with academic and research institutions and build upon the relationships these institutions have with their counterparts in other nations. F. Maritime Transportation in the Arctic Region 1. The United States priorities for maritime transportation in the Arctic region are: a. To facilitate safe, secure, and reliable navigation; b. To protect maritime commerce; and c. To protect the environment. 2. Safe, secure, and environmentally sound maritime commerce in the Arctic region depends on infrastructure to support shipping activity, search and rescue capabilities, short- and long-range aids to navigation, high-risk area vessel-traffic management, iceberg warnings and other sea ice information, effective shipping standards, and measures to protect the marine environment. In addition, effective search and rescue in the Arctic will require local, State, Federal, tribal, commercial, volunteer, scientific, and multinational cooperation. 3. Working through the International Maritime Organization (IMO), the United States promotes strengthening existing measures and, as necessary, developing new measures to improve the safety and security of maritime transportation, as well as to protect the marine environment in the Arctic region. These measures may include ship routing and reporting systems, such as traffic separation and vessel traffic management schemes in Arctic chokepoints; updating and strengthening of the Guidelines for Ships Operating in Arctic Ice-Covered Waters; underwater noise standards for commercial shipping; a review of shipping insurance issues; oil and other hazardous material pollution response agreements; and environmental standards. 4. Implementation: In carrying out this policy as it relates to maritime transportation in the Arctic region, the Secretaries of State, Defense, Transportation, Commerce, and Homeland Security, in coordination with heads of other relevant executive departments and agencies, shall: a. Develop additional measures, in cooperation with other nations, to address issues that are likely to arise from expected increases in shipping into, out of, and through the Arctic region; b. Commensurate with the level of human activity in the region, establish a risk-based capability to address hazards in the Arctic environment. Such efforts shall advance work on pollution prevention and response standards; determine basing and logistics support requirements, including necessary airlift and icebreaking capabilities; and improve plans and cooperative agreements for search and rescue; c. Develop Arctic waterways management regimes in accordance with accepted international standards, including vessel traffic-monitoring and routing; safe navigation standards; accurate and standardized charts; and accurate and timely environmental and navigational information; and d. Evaluate the feasibility of using access through the Arctic for strategic sealift and humanitarian aid and disaster relief. G. Economic Issues, Including Energy 1. Sustainable development in the Arctic region poses particular challenges. Stakeholder input will inform key decisions as the United States seeks to promote economic and energy security. Climate change and other factors are significantly affecting the lives of Arctic inhabitants, particularly indigenous communities. The United States affirms the importance to Arctic communities of adapting to climate change, given their particular vulnerabilities. 2. Energy development in the Arctic region will play an important role in meeting growing global energy demand as the area is thought to contain a substantial portion of the world's undiscovered energy resources. The United States seeks to ensure that energy development throughout the Arctic occurs in an environmentally sound manner, taking into account the interests of indigenous and local communities, as well as open and transparent market principles. The United States seeks to balance access to, and development of, energy and other natural resources with the protection of the Arctic environment by ensuring that continental shelf resources are managed in a responsible manner and by continuing to work closely with other Arctic nations. 3. The United States recognizes the value and effectiveness of existing fora, such as the Arctic Council, the International Regulators Forum, and the International Standards Organization. 4. Implementation: In carrying out this policy as it relates to economic issues, including energy, the Secretaries of State, the Interior, Commerce, and Energy, in coordination with heads of other relevant executive departments and agencies, shall: a. Seek to increase efforts, including those in the Arctic Council, to study changing climate conditions, with a view to preserving and enhancing economic opportunity in the Arctic region. Such efforts shall include inventories and assessments of villages, indigenous communities, subsistence opportunities, public facilities, infrastructure, oil and gas development projects, alternative energy development opportunities, forestry, cultural and other sites, living marine resources, and other elements of the Arctic's socioeconomic composition; b. Work with other Arctic nations to ensure that hydrocarbon and other development in the Arctic region is carried out in accordance with accepted best practices and internationally recognized standards and the 2006 Group of Eight (G-8) Global Energy Security Principles; c. Consult with other Arctic nations to discuss issues related to exploration, production, environmental and socioeconomic impacts, including drilling conduct, facility sharing, the sharing of environmental data, impact assessments, compatible monitoring programs, and reservoir management in areas with potentially shared resources; d. Protect United States interests with respect to hydrocarbon reservoirs that may overlap boundaries to mitigate adverse environmental and economic consequences related to their development; e. Identify opportunities for international cooperation on methane hydrate issues, North Slope hydrology, and other matters; f. Explore whether there is a need for additional fora for informing decisions on hydrocarbon leasing, exploration, development, production, and transportation, as well as shared support activities, including infrastructure projects; and g. Continue to emphasize cooperative mechanisms with nations operating in the region to address shared concerns, recognizing that most known Arctic oil and gas resources are located outside of United States jurisdiction. H. Environmental Protection and Conservation of Natural Resources 1. The Arctic environment is unique and changing. Increased human activity is expected to bring additional stressors to the Arctic environment, with potentially serious consequences for Arctic communities and ecosystems. 2. Despite a growing body of research, the Arctic environment remains poorly understood. Sea ice and glaciers are in retreat. Permafrost is thawing and coasts are eroding. Pollutants from within and outside the Arctic are contaminating the region. Basic data are lacking in many fields. High levels of uncertainty remain concerning the effects of climate change and increased human activity in the Arctic. Given the need for decisions to be based on sound scientific and socioeconomic information, Arctic environmental research, monitoring, and vulnerability assessments are top priorities. For example, an understanding of the probable consequences of global climate variability and change on Arctic ecosystems is essential to guide the effective long-term management of Arctic natural resources and to address socioeconomic impacts of changing patterns in the use of natural resources. 3. Taking into account the limitations in existing data, United States efforts to protect the Arctic environment and to conserve its natural resources must be risk-based and proceed on the basis of the best available information. 4. The United States supports the application in the Arctic region of the general principles of international fisheries management outlined in the 1995 Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of December 10, 1982, relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks and similar instruments. The United States endorses the protection of vulnerable marine ecosystems in the Arctic from destructive fishing practices and seeks to ensure an adequate enforcement presence to safeguard Arctic living marine resources. 5. With temperature increases in the Arctic region, contaminants currently locked in the ice and soils will be released into the air, water, and land. This trend, along with increased human activity within and below the Arctic, will result in increased introduction of contaminants into the Arctic, including both persistent pollutants (e.g., persistent organic pollutants and mercury) and airborne pollutants (e.g., soot). 6. Implementation: In carrying out this policy as it relates to environmental protection and conservation of natural resources, the Secretaries of State, the Interior, Commerce, and Homeland Security and the Administrator of the Environmental Protection Agency, in coordination with heads of other relevant executive departments and agencies, shall: a. In cooperation with other nations, respond effectively to increased pollutants and other environmental challenges; b. Continue to identify ways to conserve, protect, and sustainably manage Arctic species and ensure adequate enforcement presence to safeguard living marine resources, taking account of the changing ranges or distribution of some species in the Arctic. For species whose range includes areas both within and beyond United States jurisdiction, the United States shall continue to collaborate with other governments to ensure effective conservation and management; c. Seek to develop ways to address changing and expanding commercial fisheries in the Arctic, including through consideration of international agreements or organizations to govern future Arctic fisheries; d. Pursue marine ecosystem-based management in the Arctic; and e. Intensify efforts to develop scientific information on the adverse effects of pollutants on human health and the environment and work with other nations to reduce the introduction of key pollutants into the Arctic. IV. Resources and Assets A. Implementing a number of the policy elements directed above will require appropriate resources and assets. These elements shall be implemented consistent with applicable law and authorities of agencies, or heads of agencies, vested by law, and subject to the availability of appropriations. The heads of executive departments and agencies with responsibilities relating to the Arctic region shall work to identify future budget, administrative, personnel, or legislative proposal requirements to implement the elements of this directive. ——————————————————————————— [1] These policies and authorities include Freedom of Navigation (PDD/NSC-32), the U.S. Policy on Protecting the Ocean Environment (PDD/NSC-36), Maritime Security Policy (NSPD-41/HSPD-13), and the National Strategy for Maritime Security (NSMS). Appendix D. May 2013 National Strategy for Arctic Region On May 10, 2013, the Obama Administration released a document entitled National Strategy for the Arctic Region . The executive summary of the document is reprinted earlier in this report (see " May 2013 National Strategy for Arctic Region " in " Background "). This appendix reprints the main text of the document. The main text states the following: Introduction We seek an Arctic region that is stable and free of conflict, where nations act responsibly in a spirit of trust and cooperation, and where economic and energy resources are developed in a sustainable manner that also respects the fragile environment and the interests and cultures of indigenous peoples. As the United States addresses these opportunities and challenges, we will be guided by our central interests in the Arctic region, which include providing for the security of the United States; protecting the free flow of resources and commerce; protecting the environment; addressing the needs of indigenous communities; and enabling scientific research. In protecting these interests, we draw from our long-standing policy and approach to the global maritime spaces in the 20 th century, including freedom of navigation and overflight and other internationally lawful uses of the sea and airspace related to these freedoms; security on the oceans; maintaining strong relationships with allies and partners; and peaceful resolution of disputes without coercion. To achieve this vision, the United States is establishing an overarching national approach to advance national security interests, pursue responsible stewardship of this precious and unique region, and serve as a basis for cooperation with other Arctic states and the international community as a whole to advance common interests. Even as we work domestically and internationally to minimize the effects of climate change, the effects are already apparent in the Arctic. Ocean resources are more readily accessible as sea ice diminishes, but thawing ground is threatening communities as well as hindering land-based activities, including access to resources. Diminishing land and sea ice is altering ecosystems and the services they provide. As an Arctic nation, the United States must be proactive and disciplined in addressing changing regional conditions and in developing adaptive strategies to protect its interests. An undisciplined approach to exploring new opportunities in this frontier could result in significant harm to the region, to our national security interests, and to the global good. When implementing this strategy, the United States will proceed in a thoughtful, responsible manner that leverages expertise, resources, and cooperation from the State of Alaska, Alaska Natives, and stakeholders across the entire nation and throughout the international community. We will encourage and use science-informed decisionmaking to aid this effort. We will endeavor to do no harm to the sensitive environment or to Alaska native communities and other indigenous populations that rely on Arctic resources. Just as a common spirit and shared vision of peaceful partnership led to the development of an international space station, we believe much can be achieved in the Arctic region through collaborative international efforts, coordinated investments, and public-private partnerships. Structure of the Strategy Through this National Strategy for the Arctic Region, we seek to guide, prioritize, and synchronize efforts to protect U.S. national and homeland security interests, promote responsible stewardship, and foster international cooperation. This strategy articulates three priority lines of effort. It also identifies guiding principles as a foundation for Arctic region activities. Through a deliberate emphasis on the priority lines of effort and objectives, it aims to achieve a national unity of effort that is consistent with our domestic and international legal rights, obligations, and commitments and that is well coordinated with our Arctic neighbors and the international community. These lines of effort identify common themes where specific emphasis and activities will be focused to ensure that strategic priorities are met. The three lines of effort, as well as the guiding principles are meant to be acted upon as a coherent whole. Changing Conditions While the Arctic region has experienced warming and cooling cycles over millennia, the current warming trend is unlike anything previously recorded. The reduction in sea ice has been dramatic, abrupt, and unrelenting. The dense, multi-year ice is giving way to thin layers of seasonal ice, making more of the region navigable year-round. Scientific estimates of technically recoverable conventional oil and gas resources north of the Arctic Circle total approximately 13 percent of the world's undiscovered oil and 30 percent of the world's undiscovered gas deposits, as well as vast quantities of mineral resources, including rare earth elements, iron ore, and nickel. These estimates have inspired fresh ideas for commercial initiatives and infrastructure development in the region. As portions of the Arctic Ocean become more navigable, there is increasing interest in the viability of the Northern Sea Route and other potential routes, including the Northwest Passage, as well as in development of Arctic resources. For all of the opportunities emerging with the increasing accessibility and economic and strategic interests in the Arctic, the opening and rapid development of the Arctic region presents very real challenges. On the environmental front, reduced sea ice is having an immediate impact on indigenous populations as well as on fish and wildlife. Moreover, there may be potentially profound environmental consequences of continued ocean warming and Arctic ice melt. These consequences include altering the climate of lower latitudes, risking the stability of Greenland's ice sheet, and accelerating the thawing of the Arctic permafrost in which large quantities of methane – a potent driver of climate change – as well as pollutants such as mercury are stored. Uncoordinated development – and the consequent increase in pollution such as emissions of black carbon or other substances from fossil fuel combustion – could have unintended consequences on climate trends, fragile ecosystems, and Arctic communities. It is imperative that the United States proactively establish national priorities and objectives for the Arctic region. Lines of Effort To meet the challenges and opportunities in the Arctic region, and in furtherance of established Arctic Region Policy, we will pursue the following lines of effort and supporting objectives in a mutually reinforcing manner that incorporates the broad range of U.S. current activities and interests in the Arctic region. 1. Advance United States Security Interests Our highest priority is to protect the American people, our sovereign territory and rights, natural resources, and interests of the United States. To this end, the United States will identify, develop, and maintain the capacity and capabilities necessary to promote safety, security, and stability in the region through a combination of independent action, bilateral initiatives, and multilateral cooperation. We acknowledge that the protection of our national security interests in the Arctic region must be undertaken with attention to environmental, cultural, and international considerations outlined throughout this strategy. As many nations across the world aspire to expand their role in the Arctic, we encourage Arctic and non-Arctic states to work collaboratively through appropriate fora to address the emerging challenges and opportunities in the Arctic region, while we remain vigilant to protect the security interests of the United States and our allies. To accomplish this line of effort, the United States Government will seek to: • Evolve Arctic Infrastructure and Strategic Capabilities – Working cooperatively with the State of Alaska, local, and tribal authorities, as well as public and private sector partners, we will develop, maintain, and exercise the capacity to execute Federal responsibilities in our Arctic waters, airspace, and coastal regions, including the capacity to respond to natural or man-made disasters. We will carefully tailor this regional infrastructure, as well as our response capacity, to the evolving human and commercial activity in the Arctic region. • Enhance Arctic Domain Awareness – We seek to improve our awareness of activities, conditions, and trends in the Arctic region that may affect our safety, security, environmental, or commercial interests. The United States will endeavor to appropriately enhance sea, air, and space capabilities as Arctic conditions change, and to promote maritime-related information sharing with international, public, and private sector partners, to support implementation of activities such as the search-and-rescue agreement signed by Arctic states. • Preserve Arctic Region Freedom of the Seas – The United States has a national interest in preserving all of the rights, freedoms, and uses of the sea and airspace recognized under international law. We will enable prosperity and safe transit by developing and maintaining sea, under-sea, and air assets and necessary infrastructure. In addition, the United States will support the enhancement of national defense, law enforcement, navigation safety, marine environment response, and search-and-rescue capabilities. Existing international law provides a comprehensive set of rules governing the rights, freedoms, and uses of the world's oceans and airspace, including the Arctic. The law recognizes these rights, freedoms, and uses for commercial and military vessels and aircraft. Within this framework, we shall further develop Arctic waterways management regimes, including traffic separation schemes, vessel tracking, and ship routing, in collaboration with partners. We will also encourage other nations to adhere to internationally accepted principles. This cooperation will facilitate strategic partnerships that promote innovative, low-cost solutions that enhance the Arctic marine transportation system and the safe, secure, efficient and free flow of trade. • Provide for Future United States Energy Security – The Arctic region's energy resources factor into a core component of our national security strategy: energy security. The region holds sizable proved and potential oil and natural gas resources that will likely continue to provide valuable supplies to meet U.S. energy needs. Continuing to responsibly develop Arctic oil and gas resources aligns with the United States "all of the above" approach to developing new domestic energy sources, including renewables, expanding oil and gas production, and increasing efficiency and conservation efforts to reduce our reliance on imported oil and strengthen our nation's energy security. Within the context of this broader energy security strategy, including our economic, environmental and climate policy objectives, we are committed to working with stakeholders, industry, and other Arctic states to explore the energy resource base, develop and implement best practices, and share experiences to enable the environmentally responsible production of oil and natural gas as well as renewable energy. 2. Pursue Responsible Arctic Region Stewardship Responsible stewardship requires active conservation of resources, balanced management, and the application of scientific and traditional knowledge of physical and living environments. As Arctic environments change, increased human activity demands precaution, as well as greater knowledge to inform responsible decisions. Together, Arctic nations can responsibly meet new demands – including maintaining open sea lanes for global commerce and scientific research, charting and mapping, providing search-and-rescue services, and developing capabilities to prevent, contain, and respond to oil spills and accidents – by increasing knowledge and integrating Arctic management. We must improve our ability to forecast future conditions in the Arctic while being mindful of the potential for unexpected developments. To realize this line of effort, we will pursue the specific objectives outlined below: • Protect the Arctic Environment and Conserve Arctic Natural Resources – Protecting the unique and changing environment of the Arctic is a central goal of U.S. policy. Supporting actions will promote healthy, sustainable, and resilient ecosystems over the long term, supporting a full range of ecosystem services. This effort will be risk-based and proceed on the basis of best available information. The United States in the Arctic will assess and monitor the status of ecosystems and the risks of climate change and other stressors to prepare for and respond effectively to environmental challenges. • Use Integrated Arctic Management to Balance Economic Development, Environmental Protection, and Cultural Values – Natural resource management will be based on a comprehensive understanding of environmental and cultural sensitivities in the region, and address expectations for future infrastructure needs and other development-related trends. This endeavor can promote unity of effort and provide the basis for sensible infrastructure and other resource management decisions in the Arctic. We will emphasize science-informed decisionmaking and integration of economic, environmental, and cultural values. We will also advance coordination among Federal departments and agencies and collaboration with partners engaged in Arctic stewardship activities. • Increase Understanding of the Arctic through Scientific Research and Traditional Knowledge – Proper stewardship of the Arctic requires understanding of how the environment is changing, and such understanding will be based on a holistic earth system approach. Vast areas of the Arctic Ocean are unexplored, and we lack much of the basic knowledge necessary to understand and address Arctic issues. The changes in the Arctic cannot be understood in isolation and must be viewed in a global context. As we learn more about the region, we have identified several key subcomponents of the Arctic that require urgent attention: land ice and its role in changing sea level; sea-ice and its role in global climate, fostering biodiversity, and supporting Arctic peoples; and, the warming permafrost and its effects on infrastructure and climate. Better earth system-level knowledge will also help us meet operational needs such as weather and ice forecasting. We can make faster progress through a well-coordinated and transparent national and international exploration and research agenda that reduces the potential for duplication of effort and leads to better leveraging of resources. • Chart the Arctic region – We will continue to make progress in charting and mapping the Arctic region's ocean and waterways, so long obscured by perennial ice, and mapping its coastal and interior lands according to reliable, modern standards. Given the vast expanse of territory and water to be charted and mapped, we will need to prioritize and synchronize charting efforts to make more effective use of resources and attain faster progress. In so doing, we will make navigation safer and contribute to the identification of ecologically sensitive areas and reserves of natural resources. 3. Strengthen International Cooperation What happens in one part of the Arctic region can have significant implications for the interests of other Arctic states and the international community as a whole. The remote and complex operating conditions in the Arctic environment make the region well-suited for collaborative efforts by nations seeking to explore emerging opportunities while emphasizing ecological awareness and preservation. We will seek to strengthen partnerships through existing multilateral fora and legal frameworks dedicated to common Arctic issues. We will also pursue new arrangements for cooperating on issues of mutual interest or concern and addressing unique and unprecedented challenges, as appropriate. U.S. efforts to strengthen international cooperation and partnerships will be pursued through four objectives: • Pursue Arrangements that Promote Shared Arctic State Prosperity, Protect the Arctic Environment, and Enhance Security – We will seek opportunities to pursue efficient and effective joint ventures, based on shared values that leverage each Arctic state's strengths. This collaboration will assist in guiding investments and regional activities, addressing dynamic trends, and promoting sustainable development in the Arctic region. Arctic nations have varied commercial, cultural, environmental, safety, and security concerns in the Arctic region. Nevertheless, our common interests make these nations ideal partners in the region. We seek new opportunities to advance our interests by proactive engagement with other Arctic nations through bilateral and multilateral efforts using of a wide array of existing multilateral mechanisms that have responsibilities relating to the Arctic region. As appropriate, we will work with other Arctic nations to develop new coordination mechanisms to keep the Arctic region prosperous, environmentally sustainable, operationally safe, secure, and free of conflict, and will protect U.S., allied, and regional security and economic interests. • Work through the Arctic Council to Advance U.S. Interests in the Arctic Region – In recent years, the Arctic Council has facilitated notable achievements in the promotion of cooperation, coordination, and interaction among Arctic states and Arctic indigenous peoples. Recent successes of the Council include its advancement of public safety and environmental protection issues, as evidenced by the 2011 Arctic Search-and-Rescue Agreement and by the 2013 Arctic Marine Oil Pollution Preparedness and Response Agreement. The United States will continue to emphasize the Arctic Council as a forum for facilitating Arctic states' cooperation on myriad issues of mutual interest within its current mandate. • Accede to the Law of the Sea Convention – Accession to the Convention would protect U.S. rights, freedoms, and uses of the sea and airspace throughout the Arctic region, and strengthen our arguments for freedom of navigation and overflight through the Northwest Passage and the Northern Sea Route. The United States is the only Arctic state that is not party to the Convention. Only by joining the Convention can we maximize legal certainty and best secure international recognition of our sovereign rights with respect to the U.S. extended continental shelf in the Arctic and elsewhere, which may hold vast oil, gas, and other resources. Our extended continental shelf claim in the Arctic region could extend more than 600 nautical miles from the north coast of Alaska. In instances where the maritime zones of coastal nations overlap, Arctic states have already begun the process of negotiating and concluding maritime boundary agreements, consistent with the Law of the Sea Convention and other relevant international law. The United States supports peaceful management and resolution of disputes, in a manner free from coercion. While the United States is not currently a party to the Convention, we will continue to support and observe principles of established customary international law reflected in the Convention. • Cooperate with other Interested Parties – A growing number of non-Arctic states and numerous non-state actors have expressed increased interest in the Arctic region. The United States and other Arctic nations should seek to work with other states and entities to advance common objectives in the Arctic region in a manner that protects Arctic states' national interests and resources. One key example relates to the promotion of safe, secure, and reliable Arctic shipping, a goal that is best pursued through the International Maritime Organization in coordination with other Arctic states, major shipping states, the shipping industry and other relevant interests. Guiding Principles The U.S. approach to the Arctic region must reflect our values as a nation and as a member of the global community. We will approach holistically our interests in promoting safety and security, advancing economic and energy development, protecting the environment, addressing climate change and respecting the needs of indigenous communities and Arctic state interests. To guide our efforts, we have identified the following principles to serve as the foundation for U.S. Arctic engagement and activities. • Safeguard Peace and Stability by working to maintain and preserve the Arctic region as an area free of conflict, acting in concert with allies, partners, and other interested parties. This principle will include United States action, and the actions of other interested countries, in supporting and preserving international legal principles of freedom of navigation and overflight and other uses of the sea related to these freedoms, unimpeded lawful commerce, and the peaceful resolution of disputes. The United States will rely on existing international law, which provides a comprehensive set of rules governing the rights, freedoms, and uses of the world's oceans and airspace, including the Arctic. • Make Decisions Using the Best Available Information by promptly sharing – nationally and internationally – the most current understanding and forecasts based on up-to-date science and traditional knowledge. • Pursue Innovative Arrangements to support the investments in scientific research, marine transportation infrastructure requirements, and other support capability and capacity needs in this region. The harshness of the Arctic climate and the complexity associated with developing, maintaining, and operating infrastructure and capabilities in the region necessitate new thinking on public-private and multinational partnerships. • Consult and Coordinate with Alaska Natives consistent with tribal consultation policy established by Executive Order. This policy emphasizes trust, respect, and shared responsibility. It articulates that tribal governments have a unique legal relationship with the United States and requires Federal departments and agencies to provide for meaningful and timely input by tribal officials in development of regulatory policies that have tribal implications. This guiding principle is also consistent with the Alaska Federation of Natives Guidelines for Research. Conclusion We seek a collaborative and innovative approach to manage a rapidly changing region. We must advance U.S. national security interests, pursue responsible stewardship, and strengthen international collaboration and cooperation, as we work to meet the challenges of rapid climate-driven environmental change. The melting of Arctic ice has the potential to transform global climate and ecosystems as well as global shipping, energy markets, and other commercial interests. To address these challenges and opportunities, we will align Federal activities in accordance with this strategy; partner with the State of Alaska, local, and tribal entities; and work with other Arctic nations to develop complementary approaches to shared challenges. We will proactively coordinate regional development. Our economic development and environmental stewardship must go hand-in-hand. The unique Arctic environment will require a commitment by the United States to make judicious, coordinated infrastructure investment decisions, informed by science. To meet this challenge, we will need bold, innovative thinking that embraces and generates new and creative public-private and multinational cooperative models. Appendix E. Obama Administration Statement Regarding U.S. Chairmanship of Arctic Council This appendix presents the text of a statement from the Obama Administration regarding the two-year period of U.S. chairmanship of the Arctic Council that began in April 2015. The text of the statement is as follows: Given the increased strategic importance of the region, the next two years offers the United States an unprecedented opportunity to make significant progress on our Arctic policy objectives, which were first laid out in the National Strategy for the Arctic Region released by the White House in May 2013 and followed by an Implementation Plan in January 2014. The U.S. will be chairing the Arctic Council at a crucial moment when the effects of climate change are bringing a myriad of new environmental, human and economic opportunities and challenges to the Arctic. During the U.S. Chairmanship, the State Department will focus the Arctic work it carries out through the Arctic Council, various international scientific cooperation mechanisms and, in some cases, domestic initiatives led by U.S. states or other U.S. government agencies. The three thematic areas of the U.S. Chairmanship are: improving economic and living conditions in Arctic communities; Arctic Ocean safety, security and stewardship; and addressing the impacts of climate change. The theme of the U.S. Chairmanship of the Arctic Council is "One Arctic: Shared Opportunities, Challenges and Responsibilities," which recognizes the peaceful and stable nature of the Arctic. The U.S. chairmanship will conclude in spring 2017 with a Ministerial meeting in Alaska, at which point the United States will hand the chairmanship to Finland. To guide U.S. engagement on the Arctic during this crucial period, U.S. Secretary of State John Kerry appointed the former Commandant of the U.S. Coast Guard, Admiral Robert J. Papp, Jr., as the first-ever U.S. Special Representative for the Arctic in July 2014. The U.S. has developed an ambitious and balanced program for its Arctic Council Chairmanship that focuses on three crucial areas: improving economic and living conditions; Arctic Ocean safety, security and stewardship; and addressing the impacts of climate change. 1. Improving Economic and Living Conditions in Arctic Communities Remote Arctic communities face a number of threats to the health and well-being of their citizens, including food and water security, safe water, sewer and sanitation, affordable and renewable energy, adequate mental health services, and the need to ensure the continued economic viability of their communities. Our work in this area will aim to: —Promote the development of renewable energy technology, such as modular micro-grid systems, to spur public-private partnerships and improve energy affordability; —Provide a better understanding of freshwater security in the Arctic, including through the creation of a Water Resources Vulnerability Index; —Coordinate an Arctic-wide telecommunications infrastructure assessment to promote the build-out of commercial infrastructure in the region; —Support mental wellness , including suicide prevention and resilience; —Harness the expertise and resources of the Arctic Economic Council to inform the Arctic Council's work on economic and living conditions; —Mitigate public health risks and reduce black carbon output in Arctic communities; —Promote better community sanitation and public health by facilitation collaboration between industry, researchers and public policy experts to increase access to and reduce the operating costs of in-home running water and sewer in remote communities. 2. Arctic Ocean Safety, Security and Stewardship The acceleration of maritime activity in the Arctic increases risk in an already harsh and challenging environment. U.S. Chairmanship priorities include building upon existing preparedness and response programs; enhancing the ability of Arctic states to execute their search and rescue responsibilities; and emphasizing safe, secure, and environmentally sound shipping as a matter of high priority. To ensure that future maritime development avoids negative impacts, particularly in areas of ecological and cultural significance, the Arctic Council is also continuing its work towards a network of marine protected areas and enhanced international cooperation in the Arctic Ocean. Ocean acidification is one of the most urgent issues facing the world's ocean today and the Arctic Council is responding by supporting research to improve the capability to monitor and track acidification in the Arctic Ocean. Our work in this area will aim to: —Better prepare those responsible to better address search and rescue challenges in the Arctic; —Ensure marine environmental protection, including working toward the establishment of a network of marine protected areas ; —Explore the creation of a Regional Seas Program of the Arctic Ocean; —Create a better understanding of Arctic Ocean acidification and its effects on Arctic organisms and the economies that rely on them; —Encourage all parties take the steps necessary to allow for the proper implementation of the Agreement on Cooperation on Marine Oil Pollution, Preparedness and response in the Arctic . 3. Addressing the Impacts of Climate Change The impacts of climate change affect the Arctic and the many people, wildlife, and plants that depend on the region for survival. The United States recognizes that we need to reduce black carbon (soot) and methane emissions, which disproportionally impact the Arctic. The Arctic Council is addressing the impacts of climate change by facilitating cooperation on action to reduce black carbon and methane emissions. Arctic Council activities to enhance access to adaptation and resilience tools, and promote the development of climate change indicators and high-resolution mapping are also priorities of the U.S. chairmanship that will increase scientists', communities', policymakers' and the public's understanding of the impacts of climate change. Our work in this area will aim to: —Target short-lived climate pollutants through reductions in black carbon and methane emissions; —Support Arctic climate adaptation and resilience efforts including the creation of an Early Warning Indicator System; —Create a Pan-Arctic Digital Elevation Map that will increase our understanding of the impacts of climate change on shorelines and surface areas in the Arctic.

The diminishment of Arctic sea ice has led to increased human activities in the Arctic, and has heightened interest in, and concerns about, the region's future. The United States, by virtue of Alaska, is an Arctic country and has substantial interests in the region. Record low extents of Arctic sea ice over the past decade have focused scientific and policy attention on links to global climate change and projected ice-free seasons in the Arctic within decades. These changes have potential consequences for weather in the United States, access to mineral and biological resources in the Arctic, the economies and cultures of peoples in the region, and national security. The five Arctic coastal states—the United States, Canada, Russia, Norway, and Denmark (of which Greenland is a territory)—have made or are in the process of preparing submissions to the Commission on the Limits of the Continental Shelf regarding the outer limits of their extended continental shelves. The Russian submission includes the underwater Lomonosov Ridge, a feature that spans a considerable distance across the center of the Arctic Ocean. The diminishment of Arctic ice could lead in coming years to increased commercial shipping on two trans-Arctic sea routes—the Northern Sea Route close to Russia, and the Northwest Passage—though the rate of increase in the use of these routes might not be as great as sometimes anticipated in press accounts. International guidelines for ships operating in Arctic waters have been recently updated. Changes to the Arctic brought about by warming temperatures will likely allow more exploration for oil, gas, and minerals. Warming that causes permafrost to melt could pose challenges to onshore exploration activities. Increased oil and gas exploration and tourism (cruise ships) in the Arctic increase the risk of pollution in the region. Cleaning up oil spills in ice-covered waters will be more difficult than in other areas, primarily because effective strategies for cleaning up oil spills in ice-covered waters have yet to be developed. Large commercial fisheries exist in the Arctic. The United States is currently meeting with other countries regarding the management of Arctic fish stocks. Changes in the Arctic could affect threatened and endangered species, and could result in migration of fish stocks to new waters. Under the Endangered Species Act, the polar bear was listed as threatened on May 15, 2008. Arctic climate change is also expected to affect the economies, health, and cultures of Arctic indigenous peoples. Two of the Coast Guard's three polar icebreakers—Polar Star and Polar Sea—have exceeded their intended 30-year service lives, and Polar Sea is not operational. The Coast Guard has initiated a project to build up to three new heavy polar icebreakers. On May 12, 2011, representatives from the member states of the Arctic Council signed an agreement on cooperation on search and rescue in the Arctic. Although there is significant international cooperation on Arctic issues, the Arctic is increasingly being viewed by some observers as a potential emerging security issue. Some of the Arctic coastal states, particularly Russia, have announced an intention or taken actions to enhance their military presences in the high north. U.S. military forces, particularly the Navy and Coast Guard, have begun to pay more attention to the region in their planning and operations.

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Background Central governance in Yemen, embodied by the decades-long rule of former President Ali Abdullah Saleh, began to unravel in 2011, when political unrest broke out throughout the Arab world. Popular youth protests in Yemen were gradually supplanted by political elites jockeying to replace then-President Saleh. Ultimately, infighting among various centers of Yemeni political power broke out in the capital, and government authority throughout the country eroded. Soon, militias associated with Al Qaeda in the Arabian Peninsula (AQAP) seized territory in one southern province. Concerned that the political unrest and resulting security vacuum were strengthening terrorist elements, the United States, Saudi Arabia, and other members of the international community attempted to broker a political compromise. A transition plan was brokered, and in 2012 former Vice President Abdu Rabbu Mansour Hadi became president. With the support of the United States, Saudi Arabia, and the United Nations Security Council, President Hadi attempted to reform Yemen's political system. Throughout 2013, key players convened a National Dialogue Conference aimed at reaching broad national consensus on a new political order. However, in January 2014 it ended without agreement. One antigovernment group in particular, the northern Yemeni Houthi movement, sought to use military force to reshape the political order. Within weeks of the National Dialogue Conference concluding, it launched a military offensive against various tribal allies of President Hadi. The Houthi were joined by the forces still loyal to former President Saleh, creating an alliance of convenience that was a formidable opponent to President Hadi and his allies. In 2014, Houthi militants took over the capital of Sanaa (also spelled Sana'a) and violated several power-sharing arrangements. In 2015, Houthi forces advanced southward from the capital all the way to Aden on the Arabian Sea. In March 2015, after President Hadi, who had fled to Saudi Arabia, appealed for international intervention, Saudi Arabia and a hastily assembled international coalition launched a military offensive aimed at restoring Hadi's rule and evicting Houthi fighters from the capital and other major cities. In April 2015, the United Nations Security Council passed Resolution (UNSCR) 2216 demanding that Houthi-Saleh forces end their use of violence and that all Yemeni parties avoid "further unilateral actions that could undermine the political transition in Yemen." The United States agreed to provide limited assistance to the coalition military operations, assistance which has evolved over time in response to conditions in the conflict and in light of congressional scrutiny. In early December 2017, the Houthi-Saleh alliance unraveled, culminating in the killing of former President Saleh on December 4, 2017. Since Saleh's death, the coalition has made military gains, advancing northward along the Red Sea coast toward the port of Hudaydah (also spelled Hodeidah, Hudayda). Nevertheless, Houthi forces remain ensconced in northern Yemen and remain in control of the capital. The war has exacerbated a humanitarian crisis in Yemen that began in 2011; as of January 2019, over half of the population required emergency food assistance. Access restrictions to certain areas of Yemen make it problematic for governments and aid agencies to count the war's casualties. One U.S. and European-funded organization, the Armed Conflict Location & Event Data Project (ACLED), estimates that 60,000 Yemenis have been killed since January 2016. UNHCR estimates that 3.9 million Yemenis were displaced internally as of January 2019. In January 2019, the United Nations Panel of Experts on Yemen released their annual report covering 2018. This report noted that Yemen continues to "slide towards humanitarian and economic catastrophe." Though the actual ground war remains confined to "relatively small areas," the effect of the conflict on the economy, as well as the growing presence of armed groups and deep-rooted corruption, has impacted ordinary Yemenis within both Houthi-held areas and liberated areas. Stockholm Agreement and Hudaydah Cease-Fire On December 6, 2018, the warring parties to the conflict in Yemen convened in Sweden under the auspices of the United Nations to discuss various de-escalation proposals and a possible road map to a comprehensive peace settlement. The talks were the first formal negotiations since 2016. After a week of negotiations, all sides agreed to the Stockholm Agreement, which consists of three components: a cease-fire around the port city of Hudaydah, a prisoner swap, and a statement of understanding that all sides would form a committee to discuss the war-torn city Taiz. Though fighting continues along several fronts, on December 13, 2018, Special Envoy of the United Nations Secretary-General for Yemen Martin Griffiths brokered a cease-fire centered on the besieged Red Sea port city of Hudaydah, Yemen's largest port. As part of the deal, the coalition and the Houthis agreed to redeploy their forces outside Hudaydah city and port. The United Nations agreed to chair a Redeployment Coordination Committee (RCC) to monitor the cease-fire and redeployment. On January 16, the United Nations Security Council (UNSCR) passed UNSCR 2452, which authorized (for a 6-month period) the creation of the United Nations Mission to support the Hudaydah Agreement (UNMHA), of which the RCC was a significant component. For nearly two months, implementation of the Stockholm Agreement stalled. According to U.N. Special Envoy Griffiths, "The initial timelines were rather ambitious….We are dealing with a complex situation on the ground." The Stockholm Agreement did not specify which local actors were to assume responsibility for security in Hudaydah after both parties redeployed. On February 17, the United Nations announced that "The parties reached an agreement on Phase 1 of the mutual redeployment of forces" whereby the Houthis would withdraw from Hudaydah port and the Saudi-led coalition would move out of the eastern outskirts of Hudaydah city. Still, the warring parties have yet to agree on the identities of local police forces to take over security in Hudaydah. As of March 2019, the parties had made "significant progress towards an agreement to implement phase one of the redeployments of the Hudayda agreement." Until a final redeployment is reached, the Houthis remain ensconced in Hudaydah, with barricades, trenches and roadblocks still present throughout the city. The Houthis want local coast guard units to assume control. The coalition claims, however, that the leaders of the local coast guards are loyal to the Houthis, and U.N. observers may have difficulty in verifying the neutrality of security personnel in Hudaydah. U.N. officials have reported to the Security Council that the Houthis fear that a withdrawal from Hudaydah will make their forces vulnerable to attack by the coalition. Meanwhile, in Jordan, several meetings between the Houthis and the Hadi government have taken place over a planned prisoner exchange as called for in the Stockholm Agreement. Although some exchanges of wounded personnel and prisoners have taken place, the talks have not produced a comprehensive agreement to date. Overall, many observers remain skeptical that the cease-fire reflects a broader impulse to end the war, seeing it instead as a means of easing international pressure on the coalition. Since the signing of the Stockholm Agreement, the Saudi-led coalition has conducted airstrikes in Sanaa in retaliation for a Houthi drone attack against a Yemeni military parade. In late January, artillery fire struck a camp for internally displaced people in Yemen's northwestern Hajjah province, killing eight civilians and wounding 30 others. According to reporting by the United Nations, implementation of the Stockholm Agreement has been hindered by an overall lack of trust and a reluctance to make operational concessions outside of a comprehensive political agreement. Recent U.S. Policy In 2019, the Trump Administration has continued to support United Nations-led efforts in addressing the humanitarian situation and working toward a comprehensive peace in Yemen. At the same time, the United States has continued to cooperate with Saudi Arabia and the UAE in countering terrorism and attempting to limit Iran's influence in Yemen. For the Trump Administration, U.S. officials have supported the continued defense of Saudi Arabia against Houthi missile and rocket strikes, while also openly calling on coalition members to use air power judiciously to minimize civilian casualties. After ending U.S. refueling support at the coalition's request in November 2018, the Administration has argued against congressional attempts to block arms sales or to end or condition U.S. assistance, arguing that continued U.S. assistance is more likely to achieve the objectives of limiting civilian casualties and maintaining strategic ties to Gulf partners than a punitive approach. To address congressional concerns over errant coalition airstrikes against Yemeni civilians, on November 11, 2018, the United States halted in-flight refueling support for coalition aircraft at the request of the coalition. A month later, then-U.S. Ambassador-designate to Yemen Christopher Henzel noted in his Senate confirmation hearing that "At our urging, the Saudi-led coalition has incorporated the no-strike list into its target development procedures, stopped the use of cluster munitions, changed its rules of engagement to incorporate U.S. recommendations, and established the Joint Incident Assessment team. The United States will continue to press the coalition and the Republic of Yemen government to minimize civilian casualties and expand urgent humanitarian efforts throughout the country." In early February 2019, CENTCOM Commander General Joseph Votel testified before the Senate Armed Services Committee regarding the U.S. role in assisting Saudi Arabia. General Votel remarked that: The United States will continue to support our regional partners developing processes and procedures to counter ballistic missiles (CBM) and counter unmanned armed aerial systems (C-UAS) to help mitigate threats to civilian populations and critical infrastructure…. We continue to share our own experiences and processes in an effort to improve Saudi Arabia's operational performance and reduce civilian casualties. CENTCOM's security cooperation with Saudi Arabia remains a critical link in our efforts to strengthen partners in the region and meet current and future challenges. The work of U.S. advisors is essential to the success of our mission, and Saudi Arabia underwrites the lion's share of their presence. In February 2019, CNN reported that Saudi Arabia and the UAE had provided U.S. military equipment (armored vehicles) to local Yemeni units fighting the Houthis in possible violation of end-user foreign military sale or direct commercial sale agreements. The coalition has denied these charges, while the U.S. State Department has said that it is "seeking additional information" on the issue. At the February 2019 Ministerial to Promote a Future of Peace and Security in the Middle East in Warsaw, Poland, members of the self-described "quad" (United States, United Kingdom, Saudi Arabia, and the United Arab Emirates) met to coordinate their policy toward the Yemen conflict. The quad emphasized the importance of implementing the Stockholm Agreement, the problematic role Iran plays in arming and financing the Houthis, and the need for additional humanitarian assistance. The foreign ministers comprising the quad also "expressed full support for Saudi Arabia and its legitimate national security concerns and called for an immediate end to such attacks by Houthi forces and their allies." On February 13, 2019, the House passed (248-177) H.J.Res. 37 , a joint resolution "Directing the removal of United States Armed Forces from hostilities in the Republic of Yemen that have not been authorized by Congress." Prior to its passage by the House, the White House issued a Statement of Administration Policy in which the Administration argued that "the premise of the joint resolution is flawed" because the United States has provided only "limited support to member countries of the Saudi-led coalition" and U.S. forces providing such intelligence and logistics support are not engaged in hostilities. As amended and passed by the House, Section 4 of H.J.Res. 37 includes a rule of construction stating that "Nothing in this joint resolution may be construed to influence or disrupt any intelligence, counterintelligence, or investigative activities conducted by, or in conjunction with, the United States Government…" The Senate companion resolution, S.J.Res. 7 , was introduced on January 30, 2019 and passed by the Senate (54-46) on March 13, 2019. As amended, S.J.Res. 7 includes rules of construction stating that "nothing in this joint resolution may be construed to influence or disrupt any intelligence, counterintelligence or investigative activities relating to threats in or emanating from Yemen conducted by, or in conjunction with, the United States Government…" (Section 4) and that "nothing in this joint resolution may be construed as authorizing the use of military force" (Section 7). On February 7, 2019, Ranking Member on the Senate Foreign Relations Committee Senator Robert Menendez introduced S. 398 , the Saudi Arabia Accountability and Yemen Act of 2019. This bill, which was originally introduced in the 115 th Congress, would, among other things, require the end of in-flight refueling for Saudi-led coalition operations in Yemen, suspend certain arms sales to the kingdom, sanction persons blocking humanitarian access in Yemen, and sanction persons supporting the Houthis in Yemen. Iranian Support to the Houthis Although Houthi militia forces most likely do not depend on Iran for all of their armaments, financing, and manpower, many observers agree that Iran and its Lebanese ally Hezbollah have aided Houthi forces with advice, training, and arms shipments. In 2016, one unnamed Hezbollah commander interviewed about his group's support for the Houthis remarked "After we are done with Syria, we will start with Yemen, Hezbollah is already there.... Who do you think fires Tochka missiles into Saudi Arabia? It's not the Houthis in their sandals, it's us." In repeated public statements by high-level Saudi officials, Saudi Arabia has cited Iran's illicit support for the Houthis as proof that Iran is to blame for the Yemen conflict. Reports and allegations of Iranian involvement in Yemen have become more frequent as the war has continued, and from Iran's perspective, aiding the Houthis would seem to be a relatively low-cost way of keeping Saudi Arabia mired in the Yemen conflict. However, Iran had few institutionalized links to the Houthis before the civil conflict broke out in 2015, and questions remain about the degree to which Iran and its allies can control or influence Houthi behavior. At present, Iranian aid to the Houthis does not appear to match the scale of its commitments to proxies in other parts of the Middle East, such as in Syria, Lebanon, and Iraq. Prior to the 2015 conflict, the central government in Yemen had acquired variants of Scud-B missiles from the Soviet Union and North Korea. The Houthis took control of these missiles as part of their seizure of the capital. Since 2016, the Houthis have been firing what they call the "Burkan" short-range ballistic missile (claimed range of 500-620 miles) into Saudi Arabia (the latest version is the Burkan-2H). In November 2017, after the Houthis fired a Burkan-2H deep into Saudi Arabian territory, the Saudi-led coalition and U.S. officials said that the Burkan-2H is an Iran-manufactured Qaim missile. In January 2018, the United Nations Panel of Experts on Yemen concluded that Iran was in noncompliance with UNSCR 2216 for failing to prevent the transfer to Houthi forces of Iranian-made short-range ballistic missiles. On February 26, 2018, Russia vetoed a draft U.N. Security Council resolution that would have expressed U.N. concern that Iran is in noncompliance with the international arms embargo created by UNSCR 2216. In summer 2018, the United Nations Panel of Experts on Yemen provided a confidential report to the United Nations Security Council suggesting that Iran may be continuing to violate the international arms embargo by supplying the Houthis with advanced weaponry. After the U.N. experts visited Saudi Arabia and inspected debris from missiles fired by the Houthis, their report noted that these weapons showed "characteristics similar to weapons systems known to be produced in the Islamic Republic of Iran" and that there was a "high probability" that the missiles were manufactured outside of Yemen, shipped in sections to the country, and reassembled by the Houthis. In May 2018, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) designated five Iranian individuals who have "provided ballistic missile-related technical expertise to Yemen's Houthis, and who have transferred weapons not seen in Yemen prior to the current conflict, on behalf of the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF)." In testimony to the Senate Select Committee on Intelligence in January 2019, Director of National Intelligence Daniel Coats stated: In Yemen, Iran's support to the Huthis, including supplying ballistic missiles, risks escalating the conflict and poses a serious threat to US partners and interests in the region. Iran continues to provide support that enables Huthi attacks against shipping near the Bab el Mandeb Strait and land-based targets deep inside Saudi Arabia and the UAE, using ballistic missiles and UAVs. The U.N. Panel of Experts on Yemen reported in January 2019 that the panel "has traced the supply to the Houthis of unmanned aerial vehicles and a mixing machine for rocket fuel and found that individuals and entities of Iranian origin have funded the purchase." Saudi Arabia and U.S. Support for the Coalition For Saudi Arabia, according to one prominent analyst, the Houthis embody what Iran seeks to achieve across the Arab world: that is, the cultivation of an armed nonstate, non-Sunni actor who can pressure Iran's adversaries both politically and militarily (akin to Hezbollah in Lebanon). A decade before the current conflict began in 2015, Saudi Arabia supported the central government of Yemen in various military campaigns against a Houthi insurgency which began in 2004. In 2014, when Houthi militants took over the capital and violated several power-sharing arrangements, Saudi leaders expressed increasing alarm about Houthi advances. In March 2015, after President Hadi, who had fled to Saudi Arabia, appealed for international intervention, Saudi Arabia quickly assembled an international coalition and launched a military offensive aimed at restoring Hadi's rule and evicting Houthi fighters from the capital and other major cities. Saudi-led coalition forces began conducting air strikes against Houthi-Saleh forces and imposed strict limits on sea and air traffic to Yemen. From the outset, Saudi leaders sought material and military support from the United States for the campaign. In March 2015, President Obama authorized "the provision of logistical and intelligence support to GCC-led military operations," and the Obama Administration announced that the United States would establish "a Joint Planning Cell with Saudi Arabia to coordinate U.S. military and intelligence support." U.S. CENTCOM personnel were deployed to provide related support, and U.S. mid-air refueling of coalition aircraft began in April 2015 and ended in November 2018. In the years since, the Saudi military and its coalition partners have provided advice and military support to a range of pro-Hadi forces inside Yemen, while waging a persistent air campaign against the Houthis and their allies. Saudi ground forces and Special Forces have conducted limited cross-border operations, and Saudi naval forces limit the entry and exit of vessels from Yemen's ports. Separately, a United Nations Verification and Inspection Mechanism (UNVIM) has operated since May 2016 to assist in validating commercial sea and air traffic in support of the arms embargo imposed by Resolution 2216. According to President Trump's December 2018 letter to Congress consistent with the War Powers Resolution, U.S. Armed Forces, "in a non-combat role," continued to provide military advice and limited information, logistics, and other support to regional forces combatting the Houthi insurgency in Yemen; however, aerial refueling of regional forces' aircraft ended in November 2018. United States forces are present in Saudi Arabia for this purpose. Such support does not involve United States Armed Forces in hostilities with the Houthis for the purposes of the War Powers Resolution. U.S. Counterterrorism Operations in Yemen As the Saudi-led coalition's campaign against the Houthis continues and Yemen fragments, the United States has sustained counterterrorism operations against Al Qaeda in the Arabian Peninsula (AQAP) and various affiliates of the Islamic State. In total, CENTCOM conducted 36 air strikes in Yemen in 2018. According to President Trump's December 2018 letter to Congress consistent with the War Powers Resolution, "a small number of United States military personnel are deployed to Yemen to conduct operations against al-Qa'ida in the Arabian Peninsula (AQAP) and ISIS‑Yemen." In December 2018, General Frank McKenzie testified before the Senate Armed Services Committee stating that "they [AQAP] have an aspiration to attack the United States. They are prevented from generating that only because of the direct pressure that remains on them. So that is a clear, unequivocal national interest of the United States." Some observers contend that AQAP's power inside Yemen has diminished considerably as a result of losses sustained from U.S. counterterrorism operations and of competing Yemeni factions vying for supremacy. According to Gregory D. Johnsen, resident scholar at the Arabia Foundation, "AQAP is weaker now than it has been at any point since it was formed in 2009." In August 2018, U.S. officials claimed that one of the most high-value targets in the AQAP organization, bomb maker Ibrahim al Asiri, had been killed in a U.S. air strike last year. Asiri was a Saudi national who was believed to have created the explosive devices used in the 2009 Christmas Day attempted bombing of Northwest Airlines Flight 253, in a 2009 attack against former Saudi Arabian intelligence chief Mohammed bin Nayef, and in the October 2010 air cargo packages destined for Jewish sites in Chicago. In January 2019, U.S. officials confirmed that Jamal al-Badawi, an al Qaeda operative involved in the October 2000 bombing of the USS Cole in Aden, was killed in a precision strike in Marib governorate on January 1. Al-Badawi had been indicted by a federal grand jury in 2003 for the murder of U.S. nationals and U.S. military personnel. To date, two American soldiers have died in the ongoing U.S. counterterrorism campaign against AQAP and other terrorists inside Yemen. In January 2017, Ryan Owens, a Navy SEAL, died during a counterterrorism raid in which between 4 and 12 Yemeni civilians also were killed, including several children, one of whom was a U.S. citizen. The raid was the Trump Administration's first acknowledged counterterror operation. In August 2017, Emil Rivera-Lopez, a member of the elite 160th Special Operation Aviation Regiment, died when his Black Hawk helicopter crashed off the coast of Yemen during a training exercise. Yemen's Humanitarian Crisis Humanitarian Conditions and Assistance According to the United Nations, Yemen's humanitarian crisis is the worst in the world, with close to 80% of Yemen's population of nearly 30 million needing some form of assistance. The U.N.Office for the Coordination of Humanitarian Affairs (OCHA) estimates that two-thirds of the population is food insecure, one-third are suffering from extreme levels of hunger, and 230 out of Yemen's 333 districts were at risk of famine as of January 2019. In sum, the United Nations notes that humanitarian assistance is "increasingly becoming the only lifeline for millions of Yemenis." As noted above, on February 17, the parties to the conflict began to implement the Stockholm Agreement. The deal calls for main roads to reopen from Hudaydah to Sanaa and Taiz and humanitarian access to the Red Sea Mills grain storage facility, which holds enough grain to provide food for 3.7 million Yemenis for a month. Access to the Mills has been cut off since September 2018. On February 26 in Geneva, the United Nations and the Governments of Sweden and Switzerland hosted the third annual pledging conference for the crisis in Yemen. Saudi Arabia and the UAE each pledged $750 million. For 2019, the United Nations is seeking $4 billion from donors for programs in Yemen. The 2018 humanitarian appeal sought a little over $3 billion, of which donors have provided $2.58 billion to date. The United States, Saudi Arabia, the United Arab Emirates, and Kuwait combined accounted for 66.8% of all contributions to the 2018 appeal. Between FY2018 and FY2019, the United States has provided $720.8 million in emergency humanitarian aid for Yemen. Most of these funds ($498 million) are provided through USAID's Office of Food for Peace to support the World Food Programme in Yemen. Since March 2015, the United States has been the largest contributor of humanitarian aid to Yemen, with more than $1.71 billion in U.S. funding provided since FY2015. The United States provided a total of $566.2 million in humanitarian assistance in FY2018. Funds were provided to international aid organizations from USAID's Office of Foreign Disaster Assistance (OFDA), USAID's Food for Peace (FFP), and the U.S. Department of State's Bureau of Population, Refugees, and Migration (State/PRM). Humanitarian conditions continue to be undermined both by economic disruptions caused by the fracturing of the country's financial system and by access constraints imposed by parties to the conflict. Food Insecurity and the Depreciation of Yemen's Currency Remote regions of northern Yemen deep in Houthi territory are often the most challenging areas in which to deliver food aid. In most other parts of the country, food is available for purchase in the marketplace but prices are unaffordable for wide swaths of the population. According to the Food and Agriculture Organization of the United Nations, "The average cost of the minimum survival food basket—comprised of the minimum items required for a household to survive for one month—remains more than 110 percent higher than prior to the conflict's escalation in March 2015." One cause of inflationary prices is the depreciation of the national currency (rial). Yemen has two competing central banks, one in Sanaa (run by the Houthis) and one in Aden (run by the Hadi government). The Houthis in Sanaa have depleted the original central bank's foreign currency reserves and have been unable to pay public sector salaries. The central bank in Aden has liberally printed money, which has driven down the value of the rial. According to the Economist Intelligence Unit's outlook for 2019, "rapid currency depreciation for most of 2018 significantly increased the price of imports [most Yemeni food is imported], and, despite a rally in the rial in late 2018, is a trend that is likely to continue throughout the forecast period as the Aden-based authorities continue to print money..." In 2018, Saudi Arabia agreed to lend $2 billion with the central bank in Aden to help the Hadi government finance food imports. However, according to one report, as of November 2018, "only a little over $170 million had been authorized for payment." Restrictions on the Flow of Commercial Goods and Humanitarian Aid One of the key aspects of the 2015 United Nations Security Council Resolution (UNSCR) 2216 is that it authorizes member states to prevent the transfer or sale of arms to the Houthis and also allows Yemen's neighbors to inspect cargo suspected of carrying arms to Houthi fighters. In March 2015, the Saudi-led coalition imposed a naval and aerial blockade on Yemen, and ships seeking entry to Yemeni ports required coalition inspection, leading to delays in the off-loading of goods and increased insurance and related shipping costs. Since Yemen relies on foreign imports for as much as 90% of its food supply, disruptions to the importation of food exacerbate already strained humanitarian conditions resulting from war. To expedite the importation of goods while adhering to the arms embargo, the European Union, Netherlands, New Zealand, the United Kingdom, and the United States formed the U.N. Verification and Inspection Mechanism (UNVIM), a U.N.-led operation designed to inspect incoming sea cargo to Yemen for illicit weapons. UNVIM, which began operating in February 2016, can inspect cargo while also ensuring that humanitarian aid is delivered in a timely manner. However, Saudi officials argue that coalition-imposed restrictions and strict inspections of goods and vessels bound for Yemen are still required because of Iranian weapons smuggling to Houthi forces. Saudi officials similarly argue that the delivery of goods to ports and territory under Houthi control creates opportunities for Houthi forces to redirect or otherwise exploit shipments for their material or financial benefit. According to the latest reporting from United Nations Office for the Coordination of Humanitarian Affairs (U.N.OCHA), over the last several months, the volume of cargo discharged at Hudaydah and Saleef ports dropped, and now is 20% less than when the conflict began in 2015. Water, Sanitation, and Hygiene (WASH) Yemen is experiencing the world's largest ongoing cholera outbreak. Since late 2016, there have been more than 1.3 million suspected cholera cases and nearly 2,800 associated deaths. Cholera is a diarrheal infection that is contracted by ingesting food or water contaminated with the bacterium Vibrio cholerae . Yemen's water and sanitation infrastructure have been devastated by the war. Basic municipal services such as garbage collection have deteriorated and, as a result, waste has gone uncollected in many areas, polluting water supplies and contributing to the cholera outbreak. In addition, international human rights organizations have accused the Saudi-led coalition of conducting air strikes that have unlawfully targeted civilian infrastructure, such as water wells, bottling facilities, health facilities, and water treatment plants. Humanitarian organizations working in the WASH sector have improved cholera prevention and reduced the frequency of new cases, but have not eliminated the crisis. According to U.N.OCHA's 2019 Yemen Humanitarian Needs Overview, "Public water and sanitation systems require increased support to provide minimum services and avoid collapse. Some 22 per cent of rural and 46 per cent of urban populations are connected to partially functioning public water networks, and lack of electricity or public revenue creates significant reliance on humanitarian support." As of January 2019, 17.8 million people in Yemen are living without access to safe water and sanitation, and 19.7 million lack access to adequate health care. Where is the Yemen Conflict Heading? While the Stockholm Agreement has the potential to lead to a broader, nation-wide cease-fire, the longer it takes to implement, the greater risk of the agreement's collapse and the prospect for renewed conflict in Hudaydah. Although fighting has continued along several fronts since December 2018, the Stockholm Agreement has provided the Saudi-led coalition with the possibility of gradually extricating itself its intervention in Yemen. If the cease-fire collapses, then the coalition would have to weigh the benefits of trying to evict the Houthis from Hudaydah militarily with the humanitarian costs to the Yemeni people and the reputational damage it would incur within the international community. Even if the United Nations is able to make progress toward a comprehensive peace agreement, Yemen is still beset by multiple political conflicts and violence. In the south, regional secessionists are at odds with what remains of President Hadi's internationally recognized government. In the partially Houthi-besieged city of Taiz, Yemen's third-largest city, rival militias backed by the coalition have engaged in internecine warfare and have been accused by human rights groups of committing war crimes. Many key questions about the future of Yemen remain unanswered. In the context of the current Houthi-Saudi-led coalition conflict, few observers have insight into whether or under what conditions the Houthis might be willing to relinquish their heavy or advanced weaponry used to threaten Saudi Arabia, the United Arab Emirates, and maritime shipping. Iran, now involved in Yemen in new ways, may prove unwilling to sever ties that vex its Saudi adversaries. Political and military compromise between the coalition and the Houthis could bring fighting to an end, but might also entrench an anti-U.S. and anti-Saudi Houthi movement as a leading force in a new order in Yemen. The complexity of Yemen's internal politics and the short-term need to resolve the current conflict have overshadowed domestic and international consideration of what the future of Yemeni governance may be. Overall, the prospects for returning to a unified Yemen appear dim. According to the United Nations Panel of Experts on Yemen, "The authority of the legitimate Government of Yemen has now eroded to the point that it is doubtful whether it will ever be able to reunite Yemen as a single country." While the country's unity is a relatively recent historical phenomenon (dating to 1990), the international community had widely supported the reform of Yemen's political system under a unified government just a few years ago. In 2013, Yemenis from across the political spectrum convened a National Dialogue Conference aimed at reaching broad national consensus on a new political order. However, in January 2014 it ended without agreement, and the Houthis launched a war. The failure of the 2013 National Dialogue Conference aimed at reaching broad national consensus on a new political order continues to violently reverberate throughout Yemen. If some semblance of normalcy is to return to the country, local players will have to return to addressing key issues, such as the power of a central government, the devolution of power to regional authorities, and the composition of national security forces. The longer these issues remain unresolved, the greater the prospect for Yemen's dissolution into competing self-declared autonomous regions.

This report provides information on the ongoing crisis in Yemen. Now in its fifth year, the war in Yemen shows no signs of abating. The war has killed thousands of Yemenis, including combatants as well as civilians, and has significantly damaged the country's infrastructure. The difficulty of accessing certain areas of Yemen has made it problematic for governments and aid agencies to count the war's casualties. One U.S. and European-funded organization, the Armed Conflict Location & Event Data Project (ACLED), estimates that 60,000 Yemenis have been killed since January 2016. Though fighting continues along several fronts, on December 13, 2018, Special Envoy of the United Nations Secretary-General for Yemen Martin Griffiths brokered a cease-fire centered on the besieged Red Sea port city of Hudaydah, Yemen's largest port. As part of the deal, the coalition and the Houthis agreed to redeploy their forces outside Hudaydah city and port. The United Nations agreed to chair a Redeployment Coordination Committee (RCC) to monitor the cease-fire and redeployment. On January 16, the United Nations Security Council (UNSCR) passed UNSCR 2452, which authorized (for a six-month period) the creation of the United Nations Mission to support the Hudaydah Agreement (UNMHA), of which the RCC is a significant component. As of late March 2019, the Stockholm Agreement remains unfulfilled, although U.N. officials claim that the parties have made "significant progress towards an agreement to implement phase one of the redeployments of the Hudayda agreement." Although both the Obama and Trump Administrations have called for a political solution to the conflict, the two sides in Yemen appear to fundamentally disagree over the framework for a potential political solution. The Saudi-led coalition demands that the Houthi militia disarm, relinquish its heavy weaponry (ballistic missiles and rockets), and return control of the capital, Sanaa, to the internationally recognized government of President Abdu Rabbu Mansour Hadi, who is in exile in Saudi Arabia. The coalition asserts that there remains international consensus for these demands, insisting that the conditions laid out in United Nations Security Council Resolution (UNSCR) 2216 (April 2015) should form the basis for a solution to the conflict. The Houthis reject UNSCR 2216 and seem determined to outlast their opponents while consolidating their control over northern Yemen. Since the December 2017 Houthi killing of former President Ali Abdullah Saleh, a former Houthi ally, there is no apparent single Yemeni rival to challenge Houthi rule in northern Yemen. Armed groups, including Islamist extremists, operate in other parts of the country, and rival political movements and trends advance competing visions for the long-term reestablishment of national governance in the country. The reconciliation of Yemeni factions and the redefinition of the country's political system, security sector, and social contract will likely require years of additional diplomatic engagement. According to the United Nations, Yemen's humanitarian crisis is the worst in the world, with close to 80% of Yemen's population of nearly 30 million needing some form of assistance. Two-thirds of the population is considered food insecure; one-third is suffering from extreme levels of hunger; and the United Nations estimates that 230 out of Yemen's 333 districts are at risk of famine. In sum, the United Nations notes that humanitarian assistance is "increasingly becoming the only lifeline for millions of Yemenis." For additional information on Yemen, including a summary of relevant legislation, please see CRS Report R45046, Congress and the War in Yemen: Oversight and Legislation 2015-2019, by Jeremy M. Sharp and Christopher M. Blanchard.

CRS_R44637

Introduction Congress appropriates foreign affairs funding primarily through annual Department of State, Foreign Operations, and Related Programs (SFOPS) appropriations. Prior to FY2008, however, Congress provided funds for the Department of State and international broadcasting within the Commerce, Justice, and State, the Judiciary, and Related Agencies appropriations (CJS) and separately provided foreign aid funds within Foreign Operations, Export Financing, and Related Programs appropriations. The transition between the different alignments occurred in the 109 th Congress, with a change in appropriations subcommittee jurisdiction. For that Congress, the House of Representatives appropriated State Department funds separately from foreign aid, as in earlier Congresses, but the Senate differed by appropriating State and foreign aid funds within one bill—the Department of State, Foreign Operations, and Related Programs Appropriations. Both the House and Senate began jointly funding Department of State and foreign aid appropriations within the Department of State, Foreign Operations and Related Programs Appropriations in the Consolidated Appropriations Act, 2008 ( P.L. 110-161 ). SFOPS appropriations currently include State Department Operations (including accounts for Embassy Security, Construction, and Maintenance, and Education and Cultural Affairs, among others); Foreign Operations (including USAID administration expenses, bilateral economic assistance, international security assistance, multilateral assistance, and export assistance); various international commissions; and International Broadcasting (including VOA, RFE/RL, Cuba Broadcasting, Radio Free Asia, and Middle East Broadcasting Networks). While the distribution varies slightly from year to year, Foreign Operations funding is typically about twice as much as State Operations funding. In addition to regular, enduring SFOPS appropriations, Congress has approved emergency supplemental funding requested by Administrations to address emergency or otherwise off-cycle budget needs. Since FY2012, Congress has also appropriated Overseas Contingency Operations (OCO) funding requested within the regular budget process for Department of State and USAID war-related expenses. This report lists the legislative and funding history of SFOPS appropriations and includes funding trends. Legislative History Nearly all foreign affairs appropriations within the past 25 years were passed within omnibus, consolidated, or full-year continuing resolutions, rather than in stand-alone bills, and usually after the start of the new fiscal year. Many foreign policy experts contend that stand-alone appropriations legislation would allow for a more rigorous debate on specific foreign policy activities and improve the ability to introduce or fund new programs, or cancel and defund existing programs. Such experts assert that the frequent practice of passing continuing resolutions and delaying passage of appropriations well into the next fiscal year has hindered program planning (not just in foreign affairs) and has reduced the ability to fund programs that did not exist in the previous cycle. In addition to annual appropriations, several laws require Congress to authorize State and foreign operations funding prior to expenditure. Before 2003, Congress typically provided authorization in a biannual Foreign Relations Authorization bill. This practice not only authorized funding for obligation and expenditure, but also provided a forum for more rigorous debate on specific foreign affairs and foreign aid policies and a legislative vehicle for congressional direction. In recent years, the House and Senate have separately introduced or considered foreign relations and foreign aid authorization bills, but none have been enacted. Table 1 below provides a 25-year history of enacted foreign affairs appropriations laws (excluding short-term continuing resolutions and supplemental appropriations), including the dates they were sent to the President and signed into law. Some observations follow: Since FY1995, Congress appropriated foreign affairs funding in on-time, freestanding bills once—in 1994 for the FY1995 appropriations year. The last time Congress passed foreign affairs funding on time, but not in freestanding legislation, was for FY1997. Congress included foreign affairs funding within an omnibus, consolidated, or full-year continuing resolution 21 of the past 25 years. FY2006 was the last time Congress enacted freestanding State Department and foreign operations appropriations bills. Six times over the past 25 years, Congress sent the State and foreign operations appropriations to the President in March, April, or May—six to eight months into the fiscal year. Funding History Since realignment of the foreign affairs appropriations legislation in FY2008, SFOPS appropriations measures have included State Department Operations, Foreign Operations, various international commissions, and International Broadcasting. For a full list of the accounts included in the FY2019 SFOPS, see Table 2 . 20-Year Funding Trends Table 3 and Figure 1 provide the funding levels for enduring funds and Supplemental/OCO funds in the Department of State, Foreign Operations and Related Programs for FY2001-2020 request (in current dollars). Although current funding for State-Foreign Operations generally has grown since FY2001, there was a spike in funding in FY2004 that can, in large part, be attributed to supplemental funding for the Iraq Relief and Reconstruction Fund, which provided additional funds in that year. The creation of the Millennium Challenge Corporation (MCC) and the President's Emergency Plan for AIDS Relief (PEPFAR) added to growing funding levels from FY2004-FY2009. OCO became a regular part of foreign affairs funding as of FY2012. Supplemental funding for Ebola in FY2015, Zika in FY2016, and OCO in FY2017 contributed to the rise in funding levels during those years (see Figure 2 ). The constant dollar trend line generally continues to increase, although at a slower pace than current dollars. FY2004 remains the peak year in constant dollars. The introduction of OCO funding in FY2012 briefly elevated SFOPS funding, but in the following years, funding levels off at nearly the same amount as the FY2012 level. After removing inflation, funding for FY2013 through the FY2020 request declines below that level, suggesting that the Budget Control Act of 2011 (BCA) has kept foreign affairs funding below the rate of inflation. Enduring vs. Supplemental/OCO Appropriations The Administration distinguishes between enduring (also called base, regular, or ongoing), emergency supplemental, and Overseas Contingency Operations (OCO) funds. Funds designated as emergency or OCO are not subject to procedural limits on discretionary spending in congressional budget resolutions, or the statutory discretionary spending limits provided through the Budget Control Act of 2011 for FY2011-FY2021 (BCA, P.L. 112-25 ). Prior to FY2012, the President typically submitted to Congress additional funding requests (after the initial annual budget request), referred to as emergency supplementals. Supplemental funding packages have historically been approved to address emergency, war-related, or otherwise off-cycle budget needs. The Obama Administration requested emergency supplemental appropriations for urgent unexpected expenses, such as the U.S. international responses to Ebola, the Zika virus, and famine relief to Syria, Yemen, Somalia, and Northeast Nigeria. The Trump Administration has not requested supplemental funding for unexpected international crises. In contrast to emergency supplemental appropriations, the Obama Administration included within the regular budget request in FY2012 what it described as short-term, temporary, war-related funding for the frontline states of Iraq, Afghanistan, and Pakistan—designated as Overseas Contingency Operations funds, or OCO. Congress had used the OCO designation in earlier years for Department of Defense appropriations to distinguish between ongoing versus war-related expenditures. In response to the FY2012 SFOPS OCO request, Congress appropriated OCO funds for the Department of State and USAID activities beyond the requested level and for more than just activities in Iraq, Afghanistan, and Pakistan. In FY2012, Congress included OCO funds for the three frontline states as well as for Yemen, Somalia, Kenya, and the Philippines. The Obama Administration first requested OCO funds for a country other than the three frontline states in FY2015, when it requested OCO funds for Syria. In FY2018, the Trump Administration requested OCO funds for the Department of State and USAID activities in Iraq, Afghanistan, and Pakistan, as well as "High Threat/High Risk" areas. These included Syria, Yemen, Nigeria, Somalia, and South Sudan, among others. The Administration's initial FY2019 request included OCO funds for the Department of State and USAID, but after passage of the Bipartisan Budget Act of 2018 (BBA 2018, P.L. 115-123 ), the Administration requested that all previously requested SFOPS OCO funds be moved to enduring funds. For FY2020, the Trump Administration again requested no OCO funds for foreign affairs agencies. Since FY2012, OCO has ranged from a low of 14% of the total budget request in FY2014 to a high of 36% in FY2017, when the Bipartisan Budget Act of 2015 (BBA 2015, P.L. 114-74 ) set nonbinding OCO minimums for FY2016 and FY2017. The Bipartisan Budget Act of 2018 (BBA 2018, P.L. 115-123 ) raised discretionary spending limits for FY2018 and FY2019 and extended direct spending reductions through FY2027. With the raised spending limits, the Trump Administration's FY2019 budget request did not include the OCO designation for any foreign assistance funds. However, Congress has continued to appropriate OCO funds, including $8.0 billion in FY2019. The Administration's FY2020 budget request also does not request OCO funds for State-Foreign Operations appropriations. The BCA and BBAs have had an effect on foreign affairs funding levels and may have future implications. The Budget Control Act of 2011 sets limits on discretionary spending through FY2021 for defense and nondefense funding categories. Because OCO funds are not counted against the discretionary spending limits, the BCA has put downward pressure on SFOPS enduring/base funds, while OCO has increasingly funded other foreign affairs activities. In addition, the 2015 BBA significantly increased FY2016 and FY2017 OCO funding for foreign affairs over the requested funding levels in FY2015 and FY2016, further encouraging a migration of funds for ongoing activities into OCO-designated accounts. However, the 2018 BBA has had the opposite effect on foreign affairs OCO, allowing lawmakers to shift OCO funding back into enduring/base accounts.

Congress currently appropriates most foreign affairs funding through annual Department of State, Foreign Operations, and Related Programs (SFOPS) appropriations. Prior to FY2008, however, Congress provided funding for the Department of State, international broadcasting, and related programs within the Commerce, Justice, State, the Judiciary, and Related Agencies appropriations. In those years, Congress separately appropriated funding for the U.S. Agency for International Development (USAID) and foreign aid within the Foreign Operations, Export Financing, and Related Programs appropriations. The 110th Congress aligned the two foreign affairs appropriations into the SFOPS legislation. SFOPS appropriations since FY2001 have included enduring appropriations (ongoing or base funding), emergency supplemental appropriations, and Overseas Contingency Operations (OCO) appropriations. Total SFOPS funding levels in both current and constant dollars show a general upward trend, with FY2004 as the peak largely as a result of emergency supplemental appropriations for Iraq Relief and Reconstruction Funds. When adjusted for inflation, annual foreign affairs appropriations have yet to surpass the FY2004 peak. The Budget Control Act (BCA) of 2011 and the Bipartisan Budget Acts (BBA) of 2015 and 2018 appear to have had an impact on both enduring and OCO funding levels. The legislative history of SFOPS appropriations shows that nearly all foreign affairs appropriations measures within the past 25 years were passed within omnibus, consolidated, or full-year continuing resolutions, rather than in stand-alone bills. Moreover, many appropriations were passed after the start of the new fiscal year, at times more than half way into the new fiscal year. In many fiscal years, SFOPS appropriations included emergency supplemental funding or, since FY2012, OCO funding.

GAO_GAO-17-785

Background Set-top boxes provide a variety of functions, including enabling consumers to access their video subscriptions. They also secure the video provider’s content to ensure that the subscriber can access only the channels subscribed to, and prevent unauthorized use, such as recording of content that subscribers do not have the right to record. Among other features, set-top boxes may also allow subscribers to: view a channel guide and search for programming and record content for later viewing; view linear programming—meaning video programming that appears on a given channel at a given time; and view video on demand—meaning video programming available for consumers to access when they want to instead of at a specific time. Traditionally, video content flows from content producers to households through various intermediaries (see fig. 1). Content producers negotiate and agree to a variety of terms and conditions with the networks or local television stations that carry the content, and those networks further negotiate and agree to terms and conditions with the MVPDs that distribute the content to subscribers. For example, a content producer may agree that in addition to its program showing on the linear cable channel at a specific time, its program is also available on demand, but only for a specific period of time. Furthermore, networks may negotiate for and agree to a range of terms with MVPDs regarding channel placement and other items. Protections programmed into the set-top box help ensure that such agreements are implemented. For over two decades, federal statutes and regulations have sought to foster consumer choice for video services and devices to access such services. The Cable Television Consumer Protection and Competition Act of 1992, for example, requires FCC to report annually on the status of competition in the video marketplace. Furthermore, Section 629 of the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (“the Act,”) directed FCC to assure the commercial availability of devices that access MVPD service (which currently are typically set-top boxes) by making them available from third parties unaffiliated with MVPDs. In response to the Act, FCC adopted regulations in October 2003 that allowed the direct connection of digital navigation devices (typically, set- top boxes) purchased from third parties to MVPD systems. To receive and display MVPD content, these devices require a CableCARD, a card provided by a subscriber’s MVPD and installed in the third party set-top box or other device, allowing a subscriber to view secure content they subscribe to with their MVPD. As a result, such third party devices, which remain available today, are known as CableCARD devices. Subsequent to the adoption of its CableCARD regulations, as noted earlier, FCC issued a Notice of Proposed Rulemaking in February 2016 that was intended to provide consumers additional choice for set-top boxes. In the proposed rule, FCC tentatively concluded that despite the availability of CableCARD devices, the market for navigation devices (such as set-top boxes) was not competitive, citing a previous analysis that found that approximately 99 percent of MVPD subscribers continued to lease a set-top box from their MVPD. Therefore, FCC stated in the proposed rule that it should adopt new regulations. Moreover, FCC stated that technological advances since the CableCARD regulations had been adopted enabled new solutions that, with certain ground rules, would make it easier to finally fulfill the purpose of the Act. One goal of the proposed rule was to allow third party manufacturers to create new devices and user interfaces—the means through which users interact with a set-top box such as the menus, remote control, and methods of searching for programming—to access MVPD services. For such devices to work, the proposal required MVPDs to transmit to third party devices video programming content and data about that programming, including channel listings and schedules and data on what programming subscribers are entitled to access. Such devices, as proposed, would not rely on a CableCARD and would be compatible with any MVPD’s service. As such, as envisioned by FCC, the proposed rule would enable a consumer to switch MVPDs without having to change the set-top box. In September 2016, after receiving input from a wide range of stakeholders, the former FCC Chairman issued a three page fact sheet providing an overview of a proposed final rule that the Chairman scheduled for Commission vote in September 2016. According to the fact sheet, MVPDs would have been required to offer consumers a free electronic application (commonly referred to as an “app”), which would be controlled by the MVPD, that subscribers could download onto a variety of Internet-capable devices such as tablets and smartphones to access the programming they subscribe to. Under this scenario, control over the user interface would have been maintained by the MVPD, not the third- party device manufacturer, as the original proposed rule envisioned. However, the former Chairman ultimately deleted the proposed final rule from the list of items scheduled for consideration at the September 2016 meeting, and action on the proposed rule is no longer pending for consideration. Set-Top Boxes Play a Significant but Diminishing Role in Delivering Programming in an Evolving Video Market The Internet Provides Opportunities for Viewing Video Programming without the Need For a Set-Top Box While over 75 percent of households still subscribe to MVPDs for video services and rely on a set-top box leased from their provider to access content, the Internet has created more opportunities for consumers to access video programming services in ways that do not require a leased set-top box. These providers vary regarding the types of video services they offer: Content aggregators (e.g., Netflix and Amazon): These providers offer video on-demand through a subscription. They aggregate content from multiple sources and may provide their own content (e.g., Netflix’s original series House of Cards) along with content from other programmers. There are also niche aggregators such as Indie Flix that provide specialized programming. Direct to Consumer (e.g., CBS All Access, HBONow, and Univision Now): Some programmers and networks that distribute their content through MVPDs are now separately providing live and on-demand content directly to consumers through the Internet for a monthly subscription. Consumers do not have to subscribe to an MVPD to subscribe to such content. For example, HBO provides its content on demand to its customers through the HBO Now app without requiring a customer to subscribe through an MVPD. Virtual Service Providers (e.g. Sling TV, DIRECTV Now, and PlayStation Vue): These providers use a model similar to the MVPD model by providing live and on-demand programming from a variety of networks over the Internet in generally smaller channel lineups. Such services are targeted to households looking for a smaller channel line- up at a lower cost than from MVPDs. According to Kagan, subscriptions to content aggregators and direct to consumer Internet-based services are expected to grow from 109 million in 2016 to 137 million in 2020. Many new Internet video services have launched since 2005, and there has been a particularly large growth since 2014. (See fig. 2.) Subscribers can access Internet-based video services using many different Internet-connected devices and do not need a set-top box. These devices include stand-alone devices such as video game consoles (e.g., Xbox One), laptops, tablets, smart phones, and smart TVs—which include an integrated computer with an Internet browser, operating system, and apps to stream Internet video subscriptions without a separate device. Third party manufacturers have also developed streaming media devices (e.g., Roku) designed to allow viewers to watch Internet-provided content on their television set. Some of these devices, such as tablets, allow consumers to view video programming content in or out of the home with an Internet connection. Figure 3 below shows the variety of devices, including set-top boxes, households can use to access video programming. These new Internet-based providers offer greater choice in video services, eliminating the need to lease a set-top box for households that choose to subscribe to one or more of these providers in lieu of an MVPD subscription. According to Kagan, the percentage of households subscribing to MVPDs is down from a peak of approximately 91 percent of households wired for service in 2009 to 79 percent in 2016, and Kagan estimates that in 2016 there were 29 million households that either cancelled their MVPD subscription or never had it. Additionally, Kagan projects that there will be a continued decline in MVPD video subscriptions by 2020, when 74 percent of households will subscribe to MVPDs, in part due to competition from Internet video programming. Eight of 11 industry experts and analysts we interviewed also stated that they believed MVPDs’ market share is falling due in part to Internet video. Kagan reports based on results of an online survey it conducted of households that never had an MVPD subscription that many in this group are generally younger and have less income than other households, and have in the past relied on over-the-air television because the cost of MVPD service is too high. One industry expert told us that it is unclear what will happen to these younger households’ viewing habits as they age. According to this expert, in the past these younger non-subscribers would eventually subscribe to MVPDs as their income grew, but it is no longer clear that this will happen due in part to Internet video options. While consumers are increasingly subscribing to Internet programming that does not require a set-top box, the market for alternative devices to access programming is also growing. According to Kagan, sales of these alternative devices, such as streaming devices and smart TVs, have been growing. (See fig.4.) For example, Kagan estimates that 70 percent of television shipments in 2016 were smart TVs. MVPDs Generally Still Require a Set-Top Box but Have Offered Subscribers Additional Ways to Access Video in Response to the Changing Marketplace Many subscribers to MVPDs are still reliant on at least one set-top box, usually leased from their provider, to access video programming. In the wake of FCC’s 2003 CableCARD regulations, third-party providers developed CableCARD devices that consumers could purchase at retail outlets and use to access their MVPD subscription with a CableCARD. Such devices are still available currently. For example, one of the better- known of these options, the TiVo set-top box, was available on Amazon.com as of July 2017. However, in spite of the commercial availability of these devices, according to FCC in its 2016 proposed rule, about 99 percent of subscribers to MVPDs lease at least one set-top box from their MVPD. While all five of the large cable providers we interviewed said that their customers have the option of using a third party device, they all added that very few customers do so and the majority lease their set-top box. All five of the large cable providers we interviewed cited limited customer interest as key reason consumers did not adopt third party CableCARD devices. Each also cited one or more of the following reasons: limited functionality, including limited ability to access on-demand content when devices were first available; high up-front costs to purchase a third party device; and the ease of leasing a set-top box from a provider, which will replace the box if it breaks, compared to owning a third party device where if it breaks the consumer may have to buy a new one. However, public interest organizations we interviewed stated they believe that the low rate of adoption of CableCARD devices was due to limited support from MVPDs. Specifically, representatives of one public interest group we interviewed stated that MVPDs have not been advocates of third party devices and have not devoted customer service toward this effort, for example by providing their technicians with training. They also stated that MVPDs have made it difficult for customers to use CableCARD devices by, for example, requiring technicians to install the CableCARD. Representatives of one public interest group also stated that because MVPDs charge their customers a monthly fee for using CableCARD devices, as they do for a set-top box, customers have little financial incentive to adopt these alternative devices. Another public interest group stated that MVPDs do not make their subscribers aware of their ability to purchase and use such devices. Although subscribers to MVPDs generally require a set-top box in most cases to access content they subscribe to, many MVPDs are also offering their video programming over the Internet and through alternative devices. For example, according to Kagan, MVPDs have started to allow consumers to access their subscription content via the Internet in and out of the home, on multiple devices, and when they want, for example: Many cable networks allow subscribers to MVPDs that carry that network to access live or on-demand content through an app or website specific to that network. MVPDs do not develop or control these apps and websites. Such service is often referred to as “television everywhere.” Kagan forecasts that views of Internet-based television everywhere from MVPDs will increase from approximately 5.4 billion views in 2016 to 11 billion views in 2020. All nine of the larger MVPDs we interviewed told us that their customers can access some “television everywhere” content online. Many MVPDs have also developed their own apps allowing their subscribers to access a range of content. Eight of the nine larger MVPDs told us they have developed apps for Internet-capable devices such as smart phones and tablets that allow their subscribers to access content in and out of the home. Such apps may allow for viewing both live and on-demand content. For example, consumers can use a Comcast application on their smart phone out of their home to view content. In addition, some MVPDs have developed apps for streaming devices such as Roku. In some, but not all, cases such apps can be used as a replacement for a set-top box; however, only three of the nine larger MVPDs we interviewed said that their subscribers may be able to use apps and alternative devices to access their subscriptions without the need for any set-top box. For example, one MVPD told us that customers can use an app on a Roku streaming device to access content without needing any set-top boxes. These changes by MVPDs may be due to competition from new Internet- based services; 10 out of 11 industry experts and analysts we interviewed told us that MVPDs are providing access to their programming through alternative devices other than set-top boxes due to such competition. Despite growth in alternative devices and services, a Kagan report indicated and MVPDs we interviewed told us that set-top boxes will still play an important role in the near future for accessing video content from MVPDs as the industry replaces many current set-top boxes with higher end versions. For example, the set-top box for one MVPD we interviewed now provides advanced functions such as voice control, universal searching, and increased storage of programming. All nine larger MVPDs we interviewed told us that they foresee the set-top box still playing a role in their service in the near future, and only three said their customers may be able to access their subscriptions solely on alternative devices without the need for a set-top box. One MVPD told us that although it sees video providers moving to apps on their own in the future, there will still be an option for consumers to access content from their set-top box. This MVPD has made upgrades to its set-top box to provide more features and has incorporated Internet video applications such as Netflix directly into its set-top box. Additionally, eight out of the 11 experts and industry analysts we interviewed said that they expect the set-top box to continue to be needed for traditional provider services for households in the future. One expert stated that the set-top box is the most efficient way to access and deliver programming, and that it remains the best solution for consumers and an important component of video programming. Some Consumers May have Difficulty Taking Advantage of Internet Services That Do Not Require a Set-Top Box While the Internet has provided consumers with more choice for accessing video programming without subscribing to an MVPD and using an associated set-top box, consumers must have broadband access to be able to use these alternative products. However, FCC, in a 2016 broadband progress report, estimated that 10 percent of the population does not have adequate access to in-home fixed broadband Internet and the lack of broadband access is particularly concentrated in rural and tribal areas. Although subscriptions to broadband Internet service are rising as those to MVPD video services are declining, most households are dependent upon MVPDs to receive broadband Internet service. According to FCC, 97 percent of consumers are reliant on their MVPD for broadband service, and according to Kagan the ten largest video providers account for 91 percent of broadband subscriptions. However, as we recently reported, continuing technological changes may provide new options for obtaining access to broadband as, in the future, wireless Internet access may be able to serve as a substitute to in-home broadband for some consumers, and satellite-provided Internet service may also become an option for consumers who don’t have access to in-home wired broadband. For example, Kagan expects wireless broadband to serve as a growing substitute choice for consumers with the advancement of higher speeds in the future. Experts and Stakeholders Suggest Additional FCC Efforts on Choice in Set-Top Boxes are Not Needed, but FCC has Conducted Limited Analysis of this Issue Generally, Selected Stakeholders and Experts Did Not See Need for FCC Regulation to Increase Consumer Choice for Set- Top Boxes Most selected stakeholders and industry experts we spoke to did not see a need for FCC to intervene in the set-top box market at this time, given the changes taking place that provide consumers with more choices for services and devices to access video programming. All 11 of the experts and analysts we interviewed said that the industry is moving away from set-top boxes on its own by providing content through other means and 9 of those 11 added that, as a result, there is no need for FCC regulatory intervention. Furthermore, only 8 of the 35 total industry stakeholders we interviewed stated that regulations are needed. These stakeholders pointed to the development of apps and devices beyond set-top boxes that consumers can use to access video content. For example, one of the larger MVPDs said that competitive pressures have pushed the company to offer consumers new ways and devices with which to access the content they subscribe to. However, representatives of all three public interest organizations we interviewed said that FCC regulations are still needed to promote consumer choice for devices. Specifically, representatives of one public interest organization we interviewed said that although the market has evolved to provide more device choices for consumers, the fact that almost all MVPD subscribers lease a set-top box shows that the intent of the Act has not yet been met. They added that while MVPDs have been increasing the development of apps for their subscribers to access content, these apps so far do not have all the functionality of leased set- top boxes, meaning that the apps are not an adequate substitute. As discussed earlier, despite the growth in apps, most larger MVPDs we interviewed still require their subscribers to have at least one set-top box. Some Experts and Industry Stakeholders Raised Concerns about the Potential Effects of FCC’s Recent Proposal to Expand Consumers’ Choices for Devices Some industry stakeholders and experts and analysts we interviewed thought that FCC’s proposed rule could have had negative effects on MVPDs as well as other industry participants, including content providers. As discussed earlier, the proposed rule would have required MVPDs to transmit information—including video programming itself—to third party devices. According to representatives of one industry association we interviewed, this could have meant that MVPDs, and the programmers whose content they distribute, would lose control over content that they had created or purchased the distribution rights to. Programmers negotiate terms and conditions—such as channel lineup and other issues—with MVPDs that distribute their content. Some stakeholders expressed concern that under the proposed rule there would be no guarantee that third party device and service companies would adhere to all those terms and conditions under which that content was provided to the MVPDs. Some MVPDs and programmers expressed concern that some third-party device companies might modify the stream of programming by, for example, changing channel placement or overlaying advertising. Five of the 11 experts and analysts we interviewed thought that the proposed rule could have led to copyright violations. Almost all larger MVPDs, broadcast networks, and independent and diverse programmers and interest groups we interviewed expressed concerns that should there be copyright violations, content providers could also be negatively affected. For example, one industry association said if a third party device were to overlay advertising on a program, the value of advertising availability that is usually sold by broadcast or cable networks or by cable distributors would decrease since there might be competing advertising displayed to viewers. This stakeholder added that any reduced ad revenues would, in turn, reduce the ability to invest in content. Seven of the 11 experts and analysts we interviewed reported that the proposed rule could negatively affect content providers. Furthermore, some stakeholders told us that they believed the possible negative effects of the proposed rule could have especially affected independent and diverse programmers such as Vme, a national Spanish language network. According to one independent and diverse programmer we interviewed, its business is dependent upon agreements with MVPDs that distribute its programming. Those agreements include a range of terms including advertising restrictions and channel placement. To the extent a third party could modify the content—such as by overlaying advertising—that programmer would have a harder time negotiating with MVPDs, potentially reducing the compensation received from MVPDs for carrying its channel, thus harming its business model. Furthermore, according to a letter written by the Copyright Office, the proposed rule could have interfered with the rights of copyright owners to license their works by requiring MVPDs to provide content to third parties that would not necessarily have a contractual relationship with the copyright owner. However, some other stakeholders we interviewed stated that they believed there was little likelihood that the proposed rule would have led to licensing terms not being followed and reported that the proposed rule may have provided public benefits, specifically: Two public interest groups we interviewed said that because there have not been violations with copyrights on CableCARD devices, such violations would be unlikely on any new devices that would have been created under the rule. Representatives with one industry association representing technology companies said that the proposed rule could have benefited independent and diverse programmers by increasing the number of devices available to consumers to access content, providing such programmers with increased opportunities for consumers to find their content. Representatives with one public interest group said that consumers would benefit from the proposed rule as new devices created in response to the rule would increase access to programming on new devices, thus increasing programming options overall. Representatives with a device manufacturer said that the proposal could have provided consumers with new and innovative ways to access video content. FCC Has Conducted Limited Analysis to Support Response to Statutory Requirement Regarding Consumer Choice for Set-Top Boxes In commenting on a draft of this report, FCC noted that the limited action of taking a not- yet-adopted proposal off circulation would not generally be an occasion for providing a regulatory impact analysis since such an action would have no regulatory effect. limited interest in adopting such devices for a variety of reasons, such as the ease of leasing a set-top box from a provider, which will replace the box if it breaks, compared to owning a third party device where if it breaks the consumer may have to buy a new one. The proposed rule also contained limited analysis of the potential effects of this rule on consumers, MVPDs, or others. For example, while FCC supported the proposed rule by stating that the average household pays over $230 a year in set-top box lease fees, the proposal did not estimate the extent to which any increased competition in the market for set-top boxes might lead to cost savings for consumers. More broadly, FCC has conducted some analysis of the evolving video market, which, as discussed earlier, is providing consumers with more choices for both video services as well as devices to access services. For example, FCC’s most recent congressionally mandated annual video competition report— published in January 2017—includes discussion of the increasing popularity of Internet-based video services and the competitive pressures they have placed on MVPDs, among other things. While the Act requires FCC to set regulations to assure the commercial availability of devices to access MVPD services, it also states that any regulations implemented under the statute shall cease to apply if FCC deems that: (1) the market for MVPDs is fully competitive, (2) the market for devices used to access MVPD services is fully competitive, and (3) the elimination of the regulations would promote competition and the public interest. While, as discussed above, FCC has conducted some analyses related to these issues, neither the proposed rule nor the recent video competition report reflect a comprehensive analysis looking at how these interrelated issues affect each other. In addition, May 2017 letters to Congress from the new FCC Chairman stating his intention to not move forward with this issue did not contain or cite any analysis supporting that decision.33 Specifically, FCC’s analyses do not consider the effect that increasing consumer choice for video services has on the importance of consumer choice for devices to access MVPD services. Increased consumer choice for services may reduce the market power of MVPDs and may restrict what they can do and what they can charge for set-top boxes—as well as potentially spurring innovation in how they offer access to their MVPD services. While the 2017 video competition report touches on consumer choice for both services and for devices, it does not discuss the extent to which new choices for services have affected the importance of consumer choice for devices. Furthermore, this analysis does not consider what level of consumer choice for devices must exist for the market for devices to be “fully competitive.” While FCC’s former Chairman believed that new regulations were needed to fulfill the requirements of the Act, the current Chairman believes that the 2016 proposed rule did not further his goal of promoting a clear, consumer-focused, fair, and competitive regulatory path for video programming delivery. As stated earlier, the proposed rule contained limited analysis. In addition, the new Chairman’s letters to Congress noted that he had removed his predecessor’s proposal from circulation but were silent as to whether the Commission would take any future action in this proceeding. A future Commission may again determine that regulations are needed or decide not to take any further action on this issue. In commenting on a draft of this report, FCC noted that the limited action of taking a not- yet-adopted proposal off circulation would not generally be an occasion for providing a regulatory impact analysis since such an action would have no regulatory effect. access MVPDs. Such an analysis, conducted as part of FCC’s existing annual video competition reports—which, as discussed, already include relevant analyses—could help FCC determine if additional regulations are needed. Conclusions The market for video services and devices to access video services has evolved significantly in recent years so that consumers now have considerably more choices for video services and devices to access such services than when Congress passed the Telecommunications Act of 1996. Given the fast pace of change in the video market in recent years and the likelihood that it will continue to evolve to offer consumers more choices in how they access video content, it is important that FCC analyze the implications of these changes for its responsibilities under the Act to assure the commercial availability for devices that can access MVPD programming. However, FCC has not conducted a comprehensive analysis to support an informed decision as to whether further action is needed or not. FCC’s recently proposed rule and most recent annual video competition report contain limited analysis of the extent to which Internet-based providers affect consumer choice for video programming and what that change means for the importance of consumer choice for devices in the context of the Act. In contrast, a comprehensive analysis could inform FCC as to whether the market conditions of competition for both video services and devices have been reached under which, as stated in the Act, any regulations implemented under the statute shall cease to apply. Should such analysis show that those market conditions have not yet been reached, a clear articulation by FCC of what elements have and have not yet been met could help as a benchmark in FCC’s further consideration of this issue as the market likely continues to evolve. Without more comprehensive analysis of the industry’s evolution and its effects on consumer choice for devices to access MVPD services, FCC could potentially take regulatory action—or choose not to take action—in a way that is not beneficial to consumers and does not meet the goals of the Act. Recommendation To help ensure that any future decisions by FCC regarding its efforts under the Act are based on comprehensive analysis, we recommend that FCC, as part of its future annual video competition reports, analyze how the ongoing evolution in the video programming market affects competition in the related market for set-top boxes and devices, including how this evolution affects the extent to which consumer choice for devices to access MVPD content remains a relevant aspect of the competitive environment. (Recommendation 1) Agency Comments We provided a draft of this report to FCC and the Library of Congress for review and comment. FCC responded with a letter in which it agreed with our recommendation. This letter is reprinted in appendix II. FCC also provided technical comments that we incorporated as appropriate. The Library of Congress reviewed our report and did not provide any comments. We are sending copies of this report to interested Congressional committees and the Chairman of the FCC. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made significant contributions to this report are listed in Appendix III. Appendix I: Industry Stakeholders and Experts and Analysts Interviewed The following tables list the industry stakeholders and industry analysts and experts GAO interviewed as part of this engagement. Appendix II: Comments from the Federal Communications Commission Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Mark Goldstein, (202) 512-2834 or [email protected]. Staff Acknowledgments In addition to the contact above, Alwynne Wilbur (Assistant Director); Matt Rosenberg (Analyst in Charge); Amy Abramowitz; West Coile; Leia Dickerson; Sharon Dyer; Camilo Flores; Joshua Ormond; Nitin Rao; Amy Rosewarne; and Elizabeth Wood made key contributions to this report.

Millions of households subscribe to cable, satellite, and telephone companies—known as MVPDs—for television, which is generally delivered via a set-top box attached to a television. Congress directed FCC to adopt regulations to assure a commercial market for devices to access MVPDs, and in February 2016, FCC proposed a rule intended to do so. Many industry stakeholders raised concerns about the proposal's potential effects, and FCC did not issue the proposed rule. This report examines: (1) the role of set-top boxes in accessing video programming content and (2) views of selected stakeholders and experts on the need for FCC regulation regarding set-top boxes and FCC's analysis of such need. GAO analyzed data from a media research group regarding the video market and interviewed 35 industry stakeholders including 12 MVPDs, 5 video content producers, 3 device manufacturers, 12 industry associations, and others; GAO selected stakeholders based on comments filed with FCC on its 2016 proposed rule. GAO also interviewed 11 industry analysts and experts selected based on industry coverage and publications. Set-top boxes play a significant but diminishing role in delivering video content in an evolving video market. Subscribers to multichannel video programming distributors (MVPD)—companies that provide pay television services via subscriptions such as cable and satellite companies—generally need a set-top box to access MVPD television services, and most subscribers lease a set-top box from their MVPD. However, consumers can now access video through a wide range of Internet-based services without a set-top box, using a variety of Internet-capable devices, such as tablets. Internet-based services include those providing on-demand video such as Netflix and some, such as Sling TV, providing live content similar to that from MVPDs. Some Internet-capable devices, such as Roku, allow people to watch Internet-based video on televisions. In recent years, subscriptions to MVPDs have fallen as more Internet-based services have become available. Partly in response to this competition, many MVPDs have begun offering content over the Internet to subscribers, accessible on many Internet-capable devices, including streaming devices that display it on televisions. While in most cases, MVPD subscribers still need a set-top box, a few MVPDs GAO interviewed now allow subscribers to access content they subscribe to solely over the Internet, without a set-top box. The Federal Communications Commission (FCC) has conducted limited analysis of the need for regulations to assure a commercial market for devices, such as set-top boxes, to access MVPD services. Most stakeholders and experts GAO interviewed said that further regulations for this purpose were not needed, given recent changes in the video content market. FCC is directed by law to set regulations to assure a commercial market for devices to access MVPD services. However, the law also specifies that any such regulations may no longer apply if FCC determines that the markets for both MVPD services and devices to access MVPDs are fully competitive. Moreover, while it does not extend to independent agencies, Office of Management and Budget guidance says agencies could use analyses to evaluate the need for proposed actions. However, FCC proposed a new rule in 2016 to promote a commercial set-top box market without undertaking a comprehensive analysis of the competitiveness of the market to support the proposed rule. FCC did not enact a final rule. Stakeholders had differing views on the potential effects of the proposed rule, but some raised concerns that the rule could have had negative effects on MVPDs and content providers. As described above, widespread changes in the video market in recent years have expanded consumers' choices for video services as well as devices to access those services. Nineteen of the 35 industry stakeholders GAO interviewed said rules are not needed at this time, while 8 said rules are still needed. (The rest gave uncertain answers or did not comment on this issue.) Without a comprehensive analysis, FCC lacks information on the extent of consumer choice and, furthermore, the extent to which increased options for video services affect the relative importance of consumer choice for devices to access MVPDs. Such an analysis could help FCC determine if additional regulations are needed and, as the market likely continues its rapid evolution, could serve as a benchmark in FCC's further consideration of whether market conditions have been met such that regulations may no longer apply.

GAO_GAO-18-323

Background The rail industry was one of the first to pioneer private pensions for its employees in the late 19th century, and by the 1930s, these pensions were more developed than in most other industries. However, according to RRB, these private rail pensions had serious defects that were magnified by the effects of the Great Depression. For instance, RRB noted that the plans were generally inadequately financed and that employers could terminate the plans at will. In prior work, we noted that the Railroad Retirement Act of 1937 was enacted at the urging of rail labor and established the national railroad retirement system administered by RRB. The program was to be solely supported by employees and employers of the rail industry through payroll taxes. According to RRB, this system was created separately from Social Security for several reasons. For instance, RRB notes that Social Security—created in 1935—would not begin payments for several years or credit workers for work prior to 1937, while the deteriorating state of private rail pensions called for immediate retirement payments based on prior service. We previously reported that the 1951 amendments to the Railroad Retirement Act of 1937 substantially increased railroad retirement benefits to bring them in line with benefit increases granted to individuals under Social Security, and that a financial interchange was created between the agencies in 1951 to help pay for these increases. RRB annually computes the amounts that SSA would have collected in taxes from rail workers and their employers, and what SSA would have paid in benefits if rail workers had been covered under Social Security, with the net difference transferred between the agencies. The amounts computed under the financial interchange do not necessarily represent the actual RRB benefits paid to rail workers and their beneficiaries. RRB determined that it was due a net transfer from SSA each year since 1958. Financial interchange transfers make up a significant portion of the financing for RRB’s retirement, disability, and survivors benefits. In fiscal year 2016, RRB paid about $12.4 billion in these benefits and collected $5.9 billion in payroll taxes from rail employees and employers. RRB reported that the remainder of its funding for these benefits came from the financial interchange ($4.1 billion), transfers from the National Railroad Retirement Investment Trust ($1.4 billion), income taxes collected on RRB benefits ($758 million), and other funding sources, such as appropriations. The interchange also serves as a vehicle to fund Medicare Part A (Hospital Insurance) benefits for rail workers. The benefits provided by RRB consist of a core-level of benefits that are similar to those available to most workers covered under Social Security, including Medicare. Rail workers also receive a second level of retirement benefits that approximate payments from private pension plans (see table 1). For non-rail workers, Social Security and Medicare benefits are paid from their respective trust funds: Retirement benefits are paid from SSA’s OASI Trust Fund; Disability benefits are paid from SSA’s DI Trust Fund; and Medicare Part A benefits are paid from the Hospital Insurance Trust Fund. RRB Calculates Financial Interchange Amounts by Approximating Key Flows In and Out of SSA and HHS Trust Funds The financial interchange is intended to place Social Security’s OASI and DI Trust Funds and HHS’s Hospital Insurance Trust Fund on the same financial footing as if rail workers and beneficiaries were covered under Social Security instead of by RRB. Regarding Social Security, RRB is credited for what it paid beneficiaries, administrative costs involved with paying benefits, and interest for the time between the determination of the interchange amount and its actual transfer. SSA is credited for the amount of payroll and income taxes it would have collected from rail workers and for income taxes that would have been paid by RRB beneficiaries on Social Security equivalent benefits. The net of the five amounts is the amount that is transferred (see fig. 1). A net transfer from SSA to RRB means that rail workers would have been a net draw on SSA’s trust funds if covered under Social Security. RRB calculates the financial interchange amount each year, which is done on a retrospective basis, i.e., the amount is determined for the previous fiscal year. By law, the agencies must complete their determination by June of each year. In keeping with the purpose of keeping the OASI and DI trust funds in the same place as if rail workers were covered under Social Security, RRB determines the retirement and disability benefits that rail workers and dependents would have received if they were covered under Social Security. Specifically, RRB uses railroad earnings data provided by employers to replicate SSA’s benefits calculations. Although the basic retirement and disability benefits that SSA and RRB pay to their beneficiaries are based on the same formulas, there are several eligibility differences between the two programs. For instance, a rail worker may receive unreduced retirement benefits at age 60 after 30 years of work, whereas the earliest most workers covered under Social Security can begin receiving retirement benefits is at age 62. According to RRB officials, even though a 60-year-old railroad worker may be receiving RRB retirement benefits, RRB would not receive credit through the interchange for that individual. Once that individual turns 62, RRB determines the amount of reduced Social Security retirement benefits for which he or she would have been eligible, given the person’s earnings history and Social Security’s benefits rules. According to RRB officials, the agency receives a credit through the interchange for this amount even though the individual is receiving full RRB retirement benefits. To account for these potential differences, RRB officials said that the agency must make calculations for individual RRB cases. Additionally, RRB officials said that in light of the number of RRB cases—nearly 400,000—it is not practical to make these calculations annually for each case. Instead, RRB uses SSA rules to calculate benefits for a subset of RRB cases in which the worker’s Social Security number ends in 30, which approximates a 1-percent sample. The sample size was about 4,000 for fiscal year 2016. Once RRB completes its benefit calculation for each of those cases, it aggregates the result and produces an estimated amount for its entire population of cases (see fig. 2). RRB reported in its annual financial interchange determination report that it was credited $7.2 billion dollars in fiscal year 2016 for the estimated amount beneficiaries would have been paid under Social Security. Administrative Expenses These expenses represent those that SSA would have incurred to administer benefits had rail workers been covered under Social Security (as opposed to the actual amount RRB spent to administer its programs). These expenses, which SSA would have funded out of its trust funds, include the cost to enroll individuals in its programs and maintain its benefit rolls. RRB calculates the amount of administrative expenses based on unit-cost data provided by SSA. RRB reported that it was credited about $22 million in administrative costs for fiscal year 2016. Interest Charges SSA credits RRB for interest that accrues on the annual financial interchange transfer from the period in time for which it is calculated (the end of the fiscal year on September 30) until the amount is transferred to RRB in June of each year. The interest rates are equal to those SSA earns on its trust funds. RRB reported that it was credited about $163 million in interest for fiscal year 2016. Payroll Taxes This amount represents the payroll taxes rail employees and employers would have paid into Social Security’s trust funds had workers been covered under Social Security. SSA and RRB generally levy payroll taxes on earnings at the same rate, and RRB officials told us they use payroll data from employers to determine this amount. RRB reported that it credited SSA $2.4 billion for fiscal year 2016. Income Taxes Some RRB beneficiaries pay income taxes on the benefits they receive, and that tax revenue is credited to SSA’s trust funds through the financial interchange. To put the OASI and DI trust funds in the same place as if rail workers were covered under Social Security, RRB credits SSA for the amount of income tax railroad beneficiaries paid on Social Security equivalent benefits. RRB computes this amount using tax data from the Department of the Treasury, and credited about $296 million to SSA for fiscal year 2016. RRB also may adjust calculations on transfers from prior years; for instance, if new income was reported for individuals or if benefit overpayments are discovered for individuals in the sample. Medicare Transfers The process for determining the financial interchange transfer with HHS— which helps finance Medicare benefits for rail workers—has fewer components than for retirement and disability benefits. Generally, RRB determines the Medicare payroll taxes and income taxes paid by rail workers and transfers this amount, less administrative expenses, to HHS (see fig. 3). RRB estimates how much it collects in Medicare payroll taxes by using payroll data provided by employers for workers whose Social Security numbers end in 30. RRB credited HHS for about $637 million for fiscal year 2016. Overall, the procedures we observed, and which RRB explained and demonstrated, for calculating the financial interchange are consistent with the methodology agreed to by RRB, SSA, and HHS. An annual determination report produced by the three agencies documents this methodology. Additionally, several audits conducted for the RRB Office of Inspector General determined that the methodology is appropriate for achieving the purpose of the financial interchange. Specifically, the audits concluded that the sample used in calculating benefits was representative of RRB’s population of beneficiaries, the formulas used to project the results of the sample on the entire population of beneficiaries were consistent with RRB’s design, and that assumptions made by RRB when carrying out calculations were reasonable. High Ratio of Beneficiaries to Rail Workers Has Resulted in Transfers From SSA to RRB Each Year Since 1958 SSA has made a net transfer to RRB through the financial interchange each year since 1958. The cumulative net transfer from the Social Security trust funds to RRB through 2015 was approximately $266 billion in 2016 dollars. Of this amount, transfers related to retirement and survivor benefits comprised about $256 billion and disability benefits accounted for about $10 billion. This trend in transfers is primarily caused by RRB benefit payments exceeding payroll taxes collected as calculated by the interchange, which has been the case each year of the financial interchange, resulting in a net amount owed to RRB from SSA each year (see fig. 4). Based on the data RRB reported, the continuing flow of funds to RRB from SSA has largely been driven by a steadily shrinking number of active workers in the rail industry paying payroll taxes in support of a larger population of beneficiaries. According to RRB data, the number of workers in the rail industry peaked at the end of World War II, when there were almost 1.7 million workers. Since then, this number declined steadily to about 231,000 in 2016. Additionally, the number of beneficiaries has exceeded the number of active workers since 1961. According to RRB data, there was about 1 beneficiary for every 10 workers in 1938; the ratio had increased to 3 beneficiaries for every 10 rail workers in 1951, when the financial interchange was created. By 2016, there were 28 beneficiaries for every 10 workers. Furthermore, RRB officials noted that another factor causing increased fund transfers from SSA to RRB was a series of successive amendments to the Social Security Act which raised benefits immediately while deferring tax increases to pay for the increased benefits. As a result of these two factors, the payroll taxes paid by rail workers have not been sufficient to pay for all of the benefits paid by RRB. Hence, the financial interchange has consistently transferred money from SSA to RRB (see fig 5). According to SSA actuarial estimates, the flow of funds to RRB from SSA is projected to continue. Social Security’s 2017 trustees report projects that the amount of transfers to RRB will continue to grow though at least 2026. Moreover, RRB’s most recent actuarial valuation report estimates that under three employment assumptions—optimistic, moderate, and pessimistic—the number of beneficiaries will continue to exceed the number of rail workers through at least 2088. RRB has collected payroll taxes for HHS since 1966. From 1966 through 2016, RRB reported that it transferred a total of $30 billion in 2016 dollars through the financial interchange to the Hospital Insurance Trust Fund (see fig. 6). RRB Takes Measures to Oversee the Financial Interchange Calculation, but Shortcomings Increase the Risk of Errors RRB Takes Oversight Steps, but Manual Data Entry and Systems Limitations May Prevent RRB from Detecting Mistakes RRB takes a number of steps to ensure that the financial interchange amount is accurately calculated each year. For example: Sample verification: To make sure that the financial interchange sample is up to date, RRB staff told us that they query their beneficiary database at the beginning and end of the annual financial interchange calculation to ensure that all beneficiaries who should be part of its sample—those with a Social Security number ending in 30—are included. Those included in the sample can change from year to year, for instance, when new beneficiaries join the retirement rolls or when beneficiaries die. Supervisory review: RRB officials told us that the work of a new employee who calculates the financial interchange is reviewed by another employee until the new employee is determined to be proficient. Error checks: Electronic error checks built into the system RRB uses to calculate the financial interchange help prevent mistakes by flagging erroneous values. These checks alert employees in real time that an incorrect value may have been entered (for example, a benefit amount that exceeds what beneficiaries can receive). Officials also told us that they run similar checks in batches throughout the year to sweep for any potential errors that were not addressed by employees. They noted that they will work with staff to address all potential errors before the financial interchange calculation is finalized. However, RRB’s error checks do not cover all potential erroneous values. High-level review: RRB officials told us that the Chief of Benefit and Employment Analysis and his staff review the results of the interchange calculations and determine if the end result is reasonable compared to projections made earlier in the year, based on actual payroll and beneficiary data. Despite these steps, limitations in RRB’s error checks and its reliance on manual data entry are potential sources of mistakes in financial interchange calculations. The process RRB staff follow in computing benefit amounts for the financial interchange involves manual data entry of earnings data and SSA-equivalent benefits. RRB’s error checks will help identify values that are impossible—such as a benefit amount that exceeds the maximum a beneficiary can receive—but not values that are incorrect but still within the range of possibility. RRB staff demonstrated this scenario for us and acknowledged this as a limitation in their internal controls. Any data entry errors have the potential to result in larger errors in the financial interchange determination. The benefits portion of the financial interchange determination is based on a sample of all cases. Should any errors occur in the sample, they will be magnified when RRB inflates the estimate to arrive at an amount for the entire population of beneficiaries. Additionally, RRB’s process could result in incorrect transfers for years. The sample is chosen in the same way each year—individuals with Social Security numbers ending in 30—so the same cases will remain part of the sample until the individuals leave the rolls. RRB officials told us that they generally only have to do a full set of calculations for new cases or cases in which additional income is detected that affects benefit amounts. RRB officials estimated that about 20 percent of cases in the financial interchange sample each year require a full calculation. For the remainder of cases in the interchange sample, officials said that no annual recomputation is needed. Instead, the previous year’s results are adjusted according to any cost of living increase. If a data entry error is made in one of these cases, RRB may not discover it until the individual leaves the rolls or dies, at which point RRB staff told us they recalculate the individual’s benefit amount. Data sharing between RRB and SSA could reduce the potential for data entry errors, but the two agencies have not recently pursued this option. RRB officials told us that prior to 2008 they used computer code to automatically save data from SSA databases into spreadsheets, where the data could be used for calculating the financial interchange. However, SSA instructed RRB to stop using this method in 2008 because of security concerns about saving this information outside of SSA systems. RRB officials added that this constraint prevents them from developing a more efficient method of data collection that would improve the accuracy and timeliness of benefit calculations for the financial interchange. However, RRB officials said that they have not formally approached SSA in the last several years to discuss potential alternatives for gaining greater access to data. SSA officials said that RRB should follow SSA’s procedures for requesting a data exchange if RRB wishes to revisit this topic. Federal internal control standards state that agencies should use quality information to achieve their objectives. By taking additional steps to obtain data from SSA electronically, RRB can better position itself to ensure that data entered into its systems are correct and that its calculations are free of errors. Limited Documentation and Formal Policies Increase the Risk for Errors in Key Aspects of the Financial Interchange Process RRB has limited documentation and does not have formal policies to guide several key aspects of the financial interchange calculation. While we did not identify any actual errors in its calculations, these shortcomings in its controls increase the risk of calculations being carried out inconsistently or incorrectly. Limited Documentation of the Financial Interchange Process The broad steps that RRB takes to determine the amounts of the financial interchange are documented in an annual determination report produced by RRB. They include, for example, the factors used to calculate administrative costs, discussion of adjustments made to calculations from prior years, and descriptions of the formulas used to project the results of RRB’s benefit sample to the population of railroad beneficiaries. However, the agency does not have clear documentation of the detailed steps used by staff to calculate the interchange amounts. A 2010 audit of the financial interchange process conducted for the RRB Office of Inspector General found that documentation of the financial interchange process was insufficient for a knowledgeable third party to replicate without verbal explanation from RRB staff. In response, RRB officials told us that they produced some documentation such as charts showing the workflows for different portions of the process, such as for calculating benefits, payroll taxes, and financial projection—and instructions for staff in RRB’s Bureau of the Actuary for high-level review of the formulas and entries for the final calculation results. However, the documentation did not provide enough detail about the steps staff must take when conducting financial interchange calculations so the process can be followed without additional explanation. For instance, the documentation did not discuss the process by which staff obtain earnings data and enter it into SSA’s benefit calculator, manually enter the results into RRB’s system, or the different alerts that notify staff of potential mistakes and how staff deal with them. Federal internal control standards state that effective documentation provides a means to retain organizational knowledge and mitigate the risk of having knowledge limited to a few personnel, as well as a means to communicate that knowledge as needed to external parities, such as auditors. Written documentation with specific steps for carrying out the financial interchange calculation and using its data system would help RRB ensure that its staff and others could carry out and replicate its process consistently. Limited Documentation of RRB’s Computer System RRB does not have current or complete documentation related to the computer system it uses to compute the financial interchange. Specifically, RRB officials said that they do not have current documentation such as a manual or data dictionary that would provide information on the data elements in the system, their definitions, descriptions, and range of potential values. They said a data dictionary is not necessary because data are contained in a format in which rows and columns are labeled according to fields and years. However, such labeling does not include documentation, for example, about whether values entered in those fields are allowable. Federal internal control standards state that effective documentation is needed to retain knowledge and prevent knowledge from being limited to a few staff. Even if the data system is relatively uncomplicated, without such documentation, it is difficult for RRB staff and others to fully understand all elements in the system, and it could complicate efforts to make any changes in the future or bring new staff up to speed on the system. No Written Documentation on Procedures for Overriding Potential Errors RRB does not have written procedures for how to address instances in which staff do not correct potential errors flagged by its computer system. As noted earlier, RRB’s system for calculating the financial interchange will alert staff to potential data entry errors. RRB officials said this system has the ability to allow staff to override the alert in some cases, generally in complex cases, such as when RRB benefits are offset by other public pensions. In these cases, the system does not distinguish between an actual error and instances in which additional work and review are needed because of complex benefit calculations. Staff can override the alert in these cases where there is no actual error, but officials noted that a report of potential errors that is generated by the system would still include these cases, which may be referred back to staff for clarification or correction. If implemented correctly, these procedures could help staff take appropriate action on these complex cases. However, current procedures are not formally documented and officials said they have not considered producing written procedures because they believe the process for addressing alerts is clear. Federal internal control standards indicate that effective documentation assists in management’s design of internal controls and can mitigate the risk that knowledge is limited to a few staff. RRB’s lack of written procedures can make it difficult for staff or reviewers to know if procedures are carried out consistently—such as whether staff appropriately override an error alert—and can create challenges if there is staff turnover. It is important to ensure that all potential errors are addressed correctly given that mistakes in the financial interchange sample can be multiplied when estimating benefit payments for the universe of RRB beneficiaries. No Formal Policy on Supervisory Review According to RRB officials, new employees will have their calculations reviewed until the employees are deemed to be proficient, and calculations by any staff member are subject to review and periodically reviewed for accuracy. Federal internal control standards call for documenting agency procedures. However, RRB does not have a minimum or maximum time established for which it will review the work of new staff, and does not have an overall policy for reviewing staff members’ work after they have been deemed proficient. Officials told us they had not considered setting a policy regarding supervisory review. They added that individualized, on-the-job training is more appropriate for new staff than a formalized process. In the case of current employees, any potential errors would be identified when the case is terminated, at which time all cases are reviewed and recomputed. Additionally, officials said that a formal policy would not increase the number of cases reviewed and potentially constrain their ability to correct new errors as they occur. Nonetheless, without formal policies on supervisory review, RRB cannot reasonably ensure that the work performed by staff is adequately or consistently reviewed for quality. SSA and HHS Do Not Review the Results of Case-Level Calculations SSA and HHS provide some oversight of the financial interchange process, but do not review case-level calculations. Both agencies approve the results of the financial interchange calculations, but officials from SSA and HHS told us that their oversight is limited to high-level reviews of RRB’s calculations to determine whether results significantly vary from previous years. For instance, staff from SSA’s Office of the Chief Actuary told us that they examine RRB’s payments and revenues against SSA’s benefits paid and payroll taxes collected to determine if there are large or inexplicable changes from year to year, in which case they will ask RRB for additional information to understand the changes. Additionally, RRB officials told us that formulas used in their spreadsheets to calculate the results of the interchange have been reviewed by SSA actuaries. While these actions could help identify larger errors, the agencies will not be able to detect whether errors are made on complex, case-level calculations or if SSA rules are being correctly followed. In response to prior errors in financial interchange calculations, RRB officials told us that SSA reviewed case-level calculations from the 1990s until 2002. SSA officials told us that they have not reviewed cases since then because of resource constraints. A 2009 SSA Office of the Inspector General report recommended that the agency consider increasing its oversight of the process, such as setting a schedule for review of individual cases given the importance of reviews in verifying transfers. However, SSA has not taken action on this recommendation. HHS officials told us that the financial interchange is one of a number of relatively small funding streams and the agency has never had cause to suspect mistakes and has never examined case-level calculations. Federal internal control standards state that agencies should establish and operate monitoring activities to evaluate the results of activities. Without monitoring how calculations are made, SSA cannot reasonably ensure that the transfers it makes or receives with RRB are accurate. In commenting on a draft of this report, HHS raised questions about whether it has the authority to review case-level calculations, but noted in follow-up communication that this issue is currently undergoing legal review at HHS. As a result, HHS officials told us that they would not be able to provide additional clarification at this time. We continue to believe that HHS would be better positioned to ensure that transfers it makes and receives are calculated correctly if it reviews case-level calculations. Conclusions The financial interchange provides RRB with a significant portion of its funding, and trends in the number of beneficiaries and workers suggest this will continue to be the case in the future. RRB developed a process to calculate the financial interchange amount, and the accuracy of the calculations depends in large part on correct data being manually entered into RRB’s computer system. However, RRB’s current controls do not address some potential sources of error. Having the ability to electronically obtain data from SSA could help reduce the risk posed by data entry errors. Further, RRB has limited written documentation for carrying out aspects of the financial interchange calculation, such as how its computer system is structured, how to address instances when staff override error alerts, and how staff work is reviewed. Without such documentation, RRB puts itself at risk of staff carrying out actions inconsistently, losing operational knowledge when staff leave or retire, and complicating oversight of its operations. Lastly, SSA and HHS increase the risk of errors by not performing case- level reviews of financial interchange calculations. This is especially true for the SSA portion of the interchange, which involves complex calculations performed according to SSA rules. In its role as the administrator of the OASI and DI programs, SSA is best positioned to determine if its rules are properly being applied to financial interchange calculations. The large sums SSA transfers through the interchange— over $4 billion annually—warrant additional oversight to ensure that transfer amounts are correct. Recommendations for Executive Action We are making a total of eight recommendations, including five to RRB (The Board), two to the Commissioner of SSA, and one to the Secretary of HHS. The Board should work with SSA to explore options for obtaining data electronically and limiting the reliance of the financial interchange process on manual data entry. (Recommendation 1) The Board should produce written documentation on the financial interchange process such that a knowledgeable third party could carry out and replicate its process consistently without further explanation. (Recommendation 2) The Board should produce written documentation of its computer system and its structure, such as a manual for the computer system, and data dictionary to provide information on the data elements in the system, their definitions, descriptions, and range of potential values. (Recommendation 3) The Board should produce written documentation of its procedures for instances when staff override error alerts generated by its computer system. (Recommendation 4) The Board should produce formal policies on how the work of staff performing the financial interchange is reviewed. (Recommendation 5) The Commissioner of SSA should work with RRB to explore options for electronically sharing data and limiting the reliance of the financial interchange process on manual data entry. (Recommendation 6) The Commissioner of SSA should take additional steps to provide oversight of financial interchange calculations at the individual-case level. This could include periodically reviewing a subset of these cases. (Recommendation 7) The Secretary of HHS should, consistent with its existing statutory authority, take additional steps to provide oversight of financial interchange calculations at the individual-case level. If the Secretary concludes that there are limitations in its authority in this area, the Secretary should seek to obtain the necessary additional authority. (Recommendation 8) Agency Comments and Our Evaluation We provided a draft of this report to RRB, SSA, and HHS for review and comment. In written comments, both RRB and SSA agreed with the recommendations. RRB noted that it will devote the resources needed to improve the written documentation of its procedures and computer system. RRB and SSA also provided technical comments which we incorporated as appropriate. Copies of their written comments are reproduced in appendixes I and II. In written comments, which are reproduced in appendix III, HHS disagreed with the recommendation that it take additional steps to provide oversight of financial interchange calculations at the individual-case level. HHS noted that while in theory it may be a good idea to incorporate such review into the process, it is limited by statute in its ability to oversee how RRB calculates transfers between HHS and RRB. HHS went on to describe a section of the Social Security Act that they noted “pertains more to Supplemental Medical Insurance trust fund draws for administrative costs.” Notably, with respect to HHS, our report does not involve that trust fund, but rather addresses the Hospital Insurance Trust Fund. Although HHS’s comments did not clarify why it believes that this section of law would limit its authority with respect to the Hospital Insurance Trust Fund, it nevertheless asserted that it does apply in this scenario. We reached out to HHS to seek clarification of its comments. For example, we inquired about the applicability of a separate provision of law that would appear to establish a role for HHS to work with RRB to determine financial interchange amounts. Ultimately, HHS did not provide the clarification we sought, instead indicating via email that this recommendation is currently undergoing legal review and that HHS is unable to provide a response to our questions at this time. HHS further stated that it will continue to work on this issue to provide GAO with updates in the future. In light of the uncertainty surrounding HHS’s authority in this area and the fact that HHS declined to respond to our requests for clarification of its legal authority, we have modified our recommendation to reflect the fact that HHS may need to seek additional statutory authority to implement our recommendation, should HHS determine it to be necessary. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Railroad Retirement Board, the Commissioner of the Social Security Administration, and the Secretary of the Department of Health and Human Services. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions, please contact me at (202) 512- 7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in Appendix IV. Appendix I: Comments from the Railroad Retirement Board Appendix II: Comments from the Social Security Administration Appendix III: Comments from the Department of Health and Human Services Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Mark Glickman (Assistant Director), Daniel R. Concepcion (Analyst-in-Charge), and Randy DeLeon made key contributions to this report. Additional contributors include David Ballard, Carl Barden, William Boutboul, James Cosgrove, Alexander Galuten, Jennifer Gregory, Sheila McCoy, Jean McSween, Mimi Nguyen, Joseph Silvestri, Almeta Spencer, and Kate van Gelder.

RRB collects payroll taxes and administers retirement, disability, and Medicare benefits for rail workers and their families. A financial interchange exists between RRB, SSA, and HHS in order to put the trust funds for these benefits in the same financial position as if Social Security covered rail workers. RRB generally transfers to the Social Security and Hospital Insurance trust funds the taxes that would be collected from rail workers and employers, while SSA provides RRB the benefits that would otherwise be paid directly to rail workers. GAO was asked to review the financial interchange calculation process. This report examines (1) the steps taken to calculate financial interchange amounts, (2) factors that could account for trends in transfers over time, and (3) the extent to which RRB, SSA, and HHS provide oversight to ensure calculations are accurate. GAO reviewed agency policies, procedures, and regulations; observed RRB staff calculating four cases selected for beneficiary type; reviewed data on payment and beneficiary trends; and interviewed agency officials. Established in 1937, the Railroad Retirement Board (RRB) administers retirement and disability benefits for rail workers and their families. A financial interchange between RRB and the Social Security Administration (SSA) was created in 1951, which as GAO previously reported, helped finance RRB benefits as they increased over time to keep pace with growing Social Security benefits to individuals. Through its financial interchange calculation, RRB takes steps each year to estimate the amount of funds that would have flowed in and out of Social Security's trust funds if rail beneficiaries were covered by Social Security instead of RRB. Five key steps go into the annual calculation: RRB is credited for (1) the estimated amount of benefits it would have paid to beneficiaries under SSA rules, (2) administrative costs, and (3) interest accrued on the financial interchange amount. SSA is credited for the revenues it would have received from rail workers if they paid into Social Security; specifically, (4) payroll taxes and (5) income taxes paid on benefits received. The determined net amounts are transferred between the agencies, which since 1958 have been from SSA to RRB each year. RRB received $4.1 billion in fiscal year 2016, almost one-third of the $12.4 billion in retirement and disability benefits it paid that year. The financial interchange was expanded to Medicare in 1965 to facilitate funding of Medicare benefits to rail workers; RRB transfers Medicare payroll taxes collected, income taxes paid on benefits received, and interest, minus administrative costs to the Department of Health and Human Services (HHS). A high ratio of beneficiaries to active railroad workers primarily explains the net transfers from Social Security's trust funds to RRB each year since 1958. Rail employment has fallen steadily since World War II, and the number of beneficiaries has exceeded the number of workers since 1961. RRB had 2.7 beneficiaries for every worker in 2015. As a result, RRB has paid out more in benefits than it has collected in payroll taxes and projects this to continue for the foreseeable future. RRB takes a number of steps each year to ensure the accuracy of its calculations, such as checking that the sample of cases used to estimate benefit payments is complete, reviewing the work of new employees, and using electronic alerts to help prevent staff from entering incorrect information into its computer system. SSA and HHS also conduct high-level reviews of the calculation results to identify any significant changes from one year to the next. However, RRB's process includes manual data entry and its electronic edit checks cannot flag entries that are incorrect but plausible, which could lead to calculation errors. RRB also has limited documentation of its calculation process, and does not have formal policies on how staff should address some potential calculation errors and on how supervisors should review staff work. This is contrary to internal control standards for having quality data and documenting procedures. In terms of SSA and HHS, they do not currently review case-level calculations made by RRB, and cannot reasonably ensure that work used to determine the transfers they made and received is correct.

GAO_GAO-19-112

Background Improper Payment Requirements IPIA defines an improper payment as any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. It includes duplicate payments, any payment made to an ineligible recipient, any payment for an ineligible good or service, any payment for a good or service not received (except for such payments where authorized by law), and any payment that does not account for credit for applicable discounts. OMB M-15-02 also provides that when an agency’s review is unable to determine whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be considered an improper payment. IPIA also defines the scope of payments subject to improper payment requirements. Specifically, a payment is any transfer or commitment for future transfer of federal funds—such as cash, securities, loans, loan guarantees, and insurance subsidies—to any nonfederal person or entity that is made by a federal agency, a federal contractor, a federal grantee, or a governmental or other organization administering a federal program or activity. Executive branch agencies are required to take various steps regarding improper payments under IPIA and as directed by OMB M-15-02. The steps include the following: 1. reviewing all programs and activities and identifying those that may be susceptible to significant improper payments (commonly referred to as a risk assessment), 2. developing improper payment estimates for those programs and activities that agency risk assessments, OMB, or statute identifies as being susceptible to significant improper payments, 3. analyzing the root causes of improper payments and developing corrective actions to reduce them, and 4. reporting on the results of addressing the foregoing requirements. Figure 1 illustrates these steps, as well as the major components of conducting an improper payment risk assessment. IPIA requires that agencies conduct improper payment risk assessments for all federal programs and activities at least once every 3 years and identify any program or activity that may be susceptible to significant improper payments. OMB guidance provides that programs that have been determined to be susceptible to significant improper payments and that are already reporting an estimate—or in the process of establishing an estimate—do not have to conduct additional improper payment risk assessments. IPIA defines “significant” improper payments as improper payments in the preceding fiscal year that may have exceeded either (1) 1.5 percent of program outlays and $10 million or (2) $100 million (regardless of the improper payment rate). OMB M-15-02 provides guidance for implementing the IPIA requirements and covers agencies’ responsibilities for improper payment risk assessments, estimation, and reporting. OMB M-15-02 also lists steps that agencies should take when conducting improper payment risk assessments. Agencies must institute a systematic method of reviewing all programs and activities to identify those that may be susceptible to significant improper payments, as defined by IPIA. According to OMB M-15-02, this systematic method could be a quantitative evaluation based on a statistical sample or a qualitative method (e.g., a risk-assessment questionnaire). Prior to fiscal year 2018, at a minimum, agencies were required to take into account nine risk factors—seven specified in IPIA and two in OMB guidance—that are likely to contribute to improper payments, regardless of which method was used by the agency (see table 1). In June 2018, OMB revised its guidance for improper payments in OMB Circular A-123, Appendix C, Requirements for Payment Integrity Improvement (OMB M-18-20). In the revised guidance, OMB no longer directs agencies to consider the two additional risk factors that were included in OMB M-15-02 in their risk assessments. Rather, OMB directs agencies to take into account those risk factors that are likely to contribute to a susceptibility of significant improper payments. The revised guidance also states that beginning in fiscal year 2020, agencies should use quantitative evaluations for programs or activities with outlays exceeding $5 billion. As specified in OMB M-18-20, the end goal of the systematic method of reviewing all programs, whether qualitative or quantitative, is to determine whether a program is susceptible to significant improper payments. Accordingly, OMB M-18-20 states that if a qualitative method is used, it must be designed to accurately determine whether the program is susceptible to significant improper payments. Characteristics of Programs Reviewed When conducting improper payment risk assessments, each federal agency, unless otherwise specified by OMB Circular A-11, after consultation with OMB, is generally authorized to determine the grouping of programs that most clearly identifies and reports improper payments for the agency. The five programs we reviewed serve a variety of purposes and are administered by various agencies across the federal government. Head Start HHS’s Head Start program was established in 1965 to deliver comprehensive educational, social, health, nutritional, and psychological services to low-income families and their children. These services include preschool education, family support, health screenings, and dental care. Head Start was originally aimed at 3- to 5-year-olds. The Head Start program makes grants directly to approximately 1,600 local organizations, including community action agencies, school systems, tribal governments and associations, and for-profit and nonprofit organizations. The Head Start program has several primary eligibility criteria to enroll in the program—including that the child’s family earns income below the federal poverty level; the child’s family is eligible for or, in the absence of child care, would potentially be eligible for public assistance; the child is in foster care; or the child is homeless. Head Start services are to be provided free of charge to eligible families. Prior to fiscal year 2013, HHS reported improper payment estimates for the Head Start program. However, as of fiscal year 2013, HHS, in consultation with its Office of Inspector General (OIG) and with approval from OMB, no longer reports annual improper payment estimates related to the program. According to HHS, Head Start’s fiscal year 2017 outlays were approximately $9.4 billion. Interest on the Public Debt Public debt is defined as Treasury-issued securities, primarily consisting of marketable Treasury securities (i.e., bills, notes, and bonds), and a smaller amount of nonmarketable securities, such as savings bonds and special securities issued to state and local governments. A portion is debt held by the public and a portion is debt held by federal government accounts. Debt held by the public represents federal debt held by investors outside of the federal government, including individuals, corporations, state or local governments, the Federal Reserve, and foreign governments. Types of securities held by the public include Treasury bills, notes, and bonds and State and Local Government Series securities. Debt held by the public primarily represents the amount the U.S. government has borrowed from the public to finance cumulative cash deficits. As of September 30, 2017, total debt held by the public was $14.7 trillion. Debt held by federal government accounts (intragovernmental holdings) represents balances of federal government accounts of certain federal agencies that are either authorized or required to invest excess receipts in Treasury securities. As of September 30, 2017, total debt held by federal government accounts was $5.6 trillion. Interest calculations on the public debt differ depending on the types of securities, their associated terms, and average interest rates. According to Treasury, total interest paid on public debt for fiscal year 2017 was approximately $294.8 billion. Home Affordable Modification Program In February 2009, as part of a broader plan to stabilize the housing market and economy, Treasury established the Making Home Affordable Program to help struggling families avoid possible foreclosure. As part of this plan, Treasury announced a national modification program for first- lien mortgages, the Home Affordable Modification Program (HAMP). The program offered eligible homeowners who are at risk of foreclosure reduced monthly mortgage payments that are more affordable and sustainable over the long term. Homeowners who chose to participate in the program had to show (1) documented financial hardship and (2) an ability to make their monthly mortgage payments after a modification. HAMP works by encouraging participating mortgage servicers to modify mortgages so struggling homeowners can have lower monthly payments and avoid foreclosure. It has specific eligibility requirements for homeowners and includes strict guidelines for servicers. In December 2016, entrance into the Making Home Affordable program expired. However, payments for previously approved participants in HAMP will continue until approximately September 2023. According to Treasury, HAMP’s fiscal year 2017 outlays were approximately $4.1 billion. Law Enforcement For improper payment risk assessment purposes, DOJ has five mission- aligned program groups. The Law Enforcement group is the largest in terms of annual outlays and consists of the following five components: 1. the Bureau of Alcohol, Tobacco, Firearms, and Explosives; 2. the Drug Enforcement Administration; 3. the Federal Bureau of Investigation; 4. Offices, Boards, and Divisions; and 5. the United States Marshals Service. According to DOJ, Law Enforcement’s fiscal year 2017 outlays were approximately $11.8 billion. Agriculture Risk Coverage and Price Loss Coverage The Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs were authorized by the 2014 Farm Bill to provide farmers with protection against adverse changes in market conditions. Although ARC and PLC are considered two separate programs, they are grouped as one program for the purposes of conducting improper payment risk assessments. The programs are managed by the Commodity Credit Corporation, whose activities are primarily administered by USDA’s Farm Service Agency. Within the ARC program, farmers have the choice of an individual-based option, known as ARC-Individual, or a county-based option, known as ARC-County. Both options provide revenue loss coverage to farmers when the legislative guarantee for a crop exceeds the actual year revenue. PLC program payments are issued to farmers when a crop’s “reference price,” as specified in the 2014 Farm Bill, is in excess of an average price, which is determined at the national level each year for the covered commodities. ARC/PLC statutes and regulations establish a series of eligibility criteria that farmers must meet in order to enroll in the programs. Among other things, to be eligible farmers must produce a certain quantity of at least 1 of the 21 covered commodities, actively engage in the farming process, meet income eligibility limits, and meet certain land conservation requirements. According to USDA, ARC/PLC’s fiscal year 2017 outlays were approximately $9.6 billion. Four of the Five Risk Assessments Lacked Documentation to Support Their Risk Determinations, and Many of HHS’s Programs Were Not Assessed HHS’s Improper Payment Risk Assessment for Head Start Lacked Documentation to Support Its Low Risk Determination, and Many Other Programs Were Not Assessed HHS’s Improper Payment Risk Assessment for Head Start Lacked Documentation to Support Its Low Risk Determination In its fiscal year 2016 qualitative risk assessment, HHS assessed its Head Start program as at low risk of susceptibility to significant improper payments. However, HHS did not have sufficient documentation on how it developed its risk assessments, so we could not determine if the risk assessment process was designed to provide a reasonable basis for making risk determinations. Although HHS did take into account the nine risk factors, among other factors, HHS did not document or effectively demonstrate how each specific risk factor affected Head Start’s susceptibility to significant improper payments. HHS’s improper payment risk assessment template included the nine risk factors, among other factors, and described how the divisions should consider each risk factor. However, HHS did not document how the descriptors or individual risk factors relate to the program’s susceptibility to significant improper payments. Further, although HHS used a risk assessment template to assess each of the risk factors, which included space for the divisions to provide additional information regarding the risk determinations, the division responsible for the Head Start program did not always provide sufficient documentation or support for us to determine how it arrived at its risk determinations for each risk factor. For example, see the following: Eligibility determination: HHS considered the eligibility of initial Head Start payments that HHS made to the initial grantees—local organizations—as low risk. However, HHS did not consider the Head Start eligibility decisions that these organizations made at the subrecipient level—calling into question the reliability of HHS’s risk assessment. In the Head Start program, local organizations, not HHS, make the eligibility determinations for individuals to be enrolled in the program. In addition, local organizations, not HHS, are responsible for maintaining the documentation to substantiate the eligibility of enrollees. HHS did not consider the impact of these determinations in its improper payment risk assessment. Our analysis of improper payment estimates from paymentaccuracy.gov for fiscal years 2016 and 2017 indicates that the inability to authenticate eligibility is one of the largest root causes of improper payments. Audit findings: HHS assigned a low-risk rating for findings from oversight agencies. However, in the risk assessment, it identified nine audit reports that the OIG issued pertaining to Head Start agencies with findings on unallowable costs, enrollment, and misuse of grant funds. According to agency officials, these OIG reports contained findings related to costs and misuse of grant funds that are specific to particular grantees and may not be indicative of widespread programmatic issues. However, HHS did not document the rationale for this assessment. Program management report: HHS assigned a low-risk rating for findings related to program management reports. According to HHS’s Report to Congress on Head Start Monitoring for Fiscal Year 2015, “allowable and allocable costs” was the most commonly cited noncompliance issue in its fiscal reviews of grantees. Specifically, 8.8 percent of grantees included in a fiscal review were found to be noncompliant with regard to allowable and allocable costs. However, HHS did not document whether it considered the impact of noncompliance by grantees in its Head Start risk assessment. According to HHS officials, divisions were required to maintain supporting documentation for their risk assessments, although submission of the related documents along with the risk assessment was not mandatory. HHS officials stated that this policy was orally communicated to the divisions; however, it was not formally documented. Lack of a written policy for the divisions to maintain such information may have contributed to HHS’s inability to provide sufficient supporting documentation for its low risk determinations. HHS’s qualitative risk assessment for Head Start also did not document or effectively demonstrate how the total score for all risk factors led to a determination that the program was not susceptible to significant improper payments. Our analysis of HHS’s risk assessment showed that for several of its risk factors, HHS did not score those factors as low risk. For example, HHS assigned a high-risk rating for three of the nine risk factors: (1) permanency of the program, (2) volume of payments made through the program, and (3) complexity per transaction. HHS’s risk assessment did not document or support how it determined Head Start to overall be at low risk for susceptibility to significant improper payments given the high-risk ratings for certain risk factors. Without supporting documentation, HHS cannot demonstrate, and we cannot determine, if HHS’s low risk determination for Head Start was reasonable. Additionally, based on HHS’s risk assessment scoring template, a program could be considered “high risk” for all nine risk factors, but because of the assigned weight given to each of the nine risk factors, HHS’s final risk calculation would still not determine the program to be at high risk of susceptibility to significant improper payments. According to HHS officials, the agency has procedures to review the improper payment risk assessments that the individual divisions perform; however, these review procedures are not formally documented. HHS officials stated that while no risk assessment has identified all nine risk factors as high risk, if all nine risk factors were identified as high risk by a division, the agency would require supporting documentation from the division for review and could overrule the outcome calculated based on the risk assessment scoring template if necessary. Without documented procedures for this review process, HHS lacks assurance that this process, if applicable, would consistently take place. According to HHS, the fiscal year 2016 improper payment qualitative risk assessment template used for Head Start was designed to calculate an overall risk rating of low, medium, or high based on program management responses to each individual risk factor. However, HHS did not have documentation to demonstrate how it determined the weighting of the risk factors or how the numerical risk level ranges from the risk assessment template related to a program’s susceptibility to significant improper payments. Additionally, HHS did not have documentation demonstrating the basis for its determination that specific risk factors do or do not lead to susceptibility to significant improper payments. HHS officials stated that OMB does not have specific guidance on establishing weights for each risk factor or assigning numerical risk level ranges to determine overall susceptibility to significant improper payments. HHS officials also stated that HHS developed its own numerical risk level ranges based on experience and data from previous risk assessments. When asked for documentation to support its weighting of the various risk factors, HHS officials stated that they did not document this analysis. Without documenting the basis for the assigned weights, HHS cannot demonstrate, and we cannot determine, that its process for determining Head Start’s susceptibility to significant improper payments was reasonable. Federal internal control standards state that management should develop control activities to achieve objectives and respond to risks and implement control activities through policies. As part of these standards, management should clearly document internal controls and other significant events in a manner that allows the documentation to be readily available for examination. Additionally, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness. Further, federal internal control standards state that management should use quality information to achieve the entity’s objectives. As such, to reasonably determine if a program is susceptible to significant improper payments, agencies’ risk assessments would have a logical connection with, or bearing upon, the statutory definition of significant improper payments. Until HHS revises its risk assessment process to help ensure that it results in a reliable assessment, it will be uncertain whether Head Start may be susceptible to significant improper payments and therefore require an estimate of its improper payments. HHS Did Not Conduct Risk Assessments for Many of Its Programs and Activities During our agency and program selection process, we found that HHS did not assess many of its programs and activities at least once during the 3- year period from fiscal years 2015 through 2017, as required by IPIA. Although HHS conducted improper payment risk assessments for a total of 71 programs and activities during the 3-year period, based on our analysis of HHS-provided outlay data, HHS did not conduct the required risk assessment for at least 140 programs. For example, HHS did not assess its Block Grants for Prevention and Treatment of Substance Abuse program that had outlays of approximately $1.8 billion in fiscal year 2016. According to HHS officials, HHS has limited resources, so it took a risk-based approach when selecting programs to include in its improper payment risk assessment process. Further, HHS officials stated that HHS was transitioning in fiscal year 2015 to a new risk assessment process. As such, HHS’s procedures directed its divisions to select one program per division for fiscal year 2015 and two programs per division for fiscal years 2016 and 2017. Federal internal control standards state that management should design control activities to achieve objectives and respond to risks and implement control activities through policies. Without properly designed control activities to help ensure that all programs and activities are assessed for susceptibility to significant improper payments at least once every 3 years, as required by IPIA, there is an increased risk that HHS may not identify all risk-susceptible programs and activities, resulting in incomplete improper payment estimates. Treasury’s Improper Payment Risk Assessments for Interest on the Public Debt and HAMP Lacked Documentation to Support Its Low Risk Determinations In its fiscal year 2017 qualitative risk assessments, based on fiscal year 2016 outlay data, Treasury assessed its Interest on the Public Debt and HAMP as at low risk of susceptibility to significant improper payments. However, Treasury did not have sufficient documentation for how it developed its risk assessments, so we could not determine if the risk assessment process was designed to provide a reasonable basis for making risk determinations. Although Treasury did take into account the nine risk factors, among other factors, it did not document or effectively demonstrate how each specific risk factor affected the programs’ susceptibility to significant improper payments. Treasury’s risk assessment templates for these programs had 62 questions which required “Yes,” “No,” or “Not applicable” responses. Treasury did not document how each of the 62 questions related to each program’s susceptibility to significant improper payments. Further, the template did not require the bureaus responsible for the Interest on the Public Debt and HAMP risk assessments to provide documentation or support other than a check mark in response to these questions. Without descriptions of how to answer the questions or documentation to support the responses, we could not verify the reasonableness of the Interest on the Public Debt or HAMP improper payment risk assessments. For example, the Interest on the Public Debt program’s risk assessment questionnaire was completed for 11 different payment types under the program. For the TreasuryDirect payment type, Treasury answered “No” to the question, “Are there risks due to a high volume of payments for TreasuryDirect?” Treasury did not provide documentation or other support for how the agency determined that there was no risk for this question. Further, since the template lacked descriptors, it is unclear if responses related to the number of transactions or the dollar amount of transactions. In fiscal year 2016, TreasuryDirect payments totaled almost $300 billion, representing about 7.8 percent of all the federal government outlays. In contrast, Treasury answered “Yes” to this same question for the HAMP program, for which payments were about 1 percent (about $4 billion) of the total payments made by TreasuryDirect. Similarly, in the HAMP risk assessment questionnaire, Treasury answered “No” to the question, “Are payment or payment eligibility decisions made outside the agency?” However, under HAMP, financial institutions, not Treasury, determine whether borrowers are eligible for loan modification through the program. Treasury did not document why a “No” response was appropriate. Treasury’s risk assessments for Interest on the Public Debt and HAMP also did not document or effectively demonstrate how the total scores for all risk factors led to the determinations that the programs were not susceptible to significant improper payments. For example, in its risk assessment, Treasury’s responses indicated several improper payment risks for Interest on the Public Debt, including (1) complexity of administering the payment type, (2) unmitigated risks relying on contractors to perform critical agency operations, and (3) payments being made to incorrect payees or ineligible recipients. Further, based on total payments for the Interest on the Public Debt, Treasury would have to be over 99.97 percent accurate in its payments in order for the activity to not reach the $100 million threshold for significant improper payments. Treasury’s risk assessment did not document or support how it determined Interest on the Public Debt to be at low risk for susceptibility to significant improper payments considering these risks for improper payments. Similarly, Treasury’s responses in its risk assessment questionnaire indicated several improper payment risks for HAMP, including (1) an emphasis on expediting payments, (2) risks resulting from recent changes in agency operations and personnel, (3) complicated criteria for manually computing payments, and (4) a high volume of payments. Treasury’s risk assessment did not document or support how it determined HAMP to be at overall low risk for significant improper payments considering these risks for improper payments. Without supporting documentation, Treasury cannot demonstrate, and we cannot determine, if Treasury’s low risk determinations for Interest on the Public Debt and HAMP were reasonable. Additionally, based on our analysis of Treasury’s risk assessment template, a bureau could identify areas of risk related to each of the nine risk factors for a program, but because of the assigned weights given to each of the nine risk factors, Treasury’s final risk calculation would still not determine the program to be at high risk of susceptibility to significant improper payments. According to Treasury officials, Treasury provides general instructions on how to complete the risk assessment templates, but the bureaus are responsible for assessing the risks. In addition, according to Treasury, the fiscal year 2017 improper payment risk assessment template used for Interest on the Public Debt and HAMP was designed to calculate an overall risk rating of low, medium, or high based on bureau responses to each individual question. However, Treasury did not have documentation to demonstrate how it determined the weighting of the risk factors or the numerical risk level ranges from the template related to the programs’ susceptibility to significant improper payments. Additionally, Treasury did not have documentation demonstrating the basis for its determination that specific risk factors do or do not lead to susceptibility to significant improper payments. According to Treasury officials, Treasury considered the severity of the impact on the program’s improper payments when developing its weights for each question. However, Treasury officials stated that they did not have documentary support for this analysis. Without documenting the basis for the assigned weights, Treasury cannot demonstrate, and we cannot determine, that its process for determining its programs’ susceptibility to significant improper payments was reasonable. Federal internal control standards state that management should develop control activities to achieve objectives and respond to risks and implement control activities through policies. As part of these standards, management should clearly document internal controls and other significant events in a manner that allows the documentation to be readily available for examination. Additionally, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness. Further, federal internal control standards state that management should use quality information to achieve the entity’s objectives. As such, to reasonably determine if a program is susceptible to significant improper payments, agencies’ risk assessments would have a logical connection with, or bearing upon, the statutory definition of significant improper payments. Until Treasury revises its risk assessment process to help ensure that it results in reliable assessments, it will not be certain whether Interest on the Public Debt or HAMP may be susceptible to significant improper payments and therefore require an estimate of improper payments. DOJ’s Improper Payment Risk Assessment for Law Enforcement Lacked Documentation to Support Its Low Risk Determination In its fiscal year 2017 risk assessment, DOJ assessed its Law Enforcement program as at low risk of susceptibility to significant improper payments. However, DOJ did not have sufficient documentation for how it developed its risk assessments, so we could not determine if the risk assessment process was designed to provide a reasonable basis for making risk determinations. Although DOJ conducted a quantitative evaluation as part of its improper payment risk assessment for its Law Enforcement program, the evaluation did not reliably indicate the program’s susceptibility to significant improper payments. Specifically, our analysis of Law Enforcement’s improper payment risk assessment found that the quantitative evaluation’s baseline was largely based on the prior fiscal year’s improper payment amount identified through recovery activities, which may not reliably represent the estimated improper payment amount that the agency incurred. For example, improper payment recovery activities do not include underpayments. DOJ’s qualitative analysis on improper payments also did not document or effectively demonstrate whether the program may be susceptible to significant improper payments. Although DOJ’s risk assessment template did take into account the nine risk factors, among other factors, and descriptors of how the components should consider each risk factor, DOJ did not document or effectively demonstrate how each specific risk factor affected the program’s susceptibility to significant improper payments. Further, although DOJ used a risk assessment template to assess each of the risk factors, which included a voluntary comments section for each risk factor so that components can explain answers or justify the risk ratings, the components frequently left the comment sections blank. As such, DOJ did not always provide sufficient documentation or support for us to determine how the components arrived at their risk determinations for each risk factor. DOJ’s risk assessment for Law Enforcement also did not document or effectively demonstrate how the total score for all risk factors led to the determination that the program was not susceptible to significant improper payments. For example, in its risk assessment, DOJ’s Offices, Boards, and Divisions’ responses indicated risks for contract payments related to (1) changes in funding, authorities, practices, or procedures; (2) results of monitoring activities; (3) results of recapture audit activities; (4) volume and dollar amount of payments; (5) inherent risks; and (6) capability of personnel. DOJ’s risk assessment did not document or support how it determined Law Enforcement to be at low risk for susceptibility to significant improper payments given the identified risks for certain risk factors. Without supporting documentation, DOJ cannot demonstrate, and we cannot determine, if DOJ’s low risk determination for Law Enforcement was reasonable. Additionally, based on our analysis of DOJ’s risk assessment template, a component could identify areas of risk related to each of the nine risk factors, but because of the assigned weight given to each of the nine risk factors, DOJ’s final risk calculation would still not determine the program to be at high risk of susceptibility to significant improper payments. According to DOJ, the fiscal year 2017 improper payment qualitative risk assessment template used for Law Enforcement was designed to calculate an overall risk rating of low, medium, or high based on component responses to each individual risk factor. However, DOJ did not have documentation to demonstrate how it determined the weighting of the risk factors or the numerical risk level ranges from the template related to the program’s susceptibility to significant improper payments. Additionally, DOJ did not have documentation demonstrating the basis for its determination that specific risk factors do or do not lead to susceptibility to significant improper payments. Further, DOJ’s qualitative risk assessment template indicated that the overall risk determination does not relate to the program’s susceptibility to significant improper payments. For example, the template stated that “a risk rating of high risk for the purposes of this assessment does not mean that the payment type is susceptible to significant improper payments but may indicate that additional focus and testing should be placed on that payment type to better estimate the improper payment rate for the payment type.” DOJ officials stated that DOJ held internal discussions and considered the severity of the impact on the program’s improper payments when developing its weights for each risk factor. When asked for supporting documentation, DOJ officials stated that OMB guidance does not direct agencies to demonstrate how the weights for each risk factor or overall risk ratings relate to the definition of significant improper payments. However, without documenting the basis for the assigned weights, DOJ cannot demonstrate, and we cannot determine, that its process for determining Law Enforcement’s susceptibility to significant improper payments was reasonable. Federal internal control standards state that management should develop control activities to achieve objectives and respond to risks and implement control activities through policies. As part of these standards, management should clearly document internal controls and other significant events in a manner that allows the documentation to be readily available for examination. Additionally, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness. Further, although OMB does not direct agencies to demonstrate how the weights for each risk factor or overall ratings relate to the definition of significant improper payments, federal internal control standards state that management should use quality information to achieve the entity’s objectives. As such, to reasonably determine if a program is susceptible to significant improper payments, agencies’ risk assessments would have a logical connection with, or bearing upon, the statutory definition of significant improper payments. Until DOJ revises its risk assessment process to help ensure that it results in a reliable assessment, it will be uncertain whether Law Enforcement may be susceptible to significant improper payments and therefore require an estimate of improper payments. USDA’s Improper Payment Risk Assessment for ARC/PLC Provided a Reasonable Basis for Its Risk Determination USDA’s fiscal year 2017 improper payment risk assessment for ARC/PLC consisted of a qualitative analysis and a quantitative evaluation. Both assessments determined that the program was not susceptible to significant improper payments. We found that the quantitative evaluation, based on statistical sampling, provided a reasonable basis for USDA’s determination that the program was at low risk for susceptibility to significant improper payments. Specifically, based on its statistical sample, USDA estimated that ARC/PLC’s improper payment rate was 0.73 percent of program outlays with an estimated improper payment amount of $38.6 million. As such, the analysis clearly demonstrated that ARC/PLC did not meet the statutory definition of significant improper payments under IPIA—estimated improper payments that may have exceeded either (1) 1.5 percent of program outlays and $10 million or (2) $100 million (regardless of the improper payment rate). Conclusions Properly executed improper payment risk assessments are a cornerstone of government-wide efforts to estimate and reduce such payments. Although the qualitative risk assessments we reviewed for HHS, Treasury, and DOJ considered the nine risk factors required by IPIA or directed by OMB, none of them demonstrated how the factors affected a program’s susceptibility to significant improper payments. Additionally, despite the agencies identifying multiple factors as areas of risk in individual program risk assessments, each of the agencies’ overall determinations for the risk assessments we reviewed was “low risk,” and none of the agencies had documentation with which to explain the basis for their assessments. Revising their processes for conducting improper payment risk assessments, including preparing sufficient documentation to support the assessments, would better position HHS, Treasury, and DOJ to demonstrate the reliability of the assessments. Without properly designed risk assessments, the departments will continue to be uncertain whether improper payment estimates should be prepared for most programs we reviewed, potentially affecting the completeness of their improper payment estimates and hampering efforts to reduce improper payments. Recommendations for Executive Action We are making the following four recommendations—two to HHS, one to Treasury, and one to DOJ: The Secretary of Health and Human Services should revise HHS’s process for conducting improper payment risk assessments for Head Start to help ensure that it results in a reliable assessment of whether the program is susceptible to significant improper payments. This should include preparing sufficient documentation to support its risk assessments. (Recommendation 1) The Secretary of Health and Human Services should revise HHS’s procedures for conducting improper payment risk assessments to help ensure that all programs and activities are assessed for susceptibility to significant improper payments at least once every 3 years, as required by IPIA. (Recommendation 2) The Secretary of the Treasury should revise Treasury’s processes for conducting improper payment risk assessments for Interest on the Public Debt and HAMP to help ensure that the processes result in reliable assessments of whether the programs are susceptible to significant improper payments. This should include preparing sufficient documentation to support its risk assessments. (Recommendation 3) The Attorney General should revise DOJ’s process for conducting improper payment risk assessments for Law Enforcement to help ensure that it results in a reliable assessment of whether the program is susceptible to significant improper payments. This should include preparing sufficient documentation to support DOJ’s risk assessments. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report for comment to OMB, HHS, DOJ, Treasury, and USDA. DOJ and HHS provided written comments, which are reproduced in appendixes II and III, respectively. OMB, HHS, and Treasury provided technical comments, which we incorporated as appropriate. Treasury’s Acting Director of its Risk and Control Group notified us by email that Treasury concurred with the report and recommendation. A USDA management analyst notified us by email that USDA had no comments on the report. In its written comments, HHS stated that it concurs with both recommendations and is committed to reducing improper payments in all of its programs. HHS also described actions it plans to take to address these recommendations, including (1) issuing a written policy directing divisions to maintain supporting documentation for risk assessments, (2) documenting the agency review procedures for risk assessments that the divisions perform and the rationale for assigning weights to the risk factors, and (3) developing an automated program identification process for monitoring and inclusion in risk assessments to help ensure that all programs and activities are reviewed. The actions described by HHS, if implemented effectively, would address our recommendations. In its written comments, DOJ stated that it disagreed with our conclusions and recommendation. DOJ explained that its risk assessment methodology includes a qualitative evaluation and a quantitative analysis, and that it considers the nine risk factors likely to contribute to improper payments. Additionally, DOJ provided an overview of its risk assessment tool and guidance and stated that its methodology includes all steps required by OMB. We acknowledged in the draft report that DOJ did take into account the nine risk factors, among others, as directed by OMB and provided an overview of DOJ’s risk assessment template and process. DOJ stated that it believes that some of our interpretations exceed the risk assessment requirements, and believes that its methodology complies with requirements and adequately demonstrates whether a program may be susceptible to significant improper payments. DOJ stated that the risk factor ratings summarized in its risk assessment provided a clear link of how the individual risk factor ratings support the overall assessed risk of significant improper payments. Further, DOJ stated that the risk assessment tool provides sufficient documentation for the formulas and logic for the risk rating conversions and weight-based summarization of risk factor scoring. We disagree that our interpretations exceed the risk assessment requirements, and we continue to believe that DOJ’s risk assessment did not adequately demonstrate whether a program is or is not susceptible to significant improper payments. We believe that while agencies are not specifically directed to demonstrate how the weights for each risk factor or overall ratings relate to the definition of significant improper payments, management should use quality information to achieve the entity’s objectives as stated in federal internal control standards. As such, to reasonably determine if a program is susceptible to significant improper payments, agencies should have documentation to support how their risk assessments provided a logical connection with, or bearing upon, the statutory definition of significant improper payments. DOJ did not provide sufficient support for how it determined the weighting of the risk factors or the numerical risk level ranges. Because DOJ did not have sufficient documentation for how it developed its risk assessment template, we could not determine if the risk assessment was designed to provide a reasonable basis for the risk determinations. DOJ stated that the report does not accurately portray DOJ’s risk assessment process. Specifically, DOJ stated that we incorrectly reported that DOJ’s quantitative evaluation did not include improper payments related to lack of documentation. Based on the information DOJ provided, we removed the lack of documentation example from our report. DOJ also stated that it was misleading to report that although DOJ’s risk assessment template included a voluntary comments section for each risk factor for components to explain answers or justify risk ratings, the comment sections were frequently left blank. DOJ stated that its components only need to provide a comment when they believe it is necessary to qualify their responses and that obvious answers do not need to be explained. However, as previously noted, DOJ did not provide sufficient documentation or support for us to determine how the components arrived at their risk determinations for each risk factor. Without such documentation, DOJ cannot demonstrate, and we cannot determine, whether DOJ’s assessment for each risk factor was reasonable. Further, DOJ stated that the Offices, Boards, and Divisions example was inaccurate and misleading. DOJ stated that the summary table in its risk assessment questionnaire documented that the risks identified were determined to be low risk and therefore supported the conclusions reached. DOJ also stated that its approach acknowledges that risks exist in every disbursement process and allows process owners to assess the level of risk that exists and determine whether a program may be susceptible to significant improper payments. We disagree that the Offices, Boards, and Divisions example is inaccurate or misleading. Although we recognize that DOJ’s summary table, or scoring template as referred to in the report, documented that the risks identified were determined to be low risk, we do not believe that it provided support for that determination. Specifically, the summary table was populated based on component responses and predetermined weights to calculate an overall risk rating of low, medium, or high; however, DOJ did not provide documentation to demonstrate how it determined the weights of the risk factors or the numerical risk level ranges involved in that calculation. Without documenting the basis for the assigned weights, DOJ cannot demonstrate, and we cannot determine, that its process for determining Law Enforcement’s susceptibility to significant improper payments was reasonable. We continue to believe that our recommendation to DOJ is valid to help ensure that DOJ’s risk assessment reliably results in determining whether Law Enforcement may be susceptible to significant improper payments. We are sending copies of this report to the appropriate congressional committees, the Director of the Office of Management and Budget, the Secretary of Agriculture, the Secretary of Health and Human Services, the Secretary of the Treasury, the Acting Attorney General, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2623 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objective, Scope, and Methodology This report examines the extent to which certain federal agencies’ improper payment risk assessments for selected programs provided a reasonable basis for determining susceptibility to significant improper payments. To address our objective, we reviewed improper payment risk assessment requirements in the Improper Payments Information Act of 2002, as amended (IPIA), and the related guidance in Office of Management and Budget (OMB) Circular A-123, Appendix C, Requirements for Effective Estimation and Remediation of Improper Payments (OMB M-15-02). We analyzed this statute and guidance to identify key criteria that agencies must meet when conducting improper payment risk assessments. IPIA identifies seven risk factors and OMB guidance includes two additional risk factors that agencies must consider, at a minimum, in their improper payment risk assessments to determine susceptibility to significant improper payments. IPIA also directs agencies to conduct risk assessments for all programs and activities at least once every 3 years. We also reviewed relevant internal control standards to determine the relevant processes and procedures needed to help ensure that agencies conduct effective improper payment risk assessments to determine the susceptibility to significant improper payments. For this objective, we selected a nongeneralizable sample of 4 agencies and five programs to review. To select the agencies, we considered data for the 24 agencies subject to the Chief Financial Officers Act of 1990 (CFO Act). Specifically, we considered the timing of the agencies’ improper payment risk assessments, findings reported by the agencies’ inspectors general (IG), the number of programs and activities for which the agencies reported improper payment estimates for fiscal year 2017, the types of programs and activities that the agencies administered, and agency gross outlays in fiscal year 2017. To ensure we were including agencies that had most recently conducted improper payment risk assessments, we limited our selection to agencies that conducted improper payment risk assessments for any programs or activities in fiscal year 2017. In order to avoid duplicate efforts, we also eliminated agencies that reported IG findings related to risk assessments. We then selected a mix of agencies with and without improper payment estimates for fiscal year 2017, and ultimately selected 4 agencies based primarily on their fiscal year 2017 outlays for programs determined to be not susceptible to improper payments. Specifically, we selected one agency that did not report any improper payment estimates, one agency that reported a few improper payment estimates (for three or fewer programs or activities), and one agency that reported several improper payment estimates (for five or more programs or activities). We also selected one agency that administered eligibility-based programs in fiscal year 2017 because of the unique application and approval processes generally associated with eligibility determinations and their increased risk of improper payments. We then selected up to two programs or activities at each agency, for a total of five programs. To facilitate our program selection, we requested a listing of all programs and activities at the selected agencies that underwent a risk assessment in fiscal years 2015 through 2017 (the most recent 3-year period at the time of our review) along with the gross outlay amounts associated with these programs and activities. Through our selection process, we noted that the Department of Health and Human Services (HHS) did not assess at least 140 of its programs and activities in the 3-year period from fiscal years 2015 through 2017, and therefore our program selection for HHS was limited to approximately 70 programs or activities. To select programs, we considered outlay data, the timing of the most recent improper payment risk assessment conducted for each program or activity, and whether eligibility determinations were required for payments under each program or activity. Our selection was primarily based on the size of program and activity gross outlays reported for fiscal year 2017. We focused on outlays because the overall impact of any issues identified with an agency’s risk assessment process may be greater for programs and activities with higher gross outlays, as a higher volume of payments or higher payment amounts could potentially involve higher improper payments. Based on these data, we selected five programs for review. Our findings are limited to the five selected programs and cannot be generalized to all programs and activities at the 24 CFO Act agencies. The agencies and relevant programs selected for review are shown in table 3. We interviewed officials at the selected agencies on their processes for conducting improper payment risk assessments and reviewed documented policies and procedures. We obtained the most recent improper payment risk assessments that the agencies conducted on the selected programs during the latest 3-year period at the time of our review (fiscal years 2015 through 2017). We then analyzed those risk assessments against relevant IPIA requirements, OMB guidance, and internal control standards to determine whether the agencies had evaluated the appropriate risk factors for improper payments, appropriately considered those risk factors in their risk assessments, and provided a reasonable basis for the risk determination. For any agencies that did not adhere to the improper payment risk assessment requirements, lacked supporting documentation for their risk assessments, or did not provide a reasonable basis for the risk determinations, we interviewed appropriate agency officials to determine the reasons they did not. We also interviewed OMB staff regarding their roles in developing risk assessment guidance. We conducted this performance audit from December 2017 to January 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Justice Appendix III: Comments from the Department of Health and Human Services Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments: In addition to the contact named above, Matthew Valenta (Assistant Director), Stephanie Adams (Auditor in Charge), Marcia Carlsen, Pat Frey, Gina Hoover, Diana Lee, Zhen Li, and Charles Varga made key contributions to this report.

Improper payments are a long-standing problem in the federal government, estimated at almost $141 billion for fiscal year 2017. Agencies are required to perform risk assessments to identify programs that may be susceptible to significant improper payments. GAO was asked to review federal agencies' improper payment risk assessments. This report examines the extent to which certain agencies' improper payment risk assessments for selected programs provided a reasonable basis for determining their susceptibility to significant improper payments. GAO analyzed the most recent risk assessments, from 2015 through 2017, for the following five programs: USDA's Agriculture Risk Coverage and Price Loss Coverage programs; HHS's Head Start; DOJ's Law Enforcement; and Treasury's Interest on the Public Debt and Home Affordable Modification Program. GAO selected these programs, focusing on programs that recently underwent a risk assessment and size of programs' gross outlays—which totaled about $330 billion in fiscal year 2017 for the five programs GAO selected. The Improper Payments Information Act of 2002, as amended (IPIA), defines “significant” improper payments as improper payments in the preceding fiscal year that may have exceeded either (1) 1.5 percent of program outlays and $10 million or (2) $100 million (regardless of the improper payment rate). GAO found that the Departments of Health and Human Services (HHS), the Treasury (Treasury), Justice (DOJ), and Agriculture (USDA) assessed the five programs GAO selected for review as at low risk for susceptibility to significant improper payments; however, HHS, Treasury, and DOJ lacked sufficient documentation to assess the extent to which their risk assessments provided a reasonable basis for their risk determinations. On the other hand, USDA's quantitative risk assessment of its program's susceptibility to significant improper payments provided a reasonable basis for its low-risk determination. Although HHS, Treasury, and DOJ considered, among other factors, the nine risk factors from IPIA and Office of Management and Budget guidance, they did not document or effectively demonstrate how these factors affected their programs' susceptibility to significant improper payments. These programs' risk assessments did not contain sufficient documentation to determine how the agencies arrived at their risk determinations for each risk factor, or how the total scores for all risk factors led to low-risk determinations. For example, HHS determined that its Head Start program was at high risk for several risk factors—including complexity per transaction and volume of payments—but did not document how these high-risk ratings informed its overall determination that Head Start was not susceptible to significant improper payments. Further, the agencies did not have documentation to demonstrate how they determined the weighting of each risk factor or the risk level ranges from the risk assessment templates as they relate to the programs' susceptibility to significant improper payments. For example, based on GAO's analysis of Treasury's risk assessment template, the agency could identify areas of risk related to each of the nine risk factors. But because of the assigned weights given to each risk factor, Treasury's final risk calculation would still not determine the program to be at high risk of susceptibility to significant improper payments. Without documenting the basis for the assigned weights, Treasury cannot demonstrate, and GAO cannot determine, that its process for determining its programs' susceptibility to significant improper payments was reasonable. Until HHS, Treasury, and DOJ revise their risk assessment processes to help ensure that they result in reliable assessments, they cannot be certain whether their programs are susceptible to significant improper payments and therefore whether they are required to estimate the amount of improper payments. GAO also found that HHS did not assess many of its programs and activities at least once during the 3-year period from fiscal years 2015 through 2017, as required by IPIA. Based on the analysis of HHS information, GAO identified at least 140 programs or activities that were not assessed during the 3-year period. When not all eligible programs are reviewed as required, there is an increased risk that the agency may not identify all risk-susceptible programs and activities, resulting in incomplete improper payment estimates.

CRS_R43792

Introduction The Fair Labor Standards Act (FLSA), enacted in 1938, is the federal legislation that establishes the general minimum wage that must be paid to all covered workers. The FLSA mandates broad minimum wage coverage. It also specifies certain categories of workers who are not covered by general FLSA wage standards, such as workers with disabilities or certain youth workers. In 1938, the FLSA established a minimum wage of $0.25 per hour. The minimum wage provisions of the FLSA have been amended numerous times since then, typically to expand coverage or raise the wage rate. Since its establishment, the minimum wage rate has been raised 22 separate times. The most recent change was enacted through P.L. 110-28 in 2007, which increased the minimum wage from $5.15 per hour to its current rate of $7.25 per hour in three steps (the final step occurring in 2009). States generally have three options in setting their minimum wage policies: (1) they can set their own minimum wage provisions that differ from those in the FLSA, (2) they can explicitly tie their minimum wage provisions to the FLSA, or (3) they can include no specific minimum wage provisions in state law. This report begins with a brief discussion of FLSA minimum wage coverage. It then provides a summary of state minimum wage laws, followed by an examination of rates and mechanisms of adjustments in states with minimum wage levels above the FLSA rate ( Table 1 provides summary data). Next, the report discusses the interaction of federal and state minimum wages over time, and finally, the Appendix provides detailed information on the major components of minimum wage policies in all 50 states and the District of Columbia. The state policies covered in this report include currently effective policies and policies enacted with an effective date at some point in 2019. While most states' scheduled state minimum wage rate changes (due to inflation adjustments or statutorily scheduled changes) occurred on January 1 of each year, a few states have rate increases scheduled for later in the year. Effective dates of rate increases are noted in Table 1 and in the Appendix . The FLSA Minimum Wage The FLSA extends two types of minimum wage coverage to individuals: "enterprise coverage" and "individual coverage." An individual is covered if they meet the criteria for either category. Enterprise Coverage To be covered by the FLSA at the enterprise or business level, an enterprise must have at least two employees and annual sales or "business done" of at least $500,000. Annual sales or business done includes all business activities that can be measured in dollars. Thus, for example, retailers are covered by the FLSA if their annual sales are at least $500,000. In non-sales cases, a measure other than sales must be used to determine business done. For example, for enterprises engaged in leasing property, gross amounts paid by tenants for property rental will be considered business done for purposes of determining enterprise coverage. In addition, regardless of the dollar volume of business, the FLSA applies to hospitals or other institutions primarily providing medical or nursing care for residents; schools (preschool through institutions of higher education); and federal, state, and local governments. Thus, regardless of how enterprise coverage is determined (by business done or by specified institutional type), all employees of a covered enterprise are considered to be covered by the FLSA. Individual Coverage Although an enterprise may not be subject to minimum wage requirements if it has less than $500,000 in annual sales or business done, employees of the enterprise may be covered if they are individually engaged in interstate commerce or in the production of goods for interstate commerce. To be engaged in interstate commerce—the definition of which is fairly broad—employees must produce goods (or have indirect input to the production of those goods) that will be shipped out of the state of production, travel to other states for work, make phone calls or send emails to persons in other states, handle records that are involved in interstate transactions, or provide services to buildings (e.g., janitorial work) in which goods are produced for shipment outside of the state. While individual coverage is broad under the FLSA, there are also specific exemptions from the federal rate, including individuals with disabilities; youth workers; tipped workers; and executive, administrative, and professional workers, among others. FLSA Minimum Wage Rates In 1938, the FLSA established a minimum wage of $0.25 per hour. The minimum wage provisions of the FLSA have been amended numerous times since then, typically for the purpose of expanding coverage or raising the wage rate. Since its establishment, the minimum wage rate has been raised 22 separate times. The most recent change was enacted in 2007 ( P.L. 110-28 ), which increased the minimum wage from $5.15 per hour to its current rate of $7.25 per hour in three steps. Figure 1 shows the nominal and real (inflation-adjusted) value of the federal minimum wage from its enactment in 1938 through 2018. The real value of the minimum wage generally rose from 1938 to 1968, after which it has generally fallen in real terms, with some brief increases in value following periodic statutory rate changes. From an initial rate of $0.25 per hour in 1938 ($4.43 in inflation-adjusted terms), the minimum wage increased to $1.60 per hour in 1968 ($11.50 in inflation-adjusted terms, a peak value to date). The real value of the minimum wage has fallen by $1.20 since it was increased to $7.25 in 2009. Minimum Wage Policies in the States State policymakers may also choose to set labor standards that are different from federal statutes. The FLSA establishes that if a state enacts minimum wage, overtime, or child labor laws more protective of employees than those provided in the FLSA, then state law applies. In the case of minimum wages, this means FLSA-covered workers are entitled to the higher state minimum wage in those states with rates above the federal minimum. On the other hand, FLSA-covered workers would receive the FLSA minimum wage in states that have set minimum wages lower than the federal rate. Given the generally broad minimum wage coverage of the FLSA, it is likely that most workers in states with minimum wages below the federal rate are covered by the FLSA rate. In 2019, the range of state minimum wage rates is as follows: 29 states and the District of Columbia have enacted minimum wage rates above the federal rate of $7.25 per hour; 2 states have minimum wage rates below the federal rate; 5 states have no state minimum wage requirement; and the remaining 14 states have minimum wage rates equal to the federal rate. In the states with no minimum wage requirements or wages lower than the federal minimum wage, only individuals who are not covered by the FLSA are subject to those lower rates. The Appendix provides detailed information on state minimum wage policy in all 50 states and the District of Columbia, including the legislation authorizing the state minimum wage and the relevant legislative language regarding the rate and mechanism of adjustment. The remainder of this report focuses on states with minimum wages above the federal rate. Rates and Mechanisms of Adjustment In states with minimum wage rates above the federal rate, variation occurs mainly across two dimensions: the rate and the mechanism of adjustment to the rate. This section (including data in Table 1 ) summarizes these two dimensions for the states with rates currently above the federal minimum. State rates range from $0.25 to $6.75 above the federal rate, with a majority of these states using some sort of inflation measure to index the state minimum wage. Rates In the 29 states and the District of Columbia with minimum wage rates above the federal rate in 2019, minimum hourly rates range from $7.50 per hour in New Mexico to $12.00 per hour in Massachusetts and Washington and $14.00 in the District of Columbia. Of the states with minimum wage rates above $7.25: 3 states have minimum wages within $1 of the federal rate of $7.25 per hour; 10 states have rates between $1.00 and $2.00 per hour above the federal rate; and 16 states and the District of Columbia have rates greater than $2.00 per hour above the federal rate (i.e., $9.26 or higher). Figure 2 shows the geographic and rate dispersion of state minimum wages. In terms of coverage, a majority of the civilian labor force is in states with a minimum wage rate above the federal rate of $7.25. Specifically, the 29 states and the District of Columbia with minimum wage rates above $7.25 represent about 61% of the total civilian labor force, which means the federal rate is the wage floor in states representing 39% of the labor force. Mechanisms for Future Adjustments In any given year, the exact number of states with a minimum wage rate above the federal rate may vary, depending on what mechanism is in place to adjust the state minimum wage. Some states specifically set rates above the federal rate. Other states have rates above the federal minimum wage because the state minimum wage rate is indexed to a measure of inflation or is increased in legislatively scheduled increments, and thus the state rate changes even if the federal minimum wage stays unchanged. Below are the two main approaches to regulating the adjustment of state minimum wage rates in states with rates above the federal minimum: legislatively scheduled increases and indexing to inflation. In this section, states are counted by the primary method of adjustment. While most states use only one of these methods, some states combine a series of scheduled increases followed by indexing the state rate to a measure of inflation. In these cases, states are counted as "indexing to inflation," as that is the long-term mechanism of adjustment in place. Legislatively Scheduled Increases If a state adopts a minimum wage higher than the federal rate, the state legislature may specify a single rate in the enacting legislation and then choose not to address future rates. In these cases, the only mechanism for future rate changes is future legislative action. Alternatively, a state may specify future rates in legislation through a given date. Rhode Island in 2017, for example, set a rate of $10.10 per hour beginning January 1, 2018, and $10.50 beginning January 1, 2019. After the final increase, the rate will remain at $10.50 per hour until further legislative action. This is the same approach taken in the most recent federal minimum wage increase ( P.L. 110-28 ), which increased the minimum wage from $5.15 an hour in 2007 to $7.25 per hour in 2009 in three phases. Of the 29 states and the District of Columbia with minimum wage rates above the federal rate, 9 currently have no scheduled increases beyond 2019, while Arkansas, Massachusetts, and Michigan have legislatively scheduled rate increases after 2019. Indexing to Inflation If a minimum wage rate is established as a fixed amount and not increased, its value will erode over time due to inflation. For this reason, several states have attempted to maintain the value of the minimum wage over time by indexing the rate to some measure of inflation. This mechanism provides for automatic changes in the minimum wage over time and does not require legislative action to make annual adjustments. Currently, nine states index state minimum wages to a measure of inflation. In addition, another eight states and the District of Columbia are scheduled in a future year to index state minimum wage rates to a measure of inflation. Thus, of the total of 17 states and the District of Columbia that currently or are scheduled to index minimum wage rates, seven states—Arizona, Montana, Nevada, New York, Oregon, South Dakota, and Vermont—index the state minimum wage to the national Consumer Price Index for All Urban Consumers (CPI-U); five states—California, Missouri, New Jersey, Ohio, and Washington—index the state minimum wage to the national Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W); two states—Alaska and Colorado—and the District of Columbia use a subnational version of the CPI-U to index the state minimum wage; two states—Florida and Maine—use a regional version of the CPI-W to index the minimum wage; and one state (Minnesota) uses the implicit price deflator for personal consumption expenditures (PCE) to index the minimum wage. Reference to the Federal Rate While scheduled increases and indexation are the two main ways that states adjust their minimum wage rates, a few states also add a reference to the federal minimum wage rate as a possible mechanism of adjustment. Thus any time the federal rate changes, the state rate may change. Currently, Alaska, Connecticut, the District of Columbia, and Massachusetts use this federal reference to supplement their primary mechanisms of adjusting state minimum wage rates. In Alaska, the state minimum wage rate is indexed to the CPI-U for Anchorage Metropolitan Statistical Area. However, Alaska state law requires that the state minimum wage must be at least $1.00 per hour higher than the federal rate. So it is possible that a federal wage increase could trigger an increase in the Alaska minimum wage, but the main mechanism is indexation to inflation. Although Connecticut does not currently include scheduled rate increases in the minimum wage, Connecticut state law requires that the state rate must exceed the federal minimum wage rate by 0.5% if the federal rate becomes greater than or equal to the state rate. The District of Columbia's minimum wage rate is the higher of the level required by the District of Columbia statute or the federal rate plus $1.00. Starting in 2021, the District of Columbia minimum wage will be indexed to inflation and the reference to the federal rate will no longer be in effect. While Massachusetts law includes scheduled rate increases in the minimum wage through 2023, the law also requires that the state rate must be at least $0.50 above federal minimum wage rate. Trends in State Minimum Wages Because federal and state minimum wages do not change in regular intervals or by regular increments, the number of states and the share of the labor force covered by higher minimum wages changes annually. In general, during periods in which the federal minimum wage remains constant, more states enact higher minimum wages and the share of the workforce for which the federal rate serves as the floor likewise decreases. When the federal rate increases, some state rates become equal to or less than the federal rate. Table 1 presents a snapshot of minimum wage rates in the 29 states and the District of Columbia with minimum wages above the federal rate from 2018 through 2024, while Figure 3 shows the changes in the coverage of the federal minimum wage. Specifically, Figure 3 plots the percentage of the civilian labor force residing in states in which the federal wage serves as the floor. If no state had a minimum wage above the federal rate, then the federal minimum wage would be the floor for states in which 100% of the labor force resides. Similarly, if every state had a minimum wage above the current rate of $7.25, then the federal rate would not be binding for the labor force. Instead the interaction of federal and state rates has led to the federal minimum wage playing a fluctuating, but generally decreasing, role in establishing a wage floor for the civilian labor force, particularly during periods in which the federal rate is not increased. Examining the specific time periods around changes in the federal minimum wage (see Figure 1 for the history of federal minimum wage rate changes), data in Figure 3 show a general trend toward a lower share of the labor force being covered by the federal minimum wage only. Federal rate increases in 2007 through 2009 mitigated this reduction, as did earlier changes in the federal rate. In the period from 1983 through 1989, the federal minimum wage remained constant at $3.35 per hour. Prior to the federal increases in 1990 and 1991, the number of states with higher minimum wages rose from 3 in 1984 to 16 in 1989 and the share of the U.S. civilian labor force in states for which the federal rate was the floor fell from 98% to 70%. Following a two-step federal increase in 1990 and 1991 from $3.35 to $4.25 per hour, the number of states with higher minimum wages fell to 8 in 1992, which meant that the federal rate was the floor for states comprising 92% of the civilian labor force. The next federal minimum wage increase occurred in two steps in 1996 and 1997, increasing from $4.25 to $5.15 per hour. Prior to that increase, in 1995, there were 10 states, representing 10% of the civilian labor force, with minimum wages above the federal rate. After the second increase in 1997, the number of states with higher minimum wages dropped to 8, but the share of the labor force in states for which the federal rate served as a floor decreased to 82%. The federal minimum wage did not increase after 1997 until 2007. During much of that period the number of states with higher minimum wages stayed somewhat steady, increasing from 8 (comprising 18% of the civilian labor force) in 1998 to 12 (comprising 21% of the civilian labor force) in 2003. However, by 2006, 22 states representing 50% of the civilian labor force had minimum wage rates above the federal rate. This increase was due in part to a few populous states, such as Florida, Michigan, and New York, adopting minimum wage rates above the federal rate in this period. Following the three-step increase in the federal minimum wage from $5.15 to the current $7.25 (2007-2009), 15 states, comprising 33% of the civilian labor force, had rates above the federal minimum wage in 2010. By 2019, this rose to 29 states and the District of Columbia, which means that the federal rate is the wage floor in states representing 39% of the civilian labor force. Appendix. Selected Characteristics of State Minimum Wage Policies For the 29 states and the District of Columbia with state minimum wage rates above the federal rate as of 2019, Table 1 and much of the text above summarizes information on those states' minimum wage policies, highlighting minimum wage rates and mechanisms used to establish and adjust wage rates. As discussed previously, for those states with current or scheduled minimum wages above the federal rate, three main mechanisms are in place to adjust future rates: (1) scheduled increases, (2) indexation to inflation, or (3) reference to the federal rate plus an add-on (i.e., a state minimum wage is a percentage or dollar amount above the federal rate). For the 21 states with minimum wage rates equal to or below the federal rate, however, there are no mechanisms in place to move rates above the federal rate. Thus, the main difference within this group of states is the relationship of the state rate, if any, to the federal rate. For those 21 states with minimum wages equal to or below the federal rate, the state rate may be set in four ways: No state minimum wage provisions: In five states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—there are no provisions for state minimum wage rates. In practice, this means that most workers in these states are covered by the FLSA minimum wage provisions since coverage is generally broad. State minimum wage provisions with no reference to the FLSA: Five states have state minimum wage rates but do not reference the FLSA. Two of these states—Georgia and Wyoming—have state rates below $7.25, while three of these states—Kansas, North Dakota, and Wisconsin—have rates equal to $7.25. However, because there is no reference to the FLSA rate or other provision for adjustment in any of these states, the state rate does not change unless the state policy is changed. State minimum wage equals the FLSA rate: Six states—Idaho, Indiana, New Hampshire, Oklahoma, Texas, and Virginia—set the state rate equal to the FLSA rate. Thus, when the FLSA rate changes, the state rates in these six states change to equal the FLSA rate. State minimum wage equals FLSA rate if FLSA is greater: In four states—Iowa, Kentucky, North Carolina, and Pennsylvania—the state rate is specified separately but includes a provision to equal the FLSA rate if the latter is above the state specified rate. Table A-1 provides detailed information about minimum wage policies in the 50 states and the District of Columbia, including those summarized in a more concise manner in Table 1 .

The Fair Labor Standards Act (FLSA), enacted in 1938, is the federal legislation that establishes the general minimum wage that must be paid to all covered workers. While the FLSA mandates broad minimum wage coverage, states have the option of establishing minimum wage rates that are different from those set in it. Under the provisions of the FLSA, an individual is generally covered by the higher of the state or federal minimum wage. As of 2019, minimum wage rates are above the federal rate of $7.25 per hour in 29 states and the District of Columbia, ranging from $0.25 to $6.75 above the federal rate. Another 14 states have minimum wage rates equal to the federal rate. The remaining 7 states have minimum wage rates below the federal rate or do not have a state minimum wage requirement. In the states with no minimum wage requirements or wages lower than the federal minimum wage, only individuals who are not covered by the FLSA are subject to those lower rates. In any given year, the exact number of states with a minimum wage rate above the federal rate may vary, depending on the interaction between the federal rate and the mechanisms in place to adjust the state minimum wage. Adjusting minimum wage rates is typically done in one of two ways: (1) legislatively scheduled rate increases that may include one or several increments; (2) a measure of inflation to index the value of the minimum wage to the general change in prices. Of the 29 states and the District of Columbia with minimum wage rates above the federal rate, 9 currently have no scheduled increases beyond 2019, 3 states have legislatively scheduled rate increases after 2019, and 17 states and the District of Columbia have scheduled increases through a combination of planned increases and current- or future-year indexation of state minimum wage rates to a measure of inflation. Because the federal and state minimum wage rates change at various times and in various increments, the share of the labor force for which the federal rate is the binding wage floor has changed over time. Since 1981, there have been three series of increases in the federal minimum wage rate—1990-1991, 1996-1997, and 2007-2009. During that same period, there have been numerous changes in state minimum wage policies. As a result of those interactions, the share of the U.S. civilian labor force living in states in which the federal minimum wage is the floor has fluctuated but generally declined, and is about 39% as of 2018.

CRS_R45428

Introduction This report provides an introduction to select issues related to sub-Saharan Africa (henceforth, "Africa," unless oth erwise noted) and U.S. policy toward the region. It includes general information concerning Africa's economic and development challenges, governance and human rights trends on the continent, and key issues related to peace and security. It also provides an overview of U.S. engagement in Africa and current U.S. policy approaches toward the region. This report is intended to serve as a primer to help inform deliberations on key enduring issues for Congress, which include the authorization and appropriation of funding for U.S. foreign aid programs and U.S. military activities in the region and oversight of U.S. programs and policies. Other CRS products address in greater depth many of the topics considered in this report; several are cited in footnotes. Africa's Economic and Development Challenges What are the recent trends in Africa's economic development? Starting in the early 2000s, many countries in Africa exhibited high rates of economic growth. Buoyed by high commodity prices and strong domestic demand, some countries experienced middle class expansion, rapid growth in access to digital communications, and progress toward some of the U.N. Millennium Development Goals (MDGs), albeit starting from a low base by global standards. Outcomes varied widely across the region, however. Resource-rich states broadly recorded higher growth but achieved smaller declines in poverty and poorer progress toward human development than their resource-poor counterparts, although poverty alleviation was generally limited across the region. Many African countries have confronted economic headwinds since 2014, as weak global commodity prices and poor agricultural conditions have hampered economic activity. Regional average gross domestic product (GDP) growth dropped from 5% in 2013 to 2.7% in 2016, before recovering slightly to 3.3% in 2017, according to the International Monetary Fund (IMF). Africa's economic outlook has since improved moderately, owing to accelerating global growth, which spurred rising demand for commodities and a resulting rise in some commodity prices. The IMF predicted in October 2018 that regional growth would gradually rise to 4.5% by 2023, while noting considerable variance between countries. Seven countries—Ethiopia, Côte d'Ivoire, Rwanda, Senegal, Djibouti, Ghana, and Benin—were projected to exceed 6% growth in 2018. Meanwhile, Nigeria, Africa's largest economy, is recovering from a 2016 recession, while South Africa entered recession in 2018. Some countries likely recorded declines in per capita income in 2018, including Equatorial Guinea, South Sudan, Angola, Burundi, South Africa, and Nigeria. Many African economies remain undiversified and rely on raw or minimally processed commodity exports, especially in the energy, mining, and agricultural sectors. Meanwhile, public debt-to-GDP levels, which fell sharply in the 2000s due to concerted debt relief efforts by international lenders, are rising in multiple countries. In early 2018, the World Bank classified 18 African countries as being "at high risk of debt distress," up from eight in 2013. The World Bank attributed the trend to rising fiscal deficits and weak exchange rates, notably in commodity exporting states. Tax collection remains weak across the region, limiting fiscal policy options. What major human development challenges does Africa face? On a per-capita basis and by other measures, Africa remains among the poorest global regions. Despite modest reductions in extreme poverty between 1990 and 2010, 41% of Africans lived under the international poverty line of $1.90 per day as of 2015 (latest data), and 21% were undernourished as of 2016. Only one sub-Saharan African country (the Seychelles) qualifies as "high income" as defined by the World Bank. Six more (Botswana, Equatorial Guinea, Gabon, Mauritius, Namibia, and South Africa) qualify as "upper-middle-income" economies, although wealth is unequally distributed and human development indicators remain poor in several of these countries. All other countries in the region are either "lower-middle-income" or "low-income." Since 2013, economic turbulence, poor agricultural conditions, and violent conflict have hindered human development progress in much of the region. Many countries lack the institutional capacity to facilitate sustained growth and human development. Corruption and insecurity further hinder progress toward socioeconomic improvements in many countries. By several measures, Africa has lagged behind other developing regions in its pursuit of human development. Its maternal mortality rates remain the highest of any region; in 2015 (latest data), Africa accounted for almost two-thirds of all global deaths due to maternal causes. As a region, Africa's child mortality and stunted growth prevalence rates are also the highest in the world, as are rates of HIV/AIDS, tuberculosis, and malaria. Lack of access to safe drinking water—which was available to only 24% of Africans in 2015—and unsafe sanitation facilities also impair health in the region: the World Health Organization (WHO) reports that as of 2016, Africa's mortality rate due to exposure to unsafe drinking water and sanitation was four times the global average. Africa also lags behind other regions with regard to primary education. Nearly one-third of African children aged six to seventeen do not attend school. African girls are disproportionately excluded, despite progress toward inclusion. Africa's labor market has struggled to absorb a growing working age population. Roughly 79% of Africans are unemployed or in vulnerable employment (such as self-employment), which are often associated with low earnings and insecurity. In 2017, 61% of African workers were in poverty (24%) or extreme poverty (37%). Africa has a disproportionately youthful population. Sixty-two percent of sub-Saharan Africans were aged 24 or younger in 2018, although youth population shares vary across the region. Population growth projections reflect these rates; by one estimate, roughly 5.3 billion people will live in Africa (including North Africa) by 2050—roughly a quarter of the world's population. While youthful populaces hold notable economic promise, realizing their potential presents governments with profound challenges related to the delivery of social services, political enfranchisement, and jobs. The risk associated with not meeting such demands is high. In many countries, youth are a key source of dissent. Governance, Democracy, and Human Rights What is the state of democracy and governance in Africa? Since the early 1990s, nearly all African countries have transitioned from military or single-party rule to at least nominally multiparty political systems in which elections are held regularly. Some (such as Senegal, Cabo Verde, Benin, and Ghana) have experienced multiple peaceful electoral transfers of power, while others (such as Rwanda, Eritrea, Equatorial Guinea, South Sudan, and Sudan) exhibit autocratic regimes that limit civil society and opposition activity. In parts of Africa, leaders have abolished, altered, or circumvented constitutional term limits to remain in power. The departures of long-serving leaders in The Gambia and Angola in 2017 may present opportunities for greater openness, as may Ethiopia's inauguration of a reformist prime minister in 2018—though entrenched elites could threaten attempts at reform in each country. Meanwhile, a military crackdown after disputed 2018 elections in Zimbabwe diminished hopes of a democratic transition after the historic 2017 ouster of longtime president Robert Mugabe. According to Freedom House's annual Freedom in the World index, which charts global trends related to political rights and civil liberties, Africa has seen subregional divergence since the mid-1990s. Broadly, while states in Southern and coastal West Africa have seen substantial improvements in democratic governance, East and Central Africa "have suffered major setbacks." Civil liberties trends generally follow this pattern. Progress in West and Southern Africa, however, remains fragile. Several Southern African states with relatively strong institutions (e.g., South Africa, Botswana, and Namibia) remain dominated by single parties born during liberation struggles against colonial or white-minority rule. In much of Africa, the development of accountable, functional democratic institutions remains limited. Even some countries that regularly hold democratic elections exhibit few effective internal checks and balances. Accountability for high-level crimes, such as the resignation of President Jacob Zuma of South Africa in early 2018 due to multiple corruption scandals, remains the exception rather than the rule in Africa. In many conflict-affected countries, state weakness and violence impede the development of institutions and the provision of even basic services. State institutions in Africa often fail to respond adequately to citizens' needs because they lack human and financial capacity or are beset by corruption and mismanagement. Countries such as Somalia, South Sudan, Sudan, Guinea-Bissau, and Equatorial Guinea rank near the bottom of Transparency International's Corruption Perceptions Index . Endemic corruption also corrodes state effectiveness in regional economic powerhouses such as Nigeria, Kenya, and Angola. Justice systems in many African countries are often weak and subject to political influence; this can weaken public trust in justice and law enforcement systems and has spurred incidents of vigilante justice in some states. Frustrations over a perceived lack of access to justice and protection also may drive Islamist extremist recruitment in some areas, such as central Mali. What are the region's major human rights challenges?18 Like governance trends, human rights conditions vary widely across Africa. Several countries have maintained generally positive human rights records in recent years but continue to face challenges such as security abuses, poor prison conditions, violence against women and children, discrimination against vulnerable groups, and human trafficking. Multiple states (such as Togo, Cameroon, the Democratic Republic of Congo [DRC], and Zimbabwe) actively restrict citizens' right to dissent through protest bans and/or violent repression. Media and civil society in Africa's most authoritarian countries (such as Sudan, Rwanda, Eritrea, and Equatorial Guinea) face state intimidation and barriers to operation. Violence against civilians, including by state security forces, is a major concern in a number of countries. Police in Ghana, Liberia, Kenya, Nigeria, Sierra Leone, Uganda, and Zambia, among others, have been accused of using excessive force and mistreating detainees, often with impunity. In Burkina Faso, Cameroon, Mali, and Nigeria, local populations have faced attacks by Islamist extremist groups as well as abuses by national militaries. Internal conflicts and/or state repression in Burundi, DRC, and South Sudan have featured high levels of violence and widespread abuses that may amount to war crimes or crimes against humanity. Peace and Security Issues What are Africa's major peace and security challenges? Armed conflict and instability continue to threaten regional security, impede development, and contribute to human suffering in parts of Africa. Beyond internal conflicts, the region faces diverse transnational threats, including from terrorist groups, illicit trafficking, wildlife crime, and maritime piracy. Key threats to African peace and security are outlined below. Internal Conflicts. Violent political crises, civil wars, and/or intercommunal violence have broken out in several African states in the past decade, reversing a previous trend toward greater stability. These crises have triggered mass population displacement and created widespread humanitarian need; multiple African countries rank among the most fragile states globally, according to the Fragile States Index (see Figure 2 ). Islamist Armed Groups . Violent Islamist extremist groups in Northwest and East Africa have spurred humanitarian crises and threaten stability in their areas of operation. Since 2013, mass casualty attacks on targets such as hotels, malls, peacekeeping facilities, government buildings, and restaurants popular with Westerners in such countries as Kenya, Mali, Burkina Faso, and Côte d'Ivoire have underscored the capacity of some groups to mount complex operations. In a 2017 study of extremist recruitment in Africa, the United Nations Development Program (UNDP) identifies several factors that may encourage radicalization, including family circumstances, religious ideology, economic pressures, and perceptions of government. Seventy-one percent of respondents named state actions, such as the killing or arrest of a relative or friend, as a key factor in their decision to join violent extremist organizations. Maritime Security. Africa's coastal waters, particularly along the Gulf of Guinea, the Gulf of Aden, and the western Indian Ocean, have been highly susceptible to illegal fishing, trafficking, and piracy. Criminal elements smuggle people, drugs, and weapons, and dump hazardous waste. Maritime commerce and offshore oil production facilities in some zones have faced high rates of piracy, theft, kidnapping for ransom, and sabotage. The Gulf of Guinea has among the highest global rates of piracy and armed robbery, which surged in the first half of 2018 as compared to past years. International antipiracy efforts have sharply reduced pirate attacks in waters off the Somali coast since 2013, but analysts warn of a continued threat of piracy in the region. Other Transnational Threats. In parts of the continent, porous borders, corruption, and weak justice and law enforcement mechanisms have allowed transnational crime networks to operate with relative impunity. U.S. policymakers have expressed concern over potential links between transnational drug traffickers and Africa-based armed groups. Illegal poaching and wildlife trafficking are also concerns for U.S. policymakers. Some African countries have made significant progress toward curbing such activities, while others have had limited success due to inadequate capacity and/or political will. International Peacekeeping. Six U.N. peacekeeping operations are underway in sub-Saharan Africa. Under the U.N. system of assessed contributions, the United States is the top source of funding for U.N. peacekeeping. The United States also provides training and equipment to peacekeeping personnel contributors through bilateral programs, funded largely via the State Department's Peacekeeping Operations (PKO) and International Narcotics Control and Law Enforcement (INCLE) accounts. The United States has also provided extensive support to the African Union Mission in Somalia (AMISOM), which was authorized by the U.N. Security Council but is not U.N.-conducted. AMISOM carries out peacekeeping activities and stabilization and counterterrorist operations, primarily against Al Shabaab, an Al Qaeda-linked group. African states play a growing role in stability operations: Ethiopia was the world's top troop contributor to U.N. peacekeeping missions in 2018, and Rwanda, Ghana, and Tanzania ranked in the top 10. What are the major armed conflicts in Africa today? West Africa In the Lake Chad Basin region, attacks by Boko Haram and its splinter faction, an Islamic State affiliate known as IS-West Africa (IS-WA, aka ISIS-WA) have caused a spiraling humanitarian crisis. Civilians in Nigeria's impoverished, predominately Muslim northeast have borne the brunt of the violence, with border areas of neighboring Cameroon, Chad, and Niger also hard-hit. By some estimates the violence has killed more than 15,500 people since 2011. As of mid-2018, 2.4 million people were internally displaced across the region, and 220,000 more were refugees. A U.S.-backed regional force, led by Nigeria, has curtailed Boko Haram's territorial control but struggled to subdue the groups. Separately, violence between herders and farmers in Nigeria has escalated in recent years, with some 2,500 killed in such clashes in 2016 alone. In Mali, Islamist armed groups have expanded their reach, leveraging the shortfalls of a 2015 peace accord between the government and northern separatists. International interventions, including a U.N. peacekeeping mission and French military operations, have failed to contain extremist violence, which has spread south and east into neighboring countries. In 2017, regional states launched a "joint force" to counter terrorism and other threats. The force has drawn pledges of significant donor support, including from the United States, but it is not yet fully operational. East Africa The war in South Sudan, which erupted in late 2013, has also been of significant concern for U.S. policymakers. Successive attempts to negotiate an end to the crisis have failed to bring sustainable peace, amid reports of widespread atrocities during the conflict. A regionally backed peace deal signed in September 2018 has quieted some areas, but violence continues in others. According to one estimate, nearly 400,000 South Sudanese (including combatants) have died as a result of the war. The conflict has displaced over 4 million people, including nearly 2.5 million refugees. Acute food insecurity threatened more than 6 million South Sudanese in late 2018—including an estimated 47,000 facing famine-like conditions. The United States is South Sudan's largest humanitarian aid donor. Conflict and insecurity persist in parts of Sudan, notably the western Darfur region and Southern Kordofan and Blue Nile states, despite an official cessation of hostilities by the government and some armed groups. Over a decade since the United States declared a genocide in Darfur, the conflict eludes resolution: the peace process remains stalled and insecurity and access restrictions continue to aggravate dire humanitarian needs. Beyond Darfur, rising political unrest, spurred by a severe economic crisis, could ignite a broader conflict. As of mid-2018, 7.1 million Sudanese were in need of humanitarian assistance. In Somalia, Al Shabaab continues to wage an asymmetric campaign against the Somali state, AMISOM, and international targets. It has killed thousands of Somali civilians since the mid-2000s and has demonstrated the capacity to conduct attacks against targets in the broader East Africa region—most notably Kenya, which has faced violence in part for its role in AMISOM. A small Islamic State faction based in northern Somalia also poses a threat. More than a decade of violence has generated a protracted humanitarian emergency: as of late 2018, 2.6 million Somalis were displaced internally, while 1.1 million were refugees. Some 4.6 million are food insecure, including 1.5 million in crisis- or emergency-level food insecurity. Central Africa Instability has endured in DRC since the mid-1990s despite extensive international stabilization efforts, contributing to a protracted humanitarian crisis and posing a threat to the broader Great Lakes region. There were 4.5 million internally displaced people (IDPs) in DRC as of early 2018, according to U.N. agencies, twice as many as in 2015. Another 800,000 Congolese are refugees; 13.1 million Congolese are estimated to need humanitarian assistance. CAR has struggled to emerge from conflict and state collapse since 2013, when rebels overthrew the government. The ensuing instability has featured widespread violence against civilians, much of it along ethnic and religious lines, and the disintegration of state institutions. Prospects for stabilization and socioeconomic development appear dim, as 2.5 million Central Africans—including nearly 1.2 million IDPs and refugees—require humanitarian aid as of late 2018. In Cameroon, protests over the perceived marginalization of English speakers in the majority Francophone country have, since 2017, escalated into a separatist insurgency amid a harsh state crackdown. Government forces and a fractious array of rebel groups have reportedly committed widespread abuses against civilians, resulting in a budding displacement crisis. In Burundi, President Pierre Nkurunziza's reelection to a third term in 2015, which many viewed as unconstitutional, sparked an ongoing violent political crisis. As of mid-2018, nearly 400,000 Burundians were refugees, while 160,000 were displaced internally. Civil society and perceived regime opponents face violence from security forces and the ruling party's youth wing. U.S. Engagement U.S.-Africa Policy under the Trump Administration In a December 2018 public address, National Security Advisor John Bolton unveiled the Trump Administration's policy approach toward Africa. He identified three core U.S. interests in Africa: expanding U.S. trade and commercial ties with African countries, "countering the threat from Radical Islamic Terrorism and violent conflict," and imposing more stringent conditions on U.S. aid and U.N. peacekeeping missions in the region. Bolton indicated that the Administration would prioritize efforts to counter "Great power competitors, namely China and Russia, [which] are rapidly expanding their financial and political influence across Africa." The new policy framework appears to respond to criticism from some observers suggesting that the United States seems less engaged on the continent than in previous years, at a time when other foreign actors, including China and Russia, are seeking to expand their roles. In his remarks, Bolton emphasized the Administration's intention to pursue such goals largely through bilateral engagement with African countries as opposed to via multilateral mechanisms. He further stressed the Administration's aim to pursue "fair and reciprocal" U.S.-African trade, including through comprehensive bilateral trade agreements, and the promotion of private sector-centered economic deregulation. He also announced that the Administration would seek to "streamline, reconfigure, or terminate" U.N. peacekeeping missions that it deems ineffective. An accompanying White House fact sheet echoed such aims while emphasizing, among other ends, the Administration's intention to promote the use of nonreciprocal U.S. trade preferences provided under the African Growth and Opportunity Act (AGOA, discussed below), respond to deadly infectious diseases, advance democracy in the region, "strengthen states where failure to do so would threaten our homeland," and take unilateral action when doing so is in the interest of U.S. national security. Goals identified in other Administration statements and policy documents include the continued normalization of U.S. relations with Sudan, conflict resolution in South Sudan, a peaceful electoral transition in DRC, and reforms in Ethiopia. Officials also have pressed African states to sever ties with North Korea, in line with multilateral sanctions regimes. The Trump Administration has proposed one new Africa-focused trade and investment initiative, "Prosper Africa," and has otherwise maintained most existing Africa-focused initiatives launched by its predecessors—while in some cases seeking to fund them at far lower levels. Among the most notable are the global President's Emergency Plan for AIDS Relief (PEPFAR) and Feed the Future (FTF) initiatives, and the Africa-specific Young African Leaders Initiative (YALI) and Power Africa. PEPFAR, a global effort to counter HIV/AIDS, was first authorized by Congress during the George W. Bush Administration. FTF, launched by the Obama Administration and broadly backed by Congress under the Global Food Security Act ( P.L. 114-195 ), seeks to improve food access and agricultural development in developing countries. The Obama Administration also launched Power Africa, which seeks to expand electricity access in Africa, and YALI, which aims to foster the professional development of emergent African business and civic leaders. While maintaining such initiatives, the Trump Administration has proposed changes to foreign assistance, including aid cuts, that could significantly affect U.S.-Africa relations. In addition to the Administration's proposals to reduce overall aid to Africa (discussed below), National Security Advisor Bolton suggested in his December 2018 remarks that the Administration would curtail aid to countries whose governments are "corrupt," or "repeatedly vote against the United States in international forums, or take action counter to U.S. interests." He also noted that the Administration would direct U.S. assistance to governments that pursue democratic, accountable, and transparent governance, as well as fiscal transparency, the rule of law, and growth-centered economic reforms. How this policy might affect aid programs implemented, for example, by nongovernmental organizations in conflict-affected or authoritarian countries remains to be seen. The Administration's immigration policies have affected U.S.-Africa policy. It has used executive orders to prohibit nationals from several African countries (Sudan, Chad, and Somalia) from entry to the United States, subject to certain exceptions, citing terrorism concerns—although as of late 2018, only Somalia remained subject to such prohibitions. Implementing a decision made by the Obama Administration, it ended "temporary protected status" (TPS) for nationals of three West African countries (Sierra Leone, Guinea, and Liberia) affected by the 2014-2016 Ebola outbreak. A subsequent decision to end TPS for nationals of Sudan was stayed by a court injunction. The Administration has restricted visas, or threatened to do so, for nationals of some African countries whose governments do not cooperate with U.S. court-ordered immigration removals. Some African leaders reacted negatively to a derogatory remark about African countries that was attributed to President Trump in early 2018. Since taking office in July 2018, Assistant Secretary of State for African Affairs Tibor Nagy has sought to challenge perceptions of U.S. indifference or disdain—as did Bolton during his December remarks. How has the Administration approached foreign power involvement in Africa? National Security Advisor Bolton has placed a high priority on countering Chinese and Russian influence in Africa. In his December remarks, Bolton accused both countries of "targeting their investments in the region to gain a competitive advantage over the United States" and of engaging in "predatory practices" on the continent, including corrupt and opaque deal-making, exploitative lending, and self-interested extractive industry activity. Such comments align with the Administration's National Security Strategy, which portrays Chinese influence as undermining African development "by corrupting elites, dominating extractive industries, and locking countries into unsustainable and opaque debts and commitments." Executive branch policy documents and statements also cite rising "great power competition" globally, including in Africa. Limited interest by many U.S. firms in African markets has restricted the scope for direct competition with Chinese or Russian actors to date, but the region's long-term potential as a growth market could make concerns over competition more significant in the future. China replaced the United States as Africa's largest trading partner in 2009. Chinese firms have constructed infrastructure projects across Africa, often using Chinese state financing tied to the substantial use of Chinese goods or services and, in some cases, Chinese access to African natural resources. These activities, which may expand under China's global "One Belt, One Road" initiative, help to fill infrastructure gaps, but their linkage to broader Chinese commercial and strategic interests raises challenging questions for the United States. In 2017, China established its first overseas military base, in Djibouti, at a maritime chokepoint on the Red Sea, a key global trade route. In a 2018 report to Congress, DOD stated that the base extends "the reach of China's armed forces, reflecting China's growing influence." The proximity of the Chinese and U.S. bases in Djibouti adds to U.S. concerns: in 2018, the Pentagon reported several instances in which Chinese lasers from the base were directed at U.S. aircraft; two U.S. pilots suffered eye injuries. Russia also has shown increasing interest in expanding its presence in Africa; by one estimate, Russia has signed at least 19 military cooperation deals with African states since 2014. Russian engagement is generally centered on arms sales, military training, intelligence exchanges, and access to minerals, notably uranium. One country that has drawn particular attention is the Central African Republic, where more than 200 Russian military and private security personnel have deployed since 2017. Russia and Sudan also have reportedly expanded cooperation. The Horn of Africa appears to be of increasing strategic importance to international actors. Several of the Arab Gulf countries, namely the United Arab Emirates (UAE), Saudi Arabia, and Qatar, as well as Turkey, Russia, and China, have increased their involvement, and some have established military bases in the region. As noted above, China maintains a military base in Djibouti; Russia, for its part, has announced plans to build a logistics center in Eritrea. Gulf actors appear to have helped facilitate reconciliation between Ethiopia and Eritrea. Whether growing foreign interests in that subregion prove to be a more stabilizing or destabilizing force remains to be seen. U.S.-Africa Trade, Investment, and Economic Cooperation What is the scope of U.S.-Africa trade and economic relations? Africa accounts for a small share of overall U.S. trade and investment activity, making up less than 1% of such U.S. global transactions in 2017. As it has over the past several years, the United States ran a goods trade deficit with the region in 2017 (totaling $10.8 billion), importing $24.9 billion and exporting $14.1 billion. U.S. exports are diverse while imports are mostly in primary products (oil alone accounts for over 40% but has declined significantly in recent years). Motor vehicles (exclusively from South Africa) and apparel are the region's only significant manufactured exports to the United States. Over half of U.S. trade with the region is with the two largest economies, Nigeria and South Africa. U.S. foreign direct investment (FDI) in the region is also concentrated in a few countries, including Mauritius ($10.4 billion in 2017), South Africa ($7.3 billion), Nigeria ($5.8 billion), Ghana ($1.7 billion), and Tanzania ($1.4). The small stock of sub-Saharan African FDI in the United States comes almost exclusively from South Africa ($4.1 billion in 2017). See Figure 3 for a snapshot of U.S.-Africa trade and investment. U.S. trade and investment policy toward Africa is focused on encouraging economic growth and development through trade within the region, with the United States, and internationally. The U.S. government also seeks to facilitate U.S. firms' access to opportunities for trade with and investment in Africa. A growing number of Members of Congress have supported expanded efforts to pursue such goals, and multiple committees have held hearings on these topics in recent years. A major increase in African trade and investment ties with other countries, particularly China, has been a growing concern of U.S. policymakers due to questions about both lost U.S. export opportunities and potential foreign policy influence associated with such ties. Total China-Africa trade surpassed U.S.-Africa trade in 2009, and in 2017, at $137 billion, was 3.5 times as large as U.S.-Africa trade. Improving economic and political climates in some African countries have led to increasing interest in the region as a destination for U.S. goods, services, and investment. Despite these trends, many U.S. businesses remain skeptical of the region's investment and trade potential and focus their investments in other regions thought to offer more opportunity and less risk. Many avoid engaging in business in Africa due to economic governance challenges in many countries, the relative difficulty of doing business, and, in some instances, political instability. What programs and legislation support expanded U.S.-Africa trade and economic relations? Given development challenges in the region, U.S. efforts to boost trade and investment ties with Africa have historically focused largely on improving local economic conditions. U.S. trade preferences, or nonreciprocal duty-free treatment designed to encourage exports to the United States, are a central component of that policy, particularly as embodied in the African Growth and Opportunity Act (AGOA) passed by Congress in 2000 (see below). The United States also provides aid for trade capacity building (TCB, see text box) in order to help countries better engage in international trade and take advantage of the benefits of U.S. trade preferences, as well as to encourage trade-led growth. TCB funds to the region totaled $826.5 million in FY2016. Three African trade hubs, established under the George W. Bush Administration, are a pillar of U.S. TCB in the region and work to increase regional export competitiveness, intraregional trade, and AGOA use. The Trump Administration has continued the Obama Administration's effort to expand these mandates by turning the hubs into two-way U.S.-Africa trade and investment centers aimed at boosting U.S. business activity in the region. U.S. efforts have increasingly focused on advancing U.S. business opportunities in the region. The Trump Administration has continued several initiatives established by the Obama Administration, including the Trade Africa Initiative and the President's Advisory Council on Africa. The private-sector-led Advisory Council provides recommendations to the Administration to help facilitate U.S. commercial engagement in the region. To bolster U.S. commercial engagement and general economic development in the region, the Overseas Private Investment Corporation (OPIC) provides loans, guarantees, and political risk insurance for U.S. private investment in developing and emerging economies in order to advance U.S. development and foreign policy goals. As of September 2018, 25% of OPIC's portfolio exposure was in Africa, the second largest share of any region. The Better Utilization of Investments Leading to Development Act (BUILD Act, P.L. 115-254 ), signed by the President on October 5, 2018, creates a new U.S. International Development Finance Corporation (IDFC) that will combine OPIC together with certain components of USAID, including its Development Credit Authority (DCA). The reorganization received strong bipartisan support in Congress and is viewed by many as a tool for countering China's "One Belt, One Road" initiative and growing economic influence in developing countries, including in Africa. The new IDFC, by statute, has expanded authority and capacity compared to current U.S. development finance activities; its $60 billion exposure cap, however, is arguably dwarfed by finance from China, which in September 2018 offered $50 billion in finance to Africa alone. Other agencies that promote U.S. exports to the region include the Export-Import Bank (Ex-Im Bank) and the U.S. Trade and Development Agency (USTDA). Ex-Im Bank provides direct loans, loan guarantees, and export credit insurance to help finance U.S. exports to support U.S. jobs and includes a statutory requirement to target African export opportunities. USTDA seeks to advance economic growth in Africa by promoting export opportunities for U.S. businesses. It facilitates access to finance through such activities as funding project preparation and feasibility studies, and by supporting other trade-expanding efforts. As a region, Africa typically accounts for the largest share of USTDA funding. Other U.S. trade and investment policy tools in place with African countries include Trade and Investment Framework Agreements (TIFAs)—intergovernmental forums for dialogue on trade and investment issues—and bilateral investment treaties, which advance reciprocal commitments to facilitate and protect foreign investment. The United States has a Free Trade Agreement (FTA) with Morocco, but there are no existing U.S. FTAs with sub-Saharan African countries. The United States also encourages and provides TCB support aimed at fostering African participation in broader multilateral efforts to reduce trade barriers. This includes support to facilitate African accession to, and implementation of, WTO and other multilateral trade agreements, particularly the WTO Trade Facilitation Agreement. What is AGOA and how does it affect U.S.-Africa trade?83 AGOA (Title I, P.L. 106-200 , as amended) is a nonreciprocal U.S. trade preference program that provides duty-free tariff treatment on certain imports from eligible sub-Saharan African countries. Congress first passed AGOA in 2000 as part of a U.S. effort to promote African development, deepen economic integration within the region, and strengthen U.S.-African trade and investment ties. The program builds on the Generalized System of Preferences (GSP), which provides similar duty-free treatment on U.S. imports from developing countries worldwide. AGOA covers a wider range of products and has typically been authorized over longer periods than GSP. The Trade Preferences Extension Act of 2015 ( P.L. 114-27 ) extended AGOA's authorization for an unprecedented 10 years, to September 2025, and amended some aspects of the program. Thirty-nine countries in sub-Saharan Africa were eligible for AGOA benefits in 2018. AGOA also requires the President, in consultation with Congress and AGOA beneficiary governments, to hold an annual U.S.-Africa Trade and Economic Cooperation Forum (typically referred to as the "AGOA Forum"). The 18 th AGOA Forum, themed "Forging New Strategies for U.S.-Africa Trade and Investment," was held in July 2018 in Washington, DC, where U.S. Trade Representative (USTR) Robert Lighthizer focused his remarks on U.S. interest in reciprocal trade agreements in the region. When it established AGOA in 2000, Congress directed the executive branch to pursue reciprocal trade agreements, where feasible, with interested countries in sub-Saharan Africa. Negotiations on a potential U.S.-Southern African Customs Union (SACU) FTA were initiated in 2003 but suspended in 2006 due to divergent views on the scope. During the 2015 AGOA reauthorization debate this issue resurfaced, in part due to concerns that AGOA countries' reciprocal trade agreements with other advanced economies, such as South Africa's agreement with the European Union (EU), place U.S. exporters at a disadvantage in certain African markets. Congress ultimately reauthorized AGOA for 10 years for all countries but again directed the executive branch to seek reciprocal agreements in Africa. It also mandated reporting requirements on a strategy and progress to that end, as well as on the status of countries' AGOA eligibility and other developments in U.S.-Africa trade relations. Total U.S. imports under AGOA were $13.5 billion in 2017, and despite the decline in recent years, energy products, mostly crude oil, remain the top import under the program (see Figure 4 ). Most analysts, however, focus on AGOA and its relation to nonenergy trade as a potential catalyst for African development. U.S. imports of such products from beneficiary countries have grown three-fold between 2001 and 2017, signaling success in achieving some of the program's goals, but a handful of countries and products continue to account for the bulk of these imports. In 2017, more than half of the $4.3 billion in nonenergy imports under AGOA were from South Africa alone, which exports the broadest range of products, including motor vehicles. Kenya, Lesotho, Mauritius, and Madagascar are the other major beneficiaries of the program and primarily export apparel products under AGOA. How does the Administration's trade policy affect U.S. trade with the region? U.S. trade policy has been a key focus of the Trump Administration, particularly with regard to the U.S. trade deficit, foreign trade barriers, and the effects of import competition on U.S. manufacturing. While U.S. trade with Africa may be of less concern to the Administration, as such trade is minimal and U.S. imports mostly consist of primary products, U.S. trade policy changes could significantly affect U.S. trade with some African countries, notably South Africa. Tariff a ctions. Increased tariffs on steel (25%) and aluminum (10%) imposed under Section 232 of the Trade Expansion Act of 1962 are of particular concern for South Africa. In 2017, South Africa was the 14 th ($279 million) and 9 th ($340 million) largest supplier of affected U.S. steel and aluminum imports, respectively. The Administration has granted product exclusions for a limited number of steel and aluminum imports from South Africa. A Section 232 investigation on U.S. motor vehicle imports remains pending, however, and could result in increased tariffs on such products, South Africa's second-largest category of exports to the United States. U.S. imports of motor vehicles from South Africa totaled $1.1 billion in 2017. Eligibility for U.S. p reference p rograms. The statutes authorizing U.S. preference programs, including AGOA, give the Administration considerable discretion in determining country eligibility. The Administration's focus on the U.S. trade deficit suggests it may look skeptically at nonreciprocal preference programs such as AGOA, which have a direct and immediate effect on U.S. imports and an indirect and longer-term effect on U.S. exports. To date, the Administration has ended AGOA eligibility for two African countries, Rwanda and Mauritania, citing (respectively) protectionism and human rights concerns. Previous Administrations similarly revoked AGOA eligibility for a variety of issues, including related to governance and labor rights. Congress may seek to consult with the Administration over its enforcement of eligibility criteria to ensure adherence to congressional objectives. Focus on reciprocal trade agreements. The Administration has made reciprocal trade negotiations a top priority of its trade policy with Africa. It is likely, however, to confront the same challenges that have dogged previous U.S. pursuit of an FTA in the region, including concern among African countries over the extensive nature of U.S. FTA commitments and concern over how an agreement with select countries may negatively affect African efforts toward regional integration. On the first issue, the Trump Administration may be more flexible in its approach than previous Administrations, as evidenced by announcements for limited-scope bilateral U.S. negotiations with the EU and Japan. The Administration's stated preference for bilateral agreements rather than agreements with larger regional blocs, however, appears at odds with the push among many African states for more regionally integrated trade policy, including via the African Continental Free Trade Area, signed by 44 African states in March. Congress is also expected to play a role in determining the scope of any new U.S. agreements in the region and would have to approve such agreements through implementing legislation. U.S. Support for Governance, Democracy, and Human Rights U.S. policymakers use several tools to promote democracy and human rights in Africa, including: Diplomacy and r eporting. U.S. diplomats often publicly criticize or condemn undemocratic actions and human rights violations in Africa, and raise concerns in private meetings with African leaders. Some Members of Congress likewise raise concerns directly with African leaders, with U.S. executive branch officials, or through legislation. The State Department publishes annual congressionally mandated reports on human rights conditions globally, and on other issues of concern, such as religious freedom and trafficking in persons. Such reports document violations and, in some cases, provide the basis for U.S. policy actions, such as restrictions on assistance. Congress also has imposed certain human rights-related legal restrictions on aid, as discussed below. The State Department and USAID also finance international and domestic election observer missions in Africa that produce reports on the relative credibility of electoral contests. Foreign a id. Multiple U.S. aid programs support African electoral institutions; train African political parties, civil society organizations, parliaments, and journalists; and assist local government officials in improving service delivery. They also provide capacity-building support and technical assistance focused on issues such as legal changes and governance reforms. Some U.S. security assistance programs are designed to improve the human rights records of African security forces and/or advance the rule of law by building the capacity of judicial and law enforcement bodies. U.S. programs also provide legal and medical aid to foreign human rights defenders, and fund ad hoc programs to address particular human rights challenges. Foreign a id r estrictions. Congress has imposed human rights-related restrictions or conditions on aid to specific African countries (e.g., Ethiopia, South Sudan, Sudan, and Zimbabwe), often through the enactment of foreign aid appropriations measures. Aid to multiple African governments may also be restricted by legislation curtailing or denying certain types of aid to countries that fail to observe human rights norms. These norms include: religious freedom, under the International Religious Freedom Act of 1998 ( P.L. 105-292 ), with Sudan and Eritrea listed in 2018 as countries of particular concern subject to potential restrictions or other sanctions; the recruitment and use of child soldiers, under the Child Soldiers Prevention Act ( P.L. 110-457 ) and related legislation, with DRC, Mali, Niger, Nigeria, Somalia, and South Sudan listed in 2018 for potential security assistance restrictions; and trafficking in persons (TIP), under the Trafficking Victims Protection Act ( P.L. 106-386 , as amended) and related legislation, with Burundi, Comoros, DRC, Equatorial Guinea, Eritrea, Gabon, Mauritania, the Republic of Congo, and South Sudan listed in 2018 for potential foreign aid restrictions. Sanctions. Executive orders issued under previous Administrations permit U.S. sanctions on designated persons implicated in human rights violations and/or undermining democratic transitions or peace processes in several countries, including Burundi, CAR, DRC, Somalia, Sudan, South Sudan, and Zimbabwe. In 2017, citing progress by the Sudanese government toward key U.S. priorities, the Trump Administration permanently lifted economic sanctions on Sudan that the Obama Administration had eased, though some restrictions remain in place. Also in 2017, the Trump Administration issued a new Executive Order pertaining to global human rights abuses and corruption, which it has invoked to impose targeted financial sanctions on a key financier of DRC president Joseph Kabila, as well as on former Gambian leader Yahya Jammeh, and associated businesses. Prosecutions. The United States has helped fund special tribunals that investigated and prosecuted human rights violations in Sierra Leone, Rwanda, and Chad. The United States is not a state party to the International Criminal Court (ICC), which in practice has prioritized human rights cases in Africa; the American Servicemembers' Protection Act of 2002 (ASPA, Title II of P.L. 107-206 ) prohibits various forms of U.S. material cooperation with the Court. The Trump Administration has pledged to end a previous policy of providing legally permissible diplomatic, informational, and logistical support to ICC prosecutions on a case-by-case basis. U.S. federal prosecutors have sought charges against some alleged perpetrators of human rights abuses in African countries, notably Rwanda and Liberia, often on the basis of violations of U.S. immigration laws. The United States has been a proponent of the establishment by the African Union of a hybrid court to investigate abuses in South Sudan. U.S. Aid to Africa What are the objectives of U.S. assistance programs in the region? The vast majority of U.S. bilateral aid for Africa aims to address health challenges, notably relating to HIV/AIDS, malaria, maternal and child health, and nutrition. U.S. aid programs also seek to encourage economic growth and development, meet urgent humanitarian needs, promote good governance, and improve security. The U.S. Agency for International Development (USAID) administers much of this aid, typically under country strategies that target specific development needs, as well as under multiple global and Africa-specific presidential development initiatives. The State Department administers various programs aimed at bolstering health, fostering the rule of law, countering trafficking, and improving military and police professionalism, often in coordination with other executive branch agencies. The Millennium Challenge Corporation (MCC) separately supports large-scale, multiyear development projects targeting impediments to economic growth (e.g., building roads or other infrastructure) in countries that meet various governance and development benchmarks. The Department of Defense (DOD) implements some State Department-funded security assistance programs and has been authorized by Congress to provide its own assistance to foreign militaries and internal security forces. DOD also carries out military-to-military cooperation in many African countries. How much foreign aid does the United States provide to Africa?101 In recent years, sub-Saharan Africa has generally received between 20% and 25% of total U.S. bilateral aid administered by the State Department and USAID. In FY2017, $7.03 billion in total bilateral State Department- and USAID-administered funds were allocated specifically to African countries, not including Food for Peace (FFP) assistance under P.L. 480 Title II. Top recipients (in descending order) were Kenya, Nigeria, South Africa, Tanzania, Mozambique, Zambia, Uganda, Ethiopia, Somalia, and DRC. Many countries receive additional globally or functionally allocated funding (such as humanitarian or counterterrorism aid), MCC assistance, and/or other ad hoc executive branch agency aid, which is not included in these totals. The United States also channels substantial aid to Africa through multilateral bodies, such as the World Bank. The Administration proposed $5.28 billion specifically for Africa in FY2019, a 25% decrease compared to FY2017 (not counting FFP), but a slight increase compared to the FY2018 request of $5.24 billion. The Administration also proposed in both years to eliminate FFP funding under P.L. 480 Title II, most of which has gone to African countries in recent years. (USAID administers the program, for which Congress provides funding via agriculture appropriations measures. ) FFP funding for Africa reached $1.32 billion in FY2017, of which $1.02 billion was for emergency humanitarian purposes and the remainder for development programs. Administration officials asserted that International Disaster Assistance (IDA) funding would provide greater flexibility and efficiency than FFP, leaving the precise impact of the proposals uncertain. Congress appropriated FY2018 foreign aid under the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), in which it largely did not adopt the Administration's 2018 proposals; final country-level FY2018 allocations are not yet available. FY2019 foreign aid appropriations measures reported during the 115 th Congress in the House ( H.R. 6385 ) and Senate ( S. 3108 ) would have largely not adopted the Administration's global proposals. What changes to U.S. aid to Africa has the Trump Administration pursued? The Trump Administration contends that its proposals to reduce and reallocate U.S. aid funding for Africa are intended to reduce spending, enhance efficiency, and prioritize U.S. national security interests. In March 2018, USAID Administrator Mark Green testified that USAID's FY2019 budget request reflected efforts to "balance fiscal needs here at home with our leadership role on the world stage." As noted above, the Trump Administration has requested annual bilateral State Department- and USAID-administered assistance funding at levels far below those requested by the Obama Administration or appropriated by Congress in recent years. Additionally, the Trump Administration's FY2018 and FY2019 budget proposals would have ended Food for Peace (FFP) aid under P.L. 480 Title II, most of which has gone to African countries in recent years. The Administration also has proposed merging the Development Assistance (DA) and Economic Support Fund (ESF) accounts—through which African countries received roughly $1.33 billion in FY2017—with several smaller accounts under a new Economic Support and Development Fund (ESDF), and requested funding far below FY2018 levels for the accounts it would replace. Congress did not adopt these proposals in enacting the FY2018 omnibus appropriations act ( P.L. 115-141 ). FY2019 Department of State, Foreign Operations, and Related Programs appropriations bills pending during the 115 th Congress in the House and the Senate ( H.R. 6385 and S. 3108 , respectively), as well as agriculture appropriations measures ( H.R. 5961 and S. 2976 ) would have likewise retained the traditional account structure and maintained global DA, ESF, and FFP funding roughly at FY2018 levels. What types of security assistance does the United States provide to Africa?108 U.S. security assistance in Africa comprises a range of activities, including programs to train and provide equipment to foreign security forces, professionalization and education initiatives, and law enforcement assistance. A large portion of such assistance seeks to help counter terrorism; the largest cumulative share in the past decade (over $2 billion) has supported African forces fighting Al Shabaab and pursuing stabilization in Somalia. The State Department and DOD each administer some types of security assistance, as authorized and appropriated by Congress. In addition to peacekeeper support, the Peacekeeping Operations (PKO) account is the primary funding vehicle for State Department-administered military aid in Africa, including for counterterrorism, maritime security, and security sector reform. It is the primary vehicle for, inter alia, U.S. support to AMISOM, bilateral military aid to DRC, and two multiyear interagency counterterrorism programs in Africa: the Trans-Sahara Counter-Terrorism Partnership (TSCTP, in North-West Africa), and the Partnership for Regional East Africa Counterterrorism (PREACT, in East Africa). H.R. 6018 , which the House passed during the 115 th Congress, would have formally established TSCTP in law while imposing new notification and reporting requirements under the program. The State Department also administers programs to improve African law enforcement entities, enhance military professionalization through training and technical instruction, bolster security forces' capacity to conduct internal, border, and maritime security operations, and support antitrafficking and counternarcotics activities. While some of these programs are funded through the PKO account, those involving internal security forces are generally funded through the International Narcotics Control and Law Enforcement (INCLE) or Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR) accounts. DOD implements some State Department-administered programs, such as the International Military Education and Training (IMET) program. DOD also funds and administers certain congressionally authorized security cooperation programs to help build the capacity of foreign partner states. These include DOD's "global train and equip" program, which Congress codified under 10 U.S.C. 333 ("Section 333") in the FY2017 National Defense Authorization Act. Section 333 consolidated and superseded various "partner capacity-building" authorities that Congress had granted to DOD on a temporary or otherwise limited basis, related to counterterrorism, counterproliferation, maritime security, counternarcotics, and countering transnational organized crime. Top African recipients of DOD global train-and-equip assistance over the past decade include Kenya, Uganda, Niger, Chad, Somalia, Mauritania, and Cameroon. DOD is also authorized to carry out certain assistance related to activities such as countering wildlife crime and cooperative threat reduction. U.S. Military Engagement in Africa How large is the U.S. military presence in Africa? An October 2017 attack that killed four U.S. Special Operations Forces (SOF) soldiers in Niger, followed by a June 2018 attack on SOF personnel in Somalia that killed one U.S. soldier and injured four others, have drawn attention to the expanding U.S. military presence in Africa. Public statements by DOD officials suggest that there are up to 7,200 DOD personnel in Africa at any one time, presumably including personnel charged with guarding U.S. diplomatic facilities. The majority are stationed in Djibouti, which hosts Camp Lemonnier—the only enduring U.S. military base in Africa. The second-largest number, as of mid-2018, were deployed in Niger, with about 730 troops engaged in a range of activities, including construction of a new airfield in the northern town of Agadez. News reports, citing DOD sources, indicate that DOD's presence in Africa includes an estimated 1,200 SOF members, including those involved in train, equip, advise, and/or accompany missions. In November 2018, DOD announced plans to reduce and "realign" the U.S. military presence in Africa in the coming years (see below). What roles does the U.S. military play in Africa? U.S. Africa Command (AFRICOM)'s 2018 Posture Statement noted five lines of effort: 1. Develop security and stability in East Africa, 2. Degrade violent extremist organizations in the Sahel and Maghreb regions and contain instability in Libya, 3. Contain Boko Haram and degrade Boko Haram and ISIS-West Africa, 4. Interdict illicit activity in the Gulf of Guinea and Central Africa, and 5. Build African peacekeeping, humanitarian assistance, and disaster response capacities. The 2018 Posture Statement also identified three enduring tasks of the U.S. military in Africa: protecting U.S. personnel and facilities, maintaining U.S. access, and building partner capacity. The last is conducted under AFRICOM's "By, With, and Through" framework, which "emphasizes U.S. military capabilities employed in a supporting role, not as principal participants in an armed conflict." This approach aligns with DOD's 2018 National Defense Strategy , which sets out the U.S. military's goals in Africa of "working by, with, and through local partners and the European Union to degrade terrorists" and helping to "build the capability required to counter violent extremism, human trafficking, trans-national criminal activity, and illegal arms trade with limited outside assistance; and limit the malign influence of non-African powers." Under this framework, the U.S. military provides training, equipment, intelligence, logistical support, and, in some cases, advisory support to various African partner forces, as well as logistical and intelligence support to French forces operating in the Sahel, as authorized by Congress. Other major DOD activities in Africa include the deployment, since 2013, of hundreds of U.S. military personnel to sites in Niger and Cameroon to conduct intelligence, surveillance, and reconnaissance (ISR) activities in the Sahel and Lake Chad Basin. Separately, in Somalia, the number of U.S. military personnel increased significantly in 2017—from roughly 200 to more than 500—as the United States deployed more special operations advisers across the country to "advise, assist, and accompany" Somali and AU counterterrorism missions. The U.S. military also has taken direct action (such as air strikes) against terrorist threats in Africa, notably in Somalia. U.S. strikes in Somalia were initiated under the George W. Bush Administration and have since expanded and accelerated. In 2015, President Obama notified Congress that military operations in Somalia were carried out not only "to counter Al Qaeda and associated elements of Al Shabaab" but also "in support of Somali forces, AMISOM forces, and U.S. forces in Somalia." In 2016, the Obama Administration publicly referred to Al Shabaab as an "associated force" of Al Qaeda, in the context of the 2001 Authorization for Use of Military Force (AUMF). President Trump has further broadened the scope of U.S. military involvement in Somalia, authorizing DOD to conduct lethal action against Al Shabaab within a geographically defined "area of active hostilities" in support of partner forces in Somalia (such as AMISOM and elements of the Somali security forces). U.S. officials have described some airstrikes in Somalia as conducted in "self-defense" of U.S., Somali, or AMISOM forces. In 2017, AFRICOM announced that it would end Operation Observant Compass (OOC), a U.S. military advisory mission deployed in 2011 to support African-led efforts to counter the Lord's Resistance Army (LRA) rebel group then active in CAR, South Sudan, and DRC. Citing progress made in degrading the LRA, AFRICOM stated that some U.S. military personnel would transition to "broader scope security and stability activities" in Central Africa. The U.S. military also conducts exercises with African militaries and shares skills related to goals such as disaster and humanitarian response and maritime security. In the Sahel, these include a large multinational annual exercise known as Flintlock. A small number of U.S. military personnel (49 as of September 2018) are deployed as staff officers in U.N. peacekeeping operations in the region. Nearly every U.S. Embassy in Africa also hosts some U.S. military personnel, for example as part of the Defense Attaché Office, Office of Security Cooperation, and/or Marine Security Detachment. What changes to U.S. military engagement has the Administration pursued? As noted above, the Administration has broadened the scope of U.S. military involvement in Somalia—to comprise lethal action against Al Shabaab within a geographically defined "area of active hostilities" in support of partner forces—and has overseen a continued increase in the tempo of U.S. air strikes there. Reportedly, the Trump Administration also initially expanded the use of U.S. military advisors in several countries in Africa, including missions in which U.S. personnel were embedded with local security forces in the context of counterterrorism operations. Military commanders, however, have more recently signaled that they are reexamining or curtailing some such missions in the aftermath of the October 2017 deadly ambush in Niger. More broadly, the Trump Administration has signaled that "inter-state strategic competition, not terrorism, is now the primary concern in U.S. national security" In this regard, DOD has announced "force optimization" plans, to be implemented over several years, entailing "a reduction of about 10 percent of the 7,200 military forces serving in Africa Command" and a reorientation of missions to emphasize great power competition. Precisely how the downsizing will be implemented, and its implications for specific missions, remain unclear. DOD's announcement suggested that counterterrorism activities would be de-emphasized overall, although operations in Somalia, Djibouti, and Libya would "largely remain the same." In January 2019, however, conflicting reports citing DOD sources suggested a drawdown of U.S. military personnel in Somalia was under consideration. The 115th Congress The 115 th Congress shaped U.S. engagement with Africa through its appropriations, authorization, and oversight roles. It enacted several pieces of legislation that have influenced U.S.-Africa policy and programs, including the African Growth and Opportunity Act and Millennium Challenge Act Modernization Act ( P.L. 115-167 ), the Zimbabwe Democracy and Economic Recovery Amendment Act of 2018 ( P.L. 115-231 ); the BUILD Act ( P.L. 115-254 ); the Global Food Security Reauthorization Act ( P.L. 115-266 ), annual National Defense Authorization Acts (most recently, P.L. 115-232 ), and foreign aid and defense appropriations measures (most recently, P.L. 115-141 ). The House and Senate also considered bills and resolutions responding to emerging developments in specific countries. As in past Congresses, legislative engagement by the 115 th Congress on Africa-related issues often centered on responding to humanitarian crises (e.g., S.Res. 114 , expressing the sense of the Senate regarding humanitarian crises in Nigeria, Somalia, South Sudan, and Yemen, and H.Res. 187 , on famine response efforts in South Sudan) and condemning human rights violations and undemocratic governance (e.g., H.Res. 128 , supporting respect for human rights and inclusive governance in Ethiopia, S.Res. 386 , urging the government of DRC to proceed with planned elections, and H.R. 6207 , which would have codified into law certain sanctions relating to DRC and require that the President submit to Congress a list of senior DRC political figures suitable for sanction). In addition, as noted above, H.R. 6018 would have established in law a long-running regional counterterrorism program in North-West Africa. Hearings in the House Foreign Affairs Committee and Senate Foreign Relations Committee attended to developments in Ethiopia, Cameroon, DRC, Zimbabwe, and South Sudan; humanitarian crises in Africa; human and civil rights issues on the continent; China's role in Africa; and U.S. military engagement in the region. Outlook Significant challenges and opportunities on the African continent, as well as shifts in U.S.-Africa policy under the Trump Administration, may continue to shape Congress' consideration of U.S. policy and programs in Africa. As it debates budgetary, policy, and oversight priorities, the Congress may consider issues such as Rapidly shifting politics and international engagement in the Horn of Africa, where a new government in Ethiopia has initiated sweeping changes at home and pursued peace with erstwhile rival Eritrea. Ongoing conflicts and humanitarian crises in South Sudan, Somalia, DRC, the Lake Chad Basin, CAR, and Mali, among others. The evolution of armed Islamist extremist threats in Africa, along with other transnational security issues, such as maritime piracy and narcotics smuggling in parts of the region. The prospects for expanding democracy in Africa, amid rising repression in Tanzania, leadership changes in Southern Africa, and enduring authoritarianism in countries such as Sudan, Rwanda, Eritrea, and Equatorial Guinea. Forthcoming presidential elections in several countries, including Nigeria (February 2019), Senegal (February 2019), Mauritania, Malawi, and South Africa (all in May 2019), and Mozambique (October 2019). U.S.-Africa trade and investment issues, including the effects of the Administration's tariff actions, possible reciprocal trade agreement negotiations, and the implementation of the BUILD Act as it affects the region. The scope, status, and operational goals of U.S. military deployments in Africa, following DOD's announcement of a proposed realignment that would reduce U.S. troop levels in the region. The scale and programmatic focus of U.S. foreign assistance to African countries in the context of the Trump Administration's forthcoming FY2020 aid budget proposal and FY2019 country allocations decisions. The involvement in Africa of foreign powers such as China, Russia, and Gulf states, and the implications for U.S. interests and policy. Congress may draw on a number of tools to shape U.S.-Africa policy, including foreign aid and defense authorization and appropriation legislation, other legislation, direct engagement with the Administration and African leaders, and oversight activities. While the 115 th Congress did not adopt many of the Administration's proposals regarding aid to Africa, it maintained a focus on areas of enduring congressional interest, including U.S. trade and investment, humanitarian crisis and response, human rights and democracy, and U.S. military activities. Congress may continue to consider similar issues as it weighs the appropriate balance between U.S. diplomacy, development and economic engagement, and defense priorities in Africa and responds to emerging developments in the region.

Congress may review existing U.S. policies and programs in sub-Saharan Africa (henceforth, "Africa") as it establishes its budgetary and policy priorities and responds to developments in the region. Key enduring issues for Congress include the authorization and appropriation of funding for U.S. foreign aid programs and U.S. military activities in the region, and oversight of U.S. programs and policies. Economic and Development Issues. Much of Africa experienced rapid economic growth starting in the early 2000s, reducing poverty and expanding the middle class in some countries. Since 2014, however, growth has slowed in many countries—and almost all continue to face high poverty rates and long-standing development challenges such as food insecurity and malnutrition, ineffective health and education institutions, and infrastructure deficiencies. Other factors hindering socioeconomic development in Africa include low domestic buying power, a shortage of skilled labor, limited access to capital and other inputs, poor governance, and political instability and insecurity. Governance, Democracy, and Human Rights. Since the early 1990s, nearly all African countries have transitioned from military or single-party rule to at least nominally multiparty political systems in which elections are held regularly. Nonetheless, the development of accountable, functional democratic institutions remains limited in many countries. Corruption and mismanagement are pervasive across much of the region, and state services are limited. Authoritarian governments and armed belligerents in Africa commit serious human rights violations. Peace and Security. Civil wars and crises have broken out in multiple African countries since 2010, reversing the previous decade's trend of stabilization. Newer crises have unfolded in the Lake Chad Basin, the Central African Republic (CAR), Mali, Burkina Faso, Cameroon, Burundi, and South Sudan, while long-running conflicts continue to affect the Democratic Republic of Congo (DRC), Sudan, and Somalia. Porous borders, weak institutions, and corruption have created permissive environments for transnational threats such as terrorism, trafficking, and maritime piracy. Two conflict-affected African countries, South Sudan and Nigeria, face a credible risk of famine in early 2019; in both, insecurity has hindered aid access to affected zones. U.S.-Africa Policy under the Trump Administration. The Trump Administration has maintained several Africa-focused initiatives launched by its predecessors, but it also has proposed changes to U.S. trade policy and foreign assistance, including aid cuts, that could significantly affect U.S. engagement with Africa if implemented. The Administration's policy approach toward Africa, unveiled in late 2018, identifies three broad U.S. interests in the region: expanding U.S. trade and commercial ties with African countries, countering Islamist extremism and other forms of violent conflict, and imposing more stringent conditions on U.S. aid and U.N. peacekeeping missions in the region. Administration officials also have placed a high priority on countering Chinese and Russian influence in Africa, with the Department of Defense announcing in late 2018 that it would reorient its personnel and footprint in parts of Africa to align with that objective in the coming years. Country-specific goals identified in other Trump Administration statements and policy documents include the continued normalization of U.S. relations with Sudan, conflict resolution in South Sudan, an electoral transition in DRC, and democratic reforms in Ethiopia. The Administration also has signaled greater focus on reciprocity in trade relations, imposed tariffs affecting trade with some African countries, pressed African states to join efforts to put pressure on North Korea, and enacted immigration policies that have affected U.S.-Africa policy, among other initiatives.

GAO_GAO-19-75

Background The federal government has recognized 573 Indian tribes as distinct, independent political communities with certain powers of sovereignty and self-government, including some power to manage the use of their territory and resources and control economic activity within their jurisdiction. Some tribal lands include reservations—land set aside by treaty or other agreement with the United States, executive order, or federal statute or administrative action for the residence or use of an Indian tribe. Some tribal lands include parcels with different ownership; for example, parcels may be held in trust by the federal government for the benefit of a tribe or an individual tribal citizen. Trust and restricted lands can affect a tribe’s ability to use their land as collateral to obtain a loan. Tribal lands vary in size, demographics, and location. For example, the smallest in size are less than one square mile, and the largest, the Navajo Nation, is more than 24,000 square miles (the size of West Virginia). Tribal land locations can range from extremely remote, rural locations to urban areas. Indian tribes may form governments and subsidiaries to help manage tribal affairs including schools, housing, health, and economic enterprises. Internet access in the United States is generally privately financed. Broadband providers build infrastructure and sell broadband services to individual consumers. We previously reported that tribal lands can have conditions that increase the cost of broadband deployment, such as remote areas with challenging terrain, which increases construction costs, as well as relatively low population densities and incomes that make it difficult to recoup deployment costs. These conditions may make it less likely that a service provider will build or maintain a network. Some tribal governments provide Internet access to their members, through an information-technology or utility department, and others have created their own telecommunications companies to provide services. FCC has reported that in many instances, tribal governments must build and pay for their own communications infrastructure to ensure Internet access will be “delivered across Indian Country.” The term “broadband” commonly refers to Internet access that is high speed and provides an “always-on” connection, so users do not have to reestablish a connection each time they access the Internet. Telecommunications providers use a range of technologies to provide broadband service, including cable, fiber, satellite, and wireless. Wireless broadband connects users to the Internet using spectrum to transmit data between the customer’s location and the service provider’s facility, and can be transmitted using fixed wireless and mobile technologies, as shown in figure 1. Fixed wireless broadband technologies establish an Internet connection between fixed points, such as from a radio or antenna that may be mounted on a tower, to a stationary wireless device located at a home. This technology generally requires a direct line of sight, and can be delivered two ways: (1) as a point-to-point transmission—between two fixed points—or (2) as a point-to-multipoint transmission—from one point to multiple users. Mobile wireless broadband technologies also establish a connection to the Internet that requires the installation of antennas, but this technology provides connectivity to customers wherever they are covered by service, including while on the move, such as with a cell phone. Spectrum is the resource that makes wireless broadband connections possible. Spectrum frequency bands each have different characteristics that result in different levels of ability to cover distances, penetrate physical objects, and carry large amounts of information. For example, lower frequency bands are able to transmit signals that travel greater distances, thus requiring the use of fewer antennas, and are able to penetrate solid objects. Higher frequency bands are able to transmit more data, but are more easily obstructed. FCC administers spectrum for nonfederal users—such as state, local government, and commercial entities—through a system of frequency allocation and assignment. Allocation involves segmenting the radio spectrum into bands of frequencies designated for use by particular types of radio services or classes of users, such as commercial and nonfederal broadband services. Examples of some of the frequency bands that can be used by commercial and nonfederal entities for broadband services are shown in figure 2. Appendix II presents a full list of the auctioned licensed frequency bands that FCC told us could be used to provide broadband services. The frequency bands that can be used for broadband services are either licensed or unlicensed. For licensed spectrum, FCC can assign licenses through auctions, in which prospective users bid for the exclusive rights to transmit on a specific frequency band within geographic areas, ensuring that interference does not occur. License holders may sell or lease their license, in whole or in part, to another provider, a process that is known as a secondary market transaction, with FCC’s approval. FCC requires license holders to meet specified buildout requirements within a specified amount of time or face penalties, typically termination of all or part of the license. These buildout requirements are designed to ensure that licensees put spectrum to use within a specific period rather than let it sit idle and vary based on the type of license. FCC has also assigned licenses administratively in two frequency bands that can be used for broadband services. Specifically, prior to 1996 FCC assigned geographic licenses for exclusive use in the Educational Broadband Service (2496-2690 megahertz (MHz)), and from 2005 to 2015, FCC assigned non-exclusive nationwide licenses in the 3650-3700 MHz band, where use of the band may be shared by other license holders. FCC also authorizes the use of some spectrum for broadband services without a license on a non-exclusive basis. With unlicensed spectrum, an unlimited number of users can share frequencies using wireless equipment certified by FCC, such as wireless microphones, baby monitors, and garage door openers. In contrast to users of licensed spectrum, unlicensed users have no regulatory protection from interference by other licensed or unlicensed users in the bands. If multiple users are operating simultaneously on the same frequency band, the transmissions may be susceptible to interference, which reduces the quality of service. FCC’s rulemaking process includes multiple steps as outlined by law with opportunities for the public to participate during each step. In general, FCC initiates a rulemaking in response to statutes, petitions for rulemaking, or its own initiative, and releases a Notice of Proposed Rulemaking (NPRM) to propose new rules or to change existing rules. Any interested person may submit comments as part of the public record through electronic filings and meetings with FCC officials. Following internal analysis of the public record, FCC staff may propose actions for consideration for a vote, such as adopting final rules, amending existing rules, or stating that there will be no changes. All of FCC’s sitting commissioners vote on these items. The American Recovery and Reinvestment Act of 2009 directed FCC to develop a plan to ensure every American had access to high-speed Internet. In March 2010, an FCC task force issued the National Broadband Plan that included a centralized vision for achieving affordability and maximizing use of high-speed Internet. The plan made many recommendations to FCC, including that FCC should take into account the unique spectrum needs of tribal communities when implementing spectrum policies and evaluate its policies and rules to address obstacles to spectrum access by tribal communities. With regard to tribal lands, the plan recommended that FCC increase its commitment to government-to-government consultation with tribal leaders and consider increasing tribal representation in telecommunications planning. FCC established the Office of Native Affairs and Policy (ONAP) in July 2010 to promote the deployment and adoption of communication services and technologies to all native communities, by, among other things, ensuring consultation with tribal governments pursuant to FCC policy. Selected Tribal Entities Reported Barriers to Obtaining Licensed Spectrum Few Tribal Entities Have Obtained Spectrum Licenses, Although Representatives from Selected Tribal Entities Emphasized the Importance of Licensed Spectrum Through our analysis of FCC license data as of September 2018, we identified 18 tribal entities that held active spectrum licenses in bands that can be used to provide broadband services. Because tribal entities may hold licenses using entity names that do not include the search terms we identified in our review of the list of tribes in the Federal Register, there may be additional tribal entities that we have not identified. We found that most of the tribal entities obtained the licenses through FCC administrative assignment rather than through an FCC spectrum auction or secondary market transaction. Thirteen of the tribal entities we identified in FCC’s license data held administratively assigned licenses, and these licenses are subject to certain limitations and were only available to applicants for limited time periods. Eleven of these administratively assigned licenses are non- exclusive nationwide licenses in the 3.65 GHz frequency band (3550- 3700 MHz) and were available between 2005 and 2015, when FCC issued a new rule for this band and stopped accepting new applications for these licenses. Two of the tribal entities we identified held administratively assigned Educational Broadband Service licenses in the 2.5 GHz frequency band (2496-2690 MHz). These licenses allow for the transmission of educational materials by accredited educational institutions and government organizations, including tribes, engaged in formal education and require that licensees use the spectrum for educational purposes for a certain amount of time each week. Both of these tribal entities obtained these licenses after the last filing window closed in 1996 through a waiver and special temporary authority permit. Four tribal entities we identified in FCC’s license data held a total of 13 active licenses obtained through secondary market transactions, such as leases and sales of portions of partitioned licenses. Of these 13 secondary market transactions, 2 involved nationwide providers. Two of the tribal entities we identified held active licenses in bands available for broadband deployment that they obtained through an FCC spectrum auction. One of these tribal entities won with a winning bid of over $800,000 in a 2015 auction, and the other won two licenses with winning bids of under $50,000 in a 2002 auction. This second tribal entity also qualified for but did not win a 2003 auction. In addition to these two tribal entities, we identified the following four tribal entities that had applied to participate in auctions with varying results but did not hold active licenses in frequency bands available for broadband deployment as of September 2018: Two tribal entities each won a single spectrum license. The first won its license, which has since expired, in 2000, and the second won its license, which it has since been transferred to a nationwide provider through a secondary market transaction, in 2003. The first tribal entity also applied but did not qualify to participate in a 2001 auction. One tribal entity qualified to participate but did not win in a 2003 auction, and another tribal entity applied but did not qualify to participate in a 2008 auction. In addition, representatives from 2 of the 16 tribal entities we interviewed that were using wireless technologies told us that they use licensed spectrum that is owned by a private provider through a partnership relationship. We have previously reported that some tribes have formed partnership arrangements with other entities to increase broadband access on tribal lands. Most (14 of 16) of the tribal entities we contacted that were using wireless technologies told us that they are accessing various unlicensed bands, such as the 2.4 GHz and 5 GHz bands, to provide service. Representatives from eight of these tribal entities reported using only unlicensed spectrum for their fixed wireless networks. Representatives from 13 tribal entities told us that unlicensed spectrum had the advantage of being free, and representatives from one tribal entity told us that the equipment needed to access these spectrum bands is less expensive than equipment for accessing other spectrum bands. Representatives from some tribal entities reported success in using unlicensed spectrum in certain circumstances. For example, one tribal entity reported using unlicensed spectrum for homes in remote areas where the only potential signal degradation is from trees as well as to set up local hot spots that can serve 5 to 10 users at a time. Another tribal entity reported using primarily unlicensed spectrum to carry signals to end users together with non-exclusive licensed spectrum (3.65 GHz band) for locations where there is congestion in the unlicensed bands. However, representatives from the tribal entities we contacted that were using wireless technologies emphasized the advantages of licensed spectrum and discussed their experiences with the limitations of unlicensed spectrum. As described earlier, exclusive-use spectrum licenses protect license holders from interference from other users, whereas unlicensed spectrum provides no protection against interference. Representatives from 13 of 16 tribal entities identified the fact that unlicensed spectrum is available at no cost as an advantage of this type of spectrum. However, representatives from 15 of the 16 tribal entities identified limitations associated with unlicensed spectrum, such as interference, as described in table 1. Tribal associations, an academic group, a tribal consortium, and FCC have all highlighted the importance of exclusive-use licensed spectrum for tribal entities. Specifically, both a tribal association and an academic group we contacted discussed interference and other challenges of unlicensed spectrum. Representatives from one tribal association pointed out that unlicensed spectrum might not be available in the future if it is allocated for other purposes. Representatives from a tribal consortium we contacted told us that they are already using all of the available unlicensed spectrum for providing Internet access and that they cannot expand service without encountering interference and capacity limitations. Lastly, ONAP reported in 2012 that unlicensed spectrum is not an option across all tribal lands and that tribal access to robust licensed spectrum is a critical need. Representatives from the stakeholders we interviewed told us that there are also non-technological benefits for tribal entities to obtain greater access to licensed spectrum. For example: Enhanced ability to deliver additional Internet service. Representatives from one of the tribal associations, an academic group, and six of the tribal entities said that increased access to licensed spectrum would enable them to deliver their own Internet services and bridge service gaps, thus improving Internet access to their members. For example, representatives from three of these tribal entities said that such access would enable them to deploy in areas where providers that currently hold licenses were not willing to deliver services. In addition, representatives from another tribal entity said that having access to licensed spectrum is one factor that would enable the tribe to establish its own telecommunications company. Ability to sell or lease spectrum for profit. Representatives from one tribal association, an academic group, and two tribal entities told us that holding spectrum licenses would enable tribal governments to sell or lease their licenses. For example, we heard from one of these tribal entities that it was able to sell portions of its license that did not cover tribal lands and to use the profits from the sale to invest in its own network infrastructure. Opportunities for federal funding. Access to licensed spectrum may also provide tribal entities with more opportunity to obtain federal funding, specifically through two Universal Service Fund programs— the Mobility Fund and the Tribal Mobility Fund. These programs provide funding to broadband service providers to expand service in areas where it is not available, including tribal lands. However, service providers must hold, lease, or show they have access to licensed spectrum to participate in these programs, among other requirements. For example, the National Congress of American Indians stated that two tribal entities submitted applications to participate in the Mobility Fund program but were not eligible to participate in part because they did not hold a spectrum license. Moreover, representatives from two of the tribal entities we interviewed told us that they considered applying for one of these programs but realized they were ineligible because they did not have access to licensed spectrum. Furthermore, representatives from one of the tribal associations, an academic group, and seven of the tribal entities told us that having access to licensed spectrum would enable tribes to exercise their rights to sovereignty and self-determination. Representatives from three of the tribal entities we contacted said that they view spectrum as a natural resource that should be managed by the tribe. FCC officials, however, told us that spectrum is not considered a reserved right under treaties with Indian tribes, as it is not explicitly stated. In addition, representatives from four of the tribal entities told us that having access to licensed spectrum would ensure that spectrum is being used in a way that aligns with tribal goals and community needs, further supporting their rights to self-determination. Representatives from Selected Tribal Entities Reported Cost and Other Barriers to Accessing Licensed Spectrum Representatives from the tribal entities we contacted identified several barriers to accessing licensed spectrum through spectrum auctions and secondary market transactions. Regarding spectrum auctions, representatives from tribal entities that provide wireless Internet service most frequently (13 of 16) indicated that spectrum licenses are too expensive for tribal entities. For example, over 60 percent (983 of 1,611) of the winning bids from a 2015 spectrum auction, including bids for spectrum over non-tribal lands, were over $1 million. Representatives from one tribal entity explained that auction licenses are often too expensive for tribal entities because these licenses cover large geographic areas that may include non-tribal urban areas as well as rural tribal areas. Moreover, representatives from eight tribal entities stated that they are unable to obtain financing to participate in auctions because tribal governments cannot use tribal lands as collateral to obtain loans. In addition, representatives from eight tribal entities mentioned that participating in spectrum auctions requires auction-specific expertise that tribal entities may not have. Tribal entities also face barriers obtaining spectrum through secondary market transactions. Most of the spectrum allocated for commercial use has already been assigned through spectrum auctions and other mechanisms to private providers, including licensees that may not be providing service on tribal lands. In a single geographic area, several frequency bands could be used to deploy broadband services, as shown in figure 2, and licenses for these various frequency bands may be held by different providers. There may be tribal areas where providers hold licenses for bands but are not using the spectrum to provide Internet access. In other tribal areas, services may be offered using one or two of the spectrum licenses with the other licenses in the area remaining fallow and inaccessible to tribal entities. All three of the tribal associations we contacted confirmed that there are unused spectrum licenses over tribal lands, and representatives from a nationwide provider indicated that they only deploy services if there is a business case to support doing so. Accordingly, the secondary market is one of few avenues available to tribal entities that would like to access licensed spectrum. However, representatives from tribal entities we contacted identified the following challenges related to participating in the secondary market: Lack of willing sellers. Representatives from eight of the tribal entities, one of the tribal representative groups, and an industry association we contacted indicated that spectrum license holders are often unwilling to participate in secondary market transactions, citing a variety of reasons. For example, representatives from one tribal entity stated that large carriers have no business incentive to negotiate secondary market agreements with tribal entities and that tribal entities do not have the resources to make such transactions sufficiently lucrative for license holders. Representatives from another tribal entity stated that license holders may lack knowledge about the areas covered by their licenses, including tribal areas, and therefore may be unwilling to consider secondary market transactions. Representatives from a tribal representative group told us that license holders may be unwilling to consider secondary market transactions with tribal entities because spectrum is a valuable resource that may become even more valuable over time, and a representative from an industry association indicated that transaction costs such as legal fees outweigh any potential income from such transactions. None of the private providers we contacted reported entering into a secondary market transaction with tribal entities, but one of these providers stated that it had never been approached by a tribal entity interested in a secondary market transaction and was unaware of challenges that are unique to tribal entities. License holders unknown. Representatives from eight of the tribal entities we contacted stated that it is difficult to determine who holds spectrum licenses. For example, two tribal entities had to hire consultants to identify who held licenses for spectrum over the tribes’ lands, and another tribal entity relied on the expertise of its non-tribal partner to identify the license holders. Unaware of secondary market transactions. Representatives from six of the tribal entities we contacted were unaware of the possibility of accessing licensed spectrum through a secondary market transaction prior to our contacting them. Accordingly, secondary market transactions involving tribal entities are rare. As discussed above, our analysis of FCC license data identified four tribal entities that have successfully accessed licensed spectrum in this manner. Regarding one of these tribal entities’ experiences with the secondary market, the tribal representative we contacted stated that an Indian-owned telecommunications consulting company was pivotal in identifying the license holder and facilitating the transaction and that the transaction would not have happened without the consulting company. Representatives from this company told us that they conducted an analysis to identify unused spectrum licenses over the tribe’s land. The company identified three providers holding such licenses, but only one of those providers was willing to participate in a secondary market transaction. Representatives from another of the tribal entities that accessed licensed spectrum through the secondary market told us that they relied on the expertise of their non-tribal partner to facilitate these transactions. FCC Has Some Efforts to Enhance Tribal Access to Spectrum, but FCC Does Not Collect or Communicate Key Information to Tribal Entities FCC Has Taken Steps to Promote and Support Tribal Entities’ Ability to Obtain Spectrum, However These Efforts Are Not Likely to Address Tribal Spectrum Needs We found that FCC has taken the following actions to increase tribal access to and use of spectrum: (1) initiated proposed rulemakings on promoting tribal access to spectrum, (2) adopted rules to increase spectrum available for broadband use, and (3) conducted outreach and training for tribal entities on spectrum-related issues. Initiated Proposed Rulemakings on Promoting Tribal Access to Spectrum FCC issued two NPRMs—one in March 2011 and one in May 2018—that included policy options intended to enhance tribal access to spectrum. At the time of our report, FCC had not adopted new rules or taken further action on the 2011 rulemaking, and FCC had not taken further actions since the comments period ended on September 7, 2018, on the May 2018 rulemaking. According to FCC officials, the 2011 NPRM addressed several recommendations made in the National Broadband Plan to promote the greater use of spectrum over tribal lands. Among other things, the 2011 NPRM sought comments on three proposals to create new spectrum access opportunities for tribal entities (see fig. 3). FCC officials told us that they have reviewed public comments to the proposed rulemaking, but have no current plans to take further actions. We reviewed the public comments FCC received that pertained to the three proposals, which included comments from tribal associations, tribal governments, rural and nationwide industry associations, and tribal and private providers. Based on our analysis of the comments that included positions on the proposal for a tribal licensing priority, eight stakeholders—including industry associations, private providers, and a tribal government—were supportive of this proposal. However, we found that stakeholder views differed on implementing good faith negotiations and on the build-or-divest processes. In general, the tribal stakeholders indicated that they were supportive of these proposals, while the industry associations and private providers were not. In addition to reviewing the public comments, we asked representatives from the tribal and industry associations and private providers that we interviewed about their views of these proposals. Representatives from the three tribal associations and two rural industry associations were generally supportive of all three of the proposals, while representatives from one of the private providers that we interviewed told us they did not support any of the three proposals, because, for example, they said that there are more effective ways to increase broadband service over tribal lands. Representatives from another private provider said that they supported the tribal priority process but did not indicate their views on the other two proposals. Representatives from six tribal entities and a representative from a tribal consortium told us that these types of proposals would help them obtain spectrum. In May 2018, FCC issued an NPRM that sought comments on establishing a tribal priority window for tribal nations located in rural areas as part of a process to re-license the Educational Broadband Service spectrum band. As described above, FCC originally allocated this band to qualifying educational institutions and government organizations for the transmission of educational materials. While FCC permitted licensees to lease their excess capacity to commercial providers, FCC reported that significant portions of this band were not being used, primarily in rural areas. In an effort to make additional spectrum available for broadband use, FCC issued this NPRM seeking comments on options to promote the use of this spectrum over tribal lands. One of the options included implementing a local priority filing window so that tribal entities could get access to unassigned spectrum prior to an FCC auction. In a June 2018 order, FCC extended the comment deadline for the NPRM to August 8, 2018, partly in response to a request for a deadline extension. As a result, FCC also extended the deadline to respond to those comments to September 7, 2018. Because FCC was in the process of responding to these comments at the time of our review, we did not analyze these comments. Adopted Rules to Allocate Additional Spectrum for Broadband Use FCC has made additional unlicensed and licensed spectrum available for broadband use and has implemented rules that according to FCC, may make it easier for rural providers to obtain licenses. However, these efforts were not targeted to tribal entities, and according to ONAP’s 2012 report, allocating additional unlicensed spectrum may not be a technically feasible solution for all tribal entities, and such spectrum may not have the necessary capacity to handle an increase in users. In addition, representatives from the tribal associations and entities we contacted told us that there are limitations to the extent that these efforts can address the spectrum needs of tribal entities. In particular, they discussed the effect of FCC’s changes to the rules on the use of TV white space spectrum and the Citizens Broadband Radio Service spectrum: TV white space spectrum: In 2010, FCC made additional unlicensed spectrum available for broadband use by allowing providers to operate in the TV bands at locations where those frequencies were not in use, known as TV white space, but none of the tribal entities we interviewed was using this spectrum. A representative from a tribal consortium said that it used TV white space spectrum, and representatives from three of the tribal entities said that they were considering using it in the future because TV white space spectrum can better pass through some environmental barriers, such as trees, reaching more remote customers. However, representatives from five tribal entities, one tribal consortium, one academic group, and three companies that we interviewed told us about several limitations to the use of TV white space spectrum. For example: limited bandwidth capacity, which causes lower speeds, high latency, and limits the number of households that can be served; equipment needed to access TV whitespace spectrum is expensive and less available; the spectrum may not always be available; and similar to other unlicensed frequency bands, as described above, there is potential for interference and difficulty to pass through extreme terrain. Citizens Broadband Radio Service (CBRS) Spectrum: In 2015, FCC made additional licensed spectrum available for broadband use when it issued a new rule for the 3.65 GHz frequency band (3550-3700 MHz). However the tribal entities who held licenses in this band indicated there are limitations to their ability to use this band and their future use of this spectrum remains unknown. As described earlier, FCC had allocated non-exclusive nationwide licenses in this band. In the 2015 rule, FCC created the CBRS, increased the amount of spectrum allocated for commercial broadband use, and implemented a new licensing scheme. This three-tier priority licensing scheme for spectrum sharing included auctioning exclusive-use geographic licenses and allowing non-exclusive use of the band where a license holder is not operating, an approach that is intended to provide a low- cost entry point for users, but will have no protections from interference. Representatives from four of the five tribal entities that we contacted that held licenses in this band said that there were technical advantages to using it, such as the ability for a signal to pass through dense forests. However, representatives from two tribal entities said that the high cost of the equipment needed to access this spectrum prevented them from either using the frequency band extensively or at all. In addition, representatives from two tribal entities said that they were not sure about their ability to access this band in the future given the changes made in FCC’s 2015 rulemaking. FCC’s 2015 rule also created small-sized and shorter-termed licenses, which FCC stated would decrease the costs of obtaining a license and help rural providers access it. However, FCC issued an NPRM in 2017 that sought comments on suggested changes to CBRS, including increasing the geographic area covered by licenses and lengthening the license term. In October 2018, FCC adopted rules that, among other changes, increased the license area from census tracks to counties and extended the license term from 3 to 10 years, which FCC officials told us were modest changes made to accomplish FCC’s goals of creating incentives for investment, including in urban and rural areas, encouraging efficient spectrum use, and promoting robust network deployments. Conducted Outreach and Training for Tribal Entities on Spectrum-Related Issues FCC’s ONAP conducts training, consultation, and outreach to tribal entities on spectrum-related issues. For example, ONAP officials told us that they have conducted 21 training and consultation workshops for tribal entities on broadband and telecom since 2012, where spectrum has been discussed in general in the introduction and has been addressed specifically in separate sessions in some of the workshops. These officials also told us that they communicate with tribal entities prior to when FCC holds auctions or when implementing regulatory actions or policies that will affect tribal governments and spectrum over their lands. While representatives from 9 of the 16 tribal entities using wireless technologies told us that they had received some outreach on spectrum- related issues from FCC, representatives from 2 of these entities said that they had not. In addition, ONAP issued a report in 2012 to provide FCC with a review of its work with tribal governments and organizations, including information on its tribal broadband efforts, priorities, and tribal consultations. Among other things, the report included case-study information on tribal entities’ efforts to access spectrum. Although the report stated that this would be the first of such annual reporting, this is the only report that ONAP has issued on tribal issues. According to ONAP officials, ONAP has not published subsequent reports because it provides FCC with information on its work with tribal governments and organizations, including spectrum-related matters, through more frequent informal briefings and regular updates. FCC Does Not Collect Key Information Related to Spectrum over Tribal Lands or Communicate It to Tribal Entities FCC has not consistently collected information related to tribal access to spectrum. For example, FCC does not collect data on whether holders of spectrum licenses or auction applicants are tribal entities even though it collects self-reported data on licensee type, such as corporation and government entity. To obtain this information, FCC could include an option for the licensee type, along with the other options, in applications for future licenses and auctions that allows an applicant to identify as a tribal government or tribally owned entity. FCC officials told us that they use information on licensee type to determine eligibility for a license. Because eligibility is not based on whether the applicant is a tribal entity, FCC officials said this information is not needed. However, without this information, FCC does not have a comprehensive understanding of the extent that tribal entities are attempting to obtain or access licensed spectrum or have been successful at obtaining and accessing it. Additionally, FCC does not analyze information on unused licensed spectrum that exists over tribal lands, even though FCC has information—broadband availability data from providers and information on geographic areas covered by spectrum licenses—that could be used for such analysis. As we described earlier, representatives from all three of the tribal associations we contacted reported that there are unused spectrum licenses over tribal lands that could present opportunities through the secondary market for tribal entities to obtain spectrum. When we asked FCC officials why they do not analyze the extent that unused spectrum licenses exists over tribal lands, they told us that the spectrum data noted above is not specific enough to allow for a license by license analysis of unused spectrum. For example, they said that broadband availability data from providers is aggregated across wide spectrum bands to minimize reporting burdens on the wireless industry, and the data are not sufficiently detailed to identify which spectrum blocks and licenses are being used in particular areas. However, FCC could use this data to conduct, at a minimum, high-level analysis that would result in useful information on the extent to which unused spectrum exists over tribal lands. In addition, FCC officials told us that they evaluate the effectiveness of FCC’s secondary markets policies, which FCC views as a mechanism to promote the increased use of unused spectrum licenses, but this approach does not include an analysis of unused spectrum licenses as part of these efforts. As a result, FCC’s evaluations of the secondary market may not accurately reflect how these policies affect tribal access to spectrum. Because the secondary market is one of few ways for tribal entities to access licensed spectrum, an analysis of unused licensed spectrum that exists over tribal lands would enable FCC to better promote a robust secondary market that provides additional opportunities for tribes to access spectrum. FCC’s 2010 National Broadband Plan stated that ongoing measurement of spectrum utilization should be developed to better understand how spectrum resources are being used because some studies indicated that spectrum goes unused in many places much of the time. The plan also stated that any spectrum utilization studies that FCC conducts should identify tribal lands as distinct entities. In FCC’s February 2018 strategic plan, FCC stated that it will implement ongoing initiatives that will assist in spectrum policy planning and decision making, promote a robust secondary market in spectrum, and improve communications services in all areas of the United States, including tribal areas. Additionally, Standards for Internal Control in the Federal Government state that agencies should use quality information, including information that is complete, to inform the decision-making processes. FCC also does not make information on spectrum-license holders available in an easy or accessible manner; such information could be beneficial to the tribes in their efforts to obtain spectrum in the secondary market. As described earlier, the secondary market is a significant mechanism for tribal entities to obtain spectrum licenses, but representatives from the tribal entities we interviewed reported challenges related to participating in the secondary market, such as not knowing whom to contact should they wish to engage in a secondary market transaction to obtain a spectrum license. In July 2014, FCC stopped updating its spectrum dashboard, which provided the public with a way to identify who holds licenses in what areas, including features that allowed users to identify spectrum allocated and assigned in tribal lands. ONAP stated in its 2012 report that this feature represented the first step for individual tribal entities to reach out to licensees and seek leasing, partnership, or other arrangements that could ultimately result in the provision of service over tribal lands. FCC officials told us that the public may view electronic records of all wireless spectrum licenses in FCC’s Universal Licensing System, using a wide range of license and geographic parameters, such as licensee names, radio services, spectrum bands, and geographic locations. However, we attempted to navigate the Universal Licensing System to determine spectrum-license holders for specific tribal lands using geographic parameters, but we were unable to successfully do so because the system is so difficult to use. Furthermore, as described above, representatives from eight of the tribal entities that we contacted stated that it is difficult to determine who holds spectrum licenses. When we asked FCC officials why they do not communicate information to tribes about spectrum-related transactions over tribal lands, FCC officials also told us that they issue public notices on applications for all proposed spectrum transactions and on the winning bidders of all auctions, but they have not made it a practice to reach out directly to tribes to make them aware of when providers have obtained spectrum licenses that cover tribal lands. The National Broadband Plan stated that FCC should make data available that would promote a robust secondary market for spectrum licenses, such as information on how and to whom spectrum is allocated on tribal lands. Additionally, Standards for Internal Control in the Federal Government state the need for federal agencies to communicate with external entities and to enable these entities to provide quality information to the agency that will help it achieve its objectives. Tribal governments are an example of such external entities. The ability of tribal governments to make informed spectrum planning decisions and to participate in secondary market transactions is diminished without information from FCC on the spectrum transactions that occur over tribal lands. Providing this information in a manner that is accessible and easy for tribal entities to obtain could enable them to enter into leasing, partnership, or other arrangements to obtain spectrum. Conclusions Broadband service on tribal lands continues to lag behind the rest of the country, especially on rural tribal lands, which could hinder tribal efforts to promote self-governance, economic opportunity, education, public safety, and cultural preservation. FCC has reported that wireless technologies that access spectrum to deliver broadband services are cost-effective for remote and sparsely populated areas, such as tribal lands. However, FCC’s efforts to promote and support tribal entities’ access to spectrum have done little to increase tribal use of spectrum, as only very few tribes are accessing spectrum to be able to provide Internet service. Additionally, FCC lacks information that could help inform its decision- making processes related to spectrum policy planning, which is intended to improve communications services in all areas of the United States, including tribal lands. By collecting data on the extent that tribal entities are obtaining and accessing spectrum, FCC could better understand tribal spectrum issues and use this information as it implements ongoing spectrum initiatives. Furthermore, the secondary market is one of few ways for tribal entities to access licensed spectrum to be able to provide Internet service, and FCC has recognized the importance of promoting a robust secondary market. FCC could promote a more robust secondary market by analyzing data to better understand how much unused licensed spectrum exists over tribal lands and using that information to promulgate regulations and to evaluate how FCC policies affect tribal participation in the secondary market. Additionally, by making information on who holds spectrum licenses over tribal lands more accessible and easy to understand, FCC could remove a barrier tribes may face in attempting to obtain spectrum through the secondary market. Recommendations for Executive Action We are making the following three recommendations to the Chairman of FCC. The Chairman of FCC should collect data on the extent that tribal entities are obtaining and accessing spectrum and use this information as FCC implements ongoing spectrum initiatives. (Recommendation 1) The Chairman of FCC should analyze data to better understand the extent that unused spectrum licenses exist over tribal lands, such as by analyzing the data for a sample of tribal lands, and as appropriate use this information to inform its oversight of the secondary market. (Recommendation 2) The Chairman of FCC should make information on spectrum-license holders more accessible and easy to understand for interested parties, including tribal entities, to promote their ability to purchase or lease spectrum licenses from other providers. (Recommendation 3) Agency Comments We provided a draft of this report to FCC for comment. In its comments, reproduced in appendix III, FCC agreed with the recommendations. FCC also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Chairman of FCC, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report examines (1) what is known about the ability of tribal entities to obtain and access spectrum to provide broadband services on tribal lands and the reported barriers that may exist; and (2) the extent to which the Federal Communications Commission (FCC) promotes and supports tribal entities’ ability to obtain and access spectrum for broadband services. To address both objectives, we reviewed relevant statutes and regulations and FCC documents, including FCC’s Statement of Policy on Establishing a Government-to-Government Relationship with Indian Tribes, the National Broadband Plan, and FCC’s current strategic plan. We interviewed FCC officials and representatives from 3 tribal associations, 7 private providers that deliver Internet services over tribal lands, 3 industry associations that represent rural and urban telecommunications providers, 3 regional consortia, 3 companies that work with tribal entities, and 1 academic group. In addition, we selected 24 tribal entities—13 Indian tribes and nations and 11 tribally owned providers—to interview. To identify tribal entities that were using wireless technologies, we obtained recommendations from stakeholders, reviewed data on relevant federal grants, such as the Broadband Technology Opportunities Program, and conducted Internet research. We then selected 16 tribal entities considering (1) stakeholder suggestions, (2) population, (3) population density, and (4) urban or rural designation. We visited 7 of these tribes in Idaho, New Mexico, and Washington State. The views represented in our report are not generalizable to those of all stakeholders. See table 2 for a complete listing of the entities we interviewed. We also conducted a literature review to identify relevant academic, government, and media publications that were published between January 1, 2013, and January 11, 2018, that discuss the importance of and options to enhance tribal access to spectrum. To identify tribal entities that applied to participate in spectrum auctions or that held active spectrum licenses in bands that can be used to provide broadband service, we analyzed (1) FCC data on entities that applied to participate in auctions for spectrum in these bands and (2) FCC data on spectrum licenses in these bands that were active as of September 6, 2018. We also analyzed FCC license data, together with license information publicly available through FCC’s Universal Licensing System, to determine whether the tribal entities that held active licenses obtained those licenses through an FCC spectrum auction, administrative assignment, or the secondary market. We then reviewed the list of federally recognized tribes in the Federal Register and identified search terms related to these tribes. For example, we identified the following search terms based on the federally recognized tribe, Yurok Tribe of the Yurok Reservation, California, “Reservation, Tribe, and Yurok.” We then used the identified search terms to search for tribal entities in FCC’s data on auction participants and spectrum license holders. We manually reviewed these matches to identify tribal entities based on information from interviews, Internet research, and professional judgment. Because tribal entities may have applied to participate in spectrum auctions or may hold spectrum licenses under names not associated with their tribes, there may be additional tribal entities that we were unable to identify. Through interviews with FCC officials and review of related documentation, we determined that the license and auction participant data are sufficiently reliable for our purpose of identifying some tribal entities that have applied to participate in a spectrum auction or held active spectrum licenses as of September 2018. However, our analysis does not capture the extent that tribal entities may have obtained a license that is no longer active. To identify tribal entities that used unlicensed spectrum to deliver unlicensed service, we interviewed the tribal entities identified above. In addition, we obtained stakeholder views on the advantages and disadvantages of using unlicensed and licensed frequency bands and any barriers that tribal entities face in obtaining spectrum licenses by interviewing the selected stakeholders noted above. To determine the extent to which FCC promotes and supports tribal entities’ efforts to obtain and access spectrum, first, we reviewed FCC’s proposals in its ongoing 2011 Notice of Proposed Rulemaking In the Matter of Improving Communications Services for Native Nations by Promoting Greater Utilization of Spectrum over Tribal Lands and its ongoing 2018 Notice of Proposed Rulemaking In the Matter of Transforming the 2.5 GHz Band. We summarized public comments submitted, as of August 2018, by private and tribal providers, rural and nationwide industry associations, tribal associations, and tribal governments on FCC’s 2011 proposed rulemaking. We did not analyze comments on FCC’s 2018 Notice of Proposed Rulemaking because FCC was in the process of responding to these comments at the time of our review. Second, we reviewed rules that FCC officials identified that increased the availability of unlicensed and licensed frequency bands for broadband use and that may be particularly useful for tribal entities. These rules included FCC’s 2010 and 2012 rules related to TV white space spectrum and its 2015 rule and 2017 Notice of Proposed Rulemaking related to the Citizens Broadband Radio Services (CBRS) spectrum. We identified tribal entities that had been using CBRS frequency bands by reviewing FCC licensed data and TV white space frequency bands through interviews with tribal entities and regional consortia. Third, we identified FCC’s outreach activities to provide tribal entities with assistance on spectrum-related issues by interviewing FCC officials and reviewing documentation on the content of FCC-led trainings and workshops, e-mail correspondences, and related publications, such as public notices. Lastly, we interviewed FCC officials on the information that they collect, analyze, and report related to tribal use of spectrum and reviewed related documentation, including FCC’s Office of Native Affairs and Policy 2012 Annual Report and FCC’s license and auction data. We interviewed stakeholders, as noted above, and summarized their views of FCC efforts. We also compared FCC’s efforts against FCC’s 2018-2022 strategic plan, recommendations made in FCC’s National Broadband Plan, and Standards for Internal Control in the Federal Government related to using quality information. We conducted this performance audit from November 2017 to November 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Auctioned Licensed Spectrum Available for Commercial Broadband Services We identified the spectrum frequency bands that the Federal Communications Commission (FCC) has made available for commercial broadband services and that FCC assigns licenses through auctions. Table 3 describes these licenses, including the number and date of related auctions. Appendix III: Comments from the Federal Communications Commission Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Mark L. Goldstein, (202) 512-2834 or [email protected]. Staff Acknowledgments In addition to the contact named above, Sally Moino (Assistant Director), Anne Doré (Analyst in Charge), Enyinnaya David Aja, Katherine Blair, Stephen Brown, Camilo Flores, Georgeann Higgins, John Mingus, Josh Ormond, Frank Rusco, Rebecca Rygg, Jay Spaan, Andrew Stavisky, James Sweetman, Jr., Hai Tran, and Michelle Weathers made key contributions to this report.

In 2018, FCC estimated that 35 percent of Americans living on tribal lands lack broadband service compared to 8 percent of Americans overall. Broadband service can be delivered through wireless technologies using radio frequency spectrum. According to FCC, increasing tribal access to spectrum would help expand broadband service on tribal lands. GAO was asked to review spectrum use by tribal entities—tribal governments and tribally owned telecommunications providers. This report examines (1) tribal entities' ability to obtain and access spectrum to provide broadband services and the reported barriers that may exist, and (2) the extent to which FCC promotes and supports tribal efforts to obtain and access spectrum. GAO interviewed 16 tribal entities that were using wireless technologies. Selected entities varied geographically, among other characteristics. GAO analyzed FCC's license and auction data as of September 2018, reviewed FCC's rulemakings on spectrum for broadband services, and interviewed other tribal and industry stakeholders and FCC officials. The information presented is not generalizable to all tribes or industry participants. The tribal entities GAO contacted cited various barriers to obtaining spectrum licenses in bands that can be used to provide broadband services. According to its analysis of data from the Federal Communications Commission (FCC), GAO identified 18 tribal entities that held active spectrum licenses in such bands. For example, of these 18 tribal entities, 4 obtained licenses through secondary market transactions—that is, they bought or leased the license from another provider, and 2 obtained a license through an FCC spectrum auction. Licensed spectrum is generally preferred because it offers better quality of service compared to unlicensed spectrum; however, almost all of the tribal entities GAO contacted said that they are accessing unlicensed spectrum to provide Internet service. They identified barriers to obtaining licensed spectrum through auctions and secondary market transactions, barriers such as high costs and, in the case of secondary market transactions, a lack of information on who holds licenses over tribal lands. Because most spectrum allocated for commercial use has already been assigned, the secondary market is one of very few avenues available to tribal entities that would like to access licensed spectrum. FCC has taken steps to promote and support tribal access to spectrum. For example, FCC issued proposed rulemakings in 2011 and 2018 that sought comment on tribal-specific proposals, such as establishing tribal-licensing priorities and initiating processes to transfer unused spectrum licenses to tribal entities. However, FCC has not finalized these rules and is in the process of responding to comments to the 2018 rulemaking. Also, while FCC has made additional spectrum available for broadband use in recent years, tribal stakeholders cited limitations with the spectrum FCC has made available. For example, FCC allows broadband providers to operate in unused television broadcast bands on an unlicensed basis. While stakeholders GAO interviewed cited some advantages of these bands, such as being useful to reach remote customers, they also noted technical and cost limitations that reduced the potential to improve tribal access to spectrum. FCC stated that it is implementing spectrum initiatives and recognizes the importance of promoting a robust secondary market to improve communications throughout the United States, including tribal lands. However, GAO found that FCC has not collected data related to tribal access to spectrum, analyzed unused licensed spectrum that exists over tribal lands, or made data available to tribal entities in an accessible and easy manner that could be beneficial in their efforts to obtain spectrum licenses from other providers. By collecting data on the extent that tribal entities are obtaining and accessing spectrum, FCC could better understand tribal spectrum issues and use this information as it implements ongoing spectrum initiatives. Further, given that the secondary market is one of few ways for tribal entities to access licensed spectrum to be able to provide Internet service, FCC could promote a more robust secondary market by analyzing unused licensed spectrum over tribal lands and using that information to inform FCC's oversight of the secondary market. Additionally, by making information available on who holds spectrum licenses over tribal lands, FCC could remove a barrier tribes may face in attempting to obtain spectrum through the secondary market.

GAO_GAO-18-67

Background Electricity Operation and Delivery in the United States and Canada The electricity operation and delivery system—collectively referred to as the grid—in the United States and Canada includes four functions: generation, transmission, distribution, and system operations (see fig. 1). Electricity is generated at power plants by burning fossil fuels; through nuclear fission; or by harnessing renewable sources such as wind, solar, geothermal energy, or hydropower. Once wholesale electricity is generated, it enters the bulk power system—a network of high-voltage, high-capacity transmission systems—where it is transformed to a higher voltage and flows through transmission lines, generally over long distances, to areas where it is transformed to a lower voltage and sent through the local distribution system for use by various customers. Throughout this process, system operations are managed by a system operator, such as a local utility. Below is additional information on the functions of the electric grid, including equipment that may be vulnerable to GMD and HEMP. Electricity generation. Power plants generate electricity by converting energy from other forms—such as coal, natural gas, or wind—into electricity. While they produce electricity once operating they are vulnerable when power outages occur because initially starting a power plant after an outage typically requires an external source of electricity to operate the control systems—electronics that are integral to their operations. Some power plants have the capability to restore operations by employing a “black start,” which is the process of restoring a plant to operation without relying on off-site sources of electricity, usually through using dedicated diesel generators to provide the electricity needed. However, not all plants have this capability and in the event of a power outage could therefore be vulnerable to lengthy system disruptions. Electricity transmission. Power plants are generally geographically distant from the areas where electricity is consumed. To move electricity from where it is produced to where it is used, electricity is sent over transmission lines; together, these lines form a network, or grid. To transport energy over long distances with reduced power losses, suppliers increase voltages—the “force” that makes electricity flow through a conductor—and utilize high-voltage transmission lines, operating from 230 up to 765 kilovolts (kV) in North America. According to the Quadrennial Energy Review, as of January 2017, there were approximately 240,000 miles of high-voltage transmission circuit lines in the contiguous United States. During a solar storm, high-voltage transmission lines can act as “antennae” that allow GMD to enter the electric system. Transformers. Transformers are critical to the efficient and effective delivery of electricity to customers and, under certain circumstances, can be vulnerable to the effects of GMD and HEMP. Transformers facilitate the efficient transfer of electricity over long distances through the transmission system by converting electricity to different voltages along the delivery system—either up or down, depending on the design and function of the transformer (see sidebar). Figure 2 depicts a large power transformer. paired with equipment—for example, a protective relay—that is designed to take them out of service temporarily when the effects of an electromagnetic event reach the grid. If transformers were temporarily taken out of service for preventative purposes, it could lead to an interruption of electricity service to consumers. However, if transformers—especially those more vulnerable due to age, condition, or design—are not taken out of service during an electromagnetic event they are at risk of being permanently damaged when additional electrical current flows into them, causing excessive localized heating and damage to internal components. (See fig. 3 for an example of transformer windings that were damaged from localized heating associated with a GMD event.) Transformers that become permanently damaged during an electromagnetic event can also contribute to interruptions in service. According to DOE, replacing a damaged transformer can be challenging because they are custom-designed and interchangeability and availability of spares is limited. If a usable spare transformer is not immediately available, obtaining a replacement transformer is often a long and costly process, usually involving long delivery lead times due to their size and weight, limited inventory, a complex procurement and manufacturing process, and other factors. According to DOE, in 2014 the average lead time to obtain a large power transformer was between 5 and 16 months, but could take more than 20 months in the event of supply disruptions or delays in procuring raw materials or key parts; larger, more sophisticated models are generally manufactured abroad. According to a transformer manufacturer, depending on the function of the transformer, the voltage rating, and the model, in 2017 the approximate price of a large power transformer, weighing from 170 to 410 tons, ranged from approximately $2 to $7.5 million in the United States. Distribution system. The final stage in the electric power system is the distribution system, which carries electricity out of the transmission system to industrial, commercial, residential, and other consumers. The distribution system includes equipment that can be damaged during electromagnetic events, but the extent of the risk is limited because distribution lines are generally too short and of too low voltage to pose a risk to distribution equipment. System operations: Operation of the electricity system is managed by entities such as a local utility, which this report collectively refers to as system operators. Because electric energy is not typically stored in large quantities, system operators must constantly balance the generation and consumption of electricity to maintain reliability. To do this, system operators utilize a system of sensors and controls to monitor power consumption and generation from a centralized location. Operators use computerized systems to send signals to power plants and other grid components to adjust their output to match changes in consumption. Electromagnetic events can interrupt or damage some of the equipment system operators use, which can cause a disturbance in control systems (for example, such events can cause relays to unintentionally operate, which can disable system protection equipment). Because the electric power system increasingly operates at or near reliability limits during peak demand periods, a relatively modest disturbance to the system can potentially pose a risk to system reliability. In the United States, the electrical infrastructure is primarily operated by private industry, which owns approximately 85 percent of the nation’s critical electrical infrastructure. In contrast, Canada’s electrical infrastructure is primarily organized along provincial lines with large, government-owned, integrated public utilities playing a leading role in the generation, transmission, and distribution of electricity. Electromagnetic Events – GMD and HEMP Based on our review of relevant studies and interviews with cognizant government and industry officials, there are differing opinions on the potential impact electromagnetic events could have on the electric grid and the risk of long-term, widespread damage. However, they generally agree that more study on the effects of electromagnetic events is needed. The following section describes (1) the nature and potential impact of GMD, U.S. efforts to monitor it, and the frequency of past occurrences; and (2) the nature and potential impact of HEMP events. GMD – Description, Potential Impact, Monitoring, and Historical Occurrences Naturally occurring solar weather events can create electromagnetic impacts—or GMD—of sufficient intensity that can adversely affect the electric power system. Solar weather events include, for example, large coronal mass ejections (CME), which are energetic eruptions in the sun’s atmosphere that can cause the release of a large mass of charged particles from the sun into space. When a large CME travels from the Sun to the Earth it can interact with and create disturbances in the Earth’s geomagnetic field, referred to as a geomagnetic storm; the resulting impact on Earth is commonly referred to as a geomagnetic disturbance, or GMD. Figure 4 illustrates how solar weather can create a GMD. Strong GMDs can create large geomagnetically induced current (GIC) on the grid. The degree to which GMD and accompanying GIC affect the electric power system depends on several factors, including the magnitude of the GMD, design and geomagnetic latitude of the power system, and geology of the local area, among other things. According to NERC, the most likely consequence of a strong GMD and the accompanying GIC is the loss of voltage stability, although GMD can also damage components of the system, including high-voltage transformers. In the United States, the National Oceanic and Atmospheric Administration’s (NOAA) National Weather Service manages the Space Weather Prediction Center (SWPC), which is responsible for monitoring and providing services on space weather, including geomagnetic storms. SWPC uses a variety of ground and space-based sensors, as well as imaging systems, to monitor conditions on the Sun and to observe and forecast geomagnetic activity around the world. SWPC uses this information to issue Watches, Warnings, and Alerts for geomagnetic storms through e-mail and website postings to those who are impacted by space weather, such as owners and operators of the electric grid, spacecraft operations, users of radio signals, and others. In addition, SWPC provides immediate telephone notification and confirmation of imminent and ongoing geomagnetic storms to all NERC reliability coordinators through a NERC hotline. To communicate the magnitude of geomagnetic storms (disturbances in Earth’s magnetic field) and to determine whether geomagnetic alerts and warnings should be issued, SWPC relies on a real-time estimate of the Planetary K-index (Kp-index), which ranges from Kp = 0, or quiet, to Kp = 9, or extreme storm intensity. (See appendix II for more information on SWPC’s notification system as well as their estimates of overall impact of geomagnetic storms to the electric power system, by storm level.) Figure 5 shows the range of planetary geomagnetic activity, by solar cycle and Kp level, from 1933 through 2017. As shown in this figure, recent activity—between 2007 and 2017, approximately equivalent to the average length of a solar cycle—exhibited the fewest occurrences of GMD events (minor, moderate, strong, severe, and extreme) of any solar cycle in nearly a century. -index) data show the maximum fluctuations in the magnetic field observed from a network of selected magnetometers—instruments that measure relative change of a magnetic field at a particular location—relative to a quiet day. HEMP – Description and Potential Impact According to the 2008 EMP Commission, a nuclear EMP is the burst of electromagnetic radiation that results from the detonation of a nuclear device, which can disrupt or destroy electronic equipment. The threat primarily focused on by the 2004 and 2008 EMP Commissions, and specifically addressed in this report, is the high-altitude EMP (HEMP). A HEMP event is caused by the detonation of a nuclear device above the atmosphere, from about 40 to 400 kilometers (approximately 25 to 250 miles) above the Earth’s surface. A HEMP attack does not cause direct physical impacts at the Earth’s surface, such as injury or damage directly from heat, blast, or ionizing radiation, but instead creates an intense electromagnetic pulse. The components of HEMP—commonly identified as E1, E2, and E3—can disrupt or damage critical electrical infrastructure, such as computers, electronics, and transformers. EMP can also be produced using nonnuclear weapons, but these generally have a short range and are not a focus of this report. Electricity System Regulation and Oversight Responsibility for regulating electricity is divided between states and the federal government. Most electricity consumers are served by retail markets that are regulated by the states, generally through state public utility commissions or equivalent organizations. As the primary regulator of retail markets, state commissions approve many aspects of utility operations, such as the siting and construction of new power plants, as well as approving the prices consumers pay and how those prices are set. Prior to being sold to these retail consumers, such as households and businesses, electricity is bought, sold, and traded in wholesale electricity markets by companies that own power plants, as well as utilities and other companies. Wholesale interstate electricity markets are regulated by FERC. Historically, FERC-approved wholesale electricity rates based on utilities’ costs of production plus a rate-of-return that it determined to be reasonable. Beginning in the late 1990s, FERC took a series of significant steps to restructure the wholesale electricity markets to increase the role of competition—market forces of supply and demand— in setting wholesale electricity prices, a process referred to as electricity restructuring. Subsequently, FERC has provided authority for many entities—for example, independent owners of power plants—to sell electricity in wholesale markets at prices determined by supply and demand. These entities can now compete with existing utilities and one another to sell electricity in wholesale markets, but have no assurance that their costs will be recovered. While electricity restructuring has introduced a measure of market-based pricing to the generation of electricity, transmission (and distribution, regulated by states) are still subject to regulation on a cost-recovery basis. FERC has jurisdiction over transmission rates on the federal level, and state regulators have jurisdiction over the charges that utilities incorporate in customers’ rates in order to recover their transmission costs. As part of the restructuring process, FERC also encouraged the voluntary creation of new entities called Regional Transmission Organizations (RTO) and Independent System Operators (ISO) to manage regional networks of electric transmission lines as grid operators—functions that, in these areas, had traditionally been carried out by local utilities. These RTOs, in many cases, established and manage wholesale electricity markets for electricity buyers and sellers to participate in. As grid operators, RTOs are also responsible for managing transmission in their regions, which includes establishing and implementing rules and pricing related to transmission, among other things. As we reported in 2003, 24 states also introduced retail competition to electricity markets they regulate and allow former utilities and new companies to compete to serve customers; since then, the states where retail competition is occurring have changed. In states with retail competition, in general, electricity rates for generators other than the original utility are not structured to guarantee recovery of generation-related costs. In addition to its role in regulating aspects of the electricity market, FERC is also responsible for reviewing and approving standards to ensure the reliability of the bulk power system. FERC designated NERC to develop and enforce these reliability standards, subject to FERC review and approval. These standards outline general requirements for planning and operating the bulk power system to ensure reliability. (See appendix III for information on NERC reliability standards requiring electricity suppliers to address the potential impact of GMD on the reliable operation of the U.S. electric grid.) NERC and its Regional Entities, along with FERC, can all independently enforce reliability standards. Within the boundary of each regional entity, there are one or more NERC-certified reliability coordinators. Reliability coordinators are charged with the task of continuously assessing the reliability of the transmission system. The coordinator has the authority to direct stakeholders—transmission operators, generators, and others involved with the electric grid’s operations—to take action to preserve the reliability and integrity of the bulk power system. U. S. and Canadian Electricity Suppliers We Contacted Have Identified Information about GMD Effects, but Have Less Information about HEMP Effects Electricity Suppliers Have General Information about GMD Effects and Some Selected Suppliers Have Taken Steps to Evaluate Their Networks U.S. and Canadian government and industry organizations have studied and publicly reported on potential GMD effects on the electric grid. These studies have covered the general threats to the nation’s electric grid from GMD but do not cover the unique aspects of individual suppliers’ generation and transmission networks that could potentially make them more or less vulnerable to GMD events. In addition, these studies typically identified areas in which more research is needed regarding the GMD threat and potential mitigation measures that would inform suppliers’ own assessments of the potential impact of GMD events on their unique networks. These select studies we identified included those performed by NERC, DOE, EPRI, and other private industry groups and generally examined the areas of vulnerability for the grid with respect to GMD events, potential impact on the grid from these events, possible mitigation measures, and areas needing further research. While noting the need for further research, some of these studies vary with regard to their assessment of the likelihood of long-term, widespread damage to the grid from these events. The following is a summary of some of these selected studies performed since 2010 and grouped by the entities responsible for performing them: NERC. In June 2010, NERC issued a report, based on a joint effort with DOE, which included a plan to form a task force of government and industry efforts to examine GMD. This resulted in the formation of the NERC GMD Task Force consisting of government and industry officials to examine the GMD threat to the nation’s power grid. The task force’s work in evaluating the potential impact of GMD events resulted in NERC’s subsequent February 2012 report which outlined its plans for working with industry on new reliability standards for protecting the grid against GMD events. This report concluded, among other things, that the failure of a large number of transformers during a severe GMD event was unlikely, although certain older transformers, along with generator step-up transformers, could be particularly susceptible. As a result of this work, and as directed by FERC, NERC developed the EOP-010-1 and TPL-007-1 GMD reliability standards. Also, as a result of this work, NERC issued a GMD Planning Guide for electricity suppliers, which assists the suppliers in carrying out studies of their individual vulnerabilities to a GMD event. DOE/National Labs. Since 2010, DOE has been engaged in a number of efforts regarding GMD. For example, in 2011, DOE enlisted the Pacific Northwest National Laboratory (PNNL) to study the potential effect of GMD on long, high-voltage transmission lines and associated mitigation measures that could potentially be employed. Also, in April 2014, DOE reported on the results of its study of the vulnerabilities of large power transformers to GMD and other threats and the challenges facing the replacement of these transformers in the wake of such events. EPRI. In conducting research for its private industry membership, the Electric Power Research Institute engaged in a number of studies from October 2010 to March 2014. These efforts began with an effort to examine potential impacts from GMD through an assessment of various risk factors. EPRI’s later efforts involved the development of approaches for modeling the impacts from GMD on the grid to allow suppliers to better protect their networks from these events. Other private industry. Private entities conducted studies in January 2010 and November 2011 for Oak Ridge National Laboratory and DHS, respectively, that examined prior GMD events and assessed the potential future impact of these events on the grid along with areas of vulnerability and potential mitigation measures. Other private studies included those examining which regions of North America are most vulnerable to GMD events in addition to the potential impact on the insurance industry and society in general from these events. See appendix IV for additional details on these and other select studies performed by government and industry regarding protection of the grid from GMD events. These past research efforts have generally identified the degree to which the electric power system is affected by a GMD event. The level of impact from these events can depend on various factors including, among other things, magnitude of the event, design and geomagnetic latitude of the power system, and geology of the local area. Further, these studies identified that GMD can have a broad range of impacts when it is introduced to a power system, ranging from minor events such as radio interference and control malfunctions to wide-scale disruptions. NERC has identified two predominant risks to the system: (1) potential voltage instability in the transmission system caused by insufficient reactive power support and (2) possible damage to system components. The first risk and, according to NERC, the most likely consequence of a strong GMD event and accompanying GIC, is the insufficient reactive power support, which can lead to voltage instability and power system collapse. Reactive power support is necessary to stabilize the transfer of electricity through the electric power system, from generation to consumption. With regard to the second risk, several components of the electric system are susceptible to damage from GMD and GIC, but government and industry officials agree that the vulnerable components with the greatest potential consequence in the event of loss are transformers, which typically exist at substations throughout suppliers’ transmission networks. High-voltage transmission lines act as “antennae,” allowing GIC to enter the electric power system, disrupting normal operations and, in some cases, damaging equipment. Transformers, in turn, run the risk of overheating during a GMD event. According to NERC, restoration times for these two risk scenarios are significantly different. Restoration time from voltage collapse—i.e., system blackout—would be a matter of hours to days, while the replacement of transformers, as previously discussed, could take months or potentially years. Therefore, the failure of large numbers of transformers, while less likely, would have considerable impacts on portions of the electric power system. While general information on the potential impact of GMD events on the electric grid is available from the aforementioned government and industry reports, individual suppliers must assess the potential impact on their own, unique networks. For example, of the 13 selected suppliers we spoke with, 11 reported performing analyses to evaluate the potential impact of GMD on their specific generation systems or transmission networks. The 11 suppliers that had performed these analyses did so in advance of all suppliers being required to analyze the vulnerabilities of their networks as part of their compliance with NERC’s second-stage GMD reliability standard TPL-007-1. The nature of the analyses the 11 suppliers engaged in required the use of modeling software to determine the specific vulnerabilities of their networks which further allowed them to design their own mitigation measures, if warranted, to address any vulnerabilities identified and prevent equipment damage or power outages. Suppliers we contacted noted that potential GMD mitigation measures included installation of specific equipment to assist with network stability and voltage regulation. As noted previously, past research efforts have indicated that GMD events can have a variety of impacts ranging from minor malfunctions to wide-scale disruptions. For example, 3 of the 11 suppliers we contacted that had performed an analysis of their networks’ potential vulnerabilities had also reported prior impacts on their networks from a GMD event. Of these three suppliers, two (including Hydro-Quebec) reported major power interruption or equipment damage from the event. The remaining supplier reported a brief power outage on one transmission line during the same 1989 GMD event that caused a major power outage for Hydro- Quebec; however, this power outage did not result in any significant loss of electricity to the supplier’s customers. Outside of the 1989 event, this same supplier reported minor power fluctuations and voltage drops from smaller GMD events. Most suppliers we contacted that had assessed their networks’ vulnerabilities to GMD expressed confidence in their ability to avoid major damage or power interruptions from future GMD events. Specifically, 6 of the 11 selected suppliers that had performed analyses of their networks’ vulnerabilities to GMD reported that, going forward, they expected that any effects from a future GMD event on their networks would likely be minimal (i.e., no significant damage or power interruption). Six suppliers also thought that procedures and technology currently in place afforded better protection from these events than in the past. For example, one northern U.S. supplier we contacted had, after acquiring new GMD analysis software, studied its system and concluded that it could easily withstand the GMD “benchmark event” established by NERC in its TPL- 007-1 reliability standard and that its current technology and procedures were adequate to deal with the threat. Also, another supplier studied its system and is using the results to inform future decisions on transformer purchases to obtain technology that is more resistant to GMD. Government and Industry Are Taking Steps to Better Understand Effects of HEMP on the Grid According to U.S. government and industry officials we spoke with, completed research and available information on the vulnerability of the grid to HEMP, along with its potential effects, is less extensive and lags behind industry understanding of GMD. These officials noted that the understanding of HEMP and how it can affect the electricity system is general in nature and not specific to the commercial electric grid. Specifically, the Department of Defense has developed information regarding the potential effects of HEMP on military assets and facilities. According to DOE, the most detailed HEMP testing has been performed on military communication and weapons systems, not on the commercial electric grid. In a number of studies since 2010, both government and private industry have examined the HEMP threat to the grid while also noting the need for further research to fully understand the specific threats to components of the grid that would allow suppliers to protect against these events. While noting the need for further research, some of these studies vary with regard to their assessment of the likelihood of long-term, widespread damage to the grid from HEMP. See appendix IV for additional details on government and industry studies on the threat to the grid from EMP events including HEMP. The government and private industry studies generally note the threat to the grid presented by the E1, E2, and E3 pulse components of HEMP as follows: E1. The E1 pulse is capable of destroying microelectronics (such as computers), communication and control systems, and other electronic equipment that can disrupt the grid and other critical sectors. According to DOE, E1 can also generate very large and damaging voltage surges in power lines. Figure 6 depicts the potential impact from an E1 pulse, and shows the higher the altitude the greater the potential radius of the impact from an E1 pulse. E2. The E2 pulse, similar to lightning, has an ability to impair or destroy control features that are not protected from lightning. However, the grid typically has protections in place to address the lightning threat to major components. E3. The E3 pulse is similar to GMD and also creates similar disruptive currents in transmission lines which can cause grid instability and heating that damages transformers. Few electricity suppliers we contacted reported taking steps to examine how HEMP could impact their systems. Specifically, 3 of 11 selected suppliers who responded to our inquiry on this topic reported performing a study of the potential impact of HEMP events on their network infrastructure. Two of these three suppliers reported studying the potential impact of HEMP events on their network in conjunction with these suppliers’ design of hardened control centers expected to be resistant to HEMP and other hazards. One of the two suppliers that designed control centers resistant to HEMP did so due to a concern over being able to maintain power to certain critical customers for which the loss of power would have national security implications. The other supplier that had designed an HEMP-resistant control center did so as part of an “all hazards” approach to protecting its transmission infrastructure. The third supplier that had studied the potential impact of HEMP on its system did so as part of a combined study, required by its state legislature, on the threats posed by both GMD and HEMP. Specifically, this supplier examined the potential impact of the HEMP E3 pulse on its system which is similar to GMD, and, therefore, is expected to involve similar mitigation measures. The supplier stated that the lack of available modeling and analysis tools prevents them from fully understanding the potential impact of all components of HEMP— particularly the E1 and E2 pulses. Four of the 8 suppliers we contacted who stated they had not studied the potential impact of HEMP on their networks indicated a desire to see EPRI complete its ongoing EMP research before engaging in studies of their own networks. Further, all eight suppliers who stated they had not performed any studies of the potential impact of HEMP on their networks also noted a lack of key information on the nature and risk of the HEMP threat that would allow them to complete studies of their networks and develop corresponding mitigation measures. Six of the suppliers cited the classified nature of much of the available information maintained by the federal government on the EMP threat—particularly HEMP—as a contributing factor to the industry’s lack of needed information on the threat. In addition, according to NERC officials, while they have developed reliability standards directing suppliers to study the vulnerabilities of their networks to GMD and establish procedures for dealing with those events, it has yet to produce similar standards for EMP or HEMP due to the lack of information available to industry on the EMP threat and how it may impact the grid. According to DOE, more research is needed to fully investigate and evaluate how an electric utility could protect itself from, or mitigate the effects of, HEMP on its systems. DOE also noted that government and industry have ongoing research efforts to better understand these potential effects and develop possible mitigation measures. For example, DOE has three ongoing research efforts related to HEMP. First, DOE is collaborating with DHS to advance the understanding of HEMP effects on the grid through research at the Los Alamos National Laboratory. Second, DOE has funded efforts underway at the Idaho National Laboratory focused on developing potential HEMP strategies, protections, and mitigations for the electric grid—including hardening of infrastructure, blocking of currents, developing a strategy for stocking and prepositioning of spare parts, as well as developing operational and emergency planning tools. Finally, DOE has enlisted the Oak Ridge National Laboratory in analyzing the vulnerability of the grid to a HEMP event, along with the potential damage from such an event, and how it would impact on the reliability and delivery of electric power. The analysis will examine resilience options such as hardening some facilities, stockpiling some parts, and contingency planning. In addition to these research projects, DOE officials told us both Los Alamos National Laboratory and Lawrence Livermore National Laboratory are working to produce unclassified information on the characteristics of the electromagnetic signals associated with HEMP that could be shared with electricity suppliers to better inform their planning efforts. In addition to its ongoing research efforts, DOE and industry have taken steps to enhance understanding of HEMP issues. In particular, DOE and industry issued the Joint Electromagnetic Pulse Resilience Strategy (Joint Strategy) in July 2016 to study HEMP and improve the sharing of information on HEMP that would be useful to industry. According to DOE, central to development of the Joint Strategy was an effort to enhance shared government-industry understanding of the current status of risks from, and preparedness for, HEMP events. DOE added that this effort is important because what is currently known about HEMP effects to the grid has been developed from computer models designed for other purposes (e.g., understanding Department of Defense system effects), or is classified and thus difficult to share with industry. Specifically, the Joint Strategy includes five strategic goals to guide DOE and industry in minimizing HEMP impacts and improving resilience of the grid to these events. These strategic goals are (1) improving and sharing understanding of HEMP: threat, effects, and impacts, (2) identifying priority infrastructure, (3) testing and promoting mitigation and protection approaches, (4) enhancing response and recovery capabilities relating to a HEMP attack, and (5) sharing best practices across government and industry both nationally and internationally. Following development of the Joint Strategy, both DOE and EPRI (working with DOE, on industry’s behalf) committed to developing separate, but coordinated, action plans that would implement the five strategic goals for studying HEMP and providing needed information to industry. DOE’s Electromagnetic Pulse Resilience Action Plan (DOE Action Plan), issued in January 2017, delineates the steps that DOE will take to address HEMP risks and emphasizes the federal government’s ability to clarify and communicate HEMP threats and impacts, reduce HEMP vulnerabilities, and facilitate the energy sector’s response and recovery after HEMP events. DOE stated that its Action Plan also considers the over 90 recommendations made in the 2008 EMP Commission report and at least partially addresses 10 of the 15 recommendations directly related to the electric power system made by the EMP Commission in their report. See appendix V for additional detail on the DOE Action Plan, including its relationship to the EMP Commission’s work. As noted in the Joint Strategy, EPRI’s industry action plan—initiated in April 2016—is a complement to the DOE Action Plan and includes research to be performed to (1) detail the potential impacts of HEMP on the bulk power system, (2) examine potential industry actions to mitigate HEMP risks, and (3) inform industry investment decisions regarding those mitigation options. According to DOE and EPRI, the research that is outlined in the industry action plan is ongoing and scheduled for completion over a 3-year period with the first two reports being issued in September 2016 and February 2017. EPRI officials added that this research is intended to provide the electric industry with what it needs— specifically, an unclassified, science-based approach to HEMP with regard to (1) threat characterization, (2) testing results, (3) modeling and simulation, and (4) recommended strategies for mitigating the impacts of HEMP including prudent and practical hardening and recovery options. To meet these goals, EPRI, together with participating suppliers, have undertaken this 3-year long research effort and expect to complete this work in 2019. This research effort is comprised of the following tasks: HEMP threat characterization. For the first part of this task, EPRI is identifying the state of knowledge of unclassified HEMP research for all three components of the HEMP environment (i.e., the E1, E2 and E3 pulse components of HEMP). This portion of EPRI’s research was achieved by the issuance of the aforementioned September 2016 report. The remaining two components of this task are ongoing and include (1) identifying characteristics of the electromagnetic signals associated with HEMP that can be used to assess the potential impacts on bulk power system components, and (2) investigating the physics of HEMP’s transmission to, and impact on, power system infrastructure. Electric infrastructure EMP vulnerability. This task involves identifying the vulnerability of transmission systems and support assets (e.g., protection and controls systems, communications, transformers, etc.) exposed to the HEMP threat by performing laboratory tests. EPRI will test various infrastructure components at two EMP test labs by subjecting them to E1 pulses. According to EPRI, initial results for this task are possible by the end of 2017. Electric infrastructure impacts. For this task, EPRI is assessing the potential impacts of a HEMP attack on the bulk power system by combining the system modeling-related efforts in the first task above with the equipment testing results of the second task above. Under this task, EPRI is also developing assessment techniques, models, and tools for assessing the impacts of a HEMP attack. The aforementioned February 2017 report assessing the potential effects of the E3 pulse component of HEMP on U.S. bulk-power transformers represents a portion of the work under this task. In this report, EPRI found that a small number of geographically-dispersed transformers (14 out of the tens of thousands included in EPRI’s analysis) were potentially at risk for thermal damage from the E3 pulse. EPRI produced a companion report assessing the potential impacts of the E3 pulse on the stability of the bulk-power system (i.e., the potential for voltage collapse) in December 2017 to be followed by the results of the first E1 pulse assessment at a later date. Mitigation, hardening, and recovery. Under this task, EPRI is assessing various mitigation and hardening approaches that can be employed to reduce the impacts of HEMP on bulk-power system reliability—including examinations of potential unintended consequences of these approaches and cost effectiveness. As an initial step, EPRI is developing interim guidance on hardening substations based on military and international standards that is scheduled to be completed by the third quarter of 2017. Risk-based decision support. For this task, EPRI is developing methodologies and tools to support risk-informed decisions regarding the implementation of HEMP hardening and mitigation measures. Trial implementation. Once hardening measures have been identified, EPRI’s supporting member utilities will have the opportunity to evaluate implementation of these measures on aspects of their networks. This task will develop a collection of leading industry practices with regards to HEMP mitigation and hardening. EPRI is to communicate the effectiveness of these measures including lessons learned. Project member and stakeholder communication. Under this task, EPRI will communicate the results of its research project to its supporting members and stakeholders in order to share new learning in a timely manner. U.S. and Canadian Electricity Suppliers Have Made Improvements to Provide Protection against GMD and HEMP Events, Including Some That NERC Requires and Monitors Selected Suppliers Have Made Technology Improvements Primarily to Enhance Overall Network Reliability which Can Also Help Protect Against GMD and HEMP Events Overall, 10 of the 13 selected suppliers we contacted reported making technological improvements to provide a range of system reliability benefits, some of which can also provide collateral benefits for protecting against GMD and HEMP events. These 10 suppliers purchased and maintained their own transmission-related equipment, while the remaining three suppliers were reliability coordinators who did not purchase or own their equipment. Various examples of these technological improvements for improved system reliability—that had the added benefit of protecting against GMD or HEMP events—were reported by the suppliers we contacted and include the following: Replacement of older transformers for various reasons, including susceptibility to GMD. Overall, 7 of the 13 suppliers we contacted noted that transformer replacement occurs for a variety of reasons, including increased efficiency. However, seven of the ten suppliers that purchased their own equipment added that, when they acquire new transformers, they generally selected models that have the added benefit of being more resilient to the effects of GIC during a GMD event. These seven suppliers reported that their specifications for the acquisition of new transformers specifically included qualities to make them more resilient to GIC. The suppliers also told us they are adhering to these specifications whenever they replace an older, less resilient, transformer as part of ongoing system upgrades. One supplier reported that they have undertaken a broad review of the transformers used in their system and taken steps to systematically reduce the number of unique units as part of a broader effort to make their system more consistent. They told us they have worked, to the extent possible, to standardize their transformer designs since implementing a new transformer purchasing program in 2008 which included upgrades such as more stringent specifications for protection against GMD. This supplier told us these efforts would also make it easier and less costly to maintain spares and to replace individual transformers that could be damaged from GMD or HEMP events. Participation in spare transformer programs to facilitate timely recovery of suppliers’ networks after transformer failures, including those caused by GMD and HEMP events. Of the 10 selected suppliers we contacted who purchased their own equipment, 6 reported having participated in at least one spare transformer program. For example, five of these suppliers participated in the Edison Electric Institute’s (EEI) Spare Transformer Equipment Program (STEP) which was intended as a coordinated approach to developing a shared inventory of spare transformers and streamlining the process of sharing transformers with affected companies. This program requires participating utilities to maintain a specific number of transformers up to 500 kV to be made available to other utilities in case of a critical substation failure. According to program documentation, any investor-owned, government-owned, or rural electric company in the U.S. or Canada may participate in the EEI STEP. The sixth supplier did not participate in an outside spare transformer program such as EEI’s, but, instead, maintained its own, in-house program. Investment in series capacitors to enhance network efficiency. Eight of the 10 selected suppliers we contacted, who purchased their own equipment, stated that they had added series capacitors to their networks. Seven of these eight suppliers told us they had acquired series capacitors to enhance the efficiency of their networks and help with network stability and voltage regulation. These suppliers stated that these devices offer the added benefit of mitigating the impacts of GMD and HEMP events because series capacitors block GIC, therefore preventing GIC from affecting certain parts of the transmission system. For example, one Canadian supplier, whose customers were almost totally dependent on electricity for heat during the winter, reported installing these technologies to improve overall network reliability but recognized the benefits of the technology for helping alleviate the threat of GMD events—which, according to DOE, is particularly acute at its far northern latitude. Installation of digital relays with enhanced functionality. Four of the 10 suppliers we contacted who acquired their own equipment had replaced, or were in the process of replacing, older electro- mechanical protective relays used in their grid control systems with newer digital relays. Unlike electro-mechanical relays—which can fail to operate properly under certain conditions resulting from a GMD event—digital relays can be programmed to properly respond to these conditions. FERC officials confirmed that digital relays may offer some degree of protection during GMD events, but cautioned that they are likely more susceptible than the older electro-mechanical relays to the E1 pulse of HEMP events. Construction of hardened control centers to protect against a variety of threats, including HEMP. Two of the 10 suppliers we contacted that purchased their own equipment had built, or were planning to build, control centers specifically designed to be resilient to the effects of EMP and other threats. For example, one electricity supplier’s customers included critical national security agencies and others in the Washington, D.C. area—resulting in the supplier’s desire to protect against the HEMP threat. The second supplier was in the process of designing its own hardened control center to guard against both EMP and other threats posed by extreme weather events occasionally occurring in its area of the country. In addition to technological improvements to provide a range of system reliability benefits, some suppliers are considering investments in technology specifically focused on blocking harmful GIC produced during GMD events. This GMD mitigation technology is referred to as a “GIC blocking device” and is still being tested. Since this technology is for the sole purpose of blocking GIC produced during GMD events, its cost may be directly attributed to GMD mitigation. One of our 13 selected electricity suppliers had installed such a prototype device on its high- voltage transmission system as part of an ongoing field trial to assess its performance and overall system impact in order to determine the effectiveness of the device under different operating conditions. Four selected suppliers expressed concern that GIC blocking devices can have unintended consequences on the stability or reliability of their transmission networks which could limit their overall benefits. Two of these suppliers stated that, before considering the installation of these blocking devices, they would perform analysis to determine their effectiveness in suppressing GIC at the system level and the impact on the functioning of their transmission system. Suppliers Have Developed Operating Procedures for the Initial GMD Reliability Standard and Recognize They May Need to Take Further Steps for the Next Standard NERC’s initial reliability standard EOP-010-1 requires certain suppliers to have GMD operating procedures to mitigate the potential effects of GMD events on the reliable operation of the transmission networks for which they are responsible. As of May 2017, the 13 suppliers we contacted told us they were all subject to the requirements of the EOP-010-1 standard and had GMD operating procedures in place to comply with the standard. Moreover, three of the 13 suppliers functioned as reliability coordinators and told us that all of the suppliers they oversaw in their territory also had operating procedures in place in accordance with EOP- 010-1. Officials with the reliability coordinators stated they reviewed their suppliers’ operating procedures to ensure they did not conflict with the procedures of other electricity suppliers in the coordinators’ geographic areas of responsibility. In addition, NERC’s Compliance Registry indicates that 188 electricity suppliers in the United States and Canada are potentially subject to the EOP-010-1 standard. NERC officials stated that, based on audit reports reviewed from its Regional Entities that included EOP-010-1, suppliers with transformers fitting the criteria specified in EOP-010-1 have developed the operating procedures required by the standard. NERC officials also stated that the EOP-010-1 standard requires electricity suppliers’ operating plans and procedures to mitigate the effects of GMD events on the reliable operation of the grid—as well as for the reliability coordinators to coordinate these plans and procedures within their area of responsibility. NERC officials stated that, as part of their compliance review for the standard, the NERC regions will assess the reasonableness of these plans and procedures. According to NERC, the standard provides the suppliers the flexibility to develop the procedures they think they need for their respective networks. NERC officials added that the quality of the measures put in place to address vulnerabilities to GMD would be further addressed under NERC’s second-stage GMD standard, TPL-007-1. NERC’s initial GMD-related reliability standard, EOP-010-1, went into effect in April 2015. NERC’s next reliability standard, TPL-007-1, includes requirements that will be phased in over a 5-year period from July 2017 to January 2022. The TPL-007-1 standard lists a total of seven requirements of which all but one are directed at planning coordinators and transmission planners whose planning area includes certain high- voltage transformers. In general, these requirements detail further steps suppliers must take to periodically model their networks and assess the vulnerable points of their networks to GMD. Depending on the vulnerabilities suppliers identify in conducting future assessments in accordance with TPL-007-1, suppliers will be required to develop corrective action plans, starting in January 2022, to ensure their generation or transmission networks meet certain performance requirements during a GMD event (e.g., no cascading blackouts). According to NERC, corrective actions in each plan may include (1) operational procedures, (2) enhanced training, (3) installation of devices (e.g., GIC blocking devices), (4) modification of devices (e.g., modifying equipment for greater GIC resilience), (5) removing vulnerable devices (e.g., old transformers), and (6) spare transformer programs. See appendix III for additional detail on TPL-007-1’s 7 requirements for certain electricity suppliers along with implementation dates for each. NERC Has a Process to Verify Compliance with Reliability Standards, Including Those Related to GMD NERC has an established process to verify electricity suppliers’ compliance with reliability standards, including EOP-010-1 and TPL-007- 1. Annually, NERC identifies and prioritizes risks based on the potential impact to reliability across its eight North American regions and the likelihood that such an impact might be realized. This process results in an annual compilation of risk elements for the coming year that are reflected in NERC’s implementation plan for compliance monitoring of reliability standards throughout its eight regions. In this implementation plan, NERC obtains input from the regions on risks inherent in their geographic areas of responsibility, and NERC links these areas of risk with specific reliability standards. For example, since becoming effective in 2015, NERC officials stated that the EOP-010-1 standard has been an annual area of focus in the implementation plan under the “extreme physical events” risk area. NERC’s overarching implementation plan provides a template for the regions to follow in developing their own regional implementation plans. NERC’s eight Regional Entities build on NERC’s guidance on risks facing all regions by assessing risks to the reliable operation of the bulk power system in their specific geographic areas of responsibility and identifying the reliability standards associated with those local areas of risk that they will focus on in their compliance monitoring efforts for the upcoming year. Further, according to NERC officials, each NERC Regional Entity performs individual risk assessments for each of the electricity suppliers in their areas of responsibility which further inform their approach to compliance monitoring for each of these suppliers—including which tools to use when assessing compliance. According to NERC, these individual risk assessments, along with the overarching and region- specific risks, inform the regions compliance monitoring oversight plan for each supplier. At the end of this planning process, NERC approves each region’s implementation and audit plans and submits the audit plans to FERC. As of August 2017, NERC’s regions had conducted 63 compliance audits of suppliers that included the EOP-010-1 reliability standard out of the total of 188 electricity suppliers potentially subject to the standard in the United States and Canada. According to NERC officials, the EOP-010-1 reliability standard went into effect in April 2015, and, as noted previously, NERC Regional Entities conduct compliance audits of individual suppliers—including those that must comply with EOP-010-1—at least once every 3 years. Therefore, due to this reason and the fact that these audits are just one of several options for NERC to consider in compliance monitoring, not every supplier subject to EOP-010-1 has been the subject of a compliance audit that included that standard in its scope as of the date of this report. NERC regions conducted these compliance audits on both reliability coordinators and transmission operators registered in the U.S. that were subject to EOP-010-1. As of September 2017, NERC had reported a total of two instances of non-compliance with the EOP-010-1 standard since its inception in April 2015. Electricity suppliers self-reported these two instances of non-compliance to NERC, and they were not the result of a compliance audit. NERC concluded that these incidents posed minimal risk to the reliability of the bulk power system. The two suppliers engaged in mitigation activities (e.g., training of personnel and modification of procedures) to address their non- compliance with the standard, which was verified by NERC’s Regional Entities. NERC concluded that no further action was needed in these two cases. Selected Suppliers Reported that Costs for Protecting against GMD and HEMP Events Have Been Relatively Small to Date, and Most U.S. Suppliers Are Expected to Be Able to Recover Costs through Charges to Electricity Customers Selected Suppliers Told Us Costs for Protecting against GMD and HEMP Events Have Been Relatively Small to Date, but Costs May Increase as Suppliers Comply with Future NERC Requirements Selected electricity suppliers told us the costs they have incurred to date for protecting against GMD and HEMP events have been small relative to their overall system costs. One supplier said that the costs they have incurred are generally associated with projects that provide broader system reliability or other benefits not specific to GMD or HEMP events. Based on interviews with selected suppliers, there are several types of projects that protect against GMD and HEMP events at different levels of costs: Projects providing collateral GMD or HEMP protection at no specific, incremental cost. As noted previously in this report, selected suppliers have installed several types of equipment for the purposes of transmission efficiency or benefits of general stability, and this equipment also provides collateral protection against GMD or HEMP events. This equipment has included series compensation systems installed on transmission lines, replacement of older electro- mechanical protective relays used in the suppliers’ grid control systems with newer digital relays, and acquisition of spare transformers or participation in shared spare transformer programs which improves their ability to quickly restore transmission systems from any cause, including GMD or HEMP events. Total project costs may vary widely depending on the amount and type of equipment suppliers choose to install, but according to suppliers we interviewed and information from transformer manufacturers, costs for this equipment can range from thousands of dollars per digital relay to tens of millions of dollars for a series compensation system. Projects providing supplemental GMD or HEMP protection at minimal added cost. As also noted previously in this report, some suppliers we interviewed said they have added specifications for improved protection against GMD or HEMP events as part of larger equipment procurement or construction projects and that this improved protection typically came at a relatively small increase in total project price. For example, several suppliers told us that transformers and other transmission equipment used to control voltage levels can be made more resistant to GIC by using certain designs or materials, and one supplier said this would increase equipment costs by 2 to 3 percent or less. In addition, the two suppliers we interviewed who have designed new control centers that are to be hardened against a range of hazards—including extreme weather (earthquakes, tornadoes, hurricanes, lightning), physical attacks, and HEMP events—told us that adding HEMP protection to the design of new control centers has increased total project costs from about 5 to approximately 20 percent. Projects built primarily for GMD or HEMP protection. As also noted previously in this report, one supplier has installed a prototype GIC-blocking device, designed specifically to protect against GMD events, as part of a pilot effort to test its operational impacts. The costs of deploying these devices are expected to be better understood after the pilot effort is completed, but based on its initial results, the supplier expects that the total cost for a well-designed GIC-blocking device would be at least $500,000, excluding installation and other costs and one device could be required to protect each transformer. Suppliers we interviewed told us they have also developed plans or procedures to mitigate for GMD. According to suppliers, in general these plans emphasize reducing the (1) level of power provided by individual power plants and (2) amount of power flowing over power lines to levels below their operating limits. For example, the plan for one coordinator—a grid operator—requires that they immediately take action to reduce the transfer of power down to GMD Operating Plan-designated limits; if these limits are approached or exceeded, selected power plants are directed to reduce the levels of power provided and, if necessary, the grid operator modifies the levels of power flowing through the system until designated transfer limits are reached. According to suppliers, lowering these power levels can reduce the temperatures of key equipment such as transformers and provide for greater flexibility to operate the system during an event. In some cases, such plans can require increased use of power plants that are more costly to operate, potentially increasing overall system costs. The costs of emergency operating procedures implemented in response to electromagnetic events are likely to vary considerably on a case-by-case basis, depending on such factors as the level of demand and the generation resources available during the event. In terms of customer costs, U.S. suppliers we interviewed said that the costs they have incurred for GMD or HEMP protection thus far would represent a negligible increase in rates paid by customers. For example, one supplier we interviewed serves about 4.5 million retail customers, and officials from that supplier estimated the cost of hardening a planned control center against HEMP to be at least $10 million. If this cost is fully passed on to customers and paid for in a single year, we calculated that it would amount to a total of about $2 for the average customer’s electric bill for that year. In the future, suppliers could face increased costs for protecting against GMD, depending on the corrective actions needed to address vulnerabilities, which suppliers are to identify in accordance with reliability standard TPL-007-1. The standard does not require suppliers to complete vulnerability assessments and develop corrective action plans until 2022, and suppliers told us it is too early to know what types of corrective actions may be required. However, the costs associated with some types of potential actions could be high. In particular, examples of potential corrective actions provided in the standard, such as installing new equipment or modifying existing equipment for improved GIC resilience, could be costly according to some suppliers we interviewed. For example, high-voltage transformers can cost tens of millions of dollars each. If suppliers identify multiple transformers that are vulnerable to thermal impacts from GIC flows, replacing or modifying them would be costly. Similarly, a supplier may need to install GIC-blocking devices throughout their network to effectively protect against a GMD event because the devices re-direct GIC flows elsewhere in the network. Therefore, a blocking device strategy could be costly if suppliers determine that large numbers of their transformers are vulnerable. Based on our prior review of federal efforts to enhance electric grid resiliency and federal emergency management programs, and interviews with agency and industry representatives, there are no sources of direct federal funding specifically to reimburse suppliers for costs they incur for protecting against GMD or HEMP events. DHS officials told us there are two DHS grant programs that could be used to indirectly support suppliers’ efforts to prepare for GMD or HEMP events. However, DHS directly awards these grants to state, local, or tribal governments, and DHS officials told us that it is rare for these grant funds to be passed through to private companies and they have no record of instances in which electricity suppliers received funding for grid preparedness efforts. Regulated U.S. Suppliers’ Costs for Protecting against GMD are Generally Recoverable, but Cost Recovery is Less Certain for HEMP Events Federal and State Regulators Have Made Specific Assurances about Recovering GMD-Related Costs At the federal level, in FERC’s September 22, 2016, order approving NERC’s TPL-007-1 reliability standard, FERC stated that cost recovery for prudent costs associated with or incurred to comply with the standard would be available to suppliers for whom FERC approves rates. Two suppliers we interviewed said that because FERC requires suppliers to comply with the standard and has provided specific assurance that prudent costs will be recoverable, they do not expect challenges recovering such costs. According to FERC officials, FERC determines whether suppliers’ investments are prudent on a case-specific basis, in part by considering whether the supplier acted reasonably given industry norms. FERC officials also stated that for most transmission rates, it does not conduct in-depth reviews of the reasonableness and prudence of each cost item unless a stakeholder such as a ratepayer advocacy group, large customer, or state public utility commission challenges the suppliers’ rate filing with FERC. FERC officials told us they were not aware of any cases in which stakeholders challenged GMD-related costs. Some suppliers we interviewed said that the revisions to TPL-007-1 that FERC required in Order 830—particularly, revisions to the benchmark GMD event suppliers must use in their vulnerability assessments—could result in added costs for suppliers. For instance, one supplier expressed concern that they could have to begin work to assess vulnerabilities and protect against the first version of the benchmark event, and that the revised standard would require them to re-do such work using a new benchmark event, at additional cost. In response to such concerns, FERC stated that it could not yet determine what impacts the revisions might have on the actions suppliers would have to take to comply, because NERC had not yet developed or proposed the revisions. However, FERC re-affirmed that cost recovery for prudent costs associated with or incurred to comply with reliability standard TPL-007-1, and future revisions to the standard, will be available to regulated suppliers. Representatives from the state regulators we interviewed said they allow recovery of prudent generation or distribution costs for regulated utilities for improvements needed to meet federally-required reliability standards, such as NERC’s GMD reliability standards. In addition, some of the selected suppliers told us that they use federally-required reliability standards to justify necessary investments when filing a rate case with state regulators. As with FERC, state regulators we interviewed said they determine the prudence and reasonableness of costs on a case-specific basis. Suppliers’ Ability to Recover Future HEMP-Related Costs is Uncertain Due to Limited Understanding of HEMP Risks and Mitigation Efforts To the extent suppliers and regulators determine that HEMP events pose a risk to bulk power system reliability, FERC may allow recovery of prudent costs for protecting against EMP events. However, according to FERC officials, determining prudence for costs associated with new, emerging areas such as HEMP mitigation could be challenging because regulators and suppliers have limited understanding of HEMP risks. In 2004, FERC publicly assured suppliers that it will allow for recovery of prudent costs necessary for ensuring the reliability of the bulk power system. Specifically, FERC issued a policy statement assuring public utilities that FERC will approve applications to recover prudently-incurred costs necessary to ensure bulk power system reliability, including prudent expenditures for compliance with good utility practices—practices engaged in or approved by a significant portion of the electricity industry or that could be expected to accomplish the desired result at a reasonable cost. Two suppliers we interviewed said that they expect FERC would allow them to recover transmission costs they deemed necessary for protecting against HEMP events. FERC officials told us that they are not aware of any cases to date where suppliers have sought recovery of transmission costs associated with HEMP protection through FERC-approved rates, so they do not know what challenges they might encounter in determining whether these costs are prudent. Also, unlike GMD events, suppliers and electricity industry stakeholders told us there are not yet tools for assessing suppliers’ vulnerability to HEMP events, standards for protecting against these events, or tools for assessing the effectiveness of protective remedies. Suppliers and state regulators we met with said more information is needed to understand HEMP risks and mitigation efforts in order to determine to what extent costs would be recoverable. Electricity industry stakeholders and suppliers told us that they are sensitive to the fact that their costs are typically borne by customers, and more complete knowledge of HEMP risks would allow them to invest responsibly in HEMP protection from both a reliability and cost perspective. Similarly, one state regulator we interviewed has not yet received any rate filings from suppliers that include costs associated with HEMP protection. However, one supplier said that their state regulators prioritize reliability, and they expect the regulators would allow recovery of costs for HEMP protection if suppliers determined such protection was needed. As with FERC, state regulators said that when rate filings involve new technologies or practices, there is more uncertainty regarding costs and benefits and it can be more difficult for regulators to determine prudency. For example, one state regulator told us that DHS is doing work to understand risks associated with HEMP events, and what protections such events may necessitate. The regulator said they would like to see the results of this work before suppliers invest in mitigation equipment, so there can be more certainty that the costs will be considered prudent. Independent Generators May Face Challenges Recovering Costs for Protecting Against GMD and EMP Events Independent generators—generators that sell power in wholesale electricity markets and are not part of an integrated utility—do not have a mechanism assuring cost recovery for reliability improvements, including such as GMD and HEMP protection. FERC officials stated that these generators sell electricity at prices determined by supply and demand in markets that FERC has determined are sufficiently competitive or that have adequate procedures in place to mitigate the effect of companies to manipulate prices, such as could be the case for a company with a large market share. As such, according to electricity industry and FERC officials, independent generators do not have the assurances of cost recovery that traditionally-regulated suppliers do. If they invest in protecting their facilities from the potential effects of GMD and HEMP, the prices independent generators obtain for selling electricity so as to be competitive in the wholesale markets may be too low to allow them to fully recover their costs. According to data from DOE’s Energy Information Administration, independent generators represented nearly 47 percent of electric generation facilities and generated about 39 percent of utility- scale electricity in the U.S. in 2015. FERC officials said they recognize that independent generators could face challenges recovering costs for step-up transformers—generator equipment which, if it is vulnerable to GMD, may need to be replaced or modified in accordance with NERC standard TPL-007-1. Independent generators must balance the need to recover costs associated with these transformers with the need to offer prices for their electricity that are competitive in wholesale markets. According to suppliers, until studies are completed to identify how companies will comply with TPL-007-1 it is unclear the extent of the risk to step-up transformers owned by independent generators and the extent of the challenges of paying for steps to mitigate those risks. Agency Comments We provided a draft of this report to DOE, DHS, NOAA, NRC, FERC, and NERC for their review and comment. DOE, DHS, NRC, FERC, and NERC provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretaries of Commerce, Energy, and Homeland Security, the Chairmen of the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission, and the Chief Executive Officer of the North American Electric Reliability Corporation. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Chris Currie at (404) 679-1875 or [email protected] or Frank Rusco at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. Appendix I: Scope and Methodology In conducting our work, we interviewed representatives from 13 of the 181 U.S. and Canadian electricity suppliers—entities that own or operate generation or transmission infrastructure—subject to the North American Electric Reliability Corporation’s (NERC) 2014 geomagnetic disturbance (GMD) reliability standard and which conduct planning and generation, transmission, and distribution operations. We selected these 13 electricity suppliers based on input from the U.S. Department of Energy (DOE), NERC, industry associations, and research institutions as to which suppliers had taken steps to prepare for and mitigate impacts from electromagnetic events. We also considered, among other things, the following supplier preparedness and mitigation actions and characteristics: (1) efforts or plans to install mitigation equipment or technology; (2) efforts or plans to develop specific mitigation processes, procedures, or other operational actions; (3) infrastructure, such as length and voltage of transmission lines; (4) high-voltage equipment, including transformers over 230 kilovolts (kV); (5) geomagnetic latitude; and (6) experience with GMD-related service disruptions. We included 3 Canadian electricity suppliers among the 13 suppliers we interviewed due to their (1) experiences with past geomagnetic disturbance (GMD) events, (2) research on the impacts of GMD, and (3) actions taken to prepare for and mitigate GMD events. We conducted site visits to 6 of the 13 suppliers to better understand their experiences with past GMD events and identify actions they have taken to prepare for and mitigate GMD and High-Altitude Electromagnetic Pulse (HEMP) events, among other things. During these visits we met with organization officials; observed operations and facilities, such as control centers hardened to mitigate effects from HEMP events; and viewed equipment potentially vulnerable to GMD, such as high-voltage transformers. While we cannot generalize the information we learned from these selected suppliers to all U.S. and Canadian suppliers, they provided insight on what electricity suppliers may know regarding the potential impacts of electromagnetic events on the electric grid, as well as steps suppliers may be taking to prepare for and mitigate such impacts. The selected U.S. suppliers also identified opportunities available to them for recovering costs for protecting against electromagnetic events. Based on input from DOE, NERC, supplier, and industry officials, and because of these organizations’ specialized knowledge and experience with the electricity industry, we also interviewed representatives from six industry organizations—five industry associations and one industry research organization—two transformer manufacturers, one software modelling company specializing in simulations of high-voltage power system operations, and one designer of a prototype geomagnetically induced current (GIC)-blocking device. To determine the extent to which U.S. and Canadian electricity suppliers have identified information about the effects of GMD and HEMP on the electric grid, we reviewed selected U.S. and Canadian government studies issued—or commissioned by—DHS, DOE, U.S. National Laboratories, Natural Resources Canada, the Federal Energy Regulatory Commission (FERC), and NERC since 2010 regarding, among other things, the vulnerability of transmission and generation infrastructure and equipment to GMD and HEMP events, possible measures to mitigate the effects of GMD and HEMP, and areas requiring further research. We also reviewed relevant studies published since 2010 from the Electric Power Research Institute (EPRI) and private contractors referred to us by government, supplier, and industry representatives. We identified these studies based on feedback from all entities listed above and through references in reports and other documentation. While we did not compile a comprehensive list of all studies of the effects of GMD and HEMP on the U.S. and Canadian electric grid, industry experts indicated that we had identified relevant studies published on this subject since 2010. We also interviewed knowledgeable officials from these U.S. and Canada government agencies, national laboratories, and industry organizations to clarify our understanding of the issues addressed in these studies. We assessed the methodologies used in the relevant reports and determined them to be sufficiently rigorous to provide information about the potential effects of GMD and HEMP events on the electric grid. To better understand the effects of solar weather on the electric grid, how GMD is measured, and mechanisms in place for notifying electricity suppliers of potentially dangerous solar storms, we interviewed representatives from the National Oceanic and Atmospheric Administration’s (NOAA) National Weather Service, the U.S. Geological Survey (USGS), and the National Aeronautics and Space Administration (NASA). We also reviewed relevant documentation on processes and procedures. -index) is a near real-time estimate of the official Planetary K-index maintained by the GFZ German Research Centre for Geosciences. events occurring from 1933 through 2016. We also interviewed Department of Homeland Security (DHS) officials regarding the Department’s efforts to address requirements in the National Defense Authorization Act for Fiscal Year 2017. To obtain perspectives on efforts individual electricity suppliers have taken to better understand the effects of GMD and HEMP, we interviewed officials from 13 U.S. and Canadian suppliers regarding the extent to which they had evaluated the impact of electromagnetic events on their specific generation systems or transmission networks and what they had learned from these evaluations. With respect to ongoing efforts to research the effects of HEMP, we reviewed DOE and EPRI’s Joint Electromagnetic Pulse Resilience Strategy and the U.S. Department of Energy Electromagnetic Pulse Resilience Action Plan and interviewed relevant DOE and EPRI officials regarding these plans. Further, we interviewed officials from various national laboratories regarding their ongoing efforts to fully investigate and evaluate how an electric utility could protect itself from, or mitigate the effects of, HEMP on its systems. We also interviewed officials from the Nuclear Regulatory Commission (NRC) regarding efforts to assess the ability of a nuclear power plant to achieve safe shut down following a GMD or EMP event and the extent to which plants are required to implement strategies or guidelines in the event of a prolonged loss of offsite power, similar to what could be caused by a GMD or EMP event. Finally, we reviewed the 2008 Commission to Assess the Threat to the United States from Electromagnetic Pulse Attack (EMP Commission) report with recommendations on preparing for and recovering from a possible EMP attack. In October 2017, we also requested an interview with a representative from the EMP Commission but did not receive a response to our requests. To identify steps selected U.S. and Canadian electricity suppliers have taken to protect against GMD and HEMP events and understand how NERC has monitored these efforts, we reviewed FERC orders and NERC reliability standards that require certain suppliers to take steps to assess and prepare for GMD impacts. We interviewed FERC and NERC officials to discuss these standards and reviewed public comments submitted by stakeholders during the FERC rulemaking process. We also interviewed officials from 13 U.S. and Canadian electricity suppliers to identify steps they had taken to comply with NERC reliability standards as well as any additional actions to prepare for and mitigate potential GMD and HEMP effects, such as replacement of older equipment or investment in spare transformer programs. Additionally, we reviewed relevant federal guidance on preparing for GMD and HEMP events, such as DHS’s Electromagnetic Pulse protection guidelines and NERC’s Geomagnetic Disturbance Planning Guide. To identify the extent to which NERC has monitored electricity suppliers’ steps to comply with NERC reliability standard EOP-010-1, we reviewed NERC monitoring processes, including procedures for developing an annual, nationwide implementation plan for conducting monitoring activities. NERC officials provided the number of compliance audits conducted between April 2015—when NERC, through Regional Entities to which it has delegated enforcement authority, first began reviewing suppliers for compliance with EOP-010-1—and August 2017 that included the EOP-010-1 reliability standard. We contrasted the number of compliance audits with the total number of suppliers potentially subject to NERC’s GMD reliability standard EOP-010-1. We assessed the reliability of the data on the total number of suppliers subject to EOP-010-1 by interviewing agency officials regarding data sources, system controls, and any quality assurance steps performed by officials before the data were provided; we found the data to be sufficiently reliable to provide the number of suppliers subject to EOP-010-1 since it went into effect. We also discussed with cognizant NERC officials the organization’s processes for collecting and reporting comprehensive data on the status of their overall compliance monitoring efforts. To identify what opportunities exist for U.S. electricity suppliers to recover costs for protecting against GMD and HEMP events, we reviewed FERC regulations and orders related to cost recovery, such as suppliers’ costs for spare transmission equipment services. We also interviewed FERC officials and representatives of selected state regulators whose jurisdictions include suppliers we interviewed, regarding procedures available to electricity suppliers to recover costs for actions taken to prepare for and mitigate GMD and HEMP effects. We asked these officials to discuss previous, current, and potential future regulatory actions—orders or rate cases they have overseen—involving recovery of costs for actions taken to protect against GMD and HEMP events. Further, we interviewed cognizant DHS and DOE officials to identify the extent to which financial incentives—such as preparedness grants—are available to U.S. electricity suppliers to offset the costs of preparation and mitigation efforts. As part of our review of actions taken by ten selected U.S. electricity suppliers to prepare for and mitigate the impact of electromagnetic events, we interviewed officials regarding the extent to which they had recovered costs expended on preparedness and mitigation efforts and what, if any, options they were considering to recover such costs in the future. While the information provided by these selected electricity suppliers is not generalizable to the U.S. industry, it illustrates examples of actions selected suppliers have taken to recover costs for GMD and HEMP mitigation and preparedness efforts. In addition, we interviewed representatives from various trade associations to identify challenges suppliers face in recovering costs for mitigation and preparedness efforts. We conducted this performance audit from May 2016 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: National Oceanic and Atmospheric Administration (NOAA) Notifications for Geomagnetic Disturbances In the United States, the National Oceanic and Atmospheric Administration’s (NOAA) National Weather Service manages the Space Weather Prediction Center (SWPC), which is responsible for monitoring and providing services on space weather, including geomagnetic storms. SWPC uses a variety of ground and space-based sensors, as well as imaging systems, to view and estimate geomagnetic activity around the world, and to issue Watches, Warnings, and Alerts for geomagnetic storms through e-mail and website postings to those who are impacted by space weather. Additionally, in the event of imminent geomagnetic storms, SWPC issues immediate voice notification and confirmation to all North American Electric Reliability Corporation (NERC) reliability coordinators through a special hotline. is a “range index”—a measure of variation that saturates at K= 9—Dst is an unbounded measure of solar storm effects on the Earth’s magnetic field. In this report, we use the K- index, the history of which spans three solar cycles more than the Dst-index. = 9 (extreme)—to determine whether geomagnetic alerts and warnings should be issued. SWPC’s primary notifications include: Watches: Watch forecasts for impending geomagnetic storms— coronal mass ejections (CME)—are issued when the highest predicted Kp-index for a day is between K = 5 or higher and are posted approximately 1 to 2 days before a storm reaches Earth. According to SWPC, Watch forecasts are less reliable in predicting storm intensity and timing than other types of forecasts, but are considered useful for longer-range notification. Watch forecasts are based primarily on space and ground-based solar observations as well as modelling predictions. Warnings: Warnings of geomagnetic storms are issued when estimated K-indices of K = 4 or higher are expected; they are generally issued 20 to 40 minutes in advance and are based on real- time observations of the solar wind conditions affecting earth. SWPC considers Warning notices as more reliable than Watch forecasts in terms of measuring storm intensity and timing. -index to determine the G-scale level (G1 through G5), in which “K= 5” corresponds to “G1” and “K= 9” corresponds to “G5.” A K of 0 to 4 is below storm levels and is labeled as “G0.” For purposes of consistency, we use the K- index in this report. Alerts: Alerts are near real-time indications that a specific storm threshold—K = 4 or above—is reached; they are based on SWPC’s minute-by-minute estimate of GMD activity. Alerts are derived from ground-based magnetometer observations from eight locations around the world. According to SWPC, Watches, Warnings, and Alerts are to be issued as activity occurs and therefore can be issued very frequently during high- activity intervals and not at all during quiet periods. SWPC issues these notifications when storm levels reach a specific estimated K level. Table 1 shows the estimated K-indices that trigger each SWPC notification product as well as the estimated impacts to the electrical power system. Appendix III: North American Electric Reliability Corporation (NERC) Geomagnetic Disturbance (GMD) Reliability Standards In May 2013, the Federal Energy Regulatory Commission (FERC) directed NERC to develop reliability standards requiring electricity suppliers to address the potential impact of GMD on the reliable operation of the U.S. bulk power system. In June 2014, FERC approved standard EOP-010-1, submitted by NERC, requiring that certain suppliers prepare for the effects of GMD events by developing contingency operating plans, procedures, and processes. FERC approved a second standard—TPL- 007-1—in September 2016, also submitted by NERC, requiring certain suppliers to assess the vulnerability of their transmission systems to GMD events; suppliers that do not meet certain performance requirements must develop a plan to achieve the performance requirements. Table 2 summarizes the specific requirements in NERC’s stage 1—EOP-010-1— and stage 2—TPL-007-1—standards, the electricity industry entities responsible for them, and their effective dates for the requirements. Appendix IV: Select Government and Industry Studies on Electromagnetic Events An electromagnetic event can result from a naturally occurring, large- scale geomagnetic disturbance (GMD), caused by severe solar weather, or from human-made sources, such as the high-altitude detonation of a nuclear device to create a high-altitude electromagnetic pulse (HEMP). Table 3 provides details on a select number of geomagnetic-related studies performed since 2010 with respect to their objectives, findings, and recommendations. These studies include details on (1) areas of vulnerability for the grid with respect to GMD events, (2) potential impact on the grid from these events, (3) possible mitigation measures, and (4) areas needing further research. For example, as shown in the table, the North American Electric Reliability Corporation’s (NERC) and the Department of Energy’s (DOE) June 2010 report included a plan to form a task force of government and industry efforts to examine GMD. This resulted in the formation of the NERC GMD Task Force, consisting of government, industry, and academic experts, to examine the GMD threat to the nation’s power grid. The task force’s work in evaluating the potential impact of GMD events resulted in NERC’s subsequent February 2012 report (also shown in table 3) which outlines its plans for working with industry on new reliability standards for GMD events, among other things. As a result of this work, and as directed by the Federal Energy Regulatory Commission (FERC), NERC developed the EOP-010-1 and TPL-007-1 GMD reliability standards. Also as a result of this work, NERC issued a GMD Planning Guide for electricity suppliers, which assists the suppliers in carrying out studies to assess the effects of GMD on their individual networks. Table 4 provides details on a select number of unclassified HEMP-related studies performed since 2010 with respect to their objectives, findings, and recommendations. These studies include details on (1) areas of vulnerability for the grid with respect to HEMP events, (2) potential impact on the grid from these events with respect to all three HEMP pulses (E1, E2, and E3), (3) possible mitigation measures, and (4) areas needing further research. Appendix V: Details on the U.S. Department of Energy’s (DOE) Electromagnetic Pulse (EMP) Resilience Action Plan DOE’s EMP Action Plan (DOE Action Plan), issued January 2017, describes 19 actions to be taken by September 30, 2021, to enhance the resilience of the electric power grid to high-altitude electromagnetic pulse (HEMP) effects. DOE stated that its Action Plan considers the over 90 recommendations made in the 2008 Commission to Assess the Threat of the United States from Electromagnetic Pulse (EMP) Attack (EMP Commission) report and at least partially addresses 10 of the 15 recommendations directly related to the electric power system made by the EMP Commission in their report. See table 5 for these 10 EMP Commission recommendations from 2008 and corresponding components of DOE’s 2017 Action Plan. As of November 2017, based on our review of implementation dates for specific actions in DOE’s plan, the agency had yet to complete 15 of the 19 actions detailed in the Action Plan but had initiated efforts under the plan to identify gaps in HEMP knowledge and coordinate government and industry information sharing with the electricity sector and other critical industry sectors. Future work DOE expects to address under the plan will include (1) evaluating existing models used to estimate EMP impacts to the grid, (2) the adequacy of backup power generation in the wake of an EMP event, (3) establishing a national capability for conducting EMP testing of existing grid components, (4) identifying and evaluating mitigation and protection measures for various grid components, and (5) assessing the feasibility of testing different hardening techniques for substations for EMP scenarios. The DOE Action Plan includes deliverables and due dates for the 19 action items detailed in the plan which, according to DOE, are subject to the availability of necessary funding. See table 6 for details on these deliverables, and associated dates, for each action item. Appendix VI: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the individuals named above, Jon Ludwigson (Acting Director), Ben Atwater (Assistant Director), and Barbara Guffy (Analyst-in- Charge) managed this assignment. Frederick K. Childers, Jonathan Felbinger, Daniel Friess, Alexandra D. Gebhard, Michael Harmond, Eric Hauswirth, Richard Hung, Miles Ingram, and Heidi Nielson made key contributions to this report.

A severe GMD or HEMP event could potentially have significant impacts— including power outages—on the nation's electric grid, which could affect other sectors that depend on electricity, such as communications. In response, NERC created two regulatory standards requiring certain U.S. and Canadian suppliers to assess their vulnerability to GMD and take appropriate steps in response. GAO was asked to review electricity industry actions to prepare for and mitigate electromagnetic risks. This report examines, among other things, (1) to what extent U.S. and Canadian electricity suppliers have identified information about GMD and HEMP effects on the grid, (2) what steps selected U.S. and Canadian suppliers have taken to protect against GMD and HEMP, and (3) what opportunities exist for U.S. suppliers to recover costs for protecting against GMD and HEMP. GAO examined government and industry studies and interviewed federal and industry officials about potential GMD and HEMP effects on grid infrastructure; reviewed regulatory standards, monitoring processes, and NERC compliance audit data from April 2015 through August 2017; reviewed federal regulations and interviewed state regulators on cost recovery issues; and interviewed officials from a nongeneralizable sample of 13 U.S. and Canada electricity suppliers, selected based on factors such as GMD experience and preparation for GMD and HEMP events. GAO provided a draft of this report to five federal agencies and NERC. Technical comments provided were incorporated as appropriate. U.S. and Canadian electricity suppliers—electricity generation and transmission owners and operators—have identified information on the potential effects of a severe geomagnetic disturbance (GMD), resulting from a solar storm, but have identified less information about the potential effects of a high-altitude electromagnetic pulse (HEMP), resulting from the detonation of a nuclear device, on the electric grid. There is general agreement that more research is needed on both GMD and HEMP. Government and industry have publicly reported on the potential impacts of GMD on the grid. For example, one study identified two main risks: (1) potential voltage instability, causing power system collapse and blackouts; and (2) possible damage to key system components. However, these studies do not address the unique aspects of individual suppliers' networks. Recognizing this, 11 of the 13 selected suppliers GAO contacted said they had assessed their network vulnerability; of these 11, 6 expected GMD effects to be relatively small. In contrast, Department of Energy (DOE) and industry officials told GAO that information on HEMP effects is limited in that suppliers lack key information to fully understand HEMP effects on their networks. Historically, study of HEMP effects focused on impacts to military equipment rather than the commercial electric grid. Recently, DOE and industry began research to better understand HEMP effects. Of the 11 suppliers who responded to GAO about their HEMP efforts, 3 reported having studied the impact of HEMP on their networks and 2 of the 11 had integrated, or planned to integrate, HEMP-resistant features into new control centers. Of the 13 selected suppliers GAO contacted, 10 reported making technological and operational improvements to enhance overall network reliability that also provided some protection against GMD and HEMP risks. For example, suppliers reported making technological improvements such as replacement of some older transformers and unprotected control centers. As of May 2017, all 13 suppliers stated they had complied with a GMD regulatory standard issued by the North American Electric Reliability Corporation (NERC)—the federally designated regulatory authority responsible for developing and enforcing reliability standards–-to develop operating procedures to mitigate GMD effects. A second regulatory standard—which is to be implemented in phases through 2022—will generally require suppliers to further assess their vulnerability to GMD. Selected U.S. suppliers told GAO that costs they have incurred to protect against GMD and HEMP have been relatively small so far and they expect to recover those costs through customer rates. Suppliers could face future increased costs depending on corrective actions needed to comply with the second GMD regulatory standard. Federal and state regulators indicated that regulated U.S. suppliers' costs for protecting against GMD are generally recoverable through customer rates, but recovery is less certain for protection against HEMP because less is known about HEMP risks. Further, some suppliers could face challenges to cost recovery. Specifically, independent owners of power plants—those that sell power in wholesale electricity markets and are not part of an integrated utility—must recover reliability improvement costs through their sales of electricity and are not assured of cost recovery; federal regulators told GAO they are aware this could be a challenge for these independent owners.

GAO_GAO-18-486

Background UI Program Administration and Funding The federal-state UI program provides temporary cash benefits to eligible workers who lose their jobs through no fault of their own. Under this arrangement, states administer their own programs according to certain federal requirements and under the oversight of DOL’s Office of Unemployment Insurance. States have considerable flexibility to set benefit amounts and their duration, or the maximum period of time that the state pays benefits, and establish eligibility requirements. UI benefits are funded primarily through state payroll taxes on employers, and administrative costs are primarily funded through a federal payroll tax on employers. The states collect taxes that will be used to pay UI benefits, and the U.S. Department of the Treasury holds these funds in trust on behalf of the states in the Unemployment Trust Fund. DOL certifies for payment to the states administrative grants to operate their UI programs, which amounted to about $2.7 billion in fiscal year 2017. DOL is responsible for ensuring that state UI laws include certain provisions, which is a condition of the state receiving its UI administrative grant. Individuals typically claim their UI benefits by filing claims with their state UI agency online or by phone on a weekly or bi-weekly basis. In fiscal year 2017, the average weekly UI benefit was about $350, and claimants remained on the program for an average of 15 weeks, according to DOL data. Work Search Requirements for UI Claimants Federal law establishes a work search requirement for UI eligibility, but the specific work search activities UI claimants are expected to conduct vary by state, according to a DOL report. To be eligible for unemployment benefits, individuals are generally required to actively search for work under federal law. The Middle Class Tax Relief and Job Creation Act of 2012 amended the Social Security Act to, among other things, require states to have work search requirements for UI claimants specified in their laws as a condition of eligibility for the states’ UI administrative grants. Specifically, states must have laws that require UI claimants to be “actively seeking work” as a condition of eligibility for unemployment compensation for any week. Because federal law does not specifically define actively seeking work, states have some discretion to establish a reasonable definition, according to DOL’s 2013 guidance to states. For example, a state can specify a minimum number of weekly contacts a claimant must have with potential employers. Acceptable work search activities might also include searching for jobs online, submitting job applications, visiting a job center, attending a networking event, or establishing a LinkedIn account, according to a DOL report. Depending on the state, UI claimants may be directed to register for work with their state’s Employment Service, which provides job search assistance, job placement assistance, and referrals to employers. In addition, in some cases UI claimants may be directed to participate in reemployment services at an American Job Center. In 2017, DOL provided $115 million in grants to states to provide Reemployment Services and Eligibility Assessments (RESEA). RESEA services include in-person reemployment services and eligibility assessments in American Job Centers for ex-service members and UI claimants determined to have a high likelihood of exhausting their UI benefits. RESEA-funded activities include developing an individual reemployment plan, providing labor market information, identifying job skills and prospects, and reviewing the claimant’s continued eligibility for UI benefits. Process for Identifying Work Search Overpayments in State Benefit Accuracy Measurement Audits DOL uses its Benefit Accuracy Measurement (BAM) system to determine the accuracy of UI benefit payments and estimate the amount and rate of improper payments. Under the BAM system, each state reviews a number of randomly selected cases on a weekly basis and reconstructs the UI claims process to assess the accuracy of the payments that were made. The state determines what the benefit payment should have been according to its laws and policies. States report the results of their BAM case reviews to DOL—including overpayments and underpayments—through an online data system. DOL uses the data to estimate improper payment rates by state, as well as to calculate a nationwide rate. State BAM audits involve reviews of existing records in the state’s UI claims information system as well as original fact-finding by the state BAM investigator. DOL requires states to use a standard claimant questionnaire when conducting BAM audits. The questionnaire includes numerous questions about the claimant’s circumstances—including their work search efforts—during the week under review. The questionnaire includes questions that could indicate that a claimant qualifies for an exemption from work search requirements, or made specific job contacts and the results of the job contacts, such as whether the claimant submitted an application and received a job offer. State BAM investigators are also expected to take steps to verify the information reported by the claimant by collecting documentation from claimants and contacting employers or other third parties. According to DOL’s 2016 BAM annual report and BAM procedures, state BAM investigators are to review a sufficient number of work search activities to determine whether the claimant has complied with the state’s minimum requirement for the number of weekly work search activities. The BAM program assigns one of three classifications to each of the work search activities reviewed: Acceptable – Documentation exists that the work search activity reported by the claimant, such as an employer contact, employment application, or other state approved work search activity, was made by the claimant and was acceptable according to the state’s law or policy. Unverifiable – The investigator was unable to establish sufficient information to make a judgment of whether the work search activity was either acceptable or unacceptable according to the state’s law or policy. Unacceptable – Written documentation exists that the work search activity reported by the claimant was not made at all by claimant, or was made but was unacceptable according to the state’s law or policy. According to DOL’s BAM annual report, work search activities classified as acceptable or unverifiable may be considered in calculating whether the claimant has satisfied the state’s required number of work search activities for purposes of BAM. If the state investigator finds that the claimant’s work search is unacceptable and does not meet the state’s requirements, he or she may determine the claimant was ineligible for benefits and establish an overpayment, depending on state law (see fig. 1). Currently, several states have formal warning policies and provide claimants warnings for the first instance of noncompliance with work search requirements, whereas states without these policies count these cases as overpayments, according to DOL. Reported Causes of UI Improper Payments Since 2002, federal agencies have been required to identify and report improper payments. The leading reported cause of UI improper payments in fiscal year 2017 was overpayments to claimants who failed to meet work search requirements. DOL data show that states made an estimated $1.36 billion in overpayments to such claimants in fiscal year 2017. Other major reported causes of UI improper payments in fiscal year 2017 included payments made to individuals who continue to make claims even after returning to work (benefit year earnings) and payments made to claimants who were determined ineligible due to disqualifying job separations, such as quitting a job without good cause or being discharged for misconduct (separation issues). (See fig. 2. Table 8 in app. II provides greater detail.) According to DOL officials, many UI improper payments cannot be prevented given certain legal requirements that states pay claims in a timely manner and provide claimants with due process when the state finds an eligibility issue. Specifically, according to DOL, federal law requires that when an eligibility issue is detected, the claimant has a right to receive notice and provide the state information before being denied benefits. In addition, if an eligibility issue associated with work search, or any other matter, is detected but not resolved, the state is still required to pay for a claimed week no later than the week after an eligibility issue is detected, according to DOL. The time it takes to work through the necessary due process steps can prevent states from stopping the payment before it must be paid. Trend in Reported Work Search Overpayments Nationally, the estimated work search overpayment rate and the estimated amount of work search overpayments have risen in recent years. Specifically, in fiscal year 2013, approximately $1 billion in estimated work search overpayments were made to claimants who were not actively searching for work and, in fiscal year 2017, the amount increased to close to an estimated $1.36 billion (see fig. 3). The national work search overpayment rate for such claimants also increased during this time. (See table 9 in app. II for additional details.) According to DOL officials, some states implemented more stringent work search requirements, which may account for the recent trend. As work search requirements become more stringent, the opportunities for non- compliance and errors increase and thus higher improper payment rates, according to DOL officials. While the national work search overpayment rate was 4.5 percent in fiscal year 2017, state work search overpayment rates varied widely from an estimated 0 to 41 percent of the UI benefits that states paid in fiscal year 2017. (See table 10 in app. II for state-by- state estimates of work search overpayment rates and amounts.) States use various methods to recover overpayments to UI claimants, including setting up payment plans, off-setting UI benefits, or deducting refunds from federal or state income tax returns. Like all recovered UI overpayments, recoveries of work search overpayments must be deposited in the unemployment trust fund of the state that recovered the money and can be used only for the payment of UI benefits, according to DOL officials. National data are not available on the amount of work search overpayments that states have recovered because, although DOL collects recovery data from states, it does not require states to separate out work search overpayment recoveries from other types of recoveries in their reporting. Conducting More Work Search Investigations Is Associated With Lower Estimated Work Search Overpayment Rates, As Is the Use of Formal Warnings Based on our analysis of DOL data, we found that certain state administrative practices, including investigating a higher percentage of claimant-reported work search activities and frequent use of formal warnings, were associated with lower reported state work search overpayment rates. However, DOL recently determined that federal law does not permit states to warn claimants the first time they failed to meet work search requirements (i.e., issue formal warnings) instead of establishing that an overpayment was made. Additionally, a higher percentage of claimants required to search for work is associated with higher reported state work search overpayment rates. Investigating Claimant- Reported Job Contacts Is Associated with Lower Work Search Overpayment Estimates, but the Extent to Which States Verified Contacts Varied One of the administrative practices significantly associated with lower work search overpayment estimates was investigations of claimants’ reported job contacts. Specifically, a higher percentage of cases with claimants whose contacts were investigated by the state UI agency as part of the state’s BAM audit was associated with a lower work search overpayment rate estimate. According to our analysis, for every 1 percentage point increase in the percentage of cases with claimants’ whose job contacts were investigated, there was a 0.072 percentage point decrease in the work search overpayment rate estimate. The extent to which states attempted to verify claimants’ reported job contacts through these investigations varied, according to our analysis of DOL data. Nationally, in fiscal year 2017, states investigated job contacts in about 80 percent of BAM cases where claimants were required to search for work. However, among the states, the proportion of cases in which job contacts were investigated was less than 50 percent in 5 states. (Table 11 in app. II shows the percentage of contacts that were investigated for each state.) Furthermore, states often were not able to verify the information claimants reported. Of the job contacts that were investigated, states reported that about 48 percent of the job contacts were acceptable, about 8 percent were unacceptable, and about 45 percent could not be verified (see fig. 5). Our analysis of BAM data for fiscal year 2017 also shows that for the overpayments that states were able to detect, that a large portion were found through investigating and verifying claimants’ work search contacts. Specifically, 47 percent of reported work search overpayments were found through this practice. Interviewing claimants about their work search was the next most common way states detected work search overpayments. States reported identifying 32 percent of work search overpayments in fiscal year 2017 using this practice. Although overpayments can be the result of actions taken by the claimant or the agency administering the program, states reported that most work search overpayments are associated with claimants. For example, claimants may provide inadequate or incorrect information needed by the UI agency to determine if the claimant met work search requirements. In fiscal year 2017, states attributed about 99 percent of overpayments at least partially to claimant action, while they attributed about 2 percent at least partially to administrative errors at the state agency. Frequent Use of Formal Warnings Is Associated with Reporting Lower Work Search Overpayments, but DOL Recently Determined Their Use Is Legally Impermissible According to DOL data, 22 states issued formal warnings to one or more claimants at some point between fiscal year 2013 and fiscal year 2017 for failure to meet work search requirements instead of finding that the claimants were overpaid. Although the states that made use of these warnings varied over this period, the number of states issuing formal warnings has generally increased over time from 13 states issuing formal warnings in fiscal year 2013 to 19 states in fiscal year 2017. Overall, states that most frequently issued formal warnings had lower reported work search overpayment rates than states that did not issue formal warnings. However, their work search overpayment rates are lower because, under their state policies, they did not count an overpayment when they issued a formal warning. Our analysis indicates that states which issued formal warnings frequently—in 75 percent or more of cases involving work search errors— had estimated work search overpayment rates that were 3.5 percentage points lower, on average, than states that did not issue formal warnings. However, states that use formal warnings less frequently—in fewer than 75 percent of cases involving work search errors—reported work search overpayment rates that were between 3 and 4 percentage points higher than states that did not issue formal warnings. See appendix I for a detailed discussion of our econometric analysis. Table 1 shows the average work search overpayment rate estimates for each of these groups of states when formal warnings are not counted as overpayments, and the potential average work search overpayment rate when formal warnings are counted as overpayments. Excluding formal warnings, two of the groups—frequent and low users of formal warnings—had average work search overpayment rate estimates lower than the average for states that did not use formal warnings. However, when formal warnings are included in the overpayment rate, only low users of formal warnings have a work search overpayment rate estimate lower than the average for states that did not use formal warnings. GAO’s analysis of DOL data shows that in fiscal year 2017, estimated work search overpayments were nearly $1.4 billion, but potentially would have been an estimated $1.8 billion greater if states had not issued formal warnings and established overpayments. Our analysis further shows that if formal warning cases had been included in DOL’s calculation of the UI overpayment rates for fiscal year 2017, the nationwide UI overpayment rate would have increased by about 6 percentage points, from an estimated 12 percent to an estimated 18 percent. Moreover, these figures represent an increase from the fiscal year 2016 figures we presented in our previous report on states’ use of formal warnings related to work search requirements. At that time, we found the nationwide UI overpayment rate would have increased by about 5 percentage points from an estimated 11 percent to an estimated 16 percent with the inclusion of formal warning cases. The amount of UI payments made to claimants for weeks in which they received formal warnings in fiscal year 2016 was about $1.6 billion. Table 12 in appendix II shows how the estimated UI overpayment rate in each state issuing formal warnings in fiscal year 2017 may have increased if formal warnings were not used. State use of formal warnings has resulted in inconsistent reporting of work search overpayments, which affects DOL’s reported improper payment rate for the UI program. Specifically, states that issue formal warnings have not counted as overpayments cases in which claimants did not actively search for work and received a UI benefit payment. On the other hand, states that did not have formal warning policies counted such cases as overpayments, which are factored into DOL’s reported improper payments rate. The variation among states related to formal warning policies makes it difficult for DOL and others to understand the reasons behind states’ reported work search overpayments. DOL has determined and documented in its FY 2017 Agency Financial Report that the use of formal warnings is no longer allowed under the 2012 federal law, which generally requires UI claimants to actively seek work. DOL officials told us in July 2017 they would soon issue a letter to states to inform them that they are no longer permitted to use formal warnings when they determine that claimants failed to meet work search requirements. To date, DOL has not issued such a letter. In May 2018, DOL officials told us that they expect to issue the letter by the end of calendar year 2018. Federal internal control standards direct agency management to remediate identified internal control deficiencies on a timely basis. Federal internal controls standards also state that management should externally communicate the necessary quality information to achieve the entity’s objectives. Additionally, these standards state that agency management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. According to DOL officials, they began discussing the need for a potential discontinuation of formal warnings at conferences with states in the first half of 2017. However, we found that states continued to implement their formal warning policies, potentially resulting in an increase in the estimated amounts of overpayment dollars associated with formal warnings between fiscal year 2016 and 2017. Until DOL informs states of the need to discontinue the use of formal warnings through a letter or another mechanism, states will continue to be inconsistent in whether they count as overpayments cases in which claimants who failed to search for work in any week were provided benefits. Additionally, once DOL provides additional information to states on formal warnings, it should monitor states’ responses to help ensure that DOL achieves its desired results. Furthermore, having more consistent information on overpayments related to work search issues could help DOL assess how the program is working nationwide and whether further federal and state actions would be needed to address this leading source of reported improper payments in the UI program. DOL officials stated that the national work search overpayment rate is likely to increase in the future as states begin to eliminate their formal warning practices. Officials also stated that this may take some time as some states may need to amend laws or regulations in order to do so. Higher Percentages of Claimants Required to Search for Work Are Associated with Higher Work Search Overpayment Rate Estimates State work search overpayment rate estimates were higher for states where a higher proportion of claimants were required to search for work. Based on our analysis, for every one percentage point increase in the fraction of cases with claimants required to search for work, there was a 0.084 percentage point increase in the work search overpayment rate estimate on average, all else being equal. Nationwide in fiscal year 2017, states reported that work searches have been required in 80 percent of cases, with requirements in individual states ranging from 38 to 100 percent of cases. Three states reported requiring fewer than 50 percent of claimants to perform work searches, while five states reported requiring more than 95 percent of their claimants to perform work searches. The most common reasons states exempted claimants from work searches were because claimants were “job-attached” (e.g. temporarily laid-off, recalled), or they had union deferrals because they were seeking employment through their union, according to DOL data. The map in figure 6 shows the range among all the states in the percentage of UI claimants required to search for work, according to our analysis of DOL data for fiscal year 2017. Selected States Used Multiple Approaches to Address Work Search Overpayments, but Cited Challenges Verifying Claimants’ Work Search Activities Selected states used multiple approaches to address work search overpayments, including online systems to facilitate the work search reporting and verification process, work search audits beyond the BAM audits, and messaging to inform claimants of their work search responsibilities. For example, three of six states in our review had online systems where claimants could report specific work search activities as part of filing their weekly claims, according to state officials (see table 2). Some of the approaches states used were specifically designed for UI claimants participating in state reemployment programs. State officials cited several benefits of the approaches they use to address work search overpayments. The online systems, work search audits, and messaging helped prompt work search activities and prevent work search overpayments in some cases, according to state officials. According to officials from the selected states that used them and a study on work search improper payments, online systems can facilitate the work search reporting and verification in several ways: Automatically documenting the claimants’ work search activities. Online reporting of work search activities can help prevent overpayments because their work search is documented in the online claims system, which means the claimant does not need to keep a work search log. In addition, online job search/training systems can be used to track the work search activities completed by claimants, making it easier for the state to verify that the work search was completed. For example, officials in Mississippi and Indiana told us they piloted an online system called NextJob and required RESEA program participants to conduct work search activities through the system. Mississippi officials reported that NextJob motivated claimants to conduct their job search and increased the speed of reemployment among these individuals. Similarly, New Jersey officials told us that UI claimants selected to participate in New Jersey’s RESEA program are required to use an online job search and training system called OnRamp, which, for example, allows job seekers to create or upload their resume on the website, search for jobs, access online training, and receive email alerts on potential job matches. In addition, officials in Nevada said that the online reporting system is beneficial because the work search activities are documented in the system and are more reliably retrieved if the claimant is selected for a BAM audit because few claimants maintain and retain their work search effort logs. Performing automated checks on data the claimants submit. The online claims systems can identify potentially duplicate job contacts and check whether the claimant reported the required number of job contacts. For example, Utah officials reported that if a claimant enters job contacts from another week, officials would follow up with the claimant by phone after it is flagged by their online system. If claimants report self-disqualifying information, such as an insufficient number of job contacts, the system can automatically put a hold on a claim until the issue is resolved. Facilitating communication with the claimant. Some states added messages to their online claims system that pop up if the claimant enters incorrect or insufficient information. For example, Mississippi officials stated that they used messaging to better inform claimants of their responsibilities and to encourage them to report accurate information. According to the officials, if claimants do not report the required number of work search activities in the online system, a questionnaire will pop up requesting that the claimants explain why they did not do so. The system requires the claimants to enter more information in order to submit their claims and to receive their benefit payments. Mississippi officials also stated that adding targeted messaging resulted in fewer denials of benefits due to claimant failure to meet work search requirements and also reduced the number of appeals related to this type of denial. Some state officials said that messaging encouraged accurate reporting. For example, Indiana officials told us that at the end of the online claim filing process, claimants receive a message notifying them of the state’s work search requirements and informing them that they are required to search for work to continue receiving benefits. In Utah, officials developed a video that covers claimants’ responsibilities, including work search requirements, which claimants must view before receiving their initial benefit payment, according to state officials. Officials in three of the states we reviewed reported using additional work search audits beyond BAM to help reinforce their state policies. Pennsylvania officials reported conducting 7,182 work search audits for RESEA program participants in 2016. As a result, officials reported that the state issued 1,300 warnings to claimants. The two other states— Mississippi and Utah—report that their random work search audits, coupled with their online systems, helped prevent work search overpayments as they are able to disqualify claims before the payment goes out. Mississippi and Utah officials also reported that they were also able to identify and recover some work search overpayments (see table 3). Despite implementing these approaches, state officials in five of the six states we contacted told us they face challenges with verifying work search activities. These officials stated that they have difficulty verifying work search activities as some claimants do not understand the work search requirements or do not keep accurate records of their work search activities, which makes it difficult for the state to confirm compliance with the state requirements. In addition, state officials also said that many employers do not keep records of job seekers’ inquiries or do not respond to state requests for information when they are trying to verify claimants’ work search activities. For example, Nevada officials said that work search contacts are often virtually unverifiable as many companies outsource their hiring processes to contractors who refer the job candidate for a job posting and keep the job application. Officials said these contractors also rarely respond to state inquiries about claimants’ job applications. As discussed later, DOL has provided states tools to help address this issue, such as a messaging toolkit to help states improve communications with claimants and employers. DOL Monitors States’ Work Search Overpayment Rate Estimates and Provides Assistance, but Lacks Clear Procedures on Work Search Verification DOL Monitors States’ Work Search Overpayment Rate Estimates and Has Identified Strategies and Provided Tools to Help States Reduce Their Rates DOL uses UI performance data to monitor state progress in reducing the estimated improper payment rate, including data on overpayments to claimants who failed to meet work search requirements. To do so, DOL requires states to submit State Quality Service Plans, which serve as the performance reporting and grant application documents through which states receive administrative funding. The plans include a summary of state performance on various measures related to operating the UI program, including the improper payment rate, according to DOL documentation we reviewed. States with estimated improper payment rates of 10 percent or more are required to submit corrective action plans to DOL. For example, data from two of the six states we reviewed– Nevada and New Jersey–had estimated improper payment rates above 10 percent during DOL’s most recent planning cycle and developed corrective action plans. Nevada’s corrective action plan noted that the state expects their rate to decline due to their June 2017 implementation of online work search reporting as part of their UI claims system. New Jersey’s corrective action plan noted that the state plans to implement new online tools that will help them verify wage and employment information. DOL separately monitors each state’s estimated work search overpayment rate. In addition, all states, including those who estimated improper payment rates of less than 10 percent, are required to prepare a state-specific action plan that describes the root causes of improper payments and the state’s strategies to address them. According to agency officials, DOL reviews plans to monitor state performance and help states identify strategies to improve performance. Although DOL requires states with estimated improper payment rates of 10 percent or more to develop corrective action plans, according to DOL, the agency has limited options to require state UI agencies to take actions to respond to high improper payment rates. DOL officials told us that, beyond routine monitoring and providing states with technical assistance to help reduce their improper payments rate, their enforcement options are limited to withholding the state’s administrative funding or removing federal tax credit reductions, which is, in effect, a tax increase for the state’s employers. According to DOL officials, both are considered extraordinary sanctions that require significant due process. The agency has not withheld state administrative funding to address improper payments, according to DOL officials. DOL officials also told us that they are concerned about the effects on UI claimants if they were to withhold administrative funding. The administration’s fiscal year 2019 congressional budget justification includes a legislative proposal that would authorize the Secretary of Labor to require states to implement corrective action measures for poor state performance in the UI program, helping to reduce improper payments in states with the highest estimated rates. DOL has identified strategies to address the leading causes of UI improper payments—including work search issues—and provided states tools and funding to help implement them. For example: Pathway to Reemployment Framework. In 2016, DOL and the National Association of State Workforce Agencies published a framework that contained a broad menu of work search options that states could adopt to better reflect how individuals search for work, such as allowing use of online job search tools to count as an approved work search activity. The framework also includes suggestions for how states could document or verify claimants’ work search activities for eligibility purposes. Messaging toolkit. In 2012, DOL published a messaging toolkit designed in part to improve claimants’ understanding of work search requirements as a condition of eligibility for benefits. According to DOL, claimants who fully understand their responsibilities and the consequences of not fulfilling them may be more likely to complete the required work search activities, thereby reducing instances of claimants’ failing to search for work. DOL provided states supplemental funding to support improved messaging and tracked state implementation of the strategies. Online tool to record work search activities. In 2011, DOL provided supplemental funding to New York to develop an online work search record that could be replicated by other states. This tool is designed to reduce improper payments that result from inadequate documentation of work search activities. Claimants can use the tool to record their work search online when they file their UI claims. The work search record is automatically shared with state job centers, which in turn act to enhance claimants’ work search and connect claimants with jobs. New York used open source technologies when designing the tool in an effort to help more states replicate the product at a lower cost. UI Integrity Center. The DOL-funded UI Integrity Center of Excellence (UI Integrity Center) was established as a way to help states develop and share innovative strategies to prevent and detect UI improper payments, reduce fraud, and improve program integrity. For example, the UI Integrity Center funded a pilot project in 2016 to support a state in implementing an online tool that trains claimants on how to effectively search for jobs and allows claimants to use the tool to complete their work search activities. The UI Integrity Center also hosted national conferences in 2016 and 2018 that included presentations on state practices to address work search improper payments. DOL Directs States to Investigate a Sample of Claimants’ Work Searches, but Has Not Clarified Procedures on Verifying Work Search Although DOL monitors states’ work search overpayment rate estimates and has provided assistance to help states address such overpayments, it has provided limited direction to states on the level of effort states must make to verify whether claimants are actively searching for work. Specifically, DOL’s BAM procedures direct states to investigate a sufficient number of work search contacts in its BAM sample of UI cases to determine if the claimants met the state’s work search requirement. However, DOL has not provided states any additional direction on what is considered “sufficient.” As previously mentioned, the extent to which states attempted to verify job contacts from claimants’ work searches varied across states. Some states reported to DOL that they did not investigate work search activities for a majority of their BAM cases even though work search was required and the claimant reported job contacts. Federal internal control standards state that agency management should externally communicate the necessary quality information to achieve its objectives, including addressing related risks. According to DOL officials, the agency plans to clarify its BAM procedures, to include providing more definitive instructions to states on work search verification requirements, after the agency issues its planned letter to states about discontinuing the use of formal warning policies. As of May 2018, the agency said it plans to issue the letter on formal warning policies by the end of calendar year 2018. However, as previously stated, it has been nearly a year since DOL initially told us they were planning to issue the letter to states. Effective monitoring of state compliance with the clarified work search verification requirements will also be important once DOL revises its BAM procedures. Federal internal control standards state that agency management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. Monitoring states’ responses could help ensure that DOL achieves its desired results. By providing clear direction to states about work search verification requirements and monitoring states’ implementation of these requirements, DOL would have greater assurance that states are complying with its requirements. Conclusions The health of the UI program depends, in part, on the ability of states to control its benefit payments by accurately determining individuals’ eligibility. Improper payments, including overpayments, in the UI program have led to billions of federal and state funds being used inappropriately. Actively seeking work has generally been an eligibility requirement for individuals receiving unemployment benefits under federal law since 2012, but states have not consistently implemented the requirement for claimants in similar circumstances. States with formal warning policies reported lower work search overpayments not necessarily because they are better at ensuring claimants’ compliance with requirements, but because they are not counting cases where claimants receive formal warnings as overpayments. Furthermore, although DOL determined in 2017 that states are not permitted to issue formal warnings rather than reporting an overpayment, it has not officially told states to stop using warnings. Without providing states with this information and monitoring their response, states will continue to report inconsistent information on the extent of work search overpayments. State efforts to check whether claimants are meeting work search requirements also vary. Our evidence suggests that states making a greater effort to investigate work search activities tend to have lower overpayment rate estimates associated with this issue. However, some states are not investigating claimant-reported work search activities as part of their BAM audits despite DOL’s procedures directing them to do so. Until DOL provides clear direction to states about verifying work search and monitors state compliance, DOL has little assurance that states are complying with its requirements. Recommendations for Executive Action We are making the following four recommendations to the Department of Labor: The Assistant Secretary of DOL’s Employment and Training Administration should provide states with information about its determination that the use of state formal warning policies is no longer permissible under federal law. (Recommendation 1) The Assistant Secretary of DOL’s Employment and Training Administration should monitor states’ efforts to discontinue the use of formal warning policies. (Recommendation 2) The Assistant Secretary of DOL’s Employment and Training Administration should clarify information on work search verification requirements in its revised Benefit Accuracy Measurement procedures. The revised procedures should include an explanation of what DOL considers to be sufficient verification of claimants’ work search activities. (Recommendation 3) The Assistant Secretary of DOL’s Employment and Training Administration should monitor states’ compliance with the clarified work search verification requirements. (Recommendation 4) Agency Comments We provided a draft of this report to the Department of Labor (DOL) for review and comment. In its written comments, reproduced in appendix IV, DOL agreed with all four of our recommendations and stated that it would take action to address them. DOL also provided technical comments, which we incorporated as appropriate. Additionally, we provided excerpts of the draft report to state UI officials in the selected six states we included in our review. We incorporated their technical comments as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of the Department of Labor, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at 202-512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Econometric Analysis of Estimated State Work Search Overpayment Rates Data We used the Department of Labor’s (DOL) Unemployment Insurance Benefit Accuracy Measurement (BAM) data. The BAM program is designed to determine the accuracy of paid and denied claims for unemployment insurance (UI) in three major UI programs—state UI, Unemployment Compensation for Federal Employees (UCFE), and Unemployment Compensation for Ex-Servicemembers (UCX). The BAM data covers claimants in the 50 U.S. states, the District of Columbia, and Puerto Rico. Each week, state workforce agencies select random samples of paid and denied unemployment insurance claims (i.e., cases). State BAM investigators then audit these cases to determine whether the claimant was properly paid or was properly denied benefits in the week for which the claim was made (i.e., key week). The bases for determining whether paid and denied claims were accurate are federal and state law, regulations, and policy. We used BAM cases for paid claims for all UI programs and all states for fiscal years 2013 through 2017. The number of cases for each state is determined by DOL for each year. Cases are chosen randomly each week from the population of claims for that week. The normal weekly number of paid claims sampled in most states is 9, with a minimum of 6, for an annual sample of around 480 cases. For the 10 states with the smaller UI workloads, the normal weekly number of paid claims sampled is 7, with a minimum of 5, for an annual sample of around 360 cases. For each paid claim case, the BAM data include variables describing the claimant, as well as information on their UI benefit year, separation from their last job, monetary eligibility, benefit payment history, employment services registration and work search, and the outcome of the BAM investigation. For cases for which BAM auditors identify errors, the BAM data also include information on the errors. In 2016, work search issues, benefit year earnings, and separation issues were the most common causes of reported overpayments: Work search issues. These occur when the state finds that claimants did not actively search for work during the key week. Federal law generally requires people receiving unemployment compensation to be actively searching for work. States have discretion to establish requirements for what constitutes active work search, and these requirements vary by state. Benefit year earnings issues. These occur when claimants have earnings that exceed the threshold for UI eligibility in their state or when these earnings are not properly reported. Separation issues. These occur when claimants are ultimately determined to be ineligible for UI due to disqualifying job separations, such as quitting a job without good cause or being discharged for misconduct under the state UI law. Other causes of overpayments include incorrect reporting of wages used to calculate benefits, able and available to work issues, employment service registration issues, and other issues. For some cases, BAM investigators identify multiple errors with different causes. When this occurs, BAM investigators determine the overpayment amount associated with each cause. BAM sample data is weighted to make inferences about the population. In accordance with DOL’s method, we calculated the weight on each BAM sample case as (1) the number of unemployment compensation payments to claimants for the state and the week from which the BAM sample case was selected divided by, and (2) the number of completed BAM sample cases for that week, as long as there were two or more completed cases for the week. Because each state followed a probability procedure based on random selections to pick cases, the BAM sample is only one of a large number of samples that they might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of the BAM sample’s results using confidence intervals. For example, a 95 percent confidence interval is the interval that would contain the actual population value for 95 percent of the samples that could have been drawn. In some tables we provide the margin of error instead of the confidence interval, where the margin of error is the half-width of the confidence interval. Our analysis sample consists of cases with no missing or invalid values of variables used in our analysis that also have positive sample weights. Our analysis sample includes 98.1percent of all cases. Estimated Overpayment Rates Due to Failure to Meet Work Search Requirement In accordance with DOL’s method, the estimated overpayment rate is equal to the amount of UI benefits overpaid as a percentage of the total amount of UI benefits paid. The amount of UI benefits overpaid includes fraud, nonfraud recoverable, and nonfraud nonrecoverable overpayments; and overpayments from all causes and responsible parties. The amount overpaid excludes overpayments that DOL considers as technically proper. An overpayment may be considered technically proper by DOL under a finality rule, which generally means that too much time has passed between the decision to pay the claimant and the detection of the eligibility issue, or for some other reason. Our estimated work search overpayment rate is calculated using the same method as the official overpayment rate and is generally comparable to work search overpayment rates reported by DOL. More specifically, we used the BAM data to identify cases with overpayments and with overpayments due to work search, excluding formal warnings and other payments DOL considers to be technically proper. Next, we applied DOL’s proration algorithm to allocate overpayment amounts for each error associated with a case so that the total amount of overpayments from all errors does not exceed the key week amount paid. Then, we calculated the total overpayment amount and work search overpayment amount for cases with overpayments and work search overpayments, respectively. Finally, we tracked the key week amount paid for each case. To estimate the work search overpayment rate for each state and fiscal year, we calculated the weighted sum of work search overpayment amounts as a percentage of the weighted sum of amounts paid. Table 4 shows the estimated national work search overpayment rate, the average estimated state work search overpayment rate, and the median estimated state work search overpayment rate for each fiscal year. The national work search overpayment rate estimate has increased from 2.4 percent in 2013 to 4.5 percent in 2017. Over the same time period, the average state work search overpayment rate estimate has increased from 2.6 to 4.6 percent, and the median state work search overpayment rate estimate has increased from 1.4 percent to 2.7 percent. Most states’ work search overpayment rate estimates are less than 5 percent, but some states’ rates are more than 10 percent. To identify state practices and other factors that may be associated with state work search overpayment rates, we reviewed DOL documents describing the BAM program and summarizing key features of states’ UI programs, as well as research on factors associated with time claimants spend searching for employment. Based on our review, we identified factors that may be associated with work search overpayments that can be measured using variables in the BAM data: Exemptions from work search requirements. According to DOL, while federal law generally requires claimants to be actively seeking work, it does allow states to exempt claimants in some circumstances. For example, according to DOL, because states may not deny benefits to an individual in approved training, all states provide an exemption from the requirements to be able and available for work and conducting an active work search for any week the individual is in approved training. In addition, according to DOL, some states allow work search exemptions if the worker is union-attached and finds work through the union hall, or if a separation is classified as a temporary lay-off and there is a reasonable expectation that the worker will return to work soon. According to DOL, other state work search exemptions include that the worker has a specified start date for new employment, has jury duty, has a compelling personal reason, is in a labor dispute with the employer, is the victim of domestic violence, or labor market or other information indicates no suitable employment. It is possible for a case with a claimant who indicated he or she was not required to search for work to have a work search error if the claimant provided an invalid reason for being exempt from his or her state’s work search requirement. For example, the claimant may have said that he or she was a member of a union with a hiring hall and obtained employment through union referrals or that he or she had a definite recall date, and therefore, the work search requirement was waived. However, the BAM investigator’s verification with the union found that the claimant was not in good standing, or the investigator’s verification with the employer found that the claimant had no definite recall date. In such a situation, the claimant might be held ineligible for a failure to conduct an active work search because the exemption was invalid. Claimant response. According to DOL, the claimant interview anchors the BAM audit and is a major error detection point, and the claimant questionnaire is a required standard form. Claimants may provide information for the BAM audit either in person, over the phone, or via mail or some other method. Some claimants may not respond to the audit at all. For the period from 2013 to 2017, of the work search overpayments that BAM auditors detected in their BAM sample of cases, about 37 percent of cases were uncovered during the claimant interview. State investigation of job contacts. Claimants are asked to provide information about job contacts as evidence that they were actively searching for work as part of the required claimant questionnaire. In addition, even if the claimant does not respond to the BAM audit, job contacts may be available for BAM auditors to investigate if the state’s continued claim process captured the claimant’s work search information. BAM staff must investigate a sufficient number of contacts to establish whether the claimant has met the state’s work search requirement. For the period from 2013 to 2017, of the work search overpayments that BAM auditors detected in the BAM sample of cases, about 45 percent were uncovered by investigating claimant- provided job contacts. State use of formal warnings. If the BAM audit of a case determines that the claimant’s work search during the key week was not acceptable, the state might issue a formal warning to the claimant instead of finding that the claimant received a work search overpayment, and these cases are not included in the calculation of the work search overpayment rate for that state. Over the period from 2013 to 2017, of the BAM sample of cases for which work search errors were identified, state workforce agencies issued formal warnings for about 46 percent. Claimant demographic and other characteristics. Characteristics of claimants that are associated with the amount of time claimants spend searching for work include age, education, gender, length of time between initial claim and key week, and weekly benefit amount as a percentage of the normal weekly wage in the claimant’s industry. To the extent that they affect time spent searching for work, these characteristics may also be associated with the likelihood of claimants receiving a work search overpayment. Some factors that may be associated with work search overpayments cannot be measured using variables in the BAM data and, thus, are excluded from our analysis. Examples include: Minimum number of work search activities. According to DOL, the minimum number of work search activities required per week varies across states and can vary based on labor market conditions, which can, for example, produce different requirements in a rural area versus an urban area. However, some states do not specify a required number of work search activities and instead require that the number of work search activities be “reasonable,” according to a DOL report. Type of required employer contacts. According to DOL, some states allow claimants to search for part-time work as well as full-time work, while others do not. In addition, according to DOL, some states specify that participation in reemployment services counts as a contact, and some states require claimants to make at least one contact through the state online system. Frequency and method of reporting. According to DOL, some states require weekly claimant reporting of work search activities, while others require bi-weekly reporting. In addition, according to DOL, some states require claimants to report online as part of their continued claim, while others require claimants to keep a log of their work search activities. Econometric Mode Our econometric model is the following: work search overpayment rates, = α + β∗work search requireds, + γ*n-person responses, + γ*telephone responses, + γ*mail, email, fax, or other responses, + δ*contacts investigateds, + φ + X’Θ + year indicators + ε, where s and y denote state and year, respectively, and the explanatory variables in the model are the following: Work search required is the estimated fraction of cases with claimants for whom work search is required, according to the BAM data. In-person response, telephone response, and mail, email, fax, or other response are the estimated fractions of cases with claimants who responded to the BAM audit in person, by telephone, or by mail, email, fax, or other method, respectively. Contacts investigated is the estimated fraction of cases for which BAM auditors investigated one or more job contacts. Low, moderate, and frequent formal warning use are binary indicator variables equal to 1 if the state issued a low, moderate, or high number of formal warnings in the fiscal year as a percentage of BAM cases with work search errors, respectively, and 0 otherwise. We defined low formal warning states as those that issued formal warnings for some but less than 25 percent of the cases with work search errors, moderate formal warning states as those that issued formal warnings for at least 25 percent but less than 75 percent of cases with work search errors, and high formal warning states as those that issued formal warnings for anywhere from 75 to 100 percent of cases with work search errors. The omitted group is states that issued no formal warnings during the fiscal year. X is a list of other characteristics of claimants that may be associated with work search, including the estimated distributions of cases across claimants’ age groups, education levels, gender, length of time between initial claim and key week, and weekly benefit amount as a percentage of the normal weekly wage for their occupation. ε is an error term. The parameters of interest in our econometric model are β, γ, γ, γ, δ, φ is an estimate of the change in the work search overpayment rate associated with a 1 percentage point increase in the fraction of cases with claimants who responded to the BAM audit in person, all else being equal. The parameters γ and γ are estimates of the change in the work search overpayment rate associated with a 1 percentage point increase in the fraction of cases with claimants who responded to the BAM audit by telephone and by mail, email, fax, or other method, respectively, all else being equal. The parameter δ is an estimate of the change in the work search overpayment rate associated with a 1 percentage point increase in the fraction of cases for which BAM auditors investigated one or more job contacts, all else being equal. The parameters φTable 5 shows descriptive statistics for the explanatory variables, other than formal warnings. Table 6 shows descriptive statistics for states’ use of formal warnings. Our analysis is subject to several limitations, and the results we discuss below should be interpreted with caution. No causality. Our econometric approach can establish correlations between state work search overpayment rate estimates and the factors we analyzed, but it cannot establish causal relationships. This limitation is especially important when it comes to interpreting the relationship between work search overpayment rate estimates and the fraction of cases for which BAM auditors investigated job contacts. BAM investigations can only detect work search overpayments, not prevent them, because BAM investigators are reviewing cases after the payment has already been made. Preventing work search overpayments is the only way to reduce the work search overpayment rates. Thus, the relationship between investigation of claimant- provided contacts and work search overpayment rates likely reflects not a causal relationship but an equilibrium relationship in which claimants who know that their job contacts will be investigated are more likely to search for work, all else being equal. Nongeneralizability. Our results do not generalize to other time periods with different labor market conditions, different rules and regulations about unemployment insurance, or other differences. Omitted variables. As discussed above, we have excluded from our models some state practices that may be associated with work search overpayments because those variables were not included in the BAM data. For example, we do not account for the fact that, according to DOL, some states require claimants to engage in more work search activities than other states, which could affect the likelihood that a claimant receives a work search overpayment. In addition, according to DOL, some states require claimants to report their work search activities in order to continue receiving benefits, which might prevent some work search overpayments from occurring. We have also likely excluded some relevant claimant characteristics as well. For example, total income for a claimant’s household and a claimant’s number of dependents may affect their work search efforts. However, variables describing a claimant’s household income and composition are not included in the BAM data and thus are omitted from our analysis. To the extent that these factors are correlated with the factors we included, our estimates of the relationships between work search overpayment rates and the included factors could be biased. Measurement error. Our variables may have been measured with error, which could bias our coefficient estimates. If the measurement error is random, our coefficient estimates would be biased down, but if the measurement error is systematic, then we cannot say whether our coefficient estimates would be biased down or up. Results Our baseline specification suggests that some state practices are associated with state work search overpayment rates estimates (see column 1 of table 7). We used the 10 percent level of significance as our threshold for statistical significance because we have a relatively small number of observations (259). State work search overpayment rate estimates were higher in states with more cases with claimants who were required to search for work. A 1 percentage point increase in the fraction of cases with claimants required to search for work was associated with a 0.084 percentage point increase in the work search overpayment rate estimates on average, all else being equal. Work search overpayment rate estimates were lower in states with more cases for which the BAM auditors investigated one or more job contacts. A one percentage point increase in the fraction of cases for which the BAM auditors investigated contacts was associated with a 0.072 percentage point reduction in the work search overpayment rate on average, all else being equal. Compared to states that did not issue any formal warnings, work search overpayment rate estimates were higher in states that made low or moderate use of formal warnings but lower in states that issued formal warnings frequently. Work search overpayment rate estimates in states that were low and moderate users of formal warnings were 3.9 and 3.1 percentage points higher on average than those in states that issued no formal warnings, all else being equal. Work search overpayment rate estimates in states that were frequent users of formal warnings were 3.5 percentage points lower on average than those in states that issued no formal warnings. Our state-level analysis also suggests that some characteristics of cases are not associated with state work search overpayment rate estimates, but others are. State work search overpayment rate estimates were not significantly associated with the distribution of cases by claimant age, gender, duration of unemployment benefits receipt, or key week amount as a percentage of the normal weekly wage in their occupation, or with the number of cases. However, state work search overpayment rate estimates were higher in states with more cases with claimants with some college or an associate’s degree relative to cases with claimants without a high school degree or GED. A one percentage point increase in the estimated fraction of cases with claimants with some college or an associates degree was associated with a 0.192 percentage point increase in estimated work search overpayment rates on average, all else being equal. To assess the sensitivity of our results, we estimated fractional response models with robust standard errors instead of clustered standard errors (see column (2) of table 7). We also estimated fractional response models that replaced the fractions of cases by claimant response method with the fraction of cases with claimants who responded to the BAM audit by all methods combined, with both types of standard errors. Finally, we estimated linear models, also with both types of standard errors. While the direction and magnitude of the relationship between estimated work search overpayment rates and the fraction of cases with claimants required to search for work was generally similar across specifications, it was not always statistically significant. The direction, magnitude, and statistical significance of the relationship between estimated work search overpayment rates and the fraction of cases for which BAM auditors investigated job contacts was generally similar across specifications, with the exception of the linear model with clustered standard errors, where it was not statistically significant. The directions, magnitudes, and statistical significance of the relationship between estimated work search overpayment rates and estimated state formal warning use were generally similar across specifications. Appendix II: Additional Benefit Accuracy Measurement Data Tables This appendix contains several tables that show the underlying data used throughout this report, using the Department of Labor’s Benefit Accuracy Measurement (BAM) data for fiscal years 2013 through 2017. According to DOL, because the BAM data are based on a statistical survey, estimates produced from our analysis of the BAM data are subject to sampling and non-sampling errors. Sampling errors are errors that arise in a data collection process as a result of taking a sample from a population rather than using the whole population. Non-sampling errors are errors or biases that arise in a data collection process as a result of factors other than taking a sample, such as the timeliness of data collection, data entry errors, biased questions in fact-finding, biased decision-making, and inappropriate analysis and conclusions completed by state investigators or false or inaccurate information provided by survey respondents. We express our confidence in the precision of our results by reporting the margins of error associated with 95 percent confidence intervals. This is the interval that would contain the actual population value for 95 percent of the samples the respective agency could have drawn. In addition, it may be misleading to compare one state's work search overpayment rates with another state's rates. According to DOL, no two states' written laws, regulations, and policies specifying eligibility conditions are identical, and differences in these conditions influence the potential for error. The following tables and information are included in this appendix: Table 8: The estimated overpayment amounts for the Unemployment Insurance (UI) program by cause in fiscal year 2017 (also represented in fig. 2 in the letter portion). Table 9: The national work search overpayment rate estimates and dollar amounts for fiscal years 2013 through 2017 (also represented in fig. 3 in the letter portion). Table 10: The work search overpayment rates estimates and dollar amount of work search overpayments in each state in fiscal year 2017, excluding cases where formal warnings were given. Table 11: The percentage of cases in which claimants were required to search for work and the percentage of those cases in which job contacts were investigated in each state in fiscal year 2017. Table 12: For states that issued formal warnings in 2017, the UI overpayment rate estimates excluding and including cases in which formal warnings were issued, and the difference in the dollar amount of overpayments if formal warnings were not used. Appendix III: Summary of Six States’ Work Search Requirements for Unemployment Insurance Claimants Work search requirements for Unemployment Insurance claimants vary by state. According to our review of program documents in our six selected states, the minimum number of work search activities required per week ranged from not specified to four. Three of the states limited the work search activities to applying for jobs or contacting employers in other ways and the three other states had broader definitions of what would qualify as a work search activity. See table 13 below for a summary of the work search requirements, confirmed by state officials, for the six states included in our review. Appendix IV: Comments from the Department of Labor Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Cindy Brown Barnes 202-512-7215 or [email protected]. Staff Acknowledgments In addition to the contact names above, Danielle Giese (Assistant Director), Cathy Roark (Analyst in Charge), Carl Barden, Rachel Beers, Deborah Bland, Beryl Davis, Holly Dye, Alex Galuten, Dana Hopings, Joel Marus, Phillip McIntyre, Sheila R. McCoy, Jean McSween, Courtney LaFountain, Stacy Spence, Almeta Spencer, Matt Valenta made significant contributions to this report.

The UI program, which is overseen by DOL and administered by states, paid $30 billion to about 5.7 million individuals in 2017. Under federal law, to be eligible for benefits, individuals are generally required to actively search for work, but the specific work search requirements vary by state. Yet, states found that some benefits were overpaid to UI claimants who were ineligible because they were not meeting work search requirements. GAO was asked to review improper payments due to UI claimants' failure to actively search for work. Building on GAO's prior work ( GAO-18-133R ), this report examines (1) state administrative practices associated with work search overpayments; (2) selected states' approaches to address work search overpayments; and (3) DOL's oversight and support of states' efforts. GAO analyzed DOL data, including the results of state reviews of a representative random sample of UI payments made from fiscal years 2013 through 2017. GAO also reviewed UI information from six states selected for variation in work search requirements and overpayment rates, interviewed DOL and state officials, and reviewed relevant federal laws, regulations, and guidance. GAO's analysis of Department of Labor (DOL) data found that certain state administrative practices, such as reviewing a higher percentage of claimant-reported work search activities and frequent use of formal warnings, were associated with lower estimated work search overpayment rates for the Unemployment Insurance (UI) program. According to DOL data, 22 states were warning claimants after the first discovered occurrence of their failure to meet work search requirements (i.e., issuing formal warnings) rather than reporting that an overpayment was made, while the other states were reporting such cases as overpayments. In 2017, DOL determined that federal law does not permit states to use such policies. GAO's analysis of DOL data shows that in fiscal year 2017, estimated work search overpayments were nearly $1.4 billion (see fig.), but would have been an estimated $1.8 billion (+/-$0.2 billion) greater if states had not issued formal warnings and established overpayments. DOL officials told GAO in July 2017 that the agency would issue a letter to states informing them that federal law does not permit them to warn claimants instead of establishing an overpayment. To date, DOL has not issued the letter. Until DOL provides states with such notification, states may continue to report inconsistent information on overpayments. State officials GAO interviewed reported using multiple approaches to address work search overpayments, including using their online systems that automate collecting information on claimants' work search activities; conducting audits of claimants work search activities beyond those required; and sending automated messages to claimants regarding their work search requirements. Officials said that their approaches encouraged claimants to conduct a more active work search and prevented work search overpayments in some cases. DOL monitors states' work search overpayment rate estimates and has helped states address such overpayments, but lacks clear procedures for how states should verify claimants' work search activities. DOL directs states to verify a “sufficient” number of work search activities during their audits but has not provided information on what is considered sufficient. DOL data show that some states did not review claimants' work search activities for a majority of audited cases. DOL officials said that the agency plans to clarify its procedures after issuing a letter about formal warnings. By clarifying these procedures, DOL will have greater assurance that states are complying with verification requirements.

GAO_GAO-18-515

Background USPS undertakes capital-spending projects for a number of reasons and more than one reason may apply to a single project. According to USPS documentation on its capital spending processes, these reasons include: to support USPS’s organizational objectives and strategic plan, to help sustain existing operations and meet USPS’s universal service obligation, to protect the health and safety of employees and customers or meet legal requirements, or to generate a positive return-on-investment—such as by increasing revenues or decreasing costs—thus improving USPS’s finances. USPS generally categorizes its capital spending in four broad categories: vehicles, facilities, information technology and other, and mail processing equipment, as shown in figure 1. USPS has processes for setting an annual capital-spending budget and approving specific capital projects. USPS prepares an annual capital- spending budget as part of its annual organization-wide budget. According to USPS documentation on its capital spending process, and USPS officials the process includes the following steps: In advance of each fiscal year, USPS’s Finance and Planning Department reviews estimated revenues and expenses to determine an appropriate total capital-spending budget. Next, USPS’s Executive Leadership Team and the leadership of relevant departments develop requests for each department’s estimated capital-spending needs for the upcoming year, including a ranking of desired projects. These lists provide information on projects’ purposes, estimated capital and operating expenses, potential return-on-investment, and relationship to USPS’s strategic initiatives. The Finance and Planning Department then reviews these lists in light of the previously determined total capital-spending budget and sets a capital spending budget for each of the broad categories of capital spending. The Executive Leadership Team votes on this preliminary capital spending budget, which, if approved, is included in the organization- wide budget that is subject to approval by USPS’s Board of Governors. The budget approved by the Board of Governors includes the total and categorical capital-spending budget, but does not include approvals for specific projects. According to USPS officials, USPS also uses these capital-spending requests, along with other information, such as historical capital-spending data and information on already identified specific future capital-spending projects, to annually update a 10-year projection of capital spending. USPS uses this 10-year projection to estimate USPS’s potential future capital spending and requirements for capital project cash outlays. USPS also has processes for approving specific capital projects. Project sponsors—those departments that wish to undertake a capital-spending project—must obtain approval from different groups within USPS to initiate capital projects. According to USPS documentation, the level of approval required depends on the estimated total cost of the project: Total costs over $5 million: The project sponsor must submit a DAR to USPS’s Investment Review Committee for review. DARs contain estimated project cost, return-on-investment, and other information used to justify the project. If the committee approves, it makes a recommendation to the Postmaster General for final approval. USPS’s Office of Inspector General also reviews and assesses the adequacy and the depth of the information in the DAR, assesses whether the project is in USPS’s best business interest, and may provide input to the Investment Review Committee, which may take that information into consideration when reviewing projects. Total costs from $1 million to $5 million: The project sponsor must submit a DAR to USPS’s Technical Review Committee for review and approval. Total costs under $1 million: The project is reviewed by USPS’s Finance and Planning department, and approval is subject to the level of budgetary resources available. USPS does not require a DAR for these projects, although the process involves other documents, such as a one-page “Justification of Expense” that is required for many of the projects. USPS faces organization-wide uncertainty that may affect its capital spending. We define “organizational uncertainty” as those uncertainties— such as business, budgetary, legislative or regulatory, or other conditions—that may affect USPS’s ability to remain competitive and achieve its mission. For example, in the absence of adequate revenues that would cover all of USPS’ expenses, these uncertainties may affect the extent to which USPS can undertake its identified capital-spending plans. According to USPS, organizational uncertainties include the following: Business uncertainty includes potential changes to USPS’s business and the market for its products and services. Such uncertainty may be affected by changing customer preferences—such as continuing diversion of First Class Mail to electronic alternatives (e.g., e-mail or online banking)—and increased competition for package shipments. Budgetary uncertainty includes potential uncertainty and changes to revenues and expenses that affect USPS’s finances. Legislative or regulatory uncertainty includes potential actions intended to address some of USPS’s financial challenges. For example, postal reform legislation has been introduced that, if enacted, could improve USPS’s financial position. Both H.R. 756 and S. 2629 propose to relieve USPS of some of its retiree health and pension obligations and provide a reinstatement of a partial rate surcharge. Similarly, the Postal Regulatory Commission—an independent establishment of the executive branch that regulates USPS— is considering providing USPS with additional flexibility on pricing, which could also improve USPS’s finances. According to USPS documentation on capital-spending processes as well as DARs for individual capital-spending projects, capital-spending projects also can face project-specific risks, such as the following: Technological risks, which include complexity, quality, and security concerns: For example, capital projects deploying new technology intended to increase operational efficiency may face the risk that the new technology could become obsolete given future technological advances. Operational risks, which include maintenance and performance of projects: For example, equipment purchased as part of a capital project could involve the risk that it may not perform as expected. Integration risks, which include network and system integration and user acceptance of projects: For example, a project involving new retail technology may face the risk that USPS’s customers will not accept the new technology, and, as a result, the project does not meet its target for customer use. USPS Plans to Increase Capital Spending, but Business Uncertainties Will Likely Involve Prioritization against Other Business Needs and among Capital Projects According to USPS, the organization has critical capital-spending needs after years of reduced capital spending. Starting in fiscal year 2009, USPS sharply decreased its capital spending for several years, in response to decreased volume and revenues; however, USPS now plans to increase its spending. Specifically, USPS projects average annual capital-spending cash outlays of $2.4 billion from fiscal years 2018 through 2028—about 70 percent more than the average of $1.4 billion from fiscal years 2007 through 2017. (See fig. 2.) While this projected spending is largely driven by plans to acquire a new fleet of delivery vehicles, USPS also projects increased spending in the other categories of facilities, information technology, and mail-processing equipment. In addition, while some of USPS’s planned capital spending is intended specifically to generate a return-on-investment—such as by increasing revenues or decreasing costs—much of USPS’s planned capital spending is to help sustain operations. Specifically, according to our analysis of USPS data, roughly 80 percent of USPS’s projected capital spending for fiscal year 2018 is for projects intended to help sustain operations. Vehicles: Spending Planned to Replace Aging Fleet In its latest projection of capital spending, covering fiscal years 2018 through 2028, USPS projects an annual average of roughly $821 million on capital spending for vehicles, primarily driven by a multi-year acquisition of new delivery vehicles starting in fiscal year 2019. According to USPS officials, USPS decided a number of years ago to defer purchasing new delivery vehicles and instead continued using and maintaining its existing fleet. Because USPS started acquiring most of its existing delivery fleet in 1987, the majority of its delivery vehicles are several decades old. USPS officials said these vehicles incur high maintenance costs, averaging about $4,500 per vehicle annually. In acquiring new vehicles, USPS plans to take a number of steps to ensure that the vehicles best meet the organization’s needs. According to USPS officials, it will spread the acquisition over multiple years to avoid a large cash outlay in any given year and to enable USPS to modify the vehicle purchases over time to take advantage of any technological changes, such as advances in alternative fuel technologies. Officials added that USPS is considering vehicles that will encourage operational efficiencies. For example, USPS is considering taller vehicles that will better allow carriers to handle trays of mail and packages. The officials also noted that USPS may consider different vehicle designs for different market needs. The officials said that USPS is currently testing various vehicle prototypes and has not decided on any one vehicle design at this time. In total, USPS projects that its acquisition of new delivery vehicles will require about $5.7 billion in capital-spending cash outlays distributed over a number of years. In addition to its planned future acquisition of delivery vehicles, USPS has also conducted smaller acquisitions of vehicles in recent years. According to USPS officials, in the past few years USPS has been replacing most of its non-delivery vehicles and will have done so by 2019, while also purchasing a small number of delivery vehicles to replace ones that have exceeded their useful life or will serve route growth. For example, in April 2017 USPS approved a capital spending project to purchase more than 2,000 cargo vans used to transport large volumes of mail from postal plants to post offices and other facilities, and about 375 spotter vehicles used to move trailers among docks at processing facilities. In May 2017 USPS approved a capital spending project to purchase approximately 8,000 off-the-shelf delivery vehicles needed to serve route growth and replace existing high-maintenance-cost vehicles. (See fig. 3.) Facilities: Spending Primarily Intended for Repairs of Existing Facilities USPS projects an annual average of about $607 million in capital spending for facilities from fiscal years 2018 through 2028. According to USPS officials, USPS faces little need for capital spending on new facility construction given changes to USPS’s business such as decreasing mail volumes. As a result, most of USPS’s projected capital spending is for rehabilitation and repair of existing facilities, such as the replacement of roofs or heating, ventilation, and air-conditioning systems needed to sustain operations. For example, in December 2016, USPS approved ca capital spending project to replace the roof at a mail processing facility in Tulsa, Oklahoma. USPS had concluded that the roof was in a state of failure, and there were no economically feasible repair options. In addition, in 2017 USPS approved about a capital spending project to repair facilities in the U.S. Virgin Islands damaged during Hurricane Maria. Although most facilities spending is related to rehabilitation and repair, some USPS capital spending is on new facilities. According to USPS officials, new facilities projects are generally approved because of the need to completely replace an existing facility that is beyond repair or to construct a new facility that will replace multiple existing facilities. For example, in May 2017 USPS approved a capital spending project to construct a mail-processing facility in Nashville, Tennessee. The facility is intended to replace and close four existing facilities which will eliminate space deficiencies, reduce transportation costs, and improve operating efficiencies. In addition, according to USPS officials, USPS may need to make capital spending investments to facilities to accommodate growth in package volume, should that growth continue. Information Technology and Other: Spending Intended to Support USPS’s Network and Cybersecurity Efforts USPS projects an annual average of about $541 million in capital spending for information technology and other capital projects, such as customer support equipment, from fiscal years 2018 through 2028. Information technology spending, which makes up an average of 98 percent of the projected spending in this category from fiscal years 2018 through 2028, is intended to maintain the infrastructure used to support USPS and provide security from cyber-threats, among other things. According to USPS officials, while it is difficult to project capital spending on information technology because future needs are uncertain, they can more accurately predict some future needs, such as hardware replacement. For example, there is a baseline of projected costs to replace servers because USPS knows the length of the technologies’ useful lives and when they will need to be replaced. According to USPS officials, while much of its capital spending on information technology is intended to replace outdated servers and other hardware, some spending is for developing new information technology systems. For example, in March 2017 USPS approved a capital spending project to purchase 67 video conferencing systems intended to increase productivity and encourage collaboration among USPS offices. In addition, USPS officials told us that in recent years USPS has undertaken more capital spending than expected on cybersecurity, a trend that will likely continue for the next few years. According to a DAR for cybersecurity investments, USPS is undertaking such investments to proactively identify and respond to security threats that have the potential to cause financial or other damage to the organization’s assets or employees, including threats that could disrupt or destroy information. Capital spending on information technology can also support USPS strategic goals and provide a positive return-on-investment. For example, in January 2017 USPS approved an additional capital spending to support development of its Informed Visibility program, which is a system that provides tracking and reporting of mail shipments for commercial mailers. According to the Informed Visibility DAR, these capabilities will provide users with access to valuable business information, helping improve operational efficiencies and marketing, among other things. According to the DAR, Informed Visibility will also provide a positive return-on-investment by eliminating some redundant costs and programs. Mail-Processing Equipment: Projected Spending Intended to Increase Automation and Efficiency USPS projects an annual average of about $464 million on capital spending for mail-processing equipment from fiscal years 2018 through 2028. USPS intends to maintain or replace existing aging equipment used to process mail and purchase new equipment that USPS expects will increase efficiency and provide other business benefits. According to USPS officials, equipment projects can also generate a positive return- on-investment in a number of ways, such as by increasing automation to reduce costs or by improving customer service. For example, in August 2017 USPS approved a capital spending project to provide new control systems for about 1,000 bar code sorter machines that USPS expects will decrease mail-processing costs. Some of USPS’s mail-processing equipment investments may also specifically address the growing market for package shipments. For example, in July 2017 USPS approved a capital spending project for upgrades to automated package-processing machines—upgrades intended to reduce package-handling costs and improve collection of data on when and where packages are processed. USPS first deployed these machines in 2004. According to the DAR, by 2017, the machines were nearing the end of their useful life, resulting in reduced reliability. USPS’s Projected Capital Spending Will Likely Involve Prioritization Decisions Although USPS is projecting increased capital spending over the next 10 years, it has reported that it faces uncertainties, such as the level of future revenues, that could affect its ability to undertake planned and projected spending. USPS faces continuing declines in First Class Mail volume, and while it has experienced increased volume in packages, future increases in package volume are uncertain. Specifically, according to USPS, some of its major shipping customers are now building their own delivery capability that may enable them to divert some package shipments away from USPS. USPS has also stated that it faces challenges in ensuring that future operations generate sufficient revenues to support planned capital spending and that it is constrained in its ability to reduce costs. We have previously testified that USPS continues to face a serious financial situation with insufficient revenues to cover its expenses. This uncertain financial outlook may result in USPS changing its current capital-spending plans, including setting new priorities across its planned projects and other business needs. These prioritization decisions can involve tradeoffs among projects and between capital and operations spending. USPS has already faced these types of tradeoffs, as in fiscal year 2017, when it did not make $6.9 billion in required prefunding payments for retiree health and pension benefits, stating that it lacked sufficient cash to make those payments while ensuring it could continue to provide service, and stating that it required sufficient cash reserves for capital spending. While USPS officials noted that USPS must always make prioritization decisions regarding capital spending, its financial future may make such decisions more critical given its currently projected increased capital spending. For example, unless USPS increases its revenues or decreases other expenses, such prioritization decisions may involve USPS undertaking less future capital spending than it currently projects over the next 10 years. Further, even if USPS’s financial situation were to dramatically improve, USPS may not necessarily undertake more capital spending than currently projected, because of significant other business needs, such as funding operating expenses. Should USPS have more resources than expected in the coming years, though, USPS may be able to make fewer tradeoffs regarding capital spending. Various Processes Support USPS’s Ability to Address Uncertainties and Risks That Affect Capital Spending USPS Has Processes Designed to Identify Uncertainties and Risks That Affect Capital Spending USPS has processes that can help it to identify uncertainties and risks that could affect its capital spending and adjust its spending to changing circumstances. USPS has adopted the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) internal control framework, which includes how organizations should address uncertainties and risks. Specifically, this framework states that organizations should identify uncertainties and risks to the achievement of their objectives and analyze these uncertainties and risks to determine how they should be managed. Additionally, COSO’s internal control framework asserts that organizations should not only identify and analyze uncertainties and risks but also assess any changes in conditions that could affect the organization including its capital spending. Identifying and Analyzing Organizational Uncertainties USPS has processes for identifying and analyzing organizational uncertainties, such as business and budgetary uncertainties, which can affect capital spending. These processes align with aspects of COSO’s internal control framework. For example, according to USPS documentation on its strategic-planning process, USPS conducts a business environment assessment and an enterprise risk assessment every 3 years to identify its organizational uncertainties, such as the effect of changes in the number of delivery points or mail volume. Additionally, USPS has processes to analyze the effects of its organizational uncertainties. For example, some department managers analyze the potential effects of organizational uncertainty by modeling different scenarios to help inform their department’s capital-spending decisions. For example, USPS officials stated that the vehicles department models the interactions among key variables—such as stabilizing or declining mail volume, route structures, and vehicle cargo sizes—as it considers various vehicle acquisition options. In addition, USPS facilities department officials told us that they plan to develop on a model to consider how key variables, such as mail volume, affect USPS’s facility needs. In addition to identifying and analyzing the potential effects of organizational uncertainties, USPS also has processes for assessing changes in these organizational uncertainties. For example, USPS documentation shows that USPS leadership holds a monthly business review meeting in which officials discuss any changes in internal conditions, such as labor costs, or external conditions, such as mail volume, that could affect the organization and, when applicable, how these conditions could affect capital spending. Officials told us that USPS also distributes a survey every 18 months to internal and external stakeholders to obtain perspectives on changes, if any, in some of the conditions addressed by USPS’s strategic plan. The survey also covers other conditions such as uncertainty about the extent to which USPS will have funds to maintain, repair, and replace infrastructure. Identifying and Analyzing Project Risks Individual capital projects face inherent risks—such as technological, operational, and integration risks. We found that USPS’s capital-spending processes align with aspects of COSO’s internal control framework by incorporating processes to identify and analyze project-specific risks through the use of DARs. As discussed earlier, USPS’s capital spending processes require DARs to justify proposed capital projects with total costs of $1 million or more. Specifically, internal USPS guidelines state that DARs should identify the technological, operational, and integration risks that could affect capital projects and any tradeoffs related to potential alternatives to the proposed capital project. For example, we reviewed one DAR for mail-processing equipment that explained that the project has a low level of operational risk noting that the new equipment will not require training for operators, thus avoiding potential costs and delays associated with training. Another DAR we reviewed for a project intending to improve the customer experience and reduce costs through more efficient staffing at retail locations identified integration risks and noted that the project's proposed deployment schedule might not allow time for delays. USPS leadership may also request additional analyses to verify, or support, information in a DAR before deciding whether to approve a project. For example, according to documentation we reviewed, USPS leadership recently requested that its Finance and Planning division review economic data, such as population growth rates, to confirm the economic growth projections used in support of a DAR for a new facility in Bismarck, North Dakota. USPS Has Processes Designed to Respond to Identified Uncertainties and Risks That Affect Capital Spending We found that USPS has processes that are designed to help it respond to identified organizational uncertainties, specifically future budgetary uncertainty. According to OMB’s Capital Programming Guide, capital spending “...should be consistent with the level of future budgetary resources that will be available.” USPS officials said USPS seeks to minimize the budgetary uncertainty that capital spending will outpace available resources by developing its annual capital-spending budget as part of USPS’s overall annual budget. As a result, USPS can determine an annual capital spending budget based on the most recent conditions, including the most recent revenue forecasts, and consider possible tradeoffs—such as those between capital spending and other spending needs such as operating expenses. Further, while the creation of a capital-spending budget establishes capital-spending levels, the process does not commit capital spending on any particular project. Instead, USPS reviews and approves new capital projects throughout the fiscal year, allowing USPS to make capital spending-decisions based on its most current financial condition, which may have evolved during the fiscal year. After USPS has set the annual capital spending budget, USPS’s capital- spending process also allows the organization to respond to any changes in its financial outlook, business environment, or other organizational uncertainties that might occur during the fiscal year. As stated previously, USPS’s capital spending budget establishes capital spending levels for the fiscal year and does not include approvals for specific projects. Project sponsors must obtain approval from different groups within USPS to initiate capital projects. USPS may approve less capital spending for capital projects than budgeted for at the start of the year. Our analysis of capital-spending cash outlays from fiscal year 2007 through 2017 shows that on average, USPS spent about 18 percent less than was budgeted for at the start of each year. According to USPS officials, capital spending can be below budgeted levels for a variety of reasons. USPS may shift strategic priorities based on business conditions and cancel or delay some planned projects that it determines are no longer aligned with its priorities. For example, USPS canceled a previously approved centralized distribution facility project in Brooklyn, New York, and decided to look for less costly alternatives to support the area’s increased package processing needs. Also, officials stated that projects could come in below budget because of a reduction in project scope or because a multi-year project falls behind schedule and has less cash outlays in a given year than were planned. In other instances, USPS’s capital-spending approval process provides flexibility to re-allocate capital funds as USPS identifies and assesses changing conditions that affect the organization, or when contingencies or emergencies arise. For example, according to USPS officials, as USPS monitors the economic indicators that affect its business, the indicators may signal an increase in package volume. USPS might respond by allocating more capital toward additional purchases of package-sorting equipment. According to USPS officials, USPS’s capital-spending process also allows USPS to respond to contingencies. In fiscal year 2017, USPS approved capital spending to repair facilities in the U.S. Virgin Islands damaged during Hurricane Maria. (See fig. 4.) In the event that such unplanned projects arise to repair damages or are required for safety, project sponsors can expedite the capital spending approval process, such as by submitting an advance funding request to USPS. In addition to having processes to respond to organizational uncertainties, we also found that USPS has processes for responding to the risks affecting individual capital projects. According to USPS documentation, capital projects with total costs of over $5 million are reviewed at certain stages in their implementation to assess any changes, including changes in the return-on-investment, timeline, and performance of the projects. USPS may alter project specifications or time frames to respond to these changes. During the implementation stage of some major capital projects, such as the installation of mail-processing equipment, departments may initially test a limited number of units with the option to request the purchase of additional units if the tests are successful. Additionally, some major capital projects, such as the replacement of USPS’s delivery vehicles, require acquisitions over multiple years, which, USPS officials told us, can be used to limit risk. As mentioned earlier, USPS is planning to replace its fleet by purchasing vehicles over a number of years, potentially allowing it to capitalize on technological advances that may develop over the time period. After a capital project is complete, USPS has a process for reviewing the results as a way to inform and improve future capital-spending decisions, including better addressing project risks. USPS’s capital-spending process requires USPS to evaluate capital projects with total costs over $25 million after project completion, reviewing the cost, schedule, and performance results of these projects. For example, in November 2017, USPS discussed the results of two package processing and sorting projects that experienced delays associated with accommodating new equipment at the facilities due to design issues. As a result, USPS recommended that project sponsors conduct more research about any site-specific risks before submitting a DAR for future package processing and sorting projects. In addition, USPS’s Office of Inspector General prepares an annual capital-project-compliance report that evaluates the soundness of USPS’s capital spending. According to USPS officials, the organization considers the results of these reports and seeks to address any resulting recommendations. For example, we reviewed documentation explaining that, in response to one recent Office of Inspector General recommendation, USPS stated it would revise its capital spending guidance to define review and approval procedures, validation, and compliance report requirements for all investments. Agency Comments We provided a draft of this report to USPS for review and comment. USPS provided a written letter (see appendix II) in which USPS provided no comments. Via email, USPS also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to interested congressional committees and the Postmaster General. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology Our objectives for this report were to (1) describe the U.S. Postal Service’s (USPS) projected capital spending over the next 10 years and (2) assess whether USPS’s processes support its ability to address uncertainties and risks that affect its capital spending. For our second objective, our scope was limited to assessing whether USPS had designed processes; that is, we did not assess the quality of any analyses that USPS conducted regarding risks or any determinations that USPS made regarding capital-spending projects as this was beyond the scope of our review. Such assessments are routinely conducted by the USPS Office of Inspector General. To address USPS’s planned capital spending over the next 10 years, we reviewed USPS data on capital spending from fiscal years 2007 through 2017 and USPS documentation on projected capital spending from fiscal years 2018 through 2028. In both cases, we focused on a fiscal year’s actual or projected capital-spending cash outlays—or the amount of cash spent on capital projects—as opposed to capital-spending commitments made in that fiscal year. For historical data, we used data from USPS’s annual budgets, known as Integrated Financial Plans, for fiscal years 2008 through 2018. Each annual budget contains data on actual capital spending levels from prior fiscal years. The annual budgets generally report capital spending in four broad categories: vehicles, facilities, information technology and other, and mail-processing equipment. Because the categories used in past annual budgets were not consistent, we recategorized some years’ spending to be consistent. Specifically, we considered “mail-processing equipment” or “equipment” as part of “mail- processing equipment.” We considered “infrastructure and support,” “information technology and other,” and “customer service and support equipment” as part of the “information technology and other” category. The past budgets consistently used “facilities” and “vehicles” categories. We obtained input from USPS officials on our recategorizations. To determine the reliability of these data, we reviewed the data for any obvious errors, reviewed relevant documentation, and interviewed officials. We determined that these data were sufficiently reliable for the purposes of reporting on USPS’s past capital spending. For information on USPS’s projected capital spending from fiscal years 2018 through 2028 we reviewed USPS’s 10-year capital-spending forecast for those years, which USPS created in 2017. This 10-year forecast is a projection of capital spending, but is not a commitment for any level of investment. The 10-year forecast categorizes capital spending projects into the following categories: construction and building purchases, building improvements, mail processing equipment, vehicles, capitalized software, customer service equipment, and postal support equipment. For our analysis, we combined “postal support equipment,” “information technology,” and “customer service equipment” into one overall “information technology and other” category, and “construction and building purchases” and “building improvements” into one overall “facilities” category. USPS officials agreed with this approach. To determine the reliability of these data, we interviewed USPS officials, reviewed data for any obvious errors, and reviewed relevant documentation. We determined that these data were sufficiently reliable for the purposes of providing information on USPS’s projected capital spending. In addition, we interviewed four USPS vice presidents in charge of the departments that correspond with the four broad categories of capital-spending investments about historic, ongoing, and projected capital spending. We also selected and reviewed a non-generalizable sample of 14 Decision Analysis Reports (DAR)—internal USPS documents used to justify and obtain approval for some proposed capital-spending projects— of the 66 approved by USPS for fiscal year 2017 and part of fiscal year 2018. USPS requires DARs for all proposed capital spending projects with a total project cost of at least $1 million. The DARs contain information on, among other things, project specifications, purpose, risks and tradeoffs, and timeframes. We reviewed the DARs for this and other information; we did not review the quality of the analyses contained in the DARs. We obtained a list of all approved DARs for fiscal years 2017 and 2018 and selected DARs of the two largest and two smallest capital projects by total value in each of the four categories (i.e., vehicles, facilities, information technology and other, and mail processing equipment). Because the vehicles category had only two approved DARs at the time we received the list of approved DARs from USPS, we reviewed 14 DARs instead of 16. While the information from our reviews cannot be generalized to all DARs, the information provides insights into USPS’s reasons for undertaking capital spending projects. To assess whether USPS has processes that support its ability to address uncertainties and risks that affect its capital spending, we reviewed USPS documentation, including USPS’s policies and procedures for capital spending, internal guidance documents, and others related to processes that affect its capital spending. We identified criteria for addressing uncertainties and risks, including those specific to capital spending. Specifically, we identified criteria from the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Internal Control-Integrated Framework (the internal control standards adopted by USPS) and the Office of Management and Budget’s Capital Programming Guide. COSO Principle 7 states, “The organization identifies risks to the achievement of its objectives across the entity and analyzes risks as a basis for determining how the risks should be managed.” Further, COSO Principle 9 states, “The organization identifies and assesses changes that could significantly affect the system of control.” The Office of Management and Budget’s Capital Programming Guide element I.1.1 states, “The plan should also be consistent with the level of future budgetary resources that will be available.” We evaluated USPS’s processes that affect capital spending against these criteria to determine whether USPS had designed processes to address uncertainties and risks related to capital spending. We did not review the capital spending projects USPS has undertaken to determine, for example, if USPS made appropriate decisions regarding selected projects. We also interviewed USPS officials regarding USPS’s capital- spending processes. Specifically, we interviewed officials with USPS’s Capital Investment and Business Analysis Department; Finance and Planning Department; Technical Analysis, Accounting, and Finance Department; and the four vice presidents mentioned above about how they address uncertainties and risks related to capital spending within their departments. We conducted this performance audit from September 2017 to June 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the U.S. Postal Service Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact above, Kyle Browning and Faye Morrison (Assistant Directors); Matthew Rosenberg (Analyst in Charge); Amy Abramowitz; Sara Ann Moessbauer; Josh Ormond; Joshua Parr; Amy Rosewarne; and Crystal Wesco made key contributions to this report. Also contributing to this report were Carol Henn, Sabine Paul, and Carolyn Voltz.

USPS faces significant financial challenges as it continues to experience declining mail volumes and revenues. Capital spending is needed to support USPS's operations, but can be affected by various uncertainties and risks, such as those related to future business activities and revenues. In the past, USPS has reduced its capital spending in response to declining revenues. GAO was asked to review USPS's capital-spending plans and examine how its capital-spending processes address uncertainties and risks. This report: (1) describes USPS's projected capital spending over the next 10 years and (2) assesses whether USPS's processes support its ability to address uncertainties and risks that affect its capital spending. GAO reviewed USPS data and information on actual capital spending from fiscal years 2007 to 2017 and projected capital spending for fiscal years 2018 through 2028. GAO also reviewed USPS reports on 14 approved capital projects in fiscal years 2017 and 2018, selected to provide a mix of project type and value; examined documentation related to USPS's processes that affect capital spending and compared USPS's processes to internal control standards adopted by USPS; and interviewed USPS officials. On a draft of this report, USPS provided technical comments, which GAO incorporated as appropriate. The United States Postal Service (USPS) projects increased capital spending over the next 10 years. According to USPS, this spending will support its mission and improve its financial position. USPS projects average annual capital cash outlays of $2.4 billion from fiscal years 2018–2028—about 70 percent more than the $1.4 billion average from fiscal years 2007–2017 (see figure). For example, USPS plans to acquire a new fleet of delivery vehicles starting in 2019 to replace its aging existing fleet and plans to purchase new mail-processing equipment to increase efficiency. However, USPS faces a serious financial situation with insufficient revenues to cover expenses. This uncertainty may result in USPS's making capital-spending prioritization decisions that can lead to tradeoffs across planned capital projects and potentially between capital spending and other organizational needs such as operational expenses. Such prioritization could lead to USPS's undertaking less capital spending than currently projected in the absence of increased revenues or decreased expenses. USPS has processes that help it identify the uncertainties and risks that may affect its capital spending and adjusts its capital spending accordingly, in line with internal control standards adopted by USPS. For example, USPS identifies organizational uncertainties, such as mail volumes and revenues, as part of its strategic planning process and considers them when creating its capital spending budget. It also identifies individual project risks through a project review process, and considers tradeoffs inherent in different project scenarios. USPS's processes also allow it to respond to these uncertainties and risks. Specifically, USPS sets a capital-spending budget in its overall financial plan, to help ensure that spending is in line with expected resources. USPS's process also allows it to shift funds if needed, such as to repair a facility damaged during a natural disaster. USPS also reviews individual capital projects during implementation and can change specifications or time frames based on changing circumstances.

CRS_R44601

Introduction On a daily basis, the restaurants, cafeterias, and carryout facilities operated by the House of Representatives and the Senate serve Members of Congress, congressional employees, constituents, and other visitors to the Capitol, House office buildings, and Senate office buildings. The House and Senate restaurant systems have existed since the early 1800s and have grown and modernized over time. Although many of their services may seem similar, food operations are separately administered and managed for the House, for the Senate, and for the Capitol Visitor Center (CVC). By meeting congressional dining needs during workdays that frequently can be unpredictable, the restaurant systems help facilitate the legislative and representational work of Congress. Because many Members and staff visit these restaurants every day, they remain a subject of ongoing congressional interest. House Restaurant System Operations Present Vendor and Oversight for House Restaurants Since 1994, the House restaurants have been operated by a private vendor, with oversight provided by the House. Under the Rules of the House of Representatives, the House restaurants fall under the jurisdiction of the Committee on House Administration, which delegates much of the daily oversight and financial management of the restaurant system to the Chief Administrative Officer (CAO) of the House. On June 9, 2015, the CAO announced that Sodexo Government Services would be the new food service provider for the House. The contract with Sodexo is for an initial term of four years. Starting in 2019, six two-year options may extend the contract for up to 12 additional years. A comprehensive survey of House food service needs, based on analysis of restaurant records, and the experiences of secret shoppers, focus groups, and surveys, had been commissioned during fall 2013 to help inform the vendor selection process. The CAO issued a request for proposals (RFP) for vendors interested in running any or all of the House restaurants in October 2014. Prospective contractors were notified that "the House will have no financial responsibility or liability under the terms of the contract," and that the contractor selected would pay the House a monthly commission, determined by an agreed-upon percentage of gross receipts. The CAO encouraged ideas from vendors to improve operations in the Members' dining room and also initiated service schedule changes. Food service providers would not be required to operate the Members' dining room when late votes were scheduled in the evenings, on weekends, or on holidays, and instead, the room would be available for hosting catered events. To address some of the suggestions from the 2013 food service study, the RFP required that contractors include three-tier pricing strategies (value, standard, and premium) for all areas except vending. Once prices were set, any price increases would be prohibited for the first two years of service. Vendors were also required to introduce a minimum of two branded eatery concepts that would suit the needs of House customers. Catering requirements and responsibilities for different locations in the Capitol and office buildings were detailed, and the new contractor would be expected to "successfully execute events with less than four (4) hours' notice." The new contractor would be required to conduct at least one formal focus group per year to help ensure long-term customer satisfaction and was encouraged to "utilize a variety of assessment tools" to appraise customer service. Individuals from outside of the CAO's office were included on the panel that reviewed and evaluated vendor proposals, and the panel also included a staff member from a Member office. To aid in the service transition, once Sodexo was chosen as the new vendor, it designated a community relations officer, a position unique to its House operation, to help address comments and resolve problems raised by House dining patrons. It is not publicly known whether or not the past provider, Restaurant Associates, submitted a bid to renew its contract. Sodexo assumed its responsibilities as the House vendor on August 7, 2015, and immediately began renovations and other changes related to the transition, some of which continued in 2016. Services Available in the House Restaurant System Currently, 10 dining areas and carryouts in the House of Representatives and the House office buildings are operated by Sodexo as part of the House food services. Additionally, Sodexo is responsible for in-house catering services and most vending machines for the House. Sodexo introduced SoGo Cards, a new form of payment, for House staff to use in the House cafeterias. The cards are available at the cash registers of the dining facilities, can be reloaded with funds online, and provide a reward program regular customers may enroll in. All the House food service facilities, including the vending machines, are required to accept all major credit and debit cards, and many vending machines also accept Apple Pay and Google Pay. Additional "pop-up" lunch options in the O'Neill House Office Building main lobby operate through a partnership with Fooda on certain weekdays, featuring foods from local restaurants. The facilities operated under the House restaurant system are listed in Table 1 . With the arrival of Sodexo in 2015, the CAO announced several major changes to House dining operations, including the following: For lunch and dinner, the Members' dining room would replace a la carte service with a buffet. The introduction of an online system that allows users to preorder their food items and pick them up in the Longworth Cafeteria. The replacement of some eateries with popular branded restaurant concepts. Members of the House Appropriations Subcommittee on Legislative Branch expressed continuing concerns about food quality, high prices, and poor service in the House restaurants under Sodexo during the House of Representatives FY2018 budget hearing in May 2017. At the hearing, the CAO stated that a quality assurance surveillance team, comprised of five CAO employees, had been created to continually appraise contractor performance in a number of areas. According to the CAO, observations and feedback from the surveillance team during its first two months had led to some improvements in food quality and changes in restaurant management personnel. A new chef was brought in to the Members' dining room and some table service was reintroduced in response to feedback. Several branded restaurant concepts have been introduced to the House dining facilities, beginning with a Dunkin' Donuts/Baskin Robbins in the Longworth House Office Building and a Subway in the Rayburn House Office Building, which opened in 2016. In January 2018, a food service survey conducted within the House community by the CAO "indicated a strong desire for both cafeteria and branded food options," and the legislative branch conference report for FY2019 "encourage[d] the CAO to continue exploring opportunities to add more [branded concepts]" throughout the House restaurant system. Beginning in 2018, "pop-up restaurants" have been featured on a weekly basis in the Longworth cafeteria, offering food options from branded restaurant chains. Three additional branded concepts have opened or are scheduled to open in the House during 2019: an &pizza in Rayburn, an Au Bon Pain in Cannon, and a Steak 'n Shake in Rayburn. The FY2019 legislative branch appropriations conference report also directed the CAO to explore applying a "branded option concept" to the Members' dining room "in an effort to provide consistent service, better food selection, and quality food to Members and their guests." Beginning in September 2018, the Members' dining room also began providing service to congressional employees. Senate Restaurant System Operations Present Vendor and Oversight for Senate Restaurants Since 2008, food services in the Senate have been provided by a private contractor, under the jurisdiction of the AOC and subject to policy directives from the Committee on Rules and Administration. Rule XXV of the Standing Rules of the Senate grants the committee authority over "Services to the Senate, including the Senate restaurant." The food service vendor selected for the Senate in 2008 was Restaurant Associates, part of Compass Group, which was selected again under a new seven-year contract, signed December 18, 2015. A 2016 Department of Labor investigation revealed wage-related infractions that could lead to contract renegotiations sooner than 2022. Under current arrangements, additional food vendors may be subcontracted to provide some Senate restaurant services. In 2012, for example, requests to bring kosher meals to the Dirksen cafeterias were ultimately fulfilled by Bubbie's Gourmet; the decision was authorized by the Senate Rules and Administration Committee, and Restaurant Associates was responsible for selecting the subcontractor and overseeing its operations. In 2001, a coffee shop and cafe owned by a local family, Cups & Company, opened in the Russell Senate Office Building and remains independently operated. Services Available in Senate Restaurants In the Senate and its office buildings, 12 dining areas and carryouts are operated as a part of the Senate Restaurant System, along with additional vending areas. The facilities included in the Senate Restaurant System are listed in Table 2 . Restaurant Associates also provides in-house catering services, including a "Café to Go" option that can serve groups of 40 or less with advance notice of 24 hours. Issues Related to Congressional Restaurants Some of the issues affecting the restaurant systems are unique to the House and others are unique to the Senate, resulting from the fact that each chamber administers its own restaurant services. Other issues affect the restaurants in both chambers or are typical challenges in any food service operation. This section focuses on current issues related to the congressional restaurants, but many of the challenges the House and Senate restaurants face today are similar to issues they have faced in the past. For more background on these topics, see CRS Report R44600, History of House and Senate Restaurants: Context for Current Operations and Issues , by Sarah J. Eckman. Financial Challenges in Operating Restaurants Throughout history, the House and Senate restaurants have faced financial challenges. In part, this is a consequence of the operating practices adopted by the House and Senate restaurants tending to reflect the needs of Congress, even when these choices sometimes hurt the ability of the restaurants to break even. This approach illustrates the view that the restaurants should operate as a necessary service rather than a profit-generating enterprise—a perspective that originated with the earliest congressional restaurants in an underdeveloped Washington, DC, and persisted long after. Although more dining options exist in the Capitol Hill neighborhood today, the dining facilities in the Capitol and congressional office buildings often remain a more convenient option for Members, staff, and visitors. The operating hours of the House and Senate restaurants are one factor that, historically, have contributed to their financial challenges. The House and Senate restaurants, for example, operate primarily for breakfast and lunch service during weekdays, whereas some claim that typical restaurants often rely on dinner service and weekend customers to generate much of their revenue. The cost of labor associated with staffing the restaurants during nonpeak operating hours has often been a significant expense for the restaurant systems. While the restaurants were under congressional management during much of the 20 th century, their finances were particularly affected by legislative measures that established the wages and benefits of federal or congressional employees. Some dining establishments in each chamber have been consistently more profitable than others. Eateries that serve a smaller number of patrons, close when Congress is out of session, or offer full table service can be more expensive to operate. Over the years, the restaurant systems have sometimes operated at a net loss; in other years, revenue from catering or the cafeterias can help offset losses from other establishments to help the overall system break even or make a profit. Obtaining a complete picture of the House and Senate restaurant system finances has always been difficult, given that restaurant responsibilities have often been distributed across multiple actors. When the House and Senate managed their own restaurants, multiple congressional entities were involved in the restaurants' operation, which created challenges for obtaining a complete financial picture. Since the restaurants have been run by private contractors, many business records are not subject to the same public disclosure requirements that government entities would be. This ambiguity has sometimes led to incomplete reports about restaurant finances. The House and Senate restaurants today receive commission-based fees from the food service providers, but more detail is unavailable, since most of the financial records regarding the restaurants are maintained by the vendors and are not publicly accessible. Pricing of Menu Items Attempts to improve House and Senate restaurant finances over the years have frequently involved food price increases. Many of these price increases have been minimal adjustments required to keep up with increasing costs of food, energy, and labor, while others have been larger adjustments. Sometimes, the relatively small increase to revenue from price increases has not been sufficient to completely offset increased expenses. Contract agreements with vendors sometimes prohibit price increases for a specified amount of time, which can make it difficult for vendors to adjust and compensate for unexpected increases in their operating expenses. Thus, when price changes do occur, the restaurants are often adjusting for several years of increased costs, which can appear as a large jump to customers. In the transition to Sodexo in the House during 2015, for example, the CAO acknowledged that prices on many menu items would increase, explaining that while prices on many items will increase when the new contract takes effect, no price increases have been approved in House food service facilities over the past six years. Bidders were required to propose pricing comparable to similar government and corporate food service facilities. The new contract limits any future increases to changes in a subset of the Producer Price Index, with a three percent annual cap. Complaints about restaurant prices have persisted over the history of the restaurant systems, and the 2013 study of dining operations in the House suggested that many customers, particularly staff and visitors, remain price-conscious. When possible, customers may be willing to trade the convenience of on-site services for off-site alternatives if the dining options in the Capitol complex are not perceived as good values. Meeting Evolving Expectations for Quality and Services In addition to reasonable prices, the House and Senate restaurants are expected to meet other customer standards, often related to food quality, nutrition, and variety. Food service vendors, through their experience in the broader restaurant industry, are often aware of current consumer interests, and the House and Senate restaurants solicit customer feedback to help ascertain what needs and values their particular customers have. When the current vendor, Sodexo, was selected for the House restaurants, the CAO acknowledged that providing quick dining options was a main priority for the restaurant service, although the quality of food, nutrition, and customer service were also considerations. The requirement for two branded restaurant concepts also reflected customer preferences. On its website for Senate dining, Restaurant Associates has, at times, highlighted its initiatives in "sustainability as well as social and environmental responsibility." These include its efforts to provide organic food, locally produced food, sustainable seafood, cage-free eggs, and no trans-fats. Maintenance of Restaurant Facilities To continue to meet expectations for food quality and safety, efficiency in service, and customer satisfaction, dining facilities may require more frequent updates and renovations than other areas within the Capitol complex. Many of the most significant changes to the restaurant facilities occur during or soon after the transition to a new restaurant system vendor, but upgrades to equipment may be an ongoing concern. The age of the rooms that house dining services may present additional construction challenges and safety concerns. In January 2016, for example, the Longworth Cafeteria was evacuated and temporarily closed after several employees reported feeling ill from possible exposure to lead paint dust stirred up by ongoing nighttime kitchen renovations. In addition to periodic updates to the restaurants themselves, large-scale renovations are sometimes necessary to improve and maintain the Capitol, House, and Senate facilities. Any closures to particular buildings can have an impact on House and Senate restaurant services, which are spread throughout these locations. The closure of a cafeteria with a full kitchen may require additional resources for other cafeterias, or a greater reliance on prepackaged food items prepared elsewhere in the restaurant system or off-site. The Cannon Renewal Project, for example, necessitated the closure of the Cannon Café in December 2014, and it was replaced with a convenience store, Cannon Twelve, which is expected to operate until the renovation is complete. The Longworth Cafeteria operated under limited hours and periodically closed while major renovations were undertaken between July and November of 2016. Because many customers value convenience, the temporary reorganization of congressional office space due to renovations may also shift demand for cafeterias or carryouts from one building to another. Oversight and Restaurant Management The degree to which Congress can and should be involved in the daily management of the House and Senate restaurants is a question that has persisted over time. Both chambers currently use private food service vendors to run the day-to-day operations of the restaurants, while retaining general authority for oversight of the restaurant systems. This, however, has not always been the case; the House operated its own restaurants as recently as 1994, and the Senate operated its own restaurants until 2008. The reasons given in support of congressional management or private management have varied over time and often overlap, as each side has claimed that its approach would be financially advantageous, benefit employees, and improve the quality of food services provided. Those who have advocated for private management note that modern restaurant systems are larger and more complex than many of the internal operations managed by the House or the Senate. Food service requires consistent quality, safety, and efficiency, and some believe professional contractors familiar with the business of running large institutional restaurants are better able to achieve these objectives. Those who have supported congressional management, however, believe that each chamber has sufficient administrative means to operate the restaurants, and that Congress better understands the unique needs of the House and Senate restaurant systems and the constraints under which they operate. Private management may also raise oversight challenges for Congress if company financial records are not made available for review. Some Members have expressed concerns that contractors do not have to follow the same guidelines for personnel or procurement that the federal government does, even though the restaurants operate within the Capitol complex. Employee Salaries and Benefits Issues related to employee wages and benefits affected the House and Senate restaurants during the 114 th Congress (2015-2016). A new contract for the House restaurants went into effect in August 2015, and a new contract for the Senate restaurants went into effect in December 2015. This created an opportunity for employees and others to advocate for changes, including higher wages for all restaurant employees and union representation for Senate restaurant employees, that they hoped to see before the terms of the new agreements were settled upon in each chamber. A summary of these recent events and ongoing concerns is below. House Restaurant Employee Wages and Union Wages for House restaurant employees are a concern expressed by some House Members. While the search for a new vendor was underway in 2015, Representative Debbie Wasserman Schultz proposed an amendment during the committee markup of the FY2016 Legislative Branch Appropriations Bill that would affect House restaurant employee wages. The proposal "directed the [CAO] to solicit and select a food service contractor who provides a livable wage to its employees to meet basic needs for food and shelter," using local economic indices to determine an appropriate wage amount. In a 21-29 vote, the amendment was not agreed to. The CAO noted that its office shares the "understandable desire to ensure that the people who provide services to the House are compensated fairly," and indicated that the new House vendor was chosen, in part, based on "the signals that Sodexo sent regarding the value it places on a strong, effective, fairly compensated workforce." When Sodexo took over the House restaurants in August 2015, it announced plans to voluntarily follow the D.C. Displaced Workers Protection Act of 1994, which guaranteed that no employees would be laid off for at least 90 days after the contractor change. Sodexo also agreed to recognize the restaurant employees' union, UNITE HERE Local 23, and signed a collective bargaining agreement. Many provisions in the collective bargaining agreement with Sodexo remain similar to those that applied to the previous House vendor, Restaurant Associates, including the pay scale, annual and sick leave, health insurance, short-term disability benefits, life insurance, and union pension. Workers who received higher wages or benefit levels based on their service under past House restaurant employer agreements continue to receive these levels. Sodexo provided starting wages for new employees ranging from $10.15 to $19.00 an hour, with a $0.20 per hour increase scheduled for June 1, 2016, and an additional $0.25 per hour increase to follow on December 1, 2016. Additionally, Sodexo offers House Restaurant System employees the option to enroll in a 401(k) plan and will match $0.35 of every dollar an employee contributes, up to 6% of the employee's earnings. Senate Restaurant Employee Wages and Interest in Unionizing Concerns have been raised about wages and benefits for Senate restaurant employees. A number of protests and advocacy initiatives occurred during late 2014 and throughout 2015 addressing pay and union representation for Senate restaurant employees. On April 22, 2015, approximately 40 Senate contract workers, some of whom were restaurant employees, participated in what was characterized as a strike with other workers and activists, calling for an executive order giving preference to federal contractors who would provide an hourly wage of at least $15 for their workers. Other labor action occurred during the summer and fall months, and an additional strike occurred on December 8, 2015. In addition to higher wages, some Senate restaurant employees also sought to form a union. Some Senators indicated their support for the restaurant employees' concerns. On April 27, 2015, nine Senators signed a letter to the Senate Rules and Administration Committee, arguing that it was wrong for "American taxpayers [to] subsidize these contractors by allowing them to pay low wages that must be augmented by taxpayer-funded benefits." The Senators also wanted federal contractors to provide healthcare and other benefits. Another letter, reiterating these goals and advocating further executive action to "[make] the government a 'model employer,'" was signed by 18 Senators and sent to the President of the United States on May 15. An additional letter was sent on August 5 to the Rules and Administration Committee, advocating for higher restaurant employee wages, signed by 40 Senators. A group of 34 Senators signed a letter on November 13 to the CEO of Compass Group, the parent company of Restaurant Associates, asking the company to recognize a union if a majority of the restaurant employees wanted to unionize. Some Senators and congressional staffers also participated in the protests and advocacy for restaurant employees, including Wednesday "sit-in" lunches or "brown bag boycotts" throughout the fall in the Dirksen cafeteria. Senate restaurant employees maintained that, given the high costs of living in the Washington, DC, area, a wage increase was needed so they could live above the poverty line and provide for their families. The new seven-year contract with Restaurant Associates went into effect January 2016. It included pay increases, reportedly raising the average hourly wage from $11.50 to $14.50 and the minimum starting wage to $13.30. Workers received additional benefits for health insurance, retirement savings, or transportation amounting to $4.27 per hour. Department of Labor Investigation of Senate Job Title Changes On July 26, 2016, the Department of Labor (DOL) found that Restaurant Associates, and its subcontractor, Personnel Plus, owed $1,008,302 in back wages to 674 Senate restaurant employees. DOL found that many Senate restaurant workers were improperly classified into lower paying job categories and were required to work without compensation prior to their scheduled start times, which also resulted in underestimated overtime pay. This finding has led to renewed calls by some Senators to terminate the Senate's contract with Restaurant Associates. Restaurant Associates stated that the error was due to "administrative technicalities," and that it had paid the workers in full. The DOL investigation began after Good Jobs Nation, an advocacy group, filed a complaint on behalf of the restaurant employees with DOL on January 14, 2016. After the AOC's December 2015 contract with Restaurant Associates went into effect, employees alleged that job misclassification had occurred. Federal contractor worker occupational titles and job descriptions are set forth under the Service Contract Act of 1965, and the contract with Restaurant Associates specified particular minimum wages for different occupational titles in the Senate restaurant system. Employees were supposed to receive raises under the new contract, but if the employee's title changed from a higher-paying position to a lower-paying position when the contract took effect, the employee could receive little or no pay increase. The AOC identified some of the misclassified employees through its own internal investigation in early 2016 and worked with Restaurant Associates to provide back pay for these workers and correct the misclassifications. On March 15, 2016, the AOC spoke at a Senate Appropriations Legislative Branch Subcommittee hearing, noting that "we thought that we were doing a good thing [by including a pay raise in the new contract], only to be surprised just a week or two later ... that the pay rates that we had adjusted to were not being implemented." The AOC also indicated that he believed Restaurant Associates' reclassifications did constitute a violation of the contract terms. A subsequent Government Accountability Office (GAO) review between December 2016 and May 2017 found that "[t]he AOC's oversight of the Senate food services contract with Restaurant Associates has been consistent with its established oversight policies and practices in the AOC contracting manual." In addition to providing back pay to affected employees, DOL reports that Restaurant Associates agreed to retain an independent compliance monitor (at its own expense) and will not bid on any new federal service contracts for two years. DOL also reports that Restaurant Associates "is taking additional proactive steps to ensure future compliance," including the appointment of a compliance manager and compliance supervisors and the creation of a confidential telephone hotline for employees or managers to report issues. Concluding Observations In many regards, the House and Senate food services operate like many large, institutional cafeterias do. Similar to many office cafeterias, House and Senate food services primarily serve breakfast, lunch, and snacks during regular workday business hours, and provide vending options for patrons who may be on-site during other times. Recognizing the availability of other dining options, the House and Senate food service providers attempt to provide convenient service, keep their prices competitive, and offer the types of menu items that customers enjoy. Some aspects of House and Senate dining operations, however, are necessarily unique, given the congressional environment in which they exist. The Members' dining rooms, for example, provide an ambiance not typically found in workplace eateries. In addition to their historic and architectural value, these dining rooms also provide Members of Congress and staff members a more formal and private setting in which to meet with guests or one another. Another feature House and Senate dining operations must account for is that the schedule of Congress can be less predictable than that of other institutions, which can have a variety of effects on food services. An unscheduled recess, for example, can significantly reduce the number of customers the House and Senate dining services can expect. This often results in higher costs to the restaurants, which have to account for lost food and sometimes pay employees; as a result, recesses can also lead to temporary worker layoffs or reduced hours. Conversely, when Congress is in session, House and Senate food services must be able to handle high volumes of customers with a variety of needs. Because events like hearings or briefings can be added to, or moved around, the congressional schedule, food service providers, and catering in particular, must to be able to accommodate last-minute requests and changes. The House and Senate restaurants are operated by private food service contractors who handle most of the day-to-day concerns. Despite this delegation, the House and Senate remain responsible for food service oversight. This shared administration resulted from how the congressional restaurant systems developed and grew over time. As a result, many of the issues faced by the restaurants today are addressed by the contractors themselves. Other issues are addressed by the House Administration Committee, Senate Rules and Administration Committee, or other congressional support offices. Together, these entities strive to meet the needs of the Members and staff who rely upon congressional dining services to help them carry out their daily legislative and representational work.

Dining facilities in the Capitol and in House and Senate office buildings provide an essential convenience for Members of Congress and congressional staff, enabling them to easily obtain meals, beverages, and snacks, and quickly return to work. By providing an efficient way to meet congressional dining needs during unpredictable workdays, the restaurant systems help facilitate the legislative and representational work of Congress. These restaurants also provide spaces for constituents and other visitors to meet with staff and Members of Congress, or to purchase refreshments. House and Senate restaurant services are also available to provide catering to Members of Congress when they host events on Capitol grounds. The restaurants remain a subject of ongoing congressional interest, as many Members and staff visit them on a daily basis. Those involved with restaurant administration in the House and Senate have often considered how management choices affect operating costs, services available, oversight, and other elements of the restaurant systems. For much of their histories, the House and Senate operated their own restaurants, but since 1994 in the House and since 2008 in the Senate, private vendors have run the restaurants. In August 2015, the House entered an agreement with Sodexo to operate the 17 facilities in the House restaurant system, subject to direction from the Chief Administrative Officer (CAO) and the Committee on House Administration. In December 2015, the Senate entered a new contract with Restaurant Associates to operate the 12 facilities in the Senate restaurant system, subject to direction from the Architect of the Capitol (AOC) and the Committee on Rules and Administration. Many argue that this professional restaurant management experience is necessary to meet the variety of customer needs in the House and Senate restaurants in a cost-effective manner. Numerous nearby eateries compete with the congressional restaurants for customers. Often, an advantage the House and Senate restaurants are able to provide is convenience for Members, staff, and visitors. This advantage, however, may be undermined if the restaurants are not responsive to customer input and are unable to provide consistent food quality, sufficient variety, or reasonably priced service, relative to their competitors. Food and price issues, along with other day-to-day operational issues, including personnel matters, are largely the responsibility of the restaurant contractors. Some Members and observers have raised concerns about the degree of accountability for the House and Senate restaurant contractors, believing that the restaurants' administration reflects upon Congress and that the restaurants should set an example for other businesses to follow. Although the House and Senate are responsible for restaurant oversight, the delegation of restaurant operations to private contractors means the chambers have less control over employee wages and benefits, procurement, or other business decisions that affect the restaurant systems. The combination of entities involved in House and Senate dining operations creates a unique organizational arrangement, unlike other institutional dining systems. Other features of Congress also distinguish the House and Senate restaurants from similar-seeming restaurant operations. The restaurants' business volume, for example, is highly contingent on the congressional calendar, consisting of a fairly constant weekday breakfast and lunch business, but experiencing substantial, and sometimes unexpected, decreases if Congress adjourns for a recess. Information specific to the House and Senate restaurant systems may therefore be of particular interest to those concerned with their operations. Additional background and context on House and Senate restaurant operations is found in CRS Report R44600, History of House and Senate Restaurants: Context for Current Operations and Issues, by Sarah J. Eckman.

GAO_GAO-18-179

Background Federal and state Medicaid spending on long-term care continues to increase; for example it increased from $146 billion in 2013 to $158 billion in 2015. Individuals seeking long-term care generally need care that is, by definition, longer term in nature and more costly than other types of care. Spending on long-term care services provided in home and community settings, including assisted living facilities, exceeds the amount spent on institutional settings such as nursing homes. State Medicaid programs may cover certain medical and non-medical services that assisted living facilities provide; however, the Medicaid statute does not provide for coverage of room and board charges of an assisted living facility. In their federal-state partnership, both CMS and states play important roles in the oversight of Medicaid. CMS is responsible for oversight of state Medicaid programs. To conduct this oversight, CMS issues program requirements in the form of regulations and guidance, approves changes states make to their programs, provides technical assistance to states, collects and reviews required information and data from states and, in some cases, reviews individual state programs. States are responsible for the day-to-day administration of their Medicaid programs, including monitoring and oversight of the different HCBS programs through which they cover assisted living services, within broad federal rules and requirements. Each state is required to identify and designate a single state agency to administer or supervise the administration of its Medicaid program. The state Medicaid agency may partially or fully delegate the administration and oversight of the state’s HCBS programs to another state agency or other entity, such as a state unit on aging, a mental health department, or other state departments or agencies with jurisdiction over a specific population or service. However, the state Medicaid agency is ultimately accountable to the federal government for compliance with the HCBS requirements. Under different authorizing provisions of federal law, states have considerable flexibility to establish multiple HCBS programs including those covering assisted living services. A state Medicaid program can have multiple HCBS programs operating under different federal authorities. CMS is responsible for ensuring that states meet the requirements associated with their HCBS programs under these different authorities. Key to states’ monitoring of the health and welfare of Medicaid beneficiaries is their tracking of, and response to, incidents that may cause harm to a beneficiary’s health or welfare, such as abuse, neglect, or exploitation—commonly referred to as critical incidents. Such monitoring is required for most HCBS programs; however, we previously found that requirements for states related to oversight of the health and welfare of beneficiaries in different types of HCBS programs varied, and recommended that CMS take steps to harmonize those requirements across programs. The most common HCBS programs with the most stringent federal requirements are HCBS waiver programs. These programs serve beneficiaries who are eligible for an institutional level of care; that is, beneficiaries must have needs that rise to the level of care usually provided in a nursing facility, hospital, or other institution. CMS oversees states’ HCBS waiver programs specifically by reviewing and approving applications and reviewing HCBS program reports that states submit. HCBS waiver program applications include specific requirements implementing various statutory and regulatory provisions. (See text box below.) One requirement is that states have the necessary safeguards in place to protect the health and welfare of beneficiaries receiving services covered by HCBS waiver programs. For each of their HCBS waiver programs, states must demonstrate to CMS that they are meeting various requirements CMS has established regarding beneficiary health and welfare. The Six Requirements States Must Demonstrate for Home- and Community-Based Services Waiver Programs 1. Administrative authority: The Medicaid agency retains ultimate administrative authority and responsibility for the operation of the waiver program by exercising oversight of the performance of waiver functions by other state and local/regional non-state agencies (if appropriate) and contracted entities. 2. Level of care: The state demonstrates that it implements the processes and instrument(s) specified in its approved waiver for evaluating/re-evaluating an applicant’s/waiver participant’s level of care consistent with care provided in a hospital, nursing facility, or intermediate care facility. 3. Qualified providers: The state demonstrates that it has designed and implemented an adequate system for assuring that all waiver services are provided by qualified providers. 4. Service plan: The state demonstrates it has designed and implemented an effective system for reviewing the adequacy of service plans for the waiver participants. 5. Health and welfare: The state demonstrates it has designed and implemented an effective system for assuring waiver participant health and welfare. 6. Financial accountability: The state must demonstrate that it has designed and implemented an adequate system for insuring financial accountability of the waiver program. CMS also provides ongoing oversight of state HCBS programs through annual reports that states must submit for each of their HCBS waiver programs as well as renewal reports submitted about two years before an HCBS waiver is scheduled to end. The state reports are intended to provide CMS with information on the operation of state HCBS waiver programs. In contrast to long-term care services provided in nursing facilities, less is known at the federal level about the oversight and quality of care in assisted living facilities. Generally, states establish their own licensing and oversight requirements for assisted living facilities. As a result, the requirements for assisted living facilities and the type and frequency of oversight can vary across states. In contrast, nursing homes must meet a comprehensive set of federal requirements in order to receive payment for long-term care services for Medicaid and Medicare beneficiaries in addition to state requirements. CMS contracts with state entities to regularly inspect nursing facilities and investigate complaints to assess whether nursing homes meet these federal quality requirements. Annually CMS publishes a comprehensive report on nursing homes that serve Medicaid and Medicare beneficiaries, including the extent that beneficiaries are at risk for harm, based on these investigations and inspections. In addition, CMS publicly reports a summary of each nursing home’s quality data using a five-star quality rating based on health inspection results, staffing data, and quality measure data. The goal of this rating system is to help consumers make meaningful distinctions among high- and low-performing nursing homes. This type of standardized framework for oversight, investigation and inspections, and reporting on quality of care concerns does not exist for assisted living facilities and other types of HCBS providers. States Reported Spending $10 Billion on More than 130 Programs Covering Assisted Living Services in 2014 Forty-Eight States Reported Spending $10 Billion on Assisted Living Services for More than 330,000 Medicaid Beneficiaries in 2014; Spending per Beneficiary Varied Widely by State Forty-eight state Medicaid agencies reported collectively spending about $10 billion in state and federal Medicaid funds for assisted living services in 2014, according to our survey. The other 3 states reported that they did not pay for assisted living services. We estimate that this spending for services provided by assisted living facilities represents 12.4 percent of the $80.6 billion Medicaid spent on HCBS in all settings that year. More than 330,000 Medicaid beneficiaries received assisted living services, based on data reported to us by the 48 states. Nationally, the average spending per beneficiary on assisted living services in the 48 states in 2014 was about $30,000; states provided these HCBS services through fee-for-service and managed care delivery models. Fee-for-service spending comprised 81 percent of total spending on assisted living services and managed care spending was about 19 percent of the total. The cost per beneficiary reported by surveyed states also varied based on payment type; average per beneficiary cost was $31,000 for fee-for-service and $27,000 for managed care. About 21 percent of Medicaid assisted living enrollment was for beneficiaries receiving these services under a managed care delivery model. (See table 1.) Average per-beneficiary spending varied significantly across the states. For example, for the nine states with the lowest spending per beneficiary, average Medicaid spending ranged from about $1,700 to about $9,500 per beneficiary. In contrast, in the nine states with the highest per- beneficiary spending, the average spending ranged from about $43,000 to $108,000 per beneficiary. (See Figure 1.) For more information on each state’s enrollment, total spending, and average per beneficiary spending on assisted living services, see appendix I. Forty-Eight States Administered More than 130 Programs That Covered Assisted Living Services, Mainly under HCBS Waiver Authority The 48 states that reported covering assisted living services in 2014 said they did so through 132 different programs. The majority of the states, 31 of the 48, reported administering more than one program that covered assisted living services. As illustrated in table 2 below, of the different types of HCBS programs under which states can provide coverage for assisted living services, HCBS waivers were the most common type of program they used. Specifically, 39 states and 69 percent of the programs that provided assisted living services, were operated under the HCBS waiver program. (See appendix II for additional details on each state’s number of programs by program type and total number of HCBS programs that covered assisted living facility services in 2014.) States Reported Offering Assisted Living Services to Certain Aged and Disabled Beneficiaries, and Most Reported Covering Common Services Almost all of the 48 states that covered assisted living services did so for two groups of Medicaid beneficiaries eligible through their programs. In 45 of 48 states, aged beneficiaries received services provided by assisted living facilities. Similarly, in 43 of 48 states, physically disabled beneficiaries received services. (See Figure 2.) In 38 or more of the 48 states that covered assisted living services, six types of services were provided. For example, 45 states covered assistance with activities of daily living, such as bathing and dressing; 44 states covered medication administration; and 41 states covered coordination of meals. (See Figure 3.) State Approaches for Overseeing Health and Welfare of Beneficiaries in Assisted Living Services Varied, Including Monitoring Incidents of Beneficiary Harm Oversight by State Medicaid Agencies Varied in the Functions Delegated to Other Agencies, the Information Used, and the Actions Taken to Correct Any Identified Problems State Medicaid agency approaches for oversight of assisted living services varied widely in terms of who provided the oversight for their largest programs, according to their responses to our survey. Thirteen of the 48 state Medicaid agencies reported delegating administrative responsibilities, including oversight of beneficiary health and welfare, to other state or local agencies. State Medicaid agencies may delegate the administration of programs to government or other agencies through a written agreement; however, state Medicaid agencies retain the ultimate oversight responsibility for those delegated functions. For example, among the 13 states that delegated HCBS program administration, the administering agencies were those that provided services to the aged, disabled, or both of these populations, such as the states’ Departments of Aging. (See text box, below, for examples of states’ delegation.) Examples of State Medicaid Agencies’ Delegation of Authority for Administration of Home- and Community-based Services’ Programs Covering Assisted Living Services Georgia’s Elderly & Disabled Waiver Program was operated in 2014 by the Georgia Department of Human Services Division of Aging Services, a separate agency of the state that was not a division/unit of the Medicaid agency. The Georgia Medicaid Agency maintained a formal interagency agreement with the Division of Aging Services which describes by function the required deliverables to support compliance and a schedule for delivery of reports. Nebraska’s Waiver for Aged and Adults and Children with Disabilities is operated by the state Medicaid agency Division of Medicaid and Long Term Care. The majority of services are provided by independent contractors in order to allow service delivery in the rural and frontier areas of the state. The state Medicaid agency contracts with the Area Agencies on Aging, Independent Living Centers, and Early Development Network agencies to perform a variety of operational and administrative functions including authorizing services and monitoring the delivery of services. States also varied in the types of information they reported reviewing as part of the oversight of assisted living services, and the extent to which state Medicaid agencies review the information when another agency is responsible for administration. For example, other entities outside the state Medicaid agency—such as the agency delegated to administer an HCBS program, or a contractor that manages provider enrollment—may check to ensure a provider is allowed to deliver services to Medicaid beneficiaries; in such cases, however, the state Medicaid agency might not be aware of the results of such checks. As illustrated in table 3, in all 48 states the types of information generally reviewed by either the state Medicaid agency, the agency delegated administrative responsibilities, or other agencies were: critical incident reports, the HHS Office of Inspector General’s list of excluded providers, patient service plans, and information on concerns about care received directly from patients, relatives, caregivers or the assisted living facility itself. In many cases, the state Medicaid agency did not review all information sources reviewed by other agencies. For example, although all critical incident reports were reviewed in the 48 states by either the state Medicaid agency, the agency delegated administrative responsibilities, or another agency; in 16 of those states, the state Medicaid agency was not involved in those reviews, according to responses to our survey. Instead, the critical incident reports were reviewed by another entity designated responsible for the HCBS program in the state or another state entity with regulatory responsibility over the assisted living facility. Such reviews, including any critical incidents found, may not have been communicated back to the state Medicaid agency, according to responses to our survey. State Medicaid agencies also varied in reporting the extent to which they were made aware or notified when enforcement actions were taken as a result of concerns with beneficiary care identified by other entities. Various oversight actions may be taken by the state Medicaid agency, the agency delegated to administer an HCBS program, or a state regulatory agency, such as a state agency responsible for licensing and inspecting various types of HCBS providers. When delegated agencies or other licensing agencies take corrective action, the state Medicaid agency may not be aware unless notified by the agencies taking that action. For example, in 23 states, the investigation of potential incidents related to beneficiary health and welfare was delegated to another agency but in only 6 of these states was the state Medicaid agency always notified of such an investigation based on our survey. (See table 4 and text box below.) Example of a Collaborative Approach to Monitoring and Ensuring Quality Care Specifically for Assisted Living Facilities In 2009, the Wisconsin Coalition for Collaborative Excellence in Assisted Living was formed to redesign the way quality is ensured and improved for individuals residing in assisted living communities. This public/private coalition utilizes a collective impact model approach that brings together the state, the industry, the consumer, and academia to identify and implement agreed upon approaches designed to improve the outcomes of individuals living in Wisconsin assisted living communities. The core of the coalition is the implementation of an association developed, department approved, comprehensive quality assurance, quality improvement program. State Medicaid Agencies Varied in How They Monitored Incidents of Potential or Actual Harm to Medicaid Beneficiaries Receiving Assisted Living Services For their largest HCBS programs that covered assisted living services, the 48 states varied in how they monitored “critical incidents” that caused actual or potential harm to Medicaid beneficiaries in assisted living facilities. Specifically, the 48 states varied in their ability to report the number of critical incidents; how they defined incidents, and the extent to which they made information on such incidents readily available to the public. These states varied in whether they could provide us the number of critical incidents involving beneficiaries for their largest programs covering assisted living services, and for those that could report, the number of incidents they reported varied widely. In 26 of the 48 states the Medicaid agencies were unable to report, for their largest program covering assisted living services, the number of critical incidents that had occurred in assisted living facilities in 2014. The remaining 22 states reported a total of 22,921 critical incidents involving Medicaid beneficiaries in their largest programs covering assisted living services. The number of critical incidents reported in these states ranged from 1 to 8,900. For six of these states the number of critical incidents reported was more than 1,000, (See text box, below, for examples of selected state processes managing critical incidents.) Selected States’ Processes for Managing Beneficiary Harm or Potential Harm in Assisted Living Facilities Georgia: According to state officials in 2014 there was no centralized or comprehensive system for capturing and tracking the data on actual and potential violations. State officials acknowledged the lack of a centralized system prevents the Division of Community Health from tracking the status of each problem. Nebraska: According to state officials, Nebraska’s Adult Protective Services operates an electronic system that coordinates across state social service programs. When Adult Protective Services initiates an investigation of reported harm to an assisted living resident, the state Medicaid agency is automatically notified. Reasons state Medicaid agencies reported for being unable to provide us with the number of critical incidents included limitations in the data or data systems for tracking them. Nine states reported an inability to track incidents by provider type, and thus distinguish critical incidents in assisted living facilities from other providers of home and community based services. States also cited lacking a system to collect critical incidents (9 states), and that the system for reporting could not identify whether a resident was a Medicaid beneficiary (5 states). Even in the 32 states where the state Medicaid agencies reported reviewing information about critical incidents, 20 states were unable to provide the actual number of critical incidents that occurred in assisted living facilities. State Medicaid agencies’ definitions of critical incidents also varied. As illustrated in Figure 4, all 48 states cited physical assault, emotional abuse, and sexual assault or abuse as a critical incident in their largest programs providing assisted living services in 2014. However, for other types of incidents, several states did not identify the incident as critical, including discharge and eviction from the facility (not a critical incident in 24 states), medication errors (not a critical incident in 7 states), and unauthorized use of seclusion, (not a critical incident in 6 states). For other serious incidents, a relatively small number of states did not identify the incident as critical, such as unexplained death (not a critical incident in 3 states) and missing beneficiaries (not a critical incident in 2 states). See appendix IV for a full list of the beneficiary-related incidents and the number of states that identify each as critical. Although half of the 48 states that cover assisted living services did not consider discharges or evictions to be critical incidents, according to state responses to our survey, 42 states offered certain protections related to involuntary discharge of Medicaid residents who live in assisted living facilities. The majority of protections consisted of a lease agreement requirement that applied to other housing contracts in the state, such as providing residents with eviction notices. Other protections included an appeals process (10 states) and a requirement for the facility to find an alternative location for the resident (10 states). State Medicaid agencies also varied in whether they made information on critical incidents and other key information readily available to the public. (See table 5.) Beneficiaries seeking care in an assisted living facility may want to know the number of critical incidents related to a particular facility. Through our survey we found that states differed in the availability of information related to health and welfare that was available to the public. For example, 34 of the 48 states reported that they made critical incident information available to the public by phone, website, or in person, and the remaining 14 states did not have such information available at all. Although all 48 states had information in some form on which assisted facilities accepted Medicaid beneficiaries, 8 states could not provide this information by phone and 22 states could not provide the information in person. CMS Has Taken Steps to Improve Oversight of the Health and Welfare of Medicaid Beneficiaries in Assisted Living and Other Community Settings, but Gaps Remain In recent years, CMS has taken steps to improve oversight of beneficiary health and welfare in HCBS programs by adding new HCBS waiver application requirements for state monitoring of beneficiary health and welfare. CMS requires state waiver applications to include specific requirements that implement various statutory and regulatory provisions, including a provision that states assure that they will safeguard the health and welfare of Medicaid beneficiaries. In March 2014, CMS added unexplained death to the events that states must be able to identify and address on an ongoing basis, as part of their efforts to prevent instances of abuse, neglect, and exploitation, and added four new requirements for states to protect beneficiary health and welfare. (See table 6.) In its guidance implementing the 2014 requirements, CMS noted that state associations and state representatives’ work groups had agreed that “health and welfare is one of the most important assurances to track, and requires more extensive tracking to benefit the individuals receiving services, for instance by using data to prevent future incidents.” As a condition for approval of their HCBS waiver applications for each of the requirements, states must identify and agree with CMS on the type of information they will collect to provide as evidence that they will meet the requirements. However, according to CMS officials, each state Medicaid agency has wide discretion over the information it will collect and report to demonstrate that it is meeting the health and welfare requirements and protecting beneficiaries. Although CMS added the additional requirements in 2014 for safeguarding beneficiary health and welfare, the agency generally did not change requirements for how it oversees state monitoring efforts once HCBS waivers are approved. We found a number of limitations in CMS’s oversight of approved HCBS waivers that undermine the agency’s ability to effectively monitor state oversight of HCBS waivers. These limitations include: unclear guidance on what states should identify and report annually related to any identified program deficiencies; lack of requirements on states to regularly provide CMS information on critical incidents; and CMS’s inconsistent enforcement of the requirement that states submit annual reports. Unclear guidance on what states should identify and report annually related to any identified program deficiencies. Federal law requires states to provide CMS with information annually on an HCBS waiver’s impact on (1) the type and amount, and cost of services provided and (2) the health and welfare of Medicaid beneficiaries receiving waiver services. CMS reporting requirements give states latitude to determine what to report as health and welfare deficiencies found through state monitoring of their HCBS programs. With respect to health and welfare, CMS’s State Medicaid Manual directs states when preparing their annual reports to “check the appropriate boxes regarding the impact of the waiver on the health and welfare” of beneficiaries and to describe relevant information. States are required to provide a brief description of the state process for monitoring beneficiary safeguards, use check boxes to indicate that beneficiary health and welfare safeguards have been met, and identify whether deficiencies were detected during the monitoring process. If states determine that deficiencies were identified through monitoring, states are required to “provide a summary of the significant areas where deficiencies were detected” and an explanation of the actions taken to address deficiencies and ensure the deficiencies do not recur. CMS’s written instructions for completing the HCBS annual report do not provide further guidance regarding reporting of deficiencies. For example, the reporting instructions do not describe or identify 1) what states are supposed to report as deficiencies, 2) how they are to identify which deficiencies are most significant, and 3) the extent to which states need to explain the steps taken to ensure that deficiencies do not recur. The lack of clarity is inconsistent with federal internal control standards, in particular, the need for federal agencies to have processes that identify information needed to achieve objectives and address risk. Without clear instructions as to what states must report, states’ annual reports may not identify deficiencies with states’ HCBS waiver programs that may affect the health and welfare of beneficiaries. States may determine that issues or problems they identified through monitoring do not represent reportable deficiencies and therefore may not report those deficiencies to CMS, increasing the risk that problems are not elevated to CMS’s attention. In the case of one of the selected states we reviewed, no problems were included on the annual reports submitted to CMS between 2011 and 2015. However, when CMS completed its review in the fourth year of the state’s waiver— for purpose of renewing the waiver—it determined the state was not assuring beneficiary health and welfare. CMS found that the information the state submitted for purpose of renewal suggested a “pervasive failure” by the state to assure the health and welfare of beneficiaries receiving services, including assisted living services. In particular, CMS noted the state provided insufficient information regarding the number of unexpected or suspicious beneficiary deaths. CMS concluded that the state failed to demonstrate that it has effective systems and processes for ensuring the health and welfare of beneficiaries. Lack of requirements on states to annually provide CMS information on critical incidents. Despite the importance of state critical incident management and reporting systems to protecting the health and welfare of beneficiaries, CMS lacks written requirements that states provide information needed for the agency oversight of state monitoring of critical incidents. According to CMS, a critical element of effective state oversight is the operation of data systems that support the identification of trends and patterns in the occurrence of critical incidents to identify needed improvements. Such a system is also consistent with federal internal controls standards which specify, in particular, the need for federal agencies to have processes that identify information needed to achieve objectives and address risk. CMS requires states to operate a critical incident reporting system. On their waiver applications states must check a box indicating they operate a system and also describe their system—including who must report and when, and what must be reported. Despite this requirement for states to have critical incident reporting systems, CMS does not require states to report to CMS any data from these systems on critical incidents as part of their required annual reports. Specifically, states are not required to include, in their annual reports, the number of critical incidents reported or substantiated that involve Medicaid beneficiaries. As a result, CMS does not have a method to confirm what states describe about critical incident management systems, which is a required component of states’ waiver applications or to assess the capabilities of states’ systems. For example, CMS cannot confirm whether the state systems can report incidents by location or type of residential provider, such as assisted living facilities; the type and severity of critical incidents that occurred; and the number of incidents that involved Medicaid beneficiaries. Without annual critical incident reporting, CMS may be at risk of (1) not having adequate evidence that states are meeting CMS requirements to have an effective critical incident management and reporting system and of (2) being unaware of problems with states’ abilities to identify, track, and address critical incidents involving Medicaid beneficiaries. Our prior work has shown that the lack of explicit reporting requirements on critical incidents not only impacts HCBS waiver programs but also impacts other types of Medicaid long-term services programs as well. Specifically, In a November 2016 report, we found that CMS requirements for states to report on their critical incident monitoring systems for the HCBS waiver program were more stringent than those for other types of HCBS programs, potentially leaving those other programs at even greater risk. We recommended that CMS take steps to harmonize requirements across different types of HCBS programs. HHS concurred with the recommendation stating it would seek input from states, stakeholders, and the public regarding harmonizing requirements across programs. In an August 2017 report we found similar issues in critical incident reporting requirements for other types of long term services programs, particularly those used to provide HCBS and other long term services under managed care. We found that CMS was not always requiring states that contracted with managed care organizations to provide long term services and supports to report to CMS sufficient information on critical incidents and other key areas needed to monitor beneficiary access and quality. We recommended that CMS take steps to identify and obtain key information needed to better oversee states’ efforts to monitor beneficiary access to quality services in their managed long-term services and supports programs. HHS concurred with this recommendation and stated that the agency would take this recommendation into account as part of an ongoing review of its 2016 Medicaid managed care rule. We continue to believe that the implementation of our prior recommendations is needed to help improve CMS oversight of states monitoring of beneficiary safety. CMS’s inconsistent enforcement of the requirement that states submit annual reports. States must prepare and submit an annual report for each HCBS waiver as a condition of waiver approval. According to CMS guidance, the agency’s review of the annual report is part of the ongoing oversight of HCBS waiver programs and not submitting an annual report jeopardizes the states renewal of HCBS waiver programs. However, some states have not been timely in submitting the required annual reports for their HCBS waivers. A review of 2013 HCBS annual reports by a CMS contractor, published in 2016, found that annual reports were missing for 29 HCBS waivers and multiple years’ of annual reports were missing for 8 waivers. In 2014, CMS adopted new strategies to ensure compliance with HCBS waiver requirements, including the requirement that states submit annual reports on a timely basis. These strategies include withholding federal funding, placing a moratorium on enrollment in the waiver, or other actions the agency determines necessary. CMS officials reported that the agency had not used these new strategies with states that were delinquent in submitting their annual reports. Officials said they were in the process of reviewing how to implement these new strategies in the case of one state; however, as of August 2017 officials had not finalized a decision. CMS’s ability to provide effective oversight of state programs and protect beneficiary health and welfare is undermined by the lack of enforcement and receipt of required annual waiver reports. Conclusions Effective state and federal oversight is necessary to ensure that the health and welfare of Medicaid beneficiaries receiving assisted living services are protected, especially given the particular vulnerability of many of these beneficiaries to abuse, neglect, or exploitation. CMS has taken steps to strengthen beneficiary health and welfare protections in states’ HCBS waiver programs, the most common type of program that covers assisted living services and one that serves the most vulnerable beneficiaries. In particular, CMS now has multiple requirements for states to safeguard beneficiaries’ health and welfare, including requirements to operate an effective critical incident management and reporting system to identify, investigate, and address incidents of beneficiary abuse, neglect, exploitation, and unexplained death. However, CMS’s ability to effectively monitor how well states are assuring beneficiary health and welfare is limited by gaps in state reporting to CMS. CMS has not provided clear guidance to states on what information to include in annual reports on deficiencies they identify. As a result, CMS lacks assurance that it is receiving consistent, complete, and relevant information on deficiencies that is needed to oversee beneficiary health and welfare. Lacking clear guidance on the reporting of deficiencies may result in a delayed recognition of problems that may affect beneficiary health and welfare. Further, for years, states have been required to check a box attesting that they operate a critical incident management system, but have not always been required to report information on incidents of potential or actual harm to beneficiaries. Given the increasing prevalence of assisted living facilities as a provider of services to Medicaid beneficiaries, it is unclear why more than half of states responding to our survey could not provide us information on the number of critical incidents that occurred in these facilities in their states. Reporting data from their critical incident systems, such as the number of incidents, the type and severity of the incidents, or the location or type of facility in which the incident occurred would provide evidence that an effective system is in place, provide information on the extent beneficiaries are subject to actual or potential harm, and allow for tracking trends over time. Finally, CMS has not ensured that all states submit annual reports on their HCBS waiver programs as required. Without improvements to state reporting, CMS cannot ensure states are meeting their commitments to protect the health and welfare of Medicaid beneficiaries receiving assisted living services, potentially jeopardizing their care. Recommendations for Executive Action We are making the following three recommendations to CMS: The Administrator of CMS should provide guidance and clarify requirements regarding the monitoring and reporting of deficiencies that states using HCBS waivers are required to report on their annual reports. (Recommendation 1) The Administrator of CMS should establish standard Medicaid reporting requirements for all states to annually report key information on critical incidents, considering, at a minimum, the type of critical incidents involving Medicaid beneficiaries, and the type of residential facilities, including assisted living facilities, where critical incidents occurred. (Recommendation 2) The Administrator of CMS should ensure that all states submit annual reports for HCBS waivers on time as required. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to HHS for review and comment. HHS provided written comments, which are reproduced in Appendix V. The department also provided technical comments, which we incorporated as appropriate. In its written comments, the department concurred with two of our three recommendations, specifically, that CMS will clarify requirements for state reporting of program deficiencies and ensure that all states submit required annual reports on time. HHS did not explicitly agree or disagree with our third recommendation to require all states to report information on critical incidents to CMS annually. The department noted it has established a workgroup to learn more about states’ health and welfare systems and that it will use the results of this workgroup to determine which additional reporting requirements would be beneficial. The workgroup’s review will continue through calendar year 2018. In technical comments, HHS indicated that after the workgroup’s review is complete it will consider annual reporting of critical incidents. We believe establishing the workgroup is a positive first step towards improving oversight and state reporting and encourage HHS to require annual reporting on critical incidents when developing additional reporting requirements. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of CMS, the Administrator of the Administration for Community Living, appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix VI. Appendix I: State Reported Enrollment and Spending on Assisted Living Services State North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington Wisconsin Wyoming Appendix II: State Reported Home- and Community-Based Services (HCBS) Programs Covering Assisted Living Services State Ohio Appendix III: Information Regarding Medicaid Beneficiaries’ Access to Assisted Living Services Our survey of state Medicaid agencies regarding coverage, spending, enrollment, and oversight of assisted living services in 2014, obtained information on challenges for Medicaid beneficiaries to access assisted living services in their states. States provided information related to factors that create challenges for Medicaid beneficiaries’ ability to access and receive assisted living services and the extent states had policies to help beneficiaries with the cost of room and board. A number of states in our survey cited common factors as creating the greatest challenges to a beneficiary’s ability to access assisted living services, including the number of assisted living facilities willing to accept Medicaid beneficiaries (13 states or 27 percent of the 48 states) program enrollment caps (9 states or 19 percent of the 48 states) beneficiaries’ inability to pay for assisted living facility room and board (9 states or 19 percent of the 48 states), which Medicaid typically does not cover low rates the state Medicaid program paid assisted living facilities (8 states or 17 percent of the 48 states). A number of states reported that they had policies to assist Medicaid beneficiaries with the costs of room and board charged by assisted living facilities, which Medicaid does not typically cover. Two common policies, cited by at least half of the states, were aimed at limiting how much assisted living facilities could charge Medicaid beneficiaries for room and board. For example, 30 of 48 states, limited the amount facilities could charge for room and board to the amount of income certain beneficiaries receive as Supplemental Security Income. The other commonly cited policies focused on providing financial assistance to the beneficiaries to defray the room and board costs. (See table 9.) Appendix IV: Events That States Defined as Critical Incidents Appendix V: Comments from the Department of Health and Human Services Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Tim Bushfield and Christine Brudevold (Assistant Directors), Jennie Apter, Shirin Hormozi, Anne Hopewell, Kelsey Kreider, Perry Parsons, Vikki Porter, and Jennifer Whitworth made key contributions to this report.

The number of individuals receiving long term care services from Medicaid in community residential settings is expected to grow. These settings, which include assisted living facilities, provide a range of services that allow aged and disabled beneficiaries, who might otherwise require nursing home care, to remain in the community. State Medicaid programs and CMS, the federal agency responsible for overseeing the state programs, share responsibility for ensuring that beneficiaries' health and welfare is protected. GAO was asked to examine state and federal oversight of assisted living services in Medicaid. This report (1) describes state spending on and coverage of these services, (2) describes how state Medicaid agencies oversee the health and welfare of beneficiaries in these settings, and (3) examines the extent that CMS oversees state Medicaid agency monitoring of assisted living services. GAO surveyed all state Medicaid agencies and interviewed officials in a nongeneralizeable sample of three states with varied oversight processes for their assisted living programs. GAO reviewed regulations and guidance, and interviewed CMS officials. State Medicaid agencies in 48 states that covered assisted living services reported spending more than $10 billion (federal and state) on assisted living services in 2014. These 48 states reported covering these services for more than 330,000 beneficiaries through more than 130 different programs. Most programs were operated under Medicaid waivers that allow states to target certain populations, limit enrollment, or restrict services to certain geographic areas. With respect to oversight of their largest assisted living programs, state Medicaid agencies reported varied approaches to overseeing beneficiary health and welfare, particularly in how they monitored critical incidents involving beneficiaries receiving assisted living services. State Medicaid agencies are required to protect beneficiary health and welfare and operate systems to monitor for critical incidents—cases of potential or actual harm to beneficiaries such as abuse, neglect, or exploitation. Twenty-six state Medicaid agencies could not report to GAO the number of critical incidents that occurred in assisted living facilities, citing reasons including the inability to track incidents by provider type (9 states), lack of a system to collect critical incidents (9 states), and lack of a system that could identify Medicaid beneficiaries (5 states). State Medicaid agencies varied in what types of critical incidents they monitored. All states identified physical, emotional, or sexual abuse as a critical incident. A number of states did not identify other incidents that may indicate potential harm or neglect such as medication errors (7 states) and unexplained death (3 states). State Medicaid agencies varied in whether they made information on critical incidents and other key information available to the public. Thirty-four states made critical incident information available to the public by phone, website, or in person, while another 14 states did not have such information available at all. Oversight of state monitoring of assisted living services by the Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), is limited by gaps in state reporting. States are required to annually report to CMS information on deficiencies affecting beneficiary health and welfare for the most common program used to provide assisted living services. However, states have latitude in what they consider a deficiency. States also must describe their systems for monitoring critical incidents, but CMS does not require states to annually report data from their systems. Under federal internal control standards, agencies should have processes to identify information needed to achieve objectives and address risk. Without clear guidance on reportable deficiencies and no requirement to report critical incidents, CMS may be unaware of problems. For example, CMS found, after an in-depth review in one selected state seeking to renew its program, that the state lacked an effective system for assuring beneficiary health and welfare, including reporting insufficient information on the number of unexpected or suspicious beneficiary deaths. The state had not reported any deficiencies in annual reports submitted to CMS in 5 prior years.

CRS_R43240

Background In 1956, the Army began the development of a family of air-transportable, armored multi-purpose vehicles intended to provide a lightweight, amphibious armored personnel carrier for armor and mechanized infantry units. Known as the M-113, it entered production in 1960 and saw extensive wartime service in Vietnam. Considered a reliable and versatile vehicle, a number of different variations of the M-113 were produced to fulfill such roles as a command and control vehicle, mortar carrier, and armored ambulance, to name but a few. The Army began replacing the M-113 infantry carrier version in the early 1980s with the M-2 Bradley Infantry Fighting Vehicle, but many non-infantry carrier versions of the M-113 were retained in service. The Armored Multi-Purpose Vehicle (AMPV)2 According to the Army The Armored Multi-Purpose Vehicle (AMPV) is the proposed United States Army program for replacement of the M-113 Family of Vehicles (FOV) to mitigate current and future capability gaps in force protection, mobility, reliability, and interoperability by mission role variant within the Heavy Brigade Combat Team (HBCT) [now known as the Armored Brigade Combat Team – ABCT]. The AMPV will have multiple variants tailored to specific mission roles within HBCT. Mission roles are as follows: General Purpose, Medical Evacuation, Medical Treatment, Mortar Carrier, and Mission Command. AMPV is a vehicle integration program. The Army's AMPV Requirements3 Regarding the decision to replace remaining M-113s, the Army notes the following: The M-113 lacks the force protection and mobility needed to operate as part of combined arms teams within complex operational environments. For example, "commanders will not allow them to leave Forward Operating Bases (FOBs) or enter contested areas without extensive mission protection and route clearance." The use of other vehicles for M-113 mission sets (casualty evacuations, for example) reduces unit combat effectiveness. The majority of the Army's M-113s are found in Armored Brigade Combat Teams (ABCTs), where they comprise 32% of the tracked armored vehicles organic to that organization. The 114 M-113 variants in the ABCT are distributed as follows: AMPVs at Echelons Above Brigade (EAB)5 In addition to the AMPV requirement in the ABCTs, the Army also planned to procure an additional 1,922 AMPVs to replace M-113s in Echelons Above Brigade (EAB). The Army notes that these AMPVs might have different requirements than the ABCT AMPVs. DOD estimates if the M-113s are replaced by AMPVs at EAB, total program costs could be increased by an additional $6.5 billion. Program Overview8 According to the Government Accountability Office (GAO), in March 2012, the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD, AT&L) approved a materiel development decision for AMPV and authorized the Army's entry into the materiel solution analysis phase. The Army completed the AMPV analysis of alternatives (AoA) in July 2012 and proposed a nondevelopmental vehicle (the candidate vehicle will be either an existing vehicle or a modified existing vehicle—not a vehicle that is specially designed and not in current service). Because the AMPV is to be a nondevelopmental vehicle, DOD decided the program would start at Milestone B, Engineering and Manufacturing Development (EMD) Phase and skip the Milestone A, Technology Development Phase. The Army planned for a full and open competition and aimed to award one industry bidder a 42-month EMD contract to develop all five AMPV variants. A draft Request for Proposal (RFP) released in March 2013 stated the EMD contract would be worth $1.46 billion, including $388 million for 29 EMD prototypes for testing between 2014 and 2017 and $1.08 billion for 289 low-rate initial production (LRIP) models between 2018 and 2020. The Army had planned on releasing the formal RFP in June 2013 but instead slipped the date until mid-September 2013, citing a delayed Defense Acquisition Board review attributed in part to Department of Defense civilian furloughs. The EMD contract award was originally planned for late 2014. The Army planned for an average unit manufacturing cost (AUMC) of $1.8 million per vehicle. Department of Defense (DOD) Approves AMPV Program10 On November 26, 2013, DOD issued an Acquisition Decision Memorandum (ADM) officially approving the Army's entry into the Milestone B, Engineering and Manufacturing Development (EMD) Phase. The ADM directed the Army to impose an Average Procurement Unit Cost less than or equal to $3.2 million at a production rate of not less than 180 vehicles per year. In addition, operations and sustainment costs were to be less than or equal to $400,000 per vehicle per year. The Army was also directed to down select to a single prime contractor at the completion of Milestone B. Army Issues AMPV Draft Request for Proposal (RFP)11 Also on November 26, 2013, the Army issued a new draft Request for Proposal (RFP) for the AMPV. This RFP stipulated the Army planned to award a five-year EMD contract in May 2014 worth $458 million to a single contractor for 29 prototypes. While the March 2013 RFP established an Average Unit Manufacturing Cost Ceiling for each AMPV at $1.8 million, this was rescinded to permit vendors greater flexibility. The EMD phase was scheduled to run between FY2015 and FY2019, followed by three years of low-rate initial production (LRIP) starting in 2020. Selected Program Activities Army Awards ABCT AMPV Contract to BAE12 On December 23, 2014, the Army announced it had selected BAE Systems Land and Armaments L.P. as the winner of the EMD contract. The initial award was for 52 months valued at about $382 million. During this period of performance, BAE was to produce 29 vehicles, which would be put through "rigorous developmental and operational testing." In addition, the award provided for an optional low-rate initial production (LRIP) phase award in the future. If this phase is awarded, BAE would produce an additional 289 vehicles for a total contract value of $1.2 billion. The Army, in its announcement, emphasized the BAE EMD contract did not pertain to the 1,922 EAB AMPVs. AMPV Completes Critical Design Review According to reports, the AMPV successfully completed its Critical Design Review (CDR) on June 23, 2016. Successful completion of a CDR demonstrates the AMPV's design is stable, can be expected to meet established performance standards, and the program can be accomplished within its established budget. Roll Out of First AMPV for Testing15 On December 15, 2016, BAE delivered the first general purpose AMPV to the Army for testing. The Army plans for six months of contractor tests, followed by one year of government testing and then Limited User Testing. In April 2018, BAE reportedly delivered all 29 AMPVs to the Army for testing. AMPV Begins Developmental Testing17 In September 2017, the Army reportedly started reliability, availability, and maintainability (RAM) testing for the AMPV. DOD defines RAM as follows: Reliability is the probability of an item to perform a required function under stated conditions for a specified period of time. Reliability is further divided into mission reliability and logistics reliability. Availability is a measure of the degree to which an item is in an operable state and can be committed at the start of a mission when the mission is called for at an unknown (random) point in time. Availability as measured by the user is a function of how often failures occur and corrective maintenance is required, how often preventive maintenance is performed, how quickly indicated failures can be isolated and repaired, how quickly preventive maintenance tasks can be performed, and how long logistics support delays contribute to down time. Maintainability is the ability of an item to be retained in, or restored to, a specified condition when maintenance is performed by personnel having specified skill levels, using prescribed procedures and resources, at each prescribed level of maintenance and repair. Army EAB Upgraded M-113 Effort Put on Hold Due to budgetary constraints, the Army reportedly planned to provide upgraded EAB M-113s to a small number of units outside the continental United States and in South Korea and Europe. In August 2017, Army officials reportedly noted "that the amount of time and resources it would take to achieve a pure fleet solution for both ABCTs and EAB units would likely push fielding into FY 2040 and beyond, which is not a suitable course of action." Officials also suggested that upgrading M-113s for EAB use was "an interim solution until we can get to the optimal solution." The Army had planned to issue a request for proposal (RFP) for upgraded M-113s in the summer of 2018. A number of vendors, including General Dynamics Land Systems (GDLS), BAE Systems, and Science Applications International Corporation (SAIC), reportedly planned to respond to the RFP. Reportedly, on May 21, 2018, the Army indefinitely postponed its plans to upgrade EAB M-113s and also put on hold plans to issue an RFP for upgraded M-113s. AMPV Becomes Part of the Army's Next Generation Combat Vehicle (NGCV) Program23 In October 2018, Army leadership reportedly made the AMPV part of the Army's NGCV program, which is to be overseen by the Army's Futures Command (AFC). Previously, AMPV was overseen by the Program Executive Officer (PEO) for Ground Combat Systems (GCS), but program authority is now shared with the AFC's NGCV Cross Functional Team (CFT). Reportedly, the PEO GCS will retain acquisition legal authorities, but the CFT is to have input on requirements and acquisition schedule. The CFT is also to help prioritize corrective actions needed to address deficiencies identified during testing, as well as identify the resources that will be required. AMPV Moves Into Production and Deployment Phase of Acquisition and Selects a Vendor25 In December 2018, the AMPV program received approval to move into the Production and Deployment phase of acquisition. BAE Systems is to start the production of the first batch of 551 of a total of 2,907 AMPVs, with initial vehicle delivery early in 2020. The Army is expected to field 258 vehicles as part of the European Deterrence Initiative (EDI) in FY2020 and two brigade sets' worth of AMPVs by the end of calendar year 2020. Echelon Above Brigade M-133 Replacement Cancelled26 In January 2019, it was reported that the Army had decided to cancel M-113 replacement at echelons above brigade (EAB) and reprogram funding for higher priorities. At this point, it is not readily apparent how the Army plans to address its previous 1,922 EAB AMPV requirement. Potential Revised AMPV Procurement Rate27 On March 13, 2019, Army leadership reportedly announced the Army had decided to cut funding over the next five years for 93 programs—including the AMPV—to increase available funding for its new modernization strategy. While the Army has yet to release its final five-year reduction plan, program officials reportedly stated that the AMPV's overall top-line requirement would likely remain unchanged, but the Army would likely slow the per-year procurement rate. Other Program Issues DOD Inspector General (IG) Concerns29 An April 28, 2017, DOD IG report noted the Army has effectively managed the AMPV program, in particular keeping it within cost requirements and scheduled timeframes, but also expressed the following concerns: The program might not meet entry requirements for initial production and testing (Milestone C) because the Army has not fully resolved vehicle performance and design demonstration concerns. As a result of the aforementioned performance and design concerns, the AMPV could experience increased costs and schedule delays as a result of addressing the IG's concerns. Because the U.S. Army Deputy Chief of Staff, Programming (G-8) had not revised the procurement quantities to reflect changes to the Army's equipment and force structure requirements, the program's estimated total cost and Average Procurement Unit Cost is not accurate. Government Accountability Office (GAO) 2018 Weapon Systems Annual Assessment Concerns An April 2018 GAO Weapon Systems Annual Assessment expressed the following concerns: The program has experienced development contract cost growth of over 20 percent above target cost due to continued challenges meeting logistics, performance, and production requirements. However, program officials noted that the government's official cost position for AMPV development—based on the independent cost estimate prepared by the Office of Cost Assessment and Program Evaluation—has not changed as it includes adequate margin to account for the cost growth to date. AMPV remains dependent on other programs—such as the Army's Handheld, Manpack, and Small Form Fit Radios—for its key communication and networking capabilities. However, these programs have experienced their own acquisition challenges delaying their availability for the AMPV program. The program is including a legacy radio platform in its production vehicle design configuration, which will, according to program officials, readily accommodate future networking capabilities provided by these other programs. Given the aforementioned 2017 DOD IG concerns and GAO's 2018 concerns regarding cost growth, difficulties meeting a variety of developmental requirements, and dependencies on other programs that are experiencing developmental challenges, the AMPV program will likely receive significant scrutiny and oversight to insure it remains a cost effective and viable program. Director, Operational Test and Evaluation (DOT&E) FY2018 Annual Report32 DOT&E's FY2018 Annual Report noted the following: Preliminary observations of the Limited Users Test indicate the AMPV meets or exceeds its goal of replacing the M113 family of vehicles (FoV) with a more capable platform. The AMPV demonstrated superior power and mobility over the M113 FoV. The AMPV was able to maintain its position in the formation. The AMPV operational mission availability and reliability were far superior to the M113 FoV. The platform provides potential for growth for power demand. Having common parts among all the variants should improve overall availability. The Mission Command variant facilitates digital mission command. The Medical Treatment and Medical Evacuation variants provide improved patient care and treatment capability with a new capability of conducting treatment on the move. The following deficiencies, if uncorrected, could adversely affect AMPV performance: The driver's and vehicle commander's displays would frequently lock up, and the reboots each took 10 minutes. Due to the physical size and location, the commander's weapons station degraded situational awareness of the vehicle commander. The Joint Battle Command Platform and radios in the Mission Command vehicle cannot be removed from their docking stations within the vehicle. This limits the ability of the command group to share a common operational picture when operating as a Tactical Operations Center. The capability to support analog operations is degraded without the stowage for mapboards and plotting boards. The Medical Evacuation vehicle seat stowage and litter lift are difficult to use. (The program manager has identified a design change to correct this deficiency.) The Mortar Carrier's ammunition storage is not optimized to support the mortar system. There is water leakage from the hatch and the roof leaks, affecting the electronics in all variants and patient care in the medical variants. The preliminary survivability assessment identified minor vehicle design vulnerabilities that the Program Office is addressing with the vendor in order to meet survivability and force protections requirements. Department of Defense FY2020 AMPV Budget Request33 The FY2020 budget request includes Research Development, Testing and Evaluation (RDT&E) and Procurement funding requests for the AMPV in both the Base and Overseas Contingency Operations (OCO) budgets, as well as FY2020 requested quantities. The Army notes that FY2020 OCO funding will procure 66 AMPVs to support U.S. European Command's (USEUCOM's) requirement for unit equipment sets to deter potential adversaries and support the European Deterrence Initiative (EDI). Potential Issues for Congress The Way Ahead: Upgraded M-113s at Echelons Above Brigade (EAB) As previously noted, the Army's optimal solution would be to replace EAB M-113s with AMPVs, but the Army felt that given current and projected budgetary constraints, only selected EAB units outside the continental United States and in South Korea and Europe would receive AMPVs while the remainder would receive upgraded M-113s as an interim solution. Reportedly, on May 21, 2018, the Army indefinitely postponed its plans to upgrade EAB M-113s and also put on hold plans to issue an RFP for upgraded M-113s. Reportedly in January 2019, the Army decided to cancel M-113 at EAB replacement efforts. Given the frequently changing nature of the Army's plans for addressing the replacement of legacy M-113s at EAB and the decision to cancel M-113 EAB replacement, it is not unreasonable to question if the Army has a clearly defined "way ahead" for addressing M-113s at EAB. Will the Army simply "leave" M-113s at EAB and continue to maintain them, will they replaced by another vehicle, or is the Army still trying to decide on a course of action and a program strategy? DOD Inspector General (IG), Government Accountability Office (GAO), and Director, Operational Test and Evaluation (DOT&E) Concerns DOD's April 2017 IG report, while acknowledging effective management of the AMPV program, also raised fundamental concerns about performance and design, as well as inaccurate procurement quantities, which could adversely impact program costs. GAO's 2018 concerns regarding cost growth, difficulties meeting a variety of developmental requirements, and dependencies on other programs that are experiencing developmental challenges suggest that programmatic issues continue. DOT&E's 2018 findings noted a number of performance concerns as well. Given these concerns, a more in-depth examination of identified AMPV program deficiencies might prove beneficial for DOD and policymakers alike. Potential Revised AMPV Procurement Rate As previously noted, on March 13, 2019, Army leadership reportedly announced the Army had decided to cut funding over the next five years for 93 programs—including the AMPV—to increase available funding for its new modernization strategy. While the Army is not expected to change its overall AMPV top-line requirement, it could slow the per- year procurement rate. Once the Army has finalized its revised modernization plan, including program cuts, it could be beneficial to provide policymakers with a revised overall AMPV procurement plan, as well as a new fielding plan for units—both Active and Reserves—designated to receive AMPVs.

The Armored Multi-Purpose Vehicle (AMPV) is the Army's proposed replacement for the Vietnam-era M-113 personnel carriers, which are still in service in a variety of support capacities in Armored Brigade Combat Teams (ABCTs). While M-113s no longer serve as infantry fighting vehicles, five variants of the M-113 are used as command and control vehicles, general purpose vehicles, mortar carriers, and medical treatment and evacuation vehicles. The AMPV is intended to be a nondevelopmental program (candidate vehicles will be either existing vehicles or modified existing vehicles—not vehicles that are specially designed and not currently in service). Some suggest a nondevelopmental vehicle might make it easier for the Army to eventually field this system to the force, as most of the Army's past developmental programs, such as the Ground Combat Vehicle (GCV), the Future Combat System (FCS), the Crusader self-propelled artillery system, and the Comanche helicopter, were cancelled before they could be fully developed and fielded. On November 26, 2013, the Army issued a Request for Proposal (RFP) for the AMPV. This RFP stipulated the Army planned to award a five-year Engineering and Manufacturing Development (EMD) contract in May 2014 worth $458 million to a single contractor for 29 prototypes. While the March 2013 RFP established an Average Unit Manufacturing Cost Ceiling for each AMPV at $1.8 million, this was rescinded to permit vendors greater flexibility. The EMD phase was scheduled to run between FY2015 and FY2019, followed by three years of low-rate initial production (LRIP) starting in 2020. As of 2018, the Army planned to procure 2,936 AMPVs to replace M-113s in ABCTs. The Army also has plans to replace 1,922 M-113s at Echelons Above Brigade (EAB), and the Department of Defense (DOD) estimates that if the M-113s are replaced by AMPVs at EAB, total program costs could be increased by an additional $6.5 billion. While the Army would like a pure fleet of AMPVs, budgetary constraints could preclude this. On December 23, 2014, the Army announced it had selected BAE Systems Land and Armaments L.P. as the winner of the EMD contract. The initial award was for 52 months, valued at about $382 million. In addition, the award provided for an optional low-rate initial production (LRIP) phase. The EMD contract did not include EAB AMPV variants. The AMPV reportedly successfully completed its Critical Design Review (CDR) on June 23, 2016. On December 15, 2016, BAE delivered the first general purpose AMPV to the Army for testing. In September 2017, the Army began AMPV reliability, availability, and maintainability (RAM) testing. Also in 2017, based on budgetary constraints, the Army decided it would upgrade a number of EAB M-113s instead of replacing them with AMPVs. In May 2018, the Army decided to put the EAB M-113 upgrade effort on hold. On March 13, 2019, Army leadership reportedly announced the Army had decided to cut funding over the next five years for 93 programs—including the AMPV—to increase available funding for its new modernization strategy. This cut is not expected to affect the overall AMPV requirement but could slow the AMPV production rate. Other program issues include DOD Inspector General (IG) concerns regarding performance and design concerns, as well as inaccurate procurement quantities, which could result in inaccurate program costs. The Government Accountability Office (GAO) in 2018 expressed concerns regarding cost growth, difficulties meeting a variety of developmental requirements, and dependencies on other programs that are experiencing developmental challenges. Potential issues for Congress include a "way ahead" for upgraded M-113s at EAB, DOD Inspector General (IG) and GAO concerns, and the potential revised AMPV procurement rate.

CRS_RL34273

Overview The federal government owns roughly 640 million acres, more than a quarter of the land in the United States. These lands are heavily concentrated in 12 western states (including Alaska), where t he federal government owns roughly half of the overall land area. Four federal agencies—the National Park Service (NPS), Fish and Wildlife Service (FWS), and Bureau of Land Management (BLM), all in the Department of the Interior (DOI), and the U.S. Forest Service (FS) in the Department of Agriculture—administer about 95% of those lands. No single law provides authority for these four agencies to acquire and/or disposal of lands. Rather, Congress provided various acquisition and disposal authorities through laws enacted over more than a century. This report describes the primary authorities of the four agencies. The extent to which each of the agencies has authority to acquire and dispose of land, and the nature of the authorities, varies considerably. Some of the agencies have relatively broad authority to acquire and/or dispose of land. Most notably, the BLM has relatively broad authority for both acquisitions and disposals. By contrast, the NPS has no general authority to acquire land to create new park units or to dispose of park lands. The extent of the acquisition and disposal authorities for the FS and the FWS are not nearly as broad as the BLM's but not nearly as restrictive as the NPS's. The FS authority to acquire lands is mostly limited to lands within or contiguous to the boundaries of a national forest. The agency has various authorities to dispose of land, but they are relatively constrained and infrequently used. The FWS has various authorities to acquire lands but no general authority to dispose of its lands. The acquisition authorities differ as to the circumstances in which they apply, and the disposal authorities likewise differ as to their purposes. Thus, where a specific acquisition or disposal by an agency is contemplated, the particular authority at issue should be consulted. In general, the acquisition authorities are designed to allow federal agencies to acquire lands that could be viewed as benefitting from federal management. Among other circumstances, acquisition might be authorized to bring inholdings or lands adjacent to federal lands into federal ownership to improve or simplify management of federal lands. Acquisitions also might be authorized to conserve species, protect natural and cultural resources, and increase opportunities for recreation. The disposal authorities generally are designed to allow federal agencies to dispose of land that is no longer required for a federal purpose, might be inefficient to manage, or might be chiefly valuable for another purpose. For instance, disposal might be authorized to allow lands to be used for agriculture, community development, mineral extraction, or educational purposes. Agencies also acquire and dispose of federal land in exchanges. Exchanges are not discussed separately in this report, as often the authorities to acquire and dispose of lands also apply to land exchange. However, there are provisions of law particularly applicable to exchanges. The exchange authorities for the NPS and the FWS are relatively narrow. The Federal Land Policy and Management Act of 1976 (FLPMA; 43 U.S.C. §§1701-1781) provides broader exchange authority and is the main authority governing exchanges by the BLM and the FS. Issues for Congress Congress often faces questions on the adequacy of existing acquisition and disposal authorities; the nature, extent, and location of their use; the extent of federal land ownership overall; and the sources and levels of land acquisition funds, among other issues. The suitability of the acquisition and disposal authorities, and the extent and circumstances of their use by the agencies, forms the backdrop for congressional consideration of measures to establish, modify, or eliminate the use of authorities. With regard to the establishment of new authorities, for instance, some 115 th Congress proposals would authorize states to exchange land grant parcels for federal lands. Other measures would authorize the BLM and FS to convey small tracts to adjacent landowners and to govern the use of proceeds from these conveyances. Proposals to modify authorities include measures in the 115 th Congress to reauthorize and amend BLM authority to sell or exchange land under the Federal Land Transaction Facilitation Act (FLTFA; 43 U.S.C. §§2301 et seq.), as well as bills to amend the Small Tracts Act (16 U.S.C. §521e) regarding the type and value of FS lands that can be disposed of and the use of related proceeds. Among the provisions to eliminate the use of authorities are those to prevent the disposal of federal land under the General Mining Law of 1872, which have been contained in annual Interior appropriations laws since FY1995. In addition, Congress frequently considers legislation authorizing and governing the acquisition or disposal of specific parcels. For example, Title XXX of P.L. 113-291 contained various provisions to authorize the acquisition and/or disposal of land. Congress may consider such legislation to provide an agency with acquisition or disposal authority in a particular instance because it is lacking. In other cases, Congress directs a particular acquisition or disposal to facilitate the action. For instance, the legislation may seek to direct an acquisition based on Congress's assessment of public needs and priorities. It may expedite the process for acquiring a parcel of land, such as by limiting the assessments and evaluations that ordinarily would be required under law. The legislation also might authorize actions not ordinarily permitted, such as the conveyance of land at reduced or no cost rather than at fair market value. Congress also addresses acquisition and disposal policy in the context of deliberations on the role and goals of the federal government in owning and managing land generally. The extent to which the federal government should own land remains controversial. Many westerners contend that there is excessive federal influence over their lives and economies and that the federal government should divest itself of many lands. Many others support the policy of retaining lands in federal ownership on behalf of the public and sometimes advocate adding more lands to enhance protection. Recent Congresses considered diverse bills pertaining to the extent of federal land ownership. Among others, 115 th Congress measures would authorize or direct the Secretary of the Interior and the Secretary of Agriculture to offer to sell a certain percentage of land in each of several fiscal years. Other bills provide that where a land management agency acquires land, an equal number of acres is to be offered for sale. Acquisition Funding Another set of issues pertains to the sources and levels of funds for land acquisition. The principal financing mechanism for federal land acquisition is discretionary appropriations under the Land and Water Conservation Fund (LWCF). Provisions of the Land and Water Conservation Fund Act of 1965 (LWCF Act; 54 U.S.C. §§200301 et seq.) had provided for $900 million in specified revenues to be deposited in the LWCF annually. These provisions expired September 30, 2018. Each year, Congress determines the level of appropriations from the LWCF for federal land acquisition. Total appropriations for land acquisition and the amount provided to each of the federal land management agencies have varied substantially since the program's origin in 1965. In the 115 th Congress, some measures propose permanent reauthorization of the LWCF and/or mandatory appropriations at the authorized level. Advocates of such bills typically seek stable, predictable funding to promote a strong federal role in acquiring and managing sensitive resources. Other measures would direct a portion of funding to particular purposes, such as acquisitions in areas with restricted access for fishing, hunting, and other types of recreation. Still other proposals would allow LWCF to be used for a broader array of purposes, including nonacquisition purposes, due to concerns about the extent of federal land ownership and the availability of funding for other federal activities. Additional sources of funding are available for some agencies or under certain authorities. For instance, the FWS has a mandatory source of funds for land acquisition through the Migratory Bird Conservation Fund, as discussed below. As another example, the BLM also has mandatory spending authorities that allow the agency to keep the proceeds of land sales and use these proceeds for subsequent acquisitions and other purposes. These authorities are discussed below. The application of mandatory spending authorities, including the uses of the proceeds, has been the subject of congressional debate. Federal Land Acquisition Authorities As noted above, various laws authorizing and governing specific land acquisitions have been enacted. In addition, the four federal land management agencies have different standing authorities for acquiring lands. In general, all four agencies are authorized to accept land as gifts and bequests. In addition, each generally is authorized to use eminent domain —taking private property, through condemnation, for public use—while compensating the landowner. However, this practice is controversial, and it is rarely used by the land management agencies. The primary land acquisition authorities are described below for each of the four federal land management agencies. In general, the agencies are presented in the order of the breadth of their authorities, with the NPS (the narrowest authorities) first and the BLM (the broadest authorities) last. National Park Service The NPS does not have standing authority to acquire lands for new or existing units of the National Park System, except in limited circumstances. Rather, most units have been created by Congress, and the law creating a park unit typically includes specific authority for the NPS to acquire nonfederal inholdings within the identified boundaries of that park. The Secretary of the Interior is authorized to make certain boundary adjustments of park units for "proper preservation, protection, interpretation, or management" and to acquire the nonfederal lands within the adjusted boundary, under specified provisions and conditions (54 U.S.C. §100506(c)). Some of these conditions have been interpreted to apply particularly to boundary adjustments requiring land purchases, as opposed to those in which added lands are acquired by donation, transfer, or exchange. The President has authority to create national monuments on federal lands under the Antiquities Act of 1906 (54 U.S.C. §§320301 et seq.). In total, 158 monuments have been created by presidential proclamation. Most are managed by the NPS, but some are managed by the BLM and other agencies. Under law, the Secretary of the Interior and the NPS have responsibilities related to the potential acquisition of lands for the National Park System. Among other requirements, the Secretary is directed "to investigate, study, and continually monitor the welfare of" areas that could potentially be added to the system and to report to Congress on possible additions (54 U.S.C. §100507). Furthermore, the general management plan for each unit is to include potential changes to the boundaries of the unit and the reasons for such changes (54 U.S.C. §100502). The Secretary also is to conduct a "systematic and comprehensive review of certain aspects of the National Park System" and to submit a related report to Congress at least every three years (54 U.S.C. §100505(a)) that includes a list of all authorized but unacquired lands within the boundaries of park units and a priority listing of these unacquired parcels (54 U.S.C. §100505(c)). Forest Service The Secretary of Agriculture has various authorities to acquire lands for the National Forest System (NFS). The NFS consists of 284 units covering 232.4 million acres of federal and nonfederal land, including national forests, national grasslands, purchase units, land utilization projects, and other areas. Today, only an act of Congress can create new NFS units, but the Secretary may acquire lands within or contiguous to the proclaimed exterior boundaries of an NFS unit. The NFS contains substantial acreage of nonfederal lands within the proclaimed boundaries of the system, particularly in the east, where national forests were established after extensive settlement. NFS units in the Eastern and Southern Regions average about 46% nonfederal land within their boundaries, while Western Region NFS units average about 10%. The FS has very limited regulatory authority over the uses of the 39.5 million acres of nonfederal land within the NFS. The FS's primary land acquisition authority is the Weeks Act of 1911 (16 U.S.C. §515), which was used to acquire many of the lands that became the eastern national forests. The Weeks Act authority continues to be the agency's primary authority to acquire lands; however, acquisitions are now limited to lands within (or adjacent to) established NFS unit boundaries. The Weeks Act also authorizes the Secretary to modify the NFS unit boundary as needed to encompass new acquisitions. Other laws authorize the FS to acquire lands for the national forests, typically in specific areas or for specific purposes. For example, Section 205 of the Federal Land Policy and Management Act (FLPMA; P.L. 94-579 ) authorizes the acquisition of access corridors—including easements—to national forests across nonfederal lands (43 U.S.C. §1715(a)). Another example is the Act of August 3, 1956 (7 U.S.C. §428(a)), which authorizes the FS to acquire lands without any geographical limitations but does require a provision be made in a specific appropriation or other law. Another law authorizes proceeds from certain land sales or exchanges to be used for acquisitions, including for administrative sites and enhancement of recreational access. However, the acquisitions are limited to the state in which FS previously conveyed NFS land under specific disposal authorities, as discussed later in this report. Several other acquisition authorities apply to specific national forests, such as the Act of June 11, 1940, which authorizes the purchase of lands within the Angeles National Forest in California. In addition, the Secretary of Agriculture and the secretary of a military department that has lands within or adjacent to proclaimed NFS land may interchange lands, without reimbursement or transfer of funds. Many of the acquisition authorities also allow the FS to accept donations of land as specified. Within the NFS, the Secretary of Agriculture also is authorized to acquire privately owned lands within or adjacent to designated wilderness areas (16 U.S.C. §1134(c)), Wild and Scenic River corridors (16 U.S.C. §1277), and certain segments of designated National Trails (16 U.S.C. §1244), as specified by the law creating the trail. Fish and Wildlife Service Lands may be added to the National Wildlife Refuge System (NWRS) in a number of ways, including through congressional and administrative actions and donations. A principal FWS land acquisition authority is the Migratory Bird Conservation Act of 1929 (MBCA; 16 U.S.C. §§715 et seq.). This act authorizes the Secretary of the Interior to recommend areas "necessary for the conservation of migratory birds" to the Migratory Bird Conservation Commission, after consulting with the relevant governor (or state agency) and appropriate local government officials (16 U.S.C. §715a and §715c). In addition, the state in which the purchase is located must have consented to the acquisition by law (16 U.S.C. §715f and §715k-5). The Secretary may then purchase or rent areas or interests therein approved by the commission and acquire by gift or devise any area or interest therein (16 U.S.C. §715d). The MBCA authority is used frequently because of the availability of funding through the Migratory Bird Conservation Fund (MBCF, 16 U.S.C. §718d). The MBCF is supported by multiple sources of funding, including three major sources: the sale of hunting and conservation stamps (commonly known as duck stamps); import duties on arms and ammunition; and a portion of certain refuge entrance fees. MBCF funds are permanently appropriated to the extent of receipts and, after paying certain administrative costs, may be used for the "location, ascertainment, and acquisition of suitable areas for migratory bird refuges ..." (16 U.S.C. §718d(b)). The predictability of funding and permanent authority for use makes the MBCF, and thus the MBCA, particularly important for FWS land acquisition and unique among the four agencies. Other laws provide general authority to expand the NWRS, including the Fish and Wildlife Coordination Act of 1934 (16 U.S.C. §§661-667a), the Fish and Wildlife Act of 1956 (16 U.S.C. §§742a et seq.), and the Endangered Species Act of 1973 (16 U.S.C. §§1531-1544). The National Wildlife Refuge System Administration Act of 1966 (16 U.S.C. §§668dd-668ee) authorizes the Secretary of the Interior to acquire land or interests therein through donated funds or exchange (16 U.S.C. §668dd(b)). Further, FLPMA authorizes the Secretary of the Interior to withdraw lands from the public domain for creating or adding to refuges (which would be an interagency transfer), although withdrawals exceeding 5,000 acres are subject to congressional approval (43 U.S.C. §1714(c)). In contrast to NPS and FS land acquisition, where the lands generally must be within the boundaries of established units, the FWS can acquire new lands to create a new refuge or to expand an existing one under the general FWS authorities cited above, as well as under certain other laws. Some national wildlife refuge (NWR) units have been created by specific acts of Congress, such as Protection Island NWR (WA) and Bayou Sauvage Urban NWR (LA) (16 U.S.C. §668dd note). Units also can be created by executive order; for example, the Midway Atoll NWR was created by President Clinton in Executive Order 13022. Bureau of Land Management The BLM has broad, general authority to acquire lands, principally under Section 205 of FLPMA. Specifically, the Secretary of the Interior is authorized to acquire, by purchase, exchange, donation, or use of eminent domain, lands or interests therein (43 U.S.C. §1715(a)). The BLM acquires land or interests in land, including inholdings, for a variety of reasons. These include to protect natural and cultural resources, to increase opportunities for public access and recreation, and to improve management of lands. Federal Land Disposal Authorities As noted above, various laws directing the disposal of particular lands sometimes have been enacted. In addition, the four federal land management agencies have different standing authorities for disposing of lands. The specific disposal authorities are discussed below for each of the four agencies in the order of their apparent breadth, with the NPS (the narrowest authorities) first and the BLM (the broadest authorities) last. National Park Service The NPS does not have general authority to dispose of National Park System lands. Units and lands of the Park System that were established by acts of Congress can be disposed of only by acts of Congress. Preservation of park units is a management goal and provisions of law limit the power of the Secretary of the Interior to dispose of land in changing park boundaries. Although the Secretary can, under specified conditions, make boundary changes that concurrently add and remove land within the boundary, minor boundary revisions solely to remove NPS acreage can be made only by Congress. Also, the Secretary can acquire by exchange lands that are adjacent to a boundary revision, but the Secretary cannot dispose of NPS land to do so (54 U.S.C. §100506(c)). Presidents have modified the boundaries of national monuments established by previous presidential proclamations, in some cases reducing the size of the monument. However, no president has terminated a monument established by proclamation. Fish and Wildlife Service The FWS does not have general authority to dispose of its lands. With certain exceptions, wildlife refuge lands administered by the FWS can be disposed only by an act of Congress (16 U.S.C. §§668dd(a)(5) and (6)). For refuge lands reserved from the public domain, FLPMA prohibits the Secretary of the Interior from modifying or revoking any withdrawal which added lands to the NWRS (43 U.S.C. §1714(j)). For acquired lands, disposal is allowed only if: (1) the disposal is part of an authorized land exchange (16 U.S.C. §§668dd(a)(6) and (b)(3)); or (2) the Secretary determines the lands are no longer needed and the Migratory Bird Conservation Commission approves the disposal (16 U.S.C. §668dd(a)(5)). In the latter case, the disposal must recover the acquisition cost or be at the fair market value (whichever is higher), and the receipts must be deposited in the Migratory Bird Conservation Fund. Forest Service The Secretary of Agriculture has numerous authorities to convey lands within proclaimed NFS boundaries out of federal ownership—through sale or exchange—although previous, broader authorities have been modified or revoked. Many of the authorities put constraints on land disposal, such as applying only to a specific geographical area or to the disposal of particular administrative properties or facilities. Many of the authorities are used in conjunction with FLPMA and other federal law and as such may place requirements on the sale or exchange of land. This includes obtaining at least fair market value for the sale of federal lands; requiring that nonfederal land exchanged for federal land be in the same state; and requiring exchanged lands to be of equal value, although value may be partially equalized with a cash payment (43 U.S.C. §1716). The General Exchange Act of 1922 (16 U.S.C. §485) authorizes the exchange of NFS land or timber that was reserved from the public domain if the Secretary determines it will be in the public interest. The nonfederal land must be within the same state and within the exterior boundary of a national forest, and it must be chiefly valuable for national forest purposes, among other provisions. The Weeks Act of 1911 allows for similar exchanges for acquired NFS lands (16 U.S.C. §516). The 1983 Small Tracts Act authorizes the Secretary to dispose of NFS land by sale or exchange, generally up to certain specified acreage limits. The disposal may be To improve management efficiencies where NFS lands are interspersed with nonfederal mineral rights owners, or if the Secretary determines the parcels to be inaccessible, physically isolated from other federal land, or to have lost national forest character (40 acres maximum); To relieve encroachments including due to erroneous surveys, or encroachments by a permanent habitable improvement if there is no evidence that the encroachment was intentional or due to negligence (10 acres maximum); To dispose of unneeded federal rights-of-way substantially surrounded by nonfederal lands (no specified acreage limitation); and If the parcel is used as a cemetery, landfill, or sewage plant pursuant to a special use authorization for the use and occupancy of NFS land (no specified acreage limitation) (16 U.S.C. §521e). The conveyance must be determined to be in the public interest and the tracts may not be valued at more than $500,000. The land can be disposed of for cash, lands, interests in land (such as an easement), or any combination thereof for at least the value of the land being sold or exchanged (16 U.S.C. §521d) plus "all reasonable costs of administration, survey, and appraisal incidental to such conveyance" (16 U.S.C. §521f). In some cases, the proceeds may be used for specified land acquisition purposes. The 1958 Townsites Act authorizes the Secretary to transfer up to 640 acres of NFS land adjacent to communities in Alaska or the 11 western states for townsites, if the "indigenous community objectives ... outweigh the public objectives and values which would be served by maintaining such tract in Federal ownership" (16 U.S.C. §478a). Public notice of the application for such transfer is required, and upon a "satisfactory showing of need," the Secretary may offer the land to a local governmental entity at "not less than the fair market value." The Education Land Grant Act, also known as the Sisk Act (16 U.S.C. §479a), authorizes the Secretary to transfer up to 80 acres of NFS land for a nominal cost upon written application of a public school district. It provides for reversion of the title to the federal government if the lands are not used for the educational purposes for which they were acquired. There are a few other specific authorities that allow for the disposal of NFS lands. For example, the 1911 Weeks Act authorizes the disposal of NFS lands that are "chiefly valuable for agriculture" but were acquired inadvertently or otherwise, if agricultural use will not injure the forests or streamflows and the lands are not needed for public purposes. The lands can be sold as homesteads in parcels of up to 80 acres (16 U.S.C. §519). The Bankhead-Jones Farm Tenant Act of 1937 (7 U.S.C. §§1010-1012) also authorizes the disposal of lands acquired under its authority, although the FS has adopted regulations stating that the Bankhead-Jones lands comprising the national grasslands will be held permanently (36 C.F.R. §213.1(b)). Bureau of Land Management The BLM can dispose of land under several authorities. They include (1) exchanges and sales under FLPMA, (2) sales or exchanges under the FLTFA, (3) transfers to other governmental units or nonprofit entities for public purposes, (4) patents under the General Mining Law of 1872, and (5) geographically limited sale authorities. With regard to exchanges under FLPMA, the exchanges must serve the public interest, and the federal and nonfederal lands in the exchange must be located in the same state and be of equal value (with cash equalization payments possible), among other requirements (43 U.S.C. §1716). With regard to sales under FLPMA, the BLM is authorized to sell certain tracts of public land that are identified through the land-use planning process. Such tracts must meet specific criteria (43 U.S.C. §1713(a)): (1) such tract because of its location or other characteristics is difficult and uneconomic to manage as part of the public lands, and is not suitable for management by another Federal department or agency; or (2) such tract was acquired for a specific purpose and the tract is no longer required for that or any other Federal purpose; or (3) disposal of such tract will serve important public objectives, including but not limited to, expansion of communities and economic development, which cannot be achieved prudently or feasibly on land other than public land and which outweigh other public objectives and values, including, but not limited to, recreation and scenic values, which would be served by maintaining such tract in Federal ownership. The size of the tracts for sale is determined by "the land use capabilities and development requirements." Proposals to sell tracts of more than 2,500 acres first must be submitted to Congress and can be disapproved by Congress. Lands may not be sold at less than their fair market value. They generally must be sold through competitive bidding, although modified competition and noncompetitive sales are allowed. FLTFA provides for the sale or exchange of BLM lands identified for disposal under BLM land- use plans. The law create s a separate Treasury account for most of the proceeds (96%) from the sale or exchange, and it provide s for the use of those funds by the Secretary of the Interior and the Secretary of Agriculture. The Secretaries may acquire nonfederal lands, specifically inholdings , lands adjacent to federal lands that contain exceptional resources , and areas adjacent to inaccessible lands that are open to recreation. Up to 20% of the funds in the account may be used for administrative costs, and at least 80% of the funds for acquisition are to be in the state in which the funds are generated . The Recreation and Public Purposes Act (43 U.S.C. §869) authorizes the Secretary, upon application by a qualified applicant, to dispose of any public lands to a State, Territory, county, municipality, or other State, Territorial, or Federal instrumentality or political subdivision for any public purposes, or to a nonprofit corporation or nonprofit association for any recreational or any public purpose consistent with its articles of incorporation or other creating authority. The lands can be sold or leased, and the act specifies conditions, qualifications, and acreage limitations for transfer. The price of the land depends on the type of entity that will receive it, for instance, whether a state government or a nonprofit organization. The price also depends on the intended use of the land, with some sales and leases made at no cost. Although the BLM can dispose of lands through patents under the General Mining Law of 1872, since FY1995 a series of annual moratoria on issuing mineral patents has been enacted into law. These moratoria, contained in the annual Interior appropriations laws, have effectively prevented this means of federal land disposal. Specifically, the Mining Law allows access to and development of hardrock minerals on federal lands that have not been withdrawn from entry. With evidence of valuable minerals and sufficient developmental effort, the Mining Law allows mining claims to be patented, with full title (of surface and mineral rights) transferred to the claimant upon payment of the appropriate fee. Nonmineral lands used for associated milling or other processing operations can also be patented (30 U.S.C. §42). Patented lands may be used for purposes other than mineral development. The BLM also has geographically limited land sale authorities. The program with the largest revenue stream has been the Southern Nevada Public Land Management Act of 1998, which allows the Secretary of the Interior to sell or exchange certain lands around Las Vegas. The BLM and the local government unit jointly decide on the lands to be offered for sale or exchange. In general, 85% of the proceeds are deposited into a special account, and are available to the Secretary of the Interior for land acquisition in Nevada and other purposes in the state, such as certain capital improvements and development of parks, trails, and natural areas. The other 15% of the proceeds are for state or local purposes, specifically the State of Nevada General Education Fund (5%) and the Southern Nevada Water Authority (10%). Other provisions of law similarly provide for BLM land sales in particular areas (mostly in Nevada), with specific allocations of the proceeds. Further, the BLM continues to dispose of land in Alaska as required by law, such as through transfers to the state of Alaska and to Alaska native corporations. A total of about 150 million acres in Alaska will be transferred from federal to state and private ownership.

The federal government owns roughly 640 million acres, heavily concentrated in 12 western states. Four agencies—the National Park Service (NPS), Fish and Wildlife Service (FWS), and Bureau of Land Management (BLM) in the Department of the Interior, and the U.S. Forest Service (FS) in the Department of Agriculture—administer about 95% of those lands. The extent to which each of these four federal agencies have authority to acquire and dispose of land varies considerably. The BLM has relatively broad authority for both acquisitions and disposals under the Federal Land Policy and Management Act of 1976 (FLPMA). The agency also has other authorities for disposing of land, including two laws that allow the agency to retain the proceeds for subsequent land acquisition, among other purposes, and a law that allows transfers to governmental units and other entities for public purposes. By contrast, the NPS has no general authority to acquire land to create new park units or to dispose of park lands. The FS authority to acquire lands is mostly limited to lands within or contiguous to the boundaries of a national forest. The agency has various authorities to dispose of land, but they are relatively constrained and infrequently used. The FWS has various authorities to acquire lands but no general authority to dispose of its lands. The agency frequently uses acquisition authority under the Migratory Bird Conservation Act of 1929 because of the availability of funding through the Migratory Bird Conservation Fund. The nature of the acquisition and disposal authorities of the four federal agencies also varies. In general, the acquisition authorities are designed to allow the four agencies to bring into federal ownership lands that many contend could benefit from federal management. Disposal authorities generally are designed to allow agencies to convey land that is no longer needed for a federal purpose or that might be chiefly valuable for another purpose. Some of the authorities specify particular circumstances where they can be used, such as the conveyance of FS land for educational purposes and the disposal of BLM land for recreation and public purposes. Congress often faces questions on the adequacy of existing acquisition and disposal authorities; the nature, extent, and location of their use; and the extent of federal land ownership overall. The current acquisition and disposal authorities form the backdrop for consideration of measures to establish, modify, or eliminate authorities, or to provide for the acquisition or disposal of particular lands. In some cases, Congress enacts bills to provide authority to acquire or dispose of particular parcels where no standing authority exists and, in other cases, to direct or facilitate land transactions. Congress also addresses acquisition and disposal policy in the context of debates on the role and goals of the federal government in owning and managing land generally, and it has considered broader measures to dispose of lands or to promote acquisition. Other issues for Congress pertain to the sources and levels of funds for land acquisition. The Land and Water Conservation Fund (LWCF) is the primary source of funding for land acquisition. Congress has considered diverse measures related to the LWCF, such as legislation to make LWCF funding permanent and bills to direct LWCF monies to additional, nonacquisition purposes. Additionally, the FWS has the Migratory Bird Conservation Fund, an account with mandatory spending authority supported by revenue from three sources. The BLM also has mandatory spending authorities that allow the proceeds from land sales to be used for land acquisition, among other purposes.

GAO_GAO-18-92

Background FHA’s Role and Insured Portfolio FHA’s single-family mortgage insurance programs insure private lenders against losses from borrower defaults on mortgages that meet FHA criteria for properties with one to four housing units. FHA insures a variety of mortgage types, including loans for initial home purchases, construction and rehabilitation, and refinancing. In fiscal year 2016, FHA insured roughly 1.3 million single-family mortgages with total initial balances of approximately $260 billion. Partly because of its low 3.5 percent minimum down-payment requirement, FHA has played a particularly large role among groups with lower average levels of accumulated wealth, including minority, lower-income, and first-time home buyers. For example, in fiscal year 2016, roughly 82 percent of FHA-insured home purchase loans went to first-time home buyers and more than 33 percent went to minority home buyers. FHA also generally is thought to promote stability in the housing market by helping to ensure the availability of mortgage credit in areas that may be underserved by the private sector or that are experiencing economic downturns. Consistent with this view, the volume of FHA-insured forward mortgages peaked in fiscal year 2009, toward the end of the 2007–2009 recession and in the midst of the 2007–2011 housing crisis. In terms of loan originations, the share of the single-family home purchase mortgage market insured by FHA reached nearly 30 percent in fiscal year 2009, while in more recent years it has been about 20 percent. FHA’s Mutual Mortgage Insurance Fund The MMI Fund includes almost all of FHA’s single-family mortgage insurance programs, the largest of which is the 203(b) program. The Housing and Economic Recovery Act of 2008 (HERA) moved a number of other programs that were previously under the General and Special Risk Insurance Fund to the MMI Fund. These included programs for insuring mortgages on condominium units, mortgages that simultaneously finance home purchase and rehabilitation costs, and reverse mortgages. A reverse mortgage is a type of loan against the borrower’s home equity. With a reverse mortgage, borrowers do not need to repay the loan as long as they meet certain conditions. These conditions, among others, require the borrower to live in the home, pay property taxes and homeowners’ insurance, maintain the property, and retain the title in his or her name. Unlike forward mortgages, where the borrower makes monthly payments to the lender, increasing equity and decreasing the loan balance over time, reverse mortgages typically are “rising debt, falling equity” loans. For reverse mortgages, the loan balance increases and the home equity decreases over time. As the borrower receives payments from the lender, the lender adds the principal and interest to the loan balance, reducing the homeowner’s equity. FHA insures reverse mortgages under its Home Equity Conversion Mortgage (HECM) program, which serves eligible borrowers aged 62 or older. Congress established the HECM program in 1988 as a way to alleviate economic hardship caused by the increasing costs of health care, housing, and subsistence needs at a time in life when income is reduced, while protecting reverse mortgage lenders and borrowers from financial losses. The MMI Fund is supported by insurance premiums paid by borrowers. For forward mortgages, FHA has the authority to establish and collect a single up-front premium (in an amount not to exceed 3.0 percent of the amount of the original insured principal of the mortgage) and annual premiums of up to 1.5 percent of the remaining insured principal balance, or 1.55 percent for borrowers with down payments of less than 5.0 percent. As of September 2017, FHA charged a 1.75 percent up-front premium and either a 0.80 percent or 0.85 percent annual premium, depending on the size of the down payment. As of the same date, FHA charged HECM borrowers an initial premium of either 0.50 percent or 2.5 percent, depending on how they draw down available funds, and an annual premium equal to 1.25 percent of the outstanding HECM balance. Reviews of the MMI Fund Each year, the MMI Fund is subject to three different financial assessments: Independent actuarial review. The National Housing Act requires an annual independent actuarial review of the MMI Fund’s financial position. FHA uses the results of the actuarial review to determine whether the MMI Fund is meeting the act’s requirement that it maintain a capital ratio of at least 2 percent. Each year, an independent actuarial contractor conducts two separate actuarial reviews—one for forward mortgages and one for HECMs—to estimate the economic value of the two portfolios. In a separate annual report to Congress, FHA combines the findings of the forward mortgage and HECM actuarial reviews to determine the capital ratio for the MMI Fund as a whole. As previously noted, the capital ratio is the fund’s economic value divided by the insurance-in-force. Budgetary review. FHA estimates and reestimates the net lifetime costs—known as credit subsidy costs—of the mortgages it insures as part of the MMI Fund’s annual budgetary review. Under the Federal Credit Reform Act of 1990 (FCRA), FHA and other federal agencies must estimate the credit subsidy costs of their direct loan or loan guarantee programs in their annual budgets. Credit subsidy costs represent the present value of estimated cash flows to the government minus the present value of estimated cash flows from the government over the life of the loan, excluding administrative costs. For a mortgage insurance program, cash inflows consist primarily of insurance premiums charged to borrowers and proceeds from sales of foreclosed properties, and cash outflows consist mostly of insurance claim payments to lenders. Annually, agencies estimate credit subsidy costs for new loan cohorts—the loans agencies commit to guarantee in a given fiscal year. When estimated cash inflows exceed expected cash outflows, a cohort is said to have a negative credit subsidy cost, meaning that the cohort is estimated to generate income. When the opposite is true, the cohort is said to have a positive credit subsidy cost. Generally, agencies also are required to produce annual updates of their subsidy estimates—known as reestimates—for each loan cohort on the basis of information on actual performance and estimated changes in future loan performance. Each additional year provides more historical data on loan performance that may influence estimates of the amount and timing of future claims. Additionally, economic assumptions (such as house prices and interest rates) also can change from year to year, which would affect estimates of future loan performance. In recognition of the difficulty in making credit subsidy estimates that mirror actual loan performance, FCRA provides permanent and indefinite budget authority for reestimates that reflect increased credit subsidy costs (upward reestimates). While FHA has had a number of upward reestimates, the only year in which the MMI Fund has needed to draw on permanent and indefinite budget authority was fiscal year 2013, when it received $1.69 billion. All other upward reestimates were covered by funds held in the MMI Fund’s capital reserve account. Financial accounting review. The preparation of FHA’s financial statements also provides a review of the MMI Fund. FHA is required to prepare financial statements in accordance with generally accepted accounting principles for the federal government (federal GAAP). The financial statements provide information on the overall financial position of the MMI Fund, including its assets, liabilities, and actual cash flows during the year. In addition, federal GAAP requires FHA to calculate a liability for loan guarantees, which represents the estimated net present value of expected future cash flows for outstanding insurance. Capital Requirements and Stress Testing In general, capital exists to absorb unexpected losses and allow a financial institution to continue operations during economic downturns. The MMI Fund plays a key role during such periods by helping to maintain the flow of mortgage credit to areas that may be underserved by the private sector. As previously noted, the MMI Fund is statutorily required to maintain at least a 2 percent capital ratio. It also is the only federal credit program with a capital requirement. Because the MMI Fund can draw on permanent and indefinite budget authority, if necessary, it has greater ability to weather adverse economic conditions than a private entity. However, the capital requirement is intended to help ensure that the fund remains self-sufficient by creating a reserve for unexpected losses. The size of the MMI Fund’s capital reserve can be expected to fluctuate depending on economic conditions and other factors. For example, the reserve may tend to grow when the economy is strong (limiting borrower defaults and FHA insurance losses), and may tend to shrink when the economy is weak (increasing borrower defaults and FHA insurance losses). Stress tests are a risk management tool used by banks and other financial institutions. The International Actuarial Association defines stress testing as a projection of the financial condition of an institution under a specific set of adverse conditions. While there is no requirement that FHA stress test the MMI Fund, actuarial reviews of the MMI Fund have included analyses of the MMI Fund’s economic value and insurance-in-force under alternative scenarios, including adverse scenarios. As discussed later in this report, the alternative scenarios include selected economic paths used in estimating the economic value of the MMI Fund’s forward mortgage and HECM portfolios, as well as baseline and economic slump paths produced by Moody’s Analytics. FHA considers these analyses to be a form of stress testing. Budgetary and Actuarial Assessments of the Fund Serve Different but Complementary Functions Supplemental Funding Is Determined by Budgetary Assessments, and Actuarial Reviews Provide Complementary Information FHA assessments performed as part of the MMI Fund’s annual budgetary review—specifically, the credit subsidy estimates and reestimates discussed previously—determine the fund’s financing account and capital reserve account balances. The financing account is designed to hold sufficient funds to cover anticipated net future costs on outstanding insurance. The capital reserve account holds additional funds that could be used to cover unexpected losses (for example, due to higher-than- anticipated mortgage defaults). If the capital reserve account had insufficient funds to cover an upward credit subsidy reestimate (that is, an increase in expected lifetime costs), FHA would draw on permanent and indefinite budget authority. As previously noted, this has occurred one time (fiscal year 2013) since the implementation of FCRA. Drawing on permanent and indefinite budget authority means that the MMI Fund is not self-sufficient under FCRA requirements. However, it does not indicate that the fund is unable to pay insurance claims in the near-term without supplemental funding, because the fund’s financing account holds balances to cover the anticipated net future costs on claims expected in the near-term and over the long-term for the existing insurance portfolio. In contrast, the actuarial reviews do not directly determine the need for additional budget authority; rather, they are used to assess whether the MMI Fund is in compliance with the requirement to maintain at least a 2 percent capital ratio. Additionally, the reviews are statutorily required to be conducted by an independent actuary rather than by FHA. As previously noted, the actuarial reviews estimate the economic value of the forward mortgage and HECM portfolios separately, and FHA combines these estimates to calculate the capital ratio (that is, the economic value divided by the insurance-in-force) for the MMI Fund as a whole. The economic value of each portfolio consists of existing net capital resources (assets less liabilities) plus the net present value of anticipated future cash inflows and outflows on outstanding insurance. To determine existing net capital resources, FHA’s actuarial contractor uses information on the assets and liabilities of the financing and capital reserve accounts previously discussed. Beginning with the fiscal year 2012 actuarial review and continuing through the fiscal year 2016 review (the most recently completed one), FHA’s actuarial contractor has estimated the net present value of cash flows using Monte Carlo simulation—a methodology that involves running simulations of multiple economic paths. Specifically, for the forward mortgage and HECM portfolios separately, the contractor generated 100 economic paths, centered around Moody’s Analytics’ baseline economic scenario, and computed a net present value of future cash flows for each of these paths. The contractor added the average of these 100 numbers to the existing net capital resources to produce the economic value used to assess compliance with the MMI Fund’s 2 percent capital requirement. Table 1 shows the fiscal year 2016 economic value, insurance-in-force, and capital ratio for the forward mortgage and HECM portfolios, as well as for the MMI Fund as a whole. Under the independent actuarial reviews, an economic value of zero— and therefore a capital ratio of zero—for the MMI Fund as a whole indicates that estimated resources are enough to cover anticipated net future costs and no more. Specifically, if the capital ratio is zero, the MMI Fund’s existing net capital resources (for example, cash and Treasury investments) and the net present value of future cash inflows (for example, premium revenue and proceeds from sales of foreclosed homes) are estimated to be equal to the net present value of future cash outflows (for example, insurance claim payments and costs to maintain foreclosed properties). Therefore, in concept, a positive economic value is similar to a positive balance in the capital reserve account under the budget process—that is, it projects the availability of funds above what is needed to cover expected net future costs on outstanding insurance. However, the independent actuarial reviews have used different estimation models and economic assumptions from those used in FHA’s budgetary assessment to estimate the present value of future cash flows; therefore, the actuarial and budgetary reviews have not produced identical capital estimates. (See app. II for more information on the related components of the budgetary and actuarial reviews.) A capital ratio below 2 percent, or even below zero, does not directly determine the need for permanent and indefinite budget authority. However, it indicates that according to the models and assumptions of the actuarial reviews, the MMI Fund’s ability to absorb unexpected losses may be limited and that premium and policy changes designed to bolster the fund’s capital position may be needed. Actuarial Reviews Also Include Stress Tests of the MMI Fund and Other Insights In addition to the capital assessment, the actuarial reviews also have projected the MMI Fund’s performance under alternative economic scenarios, including stress scenarios. For example, the fiscal year 2016 actuarial reviews estimated the economic value and insurance-in-force of the MMI Fund under eight alternative scenarios, including both strong economic conditions and economic downturns. Specifically, the fiscal year 2016 reviews estimated the 10th best and worst, 25th best and worst, and worst economic values produced by the Monte Carlo simulation, along with the economic values resulting from Moody’s Analytics’ baseline and protracted slump scenarios. In addition, the fiscal year 2016 reviews included a low-interest-rate scenario, which assumes that low interest rates persist for 2 years, before resuming on the path of the Moody’s Analytics’ baseline scenario. The reviews also include information on the house price index values, interest rates, and unemployment rates from the economic paths that produced these alternative economic values. The actuarial reviews have analyzed the economic value under alternative scenarios separately for the forward mortgage and HECM portfolios. The estimated economic values for the forward mortgage and HECM portfolios can be combined to arrive at fund-wide capital ratios for the average of the 100 economic values produced by the simulation— Monte Carlo average—and all of the Moody’s Analytics’ scenarios (see table 2). However, the 10th best and worst, 25th best and worst, and worst economic values produced by the Monte Carlo simulations cannot be combined. This limitation is due to the fact that the economic scenario that led to the 10th best forward mortgage economic value, for example, may be different from the scenario that led to the 10th best HECM economic value. In contrast, the budgetary reviews do not include analysis of future loan performance under alternative economic scenarios. The budgetary reviews are required to use the President’s economic assumptions, which the Office of Management and Budget provides to agencies for budget formulation. In addition to the actuarial reviews prepared by FHA’s contractor, FHA compiles statutorily required annual reports for Congress based on the results of the actuarial analysis. These reports include the calculation of the MMI Fund’s overall capital ratio and some additional analyses of the MMI Fund’s financial condition. Statutory requirements for the content of the reports to Congress are broad, and each year, FHA determines the types of information it believes will be most useful to Congress. FHA officials said they consider what they reported in the previous year, events from the past year, and feedback from readers to determine what would be most useful to include. For example, in its fiscal year 2015 report to Congress, FHA discussed the amount of additional capital that would have been needed for the forward mortgage portfolio to achieve a 2 percent capital ratio and withstand losses in the event of an economic downturn similar to the last economic crisis. Financial Statements and Quarterly Reports Provide Additional Perspectives on the MMI Fund’s Financial Condition FHA’s financial statements present the MMI Fund from a financial accounting perspective and are prepared according to federal GAAP. The financial statements are composed of year-end balance sheets, the related statements of net cost and changes in net position, and the combined statements of budgetary resources. As with the budgetary and actuarial reviews, FHA’s annual management reports, which include the financial statements, also include information on the MMI Fund’s capital resources and a net present value calculation of cash flows from outstanding insurance. Information used in preparing the financial statements—specifically, the MMI Fund’s assets and liabilities (excluding the liability for loan guarantees)—is used in the budgetary review to inform the amount needed in the financing account and is used by the actuarial review to determine the existing capital resources component of the economic value calculation. Like the budgetary reviews, the financial statement reviews do not include analysis of future loan performance under alternative economic scenarios. Another source of information on the MMI Fund’s financial status is quarterly reports FHA issues to Congress, as required by HERA. The quarterly reports can help provide early insight into whether there are potential deviations from the prior year’s projections before the next annual budgetary and actuarial reviews are completed. Among other topics, the reports must include information on any significant changes between actual and projected claim and prepayment activity, and projected versus actual loss rates. However, while the quarterly reports update certain measures of the MMI Fund’s performance and financial condition, they are not intended to provide a full actuarial or budgetary analysis. The MMI Fund’s Capital Requirement Lacks Accountability Mechanisms, and Stress Tests Are Not Fund-Wide The MMI Fund’s capital requirement and stress tests are consistent with some principles and practices promulgated or used by financial institutions and regulators, but are not consistent with others. To assess the MMI Fund’s consistency with these principles and practices, we developed a framework of important considerations in designing capital requirements and another for designing stress tests. Our frameworks include underlying principles or key features of the requirements and practices of institutions we reviewed—such as transparency and accountability—that could also be applied to the MMI Fund. See appendix I for further details on our methodology. The Capital Requirement Is Not Based on a Specified Risk Threshold and Lacks Accountability Mechanisms The MMI Fund’s capital requirement is consistent with our framework element on transparency and partially consistent with two other elements—that the requirement include both risk-based and fixed components and that the requirement be designed to cover unexpected losses and be based on specified risk thresholds. However, the MMI Fund’s capital requirement is not consistent with the element on including accountability mechanisms. We were unable to determine whether the requirement is consistent with the element on balancing financial soundness with the entity’s role and mission because such an assessment would require more information about the severity of the economic conditions the capital requirement was designed to withstand without supplemental funding. Table 3 summarizes our assessments. The MMI Fund’s capital requirement is consistent with the framework element of being transparent so that external parties can understand the financial risks facing the entity. FHA’s actuarial reports and accompanying report to Congress provide specific information about the MMI Fund’s capital requirement and capital assessment results. For example, the actuarial reports describe how the capital ratio is calculated, the models and data sources used to calculate the net present value of future cash flows, key economic assumptions used in calculating the MMI Fund’s economic value, and estimated economic values of the forward mortgage and HECM portfolios. Additionally, FHA’s reports to Congress include calculations of the Fund-wide capital ratio based on these values, as well as analyses of factors affecting the past performance of the forward mortgage and HECM portfolios and factors that could affect their future performance. The actuarial reviews and reports to Congress are publicly available on HUD’s website. Risk-Based and Fixed Components The MMI Fund’s capital requirement is partially consistent with the framework element of having both a risk-based and a fixed component. For capital requirements with this feature, whichever component requires the greater level of capital is the binding minimum requirement. Among other things, a risk-based component helps to ensure that the entity holds more capital as the asset quality of its portfolio (credit quality, specifically, in the case of a mortgage portfolio) decreases. A fixed component is insensitive to asset quality; it therefore is not subject to the potential for estimation errors of risk-based assessments and serves as a backstop to the risk-based component. While the MMI Fund’s capital requirement is statutorily set at 2 percent, it is risk-based because the calculation of the capital ratio’s numerator (economic value) accounts for loan and borrower quality. As loan and borrower characteristics, such as loan-to-value ratios and borrower credit scores, get riskier, the models used to estimate the MMI Fund’s economic value predict higher insurance claims and higher net losses on claims (due to increased foreclosures and decreased returns on sales of foreclosed properties). This, in turn, reduces the MMI Fund’s estimated economic value and makes it more difficult for the fund to meet the 2 percent capital requirement. The MMI Fund’s capital requirement also has attributes similar to a fixed component in that the fund’s economic value must be at least 2 percent of the insurance-in-force, regardless of the credit quality of the insurance portfolio. However, the requirement does not have a separate fixed component that backstops the risk-based component (that is, becomes binding when it is the more stringent of the two). Developing and implementing a separate fixed component to the MMI Fund’s capital requirement would pose challenges. For example, a requirement that was insensitive to portfolio credit quality would not align with the FCRA requirements and accounting principles that FHA must follow. These requirements and principles emphasize the consideration of risk factors in estimating potential financial losses. Additionally, substantial additional analysis would be required to determine the structure of a separate fixed component, the level at which it should be set, under what conditions it might become binding, and how it might affect FHA’s ability to fulfill its mission. As a result, it is unclear whether developing a separate fixed component to the MMI Fund’s capital requirement would be beneficial. Unexpected Losses and Specified Risk Thresholds The MMI Fund’s capital requirement is partially consistent with the framework element of being able to cover unexpected losses and being based on a specified risk threshold, such as an adverse economic scenario that the entity would be expected to withstand. The MMI Fund’s capital requirement is designed to cover some unexpected losses. As previously noted, the MMI Fund’s capital ratio is calculated by dividing the economic value of the fund by the amortized insurance-in-force. The economic value is determined by adding existing capital resources to the net present value of future cash flows on outstanding insurance. An economic value of zero (and therefore a capital ratio of zero) indicates that based on the actuarial calculations, the sum of the MMI Fund’s existing capital resources and the present value of expected cash inflows (for example, premium income) is exactly the amount needed to cover the present value of expected cash outflows (for example, claim payments). Therefore, a 2 percent capital requirement serves the purpose of covering some losses above expected amounts. However, the requirement was not designed to absorb losses associated with a specified economic scenario, so the extent of loss protection it provides is unclear. In a February 2001 report, we concluded that neither the statute that created the 2 percent capital requirement nor FHA had established criteria to determine how severe of a stress the MMI Fund should be able to withstand. Accordingly, we recommended that Congress or FHA specify the economic conditions that the MMI Fund would be expected to withstand. In March 2002, a legislative proposal was introduced in the House of Representatives that would have required a capital ratio sufficient to withstand a broad range of adverse economic circumstances, but it was not enacted. Neither Congress nor FHA has subsequently specified the economic conditions the MMI Fund should be able to withstand or corresponding minimum capital ratios. FHA officials said they did not consider it their role to define those economic conditions and would comply with any requirement Congress established. Because the MMI Fund’s capital requirement is not based on a specified risk threshold, it may not provide an adequate financial cushion under economic scenarios in which Congress may anticipate that the fund would be self- sufficient. Accountability Mechanisms The MMI Fund’s capital requirement is not consistent with the framework element of having accountability mechanisms such as additional reporting requirements, remediation plans, and operational restrictions that are triggered if capital requirements are not met. Failure to comply with the MMI Fund’s capital requirement does not trigger a defined process or set of steps to be taken by FHA. In a September 2010 report, we stated that Congress should consider establishing a minimum time frame for restoring the capital ratio to 2 percent should the ratio fall below that level. A legislative proposal was introduced in Congress in December 2011 that, among other things, would have required FHA to return the MMI Fund’s capital ratio to the statutorily required level within 2 years, but it was not enacted. In addition, in a September 2013 report, we stated that Congress should consider requiring FHA to submit a capital restoration plan and regular updates on plan implementation whenever the capital ratio falls below 2 percent. Congress has not yet acted on this suggestion, but doing so could help ensure prompt action by FHA and focus Congress’s monitoring efforts should this situation arise in the future. Balancing Financial Soundness and Mission We could not assess the consistency of the MMI Fund’s capital requirement with the framework element of balancing financial soundness with the entity’s role and mission. Such an assessment would require more information about the severity of the economic conditions the capital requirement was designed to withstand without supplemental funding. As previously discussed, the statute that created the requirement did not specify those conditions. As a result, it is unclear whether FHA’s difficulties in maintaining the financial soundness of the MMI Fund while carrying out its public mission during and after the 2007–2011 housing crisis indicate that the 2 percent capital requirement is insufficient. Any reconsideration of the capital requirement would involve policy decisions that would need to be made through congressional deliberations. These decisions center on the relative weight FHA should place on its financial and mission goals and requirements. On the one hand, FHA has a statutory operational goal to minimize mortgage default risk to the MMI Fund and a statutory requirement to maintain a capital ratio of at least 2 percent. A minimum capital requirement that is too low may result in FHA taking on too much risk and having an insufficient capital buffer to withstand an economic downturn without requiring supplemental funding. On the other hand, FHA also has a statutory operational goal to provide mortgage insurance to traditionally underserved borrowers—such as low-income, minority, and first-time home buyers—and historically has played a role in stabilizing housing markets during economic downturns. Setting a minimum capital requirement that is too high may limit FHA’s ability to serve the borrowers for which it was intended or play its market-stabilizing role, because it might require FHA to charge insurance premiums that many borrowers cannot afford or impose underwriting standards they cannot meet. The tension between the financial and mission aspects of FHA’s goals and requirements poses trade-offs that must be weighed by policymakers in setting the MMI Fund’s capital requirement. FHA Has Not Conducted Fund-Wide Stress Tests or Specified the Objectives of Its Tests Stress testing practices for the MMI Fund are consistent with two of the five elements in our stress testing framework—that stress testing methods and results be transparent and stress testing scenarios capture relevant risks. The stress testing practices are inconsistent with two other elements—that the scope of testing includes entity-wide assessments and that the specific objectives of the tests be defined. We were unable to determine the consistency of MMI Fund stress testing practices with the framework element that methods and scenarios be consistent with the objectives of the tests because FHA has not defined specific objectives. Table 4 summarizes our assessments. Stress tests of the MMI Fund are consistent with the framework element of transparency. Specifically, stress testing methods, scenarios, and results should be specific and available for review. Actuarial reports on the MMI Fund provide detailed information on the methodology and results of fund stress tests. For example, the actuarial reports describe the stress testing method of estimating economic values for the forward mortgage and HECM portfolios using hypothetical scenarios based on projected unemployment, house price appreciation, and interest rates. The reports also describe sources for these projections, including scenarios developed by Moody’s Analytics and generated by the actuarial contractor through Monte Carlo simulation. In addition, for each variable, the reports present graphics showing their projected paths under each scenario over the stress period. Furthermore, for each scenario, the reports provide quantitative results and an accompanying narrative discussion highlighting key drivers of the results. The reports are publicly available on HUD’s website. Risks Relevant to Entity Stress tests of the MMI Fund are consistent with the framework element of capturing risks that are relevant to the entity. The stress scenarios used in the actuarial reviews have incorporated risks the MMI Fund faces by considering changes in economic conditions that would negatively affect the fund’s cash flows and, by extension, the fund’s economic value. More specifically, they include declines in house prices and rises in unemployment, which can be expected to increase borrower defaults on FHA-insured mortgages and increase the number and severity of insurance claims FHA pays to lenders. In addition, the scenarios include declines in interest rates, which can be expected to increase the number of FHA-insured mortgages that are paid off before maturity—for example, as borrowers refinance out of their FHA-insured mortgages into conventional mortgages (those without government insurance or guarantees)—thus reducing the amount of insurance premiums FHA collects. To examine these risks, the stress scenarios in recent FHA actuarial reviews have included substantial declines in a Federal Housing Finance Agency national house price index, increases in unemployment rates, and decreases in interest rates for 30-year home mortgages. To provide additional perspective on the severity, duration, and timing of scenarios used to stress test the MMI Fund, appendix III compares selected MMI Fund stress scenarios to the severely adverse scenario used by the Federal Reserve in conducting annual supervisory stress tests of large banking organizations. Entity-Wide Scope Stress tests of the MMI Fund are not consistent with the framework element of including entity-wide assessments to provide a complete picture of risk. Since fiscal year 2009, when the HECM portfolio was first included in the MMI Fund, stress tests of the MMI Fund have analyzed the forward mortgage and HECM portfolios separately, but not on a fund- wide basis. This practice partly reflects the way in which capital assessments of the MMI Fund are performed—through separate assessments of the forward mortgage and HECM portfolios. Additionally, an FHA official said the agency has been reluctant to report combined ratios for stress scenarios because the results could be misinterpreted (for example, result in too much or too little confidence in the fund’s ability to withstand stress) if the scenarios are not viewed in the proper historical context. However, without the combined analysis, it is unclear what the capital position of the MMI Fund as a whole would be under stressful conditions. As a result, FHA and Congress may lack information that could be useful in assessing risks to the MMI Fund, including circumstances that could cause the fund’s capital ratio to fall below the statutory minimum. Defined Objectives Stress testing of the MMI Fund is not consistent with the framework element of defining the specific objectives of the tests. According to guidance from federal banking regulators, large banking organizations should indicate the specific purpose and focus of stress tests within a framework that allows for consistent, repeatable exercises. Additionally, this guidance and stress testing principles and practices from two international financial organizations provide examples of stress testing objectives such as informing assessment of vulnerabilities, contingency planning, identifying and monitoring risk concentrations, and determining the level of risk the entity is willing to accept (risk appetite). The MMI Fund actuarial reviews have included the broad statement that the stress tests performed as part of the reviews provide insights into the sensitivity of the MMI Fund’s economic value under different economic conditions. In addition, FHA has included some information from the stress tests in recent annual reports to Congress to highlight different points. However, FHA has not articulated specific objectives for the stress tests, in part because a key use of the actuarial reviews is to help determine the MMI Fund’s compliance with the capital requirement under a baseline economic scenario (which, in recent actuarial reviews, has been the Monte Carlo average). Accordingly, the types of information FHA has reported to Congress have varied from year to year. For example, in recent years, FHA’s reporting on stress test results has ranged from no information (fiscal year 2016), to how much additional capital the forward mortgage portfolio would need to withstand losses comparable to the last economic crisis (fiscal year 2015), to the probability that the economic value of the HECM portfolio would fall below zero under deteriorating economic conditions (fiscal year 2013). Without specific objectives for its stress testing, FHA has limited assurance that its stress tests are targeted to risk-management needs and that its reporting to Congress provides consistent information on the MMI Fund’s ability to withstand adverse conditions. Methods and Scenarios Consistent with Objectives Because FHA has not defined specific objectives for MMI Fund stress tests, we could not assess whether existing tests were consistent with the framework element of using stress testing methods and scenarios that are consistent with stated objectives. Entities should use stress testing methods—such as conventional stress testing (which looks at the effect of specified hypothetical or historical stress scenarios) or reverse stress testing (which assumes a negative outcome and identifies scenarios that would lead to that outcome)—that yield information responsive to the objectives of the stress tests. Actuarial reviews of the MMI Fund have used conventional stress testing and a range of stress scenarios developed by Moody’s Analytics and generated by Monte Carlo simulation. But, depending on how FHA defines the specific objectives of the MMI Fund’s stress tests, other stress testing methods or scenarios might provide useful information for risk management. For example, if the objective of the stress testing was to identify the conditions that might cause the MMI Fund’s capital ratio to fall below 2 percent or require supplemental funding, reverse stress testing would be an appropriate method. If the objective was to assess the MMI Fund’s ability to withstand conditions similar to those of the Great Depression or the 2007–2011 housing crisis, developing historical stress scenarios would be appropriate. Additionally, if the objective was to assess the effect of changes to a particular variable or input (as opposed to a broader economic scenario), sensitivity stress tests would be appropriate. Joint Capital Assessment Has Advantages and Disadvantages Advantages of Including Reverse Mortgages in the Fund’s Capital Requirement Include Greater Transparency Beginning with the 2009 loan cohort, HERA placed new HECMs (FHA- insured reverse mortgages) in the MMI Fund, while previous HECMs remained in the General and Special Risk Insurance Fund. When the post-2008 HECM portfolio became part of the MMI Fund, it also was included in the MMI Fund’s capital ratio assessment and became subject to annual actuarial review requirements. These changes have had some advantages. First, subjecting HECMs to the annual actuarial review requirements has improved the transparency of the program’s financial condition. For example, the actuarial reviews have included estimates of the HECM portfolio’s economic value and performance under alternative economic conditions, which were not available prior to 2009. Second, jointly considering the forward mortgage and HECM portfolios in the MMI Fund’s capital assessment mitigates the potential difficulty of independently holding the HECM portfolio to a specified capital ratio. The economic value of the HECM portfolio is more sensitive to changes in economic conditions and inputs to the models than the forward mortgage portfolio. As a result, the capital ratio for the HECM portfolio is more volatile, and requiring HECMs to independently meet a capital ratio would be difficult. Specifically, it could be difficult to manage HECM insurance premiums, loan limits, and other program requirements to ensure that a capital requirement is consistently met. Estimates of HECM capital ratios under alternative economic scenarios from the fiscal year 2016 actuarial review illustrate the sensitivity of this portfolio’s economic value—and therefore its capital ratio—to changes in economic conditions (see fig.1). While the capital ratio for forward mortgages ranged from negative 3.3 percent to positive 4.17 percent under all of the economic scenarios, the corresponding range for HECMs was negative 38.74 percent to positive 3.07 percent. Under the current approach of jointly considering the HECM and forward mortgage portfolios in the capital assessment, both portfolios in combination are subject to the capital requirement, but the volatility of the HECM portfolio’s economic value is mitigated by the relative stability of the forward mortgage portfolio. More specifically, because the forward mortgage portfolio is substantially larger than the HECM portfolio (with the HECM portfolio accounting for roughly 10 percent of the MMI Fund’s insurance-in-force in fiscal year 2016), the combined capital ratio more closely follows the generally less volatile capital ratio for forward mortgages (see fig. 2). As a result, the combined capital ratio is less uncertain than the HECM capital ratio, and managing the HECM portfolio within that combined framework is more feasible than managing it to a separate capital requirement. Finally, another possible advantage of the joint assessment is some degree of risk diversification. The cash inflows and outflows of the forward mortgage and HECM portfolios do not necessarily rise and fall in tandem in response to changes in macroeconomic conditions. For example, all other things being equal, rising mortgage interest rates tend to increase the economic value of the forward mortgage portfolio but tend to decrease the economic value of the HECM portfolio. Because the cash flows of the two portfolios are not fully correlated, the amount of capital needed for the two portfolios in combination may be less than the sum of the amount of capital needed for each portfolio separately. Disadvantages of Including HECMs in the MMI Fund Include More Uncertainty about the MMI Fund’s Financial Condition Joint assessment of the forward mortgage and HECM portfolios in determining compliance with the capital requirement also has some disadvantages. First, including HECMs in the MMI Fund can result in more uncertainty about the Fund’s expected performance. As previously discussed, the economic value of HECMs is more volatile and sensitive to economic conditions than the economic value of forward mortgages. As a result, estimates of the MMI Fund’s economic value and capital ratio and its potential performance under alternative economic scenarios are less predictable and more difficult to interpret with the inclusion of HECMs. Although the combined capital ratio generally tracks with the forward mortgage capital ratio, the inclusion of HECMs in the assessment can affect the combined capital ratio. For example, in fiscal year 2015, a high HECM capital ratio (6.44 percent) pulled the combined capital ratio above 2 percent (2.07 percent), even though the forward mortgage capital ratio was below 2 percent (1.63 percent). In this case, the inclusion of the HECM portfolio in the capital ratio resulted in the MMI Fund meeting the 2 percent capital requirement for the first time in 6 years. In its fiscal year 2014 report to Congress, FHA concluded that the HECM portfolio was over 10 times more volatile than the forward mortgage portfolio, noting that small changes to the HECM program can affect the overall value of the MMI Fund. Further, in its fiscal year 2015 report to Congress, FHA noted that because the HECM portfolio is projected to continue growing at a faster rate than the forward portfolio, year-to-year HECM volatility is likely to contribute more uncertainty to future actuarial valuations of the MMI Fund. In recent years, HECMs have accounted for an increasing percentage of the MMI Fund’s insurance-in-force, rising from 4.01 percent in fiscal year 2009 to 9.42 percent in fiscal year 2016. Second, relying on a combined capital ratio to assess the MMI Fund’s compliance with the capital requirement could mask the financial condition of the individual portfolios. Information on the performance of each portfolio is available in separate actuarial reports, but differences between the financial health of the two portfolios may be overlooked because compliance with the 2 percent capital requirement is determined by the combined capital ratio. For example, in fiscal year 2013, the combined capital ratio was below 2 percent (negative 0.11 percent), while the HECM capital ratio was 7.50 percent. In contrast, in fiscal year 2016, the combined ratio was above 2 percent (2.32 percent), while the HECM capital ratio was below 2 percent (negative 6.90 percent). In those years, the substantial difference between the financial condition of the HECM portfolio and the overall MMI Fund would not have been evident from the combined capital ratio. Even in years when the capital ratios of both the forward mortgage and HECM portfolios are above or below the 2 percent level, the combined capital ratio may still hide important differences between the two. For example, in fiscal year 2014, the capital ratios for both the forward mortgage and HECM portfolios were below 2 percent. However, the forward mortgage capital ratio was positive (0.56 percent), while the HECM capital ratio was negative (-1.20 percent). This difference may be important to policymakers because a positive capital ratio indicates that the portfolio has some capital cushion to absorb unexpected losses, even if it is small. In contrast, a negative ratio suggests the portfolio may not have sufficient capital to independently cover all expected net losses on outstanding insurance, and may essentially be financially supported by the other portfolio in the MMI Fund. Finally, in certain circumstances, the joint capital assessment could create pressure to raise insurance premiums or tighten underwriting standards in one program to compensate for the weaker financial performance of another program. For example, if the forward mortgage capital ratio were above 2 percent, but the HECM capital ratio pulled the combined ratio below 2 percent, raising insurance premium rates for forward mortgages could be the quickest way to regain a 2 percent capital ratio. In this example, a portion of the premiums paid by the forward mortgage borrower would essentially support the HECM program. While this situation would benefit HECM borrowers (because their insurance premiums would not increase), it would potentially create a burden for forward mortgage borrowers and could reduce the number of prospective borrowers who are able to afford FHA mortgage insurance. However, as of September 2017, FHA officials said that the agency had not increased forward mortgage premiums to support the HECM program or vice versa. Alternative Approaches to Managing the HECM Program and Assessing the Capital Requirement Pose Trade-offs Alternatives to the MMI Fund’s joint capital assessment could address some of the disadvantages of this approach but would also involve potential trade-offs between mission, financial soundness, and transparency goals. Policy decisions about these trade-offs could have significant implications for the management of FHA’s programs and for potential FHA borrowers. If Congress wishes to place additional emphasis on the financial self- sufficiency of the HECM program, it may be appropriate to hold the HECM portfolio to a capital requirement separate from that of forward mortgages. Under this option, future HECMs could either remain in the MMI Fund or be placed under a different insurance fund. The capital requirement could be set at the same congressionally defined level as the one for forward mortgages, or it could be tailored to the risks and volatility of the HECM portfolio. A separate HECM capital requirement would help ensure that the forward mortgage portfolio is not supporting the HECM portfolio, or vice versa. Decisions about premiums and other program requirements could be based solely on each portfolio’s financial condition and would not be influenced by a need to keep a combined capital ratio sufficiently high. In addition, a separate HECM capital requirement would help ensure that for future loan cohorts, the financial conditions of the individual portfolios are not masked by a combined capital ratio. However, if the HECM portfolio was required to independently meet a minimum capital ratio, the volatility of the portfolio’s economic value could make it difficult for FHA to consistently meet the requirement without targeting a capital level substantially above the minimum requirement. Doing so may require FHA to raise insurance premiums or place greater restrictions on the amount seniors can borrow, which would limit the program’s ability to serve its goal of alleviating economic hardship. In comparison, if Congress wishes to place greater emphasis on maximizing the benefits of the HECM program for seniors, another option may be to exempt the HECM portfolio from a capital requirement. Under this option, future HECMs would not be part of the MMI Fund and would not be subject to the MMI Fund’s capital requirement. As with a separate HECM capital requirement, this option would help ensure that the financial condition of future loan cohorts in the forward mortgage portfolio is not masked by a combined capital ratio. But, the financial condition of the HECM portfolio would not be as transparent, unless FHA continued to conduct HECM actuarial assessments. In addition, FHA could set premiums and program limits without consideration for building a capital buffer, which might decrease the likelihood that the HECM program would operate on at least a break-even basis over the long run. Some industry participants we spoke with did not think that HECMs should be exempted from a capital requirement, noting that the increased transparency and accountability of HECMs were important. However, even without a capital requirement, FHA could choose to continue conducting actuarial assessments of the HECM program for continued transparency. Conclusions The programs FHA administers under its MMI Fund play an important role in the mortgage market by expanding homeownership opportunities and helping stabilize housing markets during economic downturns. However, the MMI Fund’s financial challenges in the wake of the 2007–2011 housing crisis illustrate the fund’s vulnerability to severely adverse economic conditions and underscore the importance of capital requirements and stress testing practices for this $1.2 trillion mortgage insurance portfolio. Opportunities exist to strengthen these requirements and practices by making them more consistent with those used by financial institutions and regulators, as reflected in our two evaluative frameworks. As we concluded in our September 2013 report, and consistent with the capital requirements framework in this report, including accountability mechanisms in FHA’s capital requirement could enhance management and oversight of the MMI Fund. Therefore, as we suggested in our 2013 report, we maintain that Congress should consider requiring FHA to submit a capital restoration plan and regular updates on plan implementation whenever the fund’s capital ratio falls below the required level. In our current review, we identified three additional areas where the capital requirement and stress testing practices for the MMI Fund could be strengthened in accordance with our frameworks. Specifically, the statutory 2 percent capital requirement does not specify the economic conditions the fund would be expected to withstand. As a result, it may not provide an adequate financial cushion under scenarios in which Congress may anticipate that the fund would be self-sufficient. In addition, FHA has not analyzed or reported stress test results on a fund-wide basis, making it unclear what the capital position of the fund as a whole would be under stressful conditions. Finally, FHA has not defined the specific objectives of the fund’s stress tests and therefore has limited assurance that its stress testing methods and scenarios are targeted to risk-management needs. Matter for Congressional Consideration Congress should consider amending the National Housing Act to specify the economic conditions the MMI Fund would be expected to withstand without substantial risk of drawing on permanent and indefinite budget authority, and require FHA to specify and comply with a capital ratio consistent with these conditions. In specifying the economic conditions, Congress should take into account FHA’s statutory operational goals and role in supporting the mortgage market during periods of economic stress. (Matter for Consideration 1) Recommendations for Executive Action We are making the following two recommendations to FHA: The Commissioner of FHA should combine stress test results for the forward mortgage and HECM portfolios, where possible, and report estimated MMI Fund-wide capital ratios for the stress scenarios examined. (Recommendation 1) The Commissioner of FHA should develop specific objectives for stress tests of the MMI Fund and apply stress testing methods and scenarios consistent with those objectives. (Recommendation 2) Agency Comments We provided a draft of this report to HUD, the Federal Reserve, and FHFA for their review and comment. The Federal Reserve and FHFA had no comments. In its comments, reproduced in appendix IV, HUD agreed with our recommendations. HUD said that FHA’s forthcoming annual actuarial reports and report to Congress on the MMI Fund would include stress test results for forward mortgages and HECMs, but HUD did not state whether the reports would address our recommendations. By analyzing and reporting stress test results on a fund-wide basis and defining the specific objectives of its stress tests, FHA would better understand the capital position of the MMI Fund as a whole under stressful conditions and have greater assurance that its stress testing methods and scenarios are targeted to risk-management needs. HUD also said it was important to recognize the trade-offs between FHA’s mission and insurance policy holders when considering financial soundness. HUD said it appreciated our report’s statement that minimum capital requirements that are too high may limit FHA’s ability to serve its mission and market role and recommended that we make this statement more prominent. While our report does contain that statement, it also states that a minimum capital requirement that is too low may result in FHA taking on too much risk and having an insufficient capital buffer to withstand an economic downturn without requiring supplemental funding. Accordingly, we added language to the introduction of the report noting the challenge FHA and Congress face in balancing the fund’s financial self-sufficiency with FHA’s role in facilitating mortgage credit to underserved borrowers and stabilizing the housing market during economic downturns. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Housing and Urban Development, the Chair of the Board of Governors of the Federal Reserve System, the Director of the Federal Housing Finance Agency, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology Our objectives were to examine (1) the types of information actuarial reviews and other assessments provide about the Mutual Mortgage Insurance Fund’s (MMI Fund) financial condition, including its ability to remain self-sufficient; (2) the extent to which the capital requirement and stress testing practices for the MMI Fund are consistent with principles and practices underlying those of other financial institutions; and (3) key advantages and disadvantages of including both forward and Home Equity Conversion Mortgages (HECM) in the MMI Fund’s capital assessment. Information Provided by Reviews of the MMI Fund To examine the types of information actuarial reviews and other assessments provide about the MMI Fund’s financial condition, including its ability to remain self-sufficient, we reviewed actuarial reports of the fund prepared by a Federal Housing Administration (FHA) contractor and related FHA reports to Congress. We focused on reports for fiscal year 2009 (the first year HECMs were part of the MMI Fund) through fiscal year 2016 (the most recently completed report). Additionally, we reviewed FHA budget and financial documents containing assessments of the fund. Specifically, we reviewed the Department of Housing and Urban Development (HUD) appendix from the President’s budgets for fiscal year 2011 through fiscal year 2018 (the most recent available) and FHA’s audited financial statements for fiscal year 2011 through fiscal year 2016 (the most recent available). We also reviewed FHA documents and prior GAO reports describing the mechanisms used to provide supplemental resources to the fund, if necessary. We determined the extent to which the actuarial, budgetary, and financial accounting reviews contained information pertinent to assessing the MMI Fund’s financial condition, such as the amount of funds needed and available to cover expected net future costs on outstanding insurance, the amount of funds available to cover unexpected losses, and the projected performance of the MMI Fund under alternative economic scenarios. We compared the types of information available in the actuarial reviews with the types of information in the budgetary and financial accounting reviews of the fund, as well as in FHA’s quarterly reports to Congress, focusing on information that could help inform whether the MMI Fund is likely to remain self-sufficient. Additionally, we interviewed FHA headquarters officials about the content and interpretation of the various reviews of the fund. To illustrate the similarities and differences between the MMI Fund’s actuarial and budgetary reviews, we summarized information about the two reviews, including their purposes and the sources of their requirements (see app. II). In addition, we reviewed recent actuarial reports and HUD budget appendixes and spoke with FHA officials to understand their similarities and differences. We developed a hypothetical illustration of how certain components of the budgetary review are used in the actuarial review. Capital Requirements and Stress Tests To assess the extent to which the MMI Fund’s capital requirement and FHA’s stress testing approach are consistent with principles underlying such requirements for other financial institutions, we developed two evaluative frameworks and assessed requirements and practices for the MMI Fund against them. For the capital requirements framework, we reviewed publicly available documents on requirements and capital assessment practices from financial regulators and institutions, including the Bank for International Settlements, Fannie Mae and Freddie Mac (specifically, their capital requirements for private mortgage insurers), the Federal Deposit Insurance Corporation, and the Federal Housing Finance Agency (FHFA). For the stress testing framework, we reviewed articles on principles and practices from financial regulators and institutions, including the Bank for International Settlements, the Board of Governors of the Federal Reserve System (Federal Reserve), and the International Monetary Fund. We included in our frameworks key common elements in designing capital requirements and stress tests that could apply to the MMI Fund, assuming the fund would continue to operate under federal accounting standards and budgeting requirements. In addition to FHA, we shared the draft frameworks with FHFA, the National Association of Insurance Commissioners, and the American Academy of Actuaries and interviewed officials from these organizations to obtain their input on the frameworks. We chose these organizations based on their expertise in financial assessments of housing finance and mortgage insurance institutions. We then reviewed publicly available reports and documents, including relevant statutory provisions and FHA’s annual actuarial reviews and reports to Congress, to assess whether the requirements and practices of the MMI Fund were consistent with our framework elements. To provide additional perspective on stress tests of the MMI Fund, we compared variables in selected economic scenarios from the fiscal year 2016 actuarial review of FHA’s forward mortgage portfolio with corresponding variables in one of the scenarios used by the Federal Reserve in its 2016 supervisory stress tests of large banking organizations (see app. III). Specifically, we graphed the projected paths of the house price index, 30-year fixed mortgage rate, and unemployment rate for the two most stressful MMI Fund scenarios—the Monte Carlo simulation path producing the lowest economic value for forward mortgages and the Moody’s Analytics’ protracted slump scenario—and the Federal Reserve’s severely adverse scenario. We chose to highlight the worst simulation path and the Moody’s Analytics protracted slump scenarios because they are generally the two most severe scenarios used in stress tests of the MMI Fund. The Federal Reserve’s severely adverse scenario was the most analogous to the two MMI Fund scenarios and has been referenced in Fannie Mae’s and Freddie Mac’s financial requirements for private mortgage insurers. We analyzed the similarities and differences in the severity, duration, and timing of the three variables discussed above. To assess the reliability of FHA’s data on its stress scenarios, we compared the data we received from the agency with published information in FHA’s actuarial reviews. We determined the data were sufficiently reliable for the purposes of illustrating similarities and differences with the Federal Reserve’s severely adverse scenario. Consideration of Forward Mortgages and HECMs in Capital Assessment To identify key advantages and disadvantages of including both forward mortgages and HECMs in the MMI Fund’s capital assessment, we reviewed actuarial results for both portfolios from fiscal year 2009 through fiscal year 2016. Using information from the actuarial reviews, we calculated and compared the separate and combined capital ratios for forward mortgages and HECMs to determine the effect of including the reverse mortgage portfolio in the MMI Fund capital calculation, as well as the potential effects of holding the HECM portfolio to a separate capital requirement. We also reviewed discussions in FHA’s annual reports to Congress describing the effect of including the forward mortgage and HECM portfolios in the same fund. In addition, we interviewed FHA officials and other industry participants and stakeholders, including the National Reverse Mortgage Lenders Association, Mortgage Bankers Association, U.S. Mortgage Insurers, American Bankers Association, and the American Association of Retired Persons, about the advantages and disadvantages of jointly considering both portfolios in assessing the MMI Fund’s capital ratio as well as of alternative approaches. We conducted this performance audit from August 2016 to November 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Mutual Mortgage Insurance Fund Budgetary and Actuarial Reviews The budgetary and actuarial reviews of the Mutual Mortgage Insurance Fund (MMI Fund) serve different purposes, stem from different requirements, and are conducted by different entities. See table 5 for a summary of these two reviews of the fund. However, the two reviews share some concepts and numbers. For example, the actuarial analysis of the MMI Fund’s economic value includes an existing capital resources component, which can be calculated from information on assets and liabilities presented in the budgetary review. In addition, both reviews include a calculation of the present value of future cash flows on outstanding insurance, though the two reviews use different models and economic assumptions to perform these calculations. Both reviews also provide estimates of the amount of resources the MMI Fund has, in excess of what is needed to cover estimated credit subsidy costs (that is, the net present value of expected future cash flows on outstanding insurance). Figure 3 provides a simplified, hypothetical illustration of the relationship between the MMI Fund’s budgetary and actuarial reviews. Appendix III: Comparison of Economic Scenarios Used in Mutual Mortgage Insurance Fund and Federal Reserve Supervisory Stress Tests We compared selected economic scenarios used in stress tests of the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund (MMI Fund) with the severely adverse scenario developed by the Board of Governors of the Federal Reserve System (Federal Reserve) for its supervisory stress tests of large banking institutions. (Under the direction of the Federal Housing Finance Agency, the housing enterprises Fannie Mae and Freddie Mac incorporated the Federal Reserve scenario into financial criteria that private mortgage insurance companies must meet to be an approved insurer of mortgages acquired by the housing enterprises.) Our analysis focused on scenarios used in the fiscal year 2016 actuarial review of the MMI Fund’s forward mortgage portfolio (the most recently completed review) and the Federal Reserve’s 2016 supervisory stress tests, because these scenarios all used projections of economic variables beginning in calendar year 2016. We examined similarities and differences in the severity, duration, and timing of these scenarios’ projections of three variables most pertinent to the MMI Fund’s economic value: single-family home prices, 30-year fixed mortgage interest rates, and unemployment rates. These comparisons should be treated as illustrative because the MMI Fund and Federal Reserve stress tests have different intended uses and time horizons. For example, the Federal Reserve stress scenarios last 3 years and one quarter, whereas the MMI Fund scenarios last nearly 12 years. In addition, because both the MMI Fund and Federal Reserve stress scenarios change from year to year, the similarities and differences we discuss are not representative of those that might be observed for other time periods. The following analysis compares the projected quarterly paths of the three variables under two economic scenarios used in stress tests of FHA’s forward mortgage portfolio—the Monte Carlo simulation path producing the lowest economic value for forward mortgages (MMI Fund worst simulation path) and the modified Moody’s Analytics protracted slump scenario (MMI Fund protracted slump)—with the projected paths of the variables under the Federal Reserve’s severely adverse scenario. We chose to highlight these MMI Fund stress scenarios because they generally have been the two most adverse scenarios considered in the actuarial reviews and are therefore the most analogous to the Federal Reserve’s severely adverse scenario. The projections for the MMI Fund scenarios and the Federal Reserve scenario start 6 months apart (third quarter and first quarter of calendar year 2016, respectively). We treated the starting quarter of each scenario as the first quarter of the comparative analysis. House Price Index As shown in figure 4, the MMI Fund and Federal Reserve scenarios differ in terms of the severity, duration, and timing of projected changes in house prices (as measured by house price indexes). All other things being equal, falling house prices negatively affect the MMI Fund because they increase the number of mortgage foreclosures and the severity of insurance losses on those foreclosures. The MMI Fund protracted slump and Federal Reserve severely adverse scenarios assume similar sharp declines in house prices during the first 2 years—about negative 20 percent and negative 23 percent, respectively. However, under the MMI Fund protracted slump scenario, house prices begin to recover in the third year and rise steadily thereafter, ending 15 percent higher than they were at the start of the scenario. In contrast, under the Federal Reserve scenario, house prices decline about an additional 2 percentage points, then recover slightly before the scenario ends in the fourth year. The MMI Fund worst simulation path features a substantially different house price path than the other two scenarios. It shows a small initial increase in house prices over the first 2 years, before projecting an extended 6-year decline, resulting in a peak-to-trough drop of about 18 percent. Thereafter, house prices recover somewhat, but end up about 10 percent below their level at the start of the scenario. Thirty-Year Mortgage Interest Rate The projected path of 30-year fixed mortgage interest rates also differs among the three stress scenarios. Changes in mortgage interest rates can have varying effects on the MMI Fund. On the one hand, lower interest rates can negatively affect the fund by incentivizing borrowers to prepay their mortgages (for example, through refinancing), which reduces the fund’s income from insurance premiums. On the other hand, if coupled with conditions that increase foreclosure risk (such as low house price growth), higher interest rates can negatively affect the fund by reducing prepayments, resulting in more mortgages remaining in the fund that could lead to foreclosures and insurance claims. As shown in figure 5, the three scenarios exhibit differences in the severity and timing of interest rate changes and the overall volatility of the interest rate path. The mortgage interest rate under the Federal Reserve’s severely adverse scenario increases by about 1 percentage point over the first year, then essentially levels off through the end of the scenario in the fourth year. In contrast, the MMI Fund protracted slump scenario projects an initial 1.5 percentage point decline in the interest rate over about the first 2 years, followed by an extended increase that leaves the interest rate almost 2 percentage points higher at the end of the 12- year scenario than it was at the start. The MMI Fund worst simulation path features the most dramatic interest rate changes of the three scenarios. It begins with a sharp increase of more than 3.5 percentage points over about the first 2 years, then assumes several up and down spikes over about the next 10 years, before ending with an interest rate about 3 percentage points higher than it was at the start of the scenario. Unemployment Rate As shown in figure 6, all three scenarios feature a steep increase and subsequent decline in the unemployment rate, but the timing and duration of the changes differ. All other things being equal, increases in the unemployment rate adversely affect the MMI Fund because of the negative effect that job loss has on a borrower’s ability to make monthly mortgage payments and avoid foreclosure. The unemployment rate under the Federal Reserve severely adverse scenario and the MMI Fund protracted slump scenario follows similar paths. Both start with nearly identical increases of about 4 percentage points within the first 2 years, followed by declines of roughly 1 percentage point over the subsequent six quarters, at which juncture the Federal Reserve scenario ends. In the longer MMI Fund protracted slump scenario, the unemployment rate continues to fall gradually through the 12th year, ending about 1 percentage point lower than it was at the beginning of the scenario. In contrast, the MMI Fund worst simulation path features a more gradual and less even increase in the unemployment rate—about a 3.25 percentage point rise over about the first 5 years. The unemployment rate then slides below the starting level by year 10, before rebounding past the starting level by the end of the scenario. Appendix IV: Comments from the Department of Housing and Urban Development Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Steven Westley (Assistant Director), Winnie Tsen (Analyst in Charge), Stephen Brown, Marcia Carlsen, William Chatlos, Robert Dacey, Emei Li, John McGrail, Angela Pun, Jennifer Schwartz, Jena Sinkfield, and Frank Todisco made key contributions to this report.

FHA insures private lenders against losses from defaults on single-family mortgages. According to independent actuarial reviews, in fiscal years 2009–2014, FHA's MMI Fund (which insures $1.2 trillion in single-family traditional and reverse mortgages) did not meet its statutory 2 percent capital requirement. Also, a budgetary review determined that the fund required $1.69 billion in supplemental funds in fiscal year 2013. GAO was asked to examine issues concerning the MMI Fund's capital requirement and actuarial reviews. This report examines the types of information provided by assessments of the fund's financial condition, FHA's capital requirement and stress testing practices, and trade-offs associated with including reverse mortgages in the fund's capital assessment. GAO analyzed actuarial and budgetary assessments of the MMI Fund. GAO reviewed financial institution and regulatory capital and stress testing principles to develop an evaluative framework and applied it to FHA. GAO also interviewed federal and mortgage industry officials. The Federal Housing Administration's (FHA) budgetary reviews of the Mutual Mortgage Insurance Fund (MMI Fund) assess whether it needs more budget authority to cover expected future costs, and independent actuarial reviews provide complementary information on the fund's finances. FHA uses the actuarial reviews to assess whether the MMI Fund's capital ratio (economic value divided by insurance obligations) meets the 2 percent requirement and how fund components would perform under alternative economic scenarios. While the actuarial assessment does not directly determine the need for additional budget authority, it evaluates the fund's ability to absorb unexpected losses and may prompt changes in FHA policies and insurance premiums. Capital requirements and stress testing practices—tools for managing financial risks—for the MMI Fund are not consistent with all elements of a framework GAO developed to help assess these tools in the context of FHA's single-family mortgage insurance programs. In accordance with the framework, FHA's capital assessments and stress tests are transparent and incorporate a number of relevant risk factors. However, areas of inconsistency include the following: Scenario-based requirement . The statutory capital requirement is intended to help ensure the fund can absorb unexpected losses but is not based on a specified risk threshold, such as an adverse economic scenario the fund would be expected to withstand without requiring supplemental funds. Accountability mechanisms . The capital requirement also does not include accountability mechanisms, such as a set of steps FHA would have to take if the capital ratio again fell below the 2 percent minimum. Fund-wide stress tests . FHA has conducted separate stress tests—projections of financial condition under adverse scenarios—of its forward (traditional) and reverse mortgage (loans against home equity available to seniors) portfolios, but has not performed tests on a fund-wide basis. Stress test objectives . FHA has not defined specific objectives for its stress tests such as determining the amount of additional capital, if any, that would be needed to withstand conditions similar to the last housing crisis. Strengthening FHA's capital requirement and stress testing practices could help ensure that the MMI Fund is able to withstand economic downturns and that stress test results are as relevant and useful as possible for risk management. Including reverse mortgages in the fund's capital assessment has advantages and disadvantages. Unlike for stress tests, FHA jointly assesses forward and reverse mortgages to calculate a combined capital ratio. Subjecting the reverse mortgage portfolio to capital assessment has made its financial condition more transparent. But, the portfolio's sensitivity to changes in economic assumptions makes the combined ratio more unpredictable. Alternative approaches also pose trade-offs. For example, a separate reverse mortgage capital requirement may help ensure the financial transparency of both portfolios, but requiring FHA to hold more capital to account for the volatility of the reverse mortgage portfolio could compel FHA to raise insurance premiums or lower borrowing limits.

CRS_R45461

Background What is the U.S. International Development Finance Corporation (IDFC)? The IDFC is authorized by statute to be a "wholly owned Government corporation ... under the foreign policy guidance of the Secretary of State" in the executive branch. Its purpose is to "mobilize and facilitate the participation of private sector capital and skills in the economic development" of developing and transition countries, in order to complement U.S. development assistance objectives and foreign policy interests (§1412). In other words, the IDFC's mission is to promote private investment in support of both U.S. global development goals and U.S. economic interests. Not yet operational, the IDFC represents a potentially major overhaul of U.S. development finance efforts. The IDFC's enabling legislation is the Better Utilization of Investments Leading to Development Act of 2018 (BUILD Act), which was enacted on October 5, 2018, as Division F of a law to reauthorize the (unrelated) Federal Aviation Administration (FAA) ( H.R. 302 / P.L. 115-254 ). Under the BUILD Act, the IDFC is to consolidate and expand the U.S. government's existing development finance functions—currently conducted primarily by the Overseas Private Investment Corporation (OPIC) and the U.S. Agency for International Development (USAID). By statute, the IDFC is a successor agency to OPIC, which is to terminate when the IDFC is operational. What existing agency functions are consolidated? The BUILD Act consolidates functions currently carried out primarily by OPIC and certain elements of USAID (see Appendix ). The act established the new IDFC to be a successor entity to OPIC, taking over all of its functions and authorities and adding new ones. The IDFC's authorities would expand beyond OPIC's existing authorities to make loans and guarantees and issue insurance or reinsurance. They would also include the authority to take minority equity positions in investments, subject to limitations. In addition, unlike OPIC, the IDFC would be able to issue loans in local currency. The extent to which USAID functions will be transferred to the new IDFC is less clear. The act specifies that the Development Credit Authority (DCA), the existing legacy credit portfolio under the Urban and Environment Credit Program, and any other direct loan programs and non-DCA guarantee programs shall be transferred to the IDFC. It also provides the authority for, but does not require, the transfer of USAID's Office of Private Capital and Microenterprise, the existing USAID-managed enterprise funds (it gives the IDFC authority to establish new funds), and the sovereign loan guarantee portfolio. The disposition of these functions is to be detailed in the reorganization plan that the Administration must submit to Congress within 120 days of enactment. The reorganization plan is expected to be submitted by early February 2019. In addition, the IDFC would have the authority to conduct feasibility studies on proposed investment projects (with cost sharing) and provide technical assistance. What is development finance? "Development finance" is a term commonly used to describe government-backed financing to support private sector capital investments in developing and emerging economies. It can be viewed on a continuum of public and private support, situated between pure government support through grants and concessional loans and pure commercial financing at market-rate terms. Development finance generally is targeted toward promoting economic development by supporting foreign direct investment (FDI) in underserved types of projects, regions, and countries; undercapitalized sectors; and countries with viable project environments but low credit ratings. Such support is aimed to increase private sector activity and public-private partnerships that would not happen otherwise in the absence of development finance support because of the actual or perceived risk associated with the activity. Tools of development finance may include equity (raising capital through the sale of ownership shares), direct loans, loan guarantees, political risk insurance, and technical assistance. Development financing is particularly important for infrastructure funding, where annual global investment in transportation, power, water, and telecommunications systems falls, by one account, almost $800 million short of the estimated $3.3 trillion required to keep pace with projected economic growth. The largest infrastructure investment gaps are in the road and electricity sectors in developing and emerging economies. What are development finance institutions (DFIs)? DFIs are specialized entities that supply development finance, generally aiming to be catalytic agents in promoting private sector investment in developing countries. In the United States, OPIC has been the primary DFI since the 1970s. In FY2017, OPIC reported authorizing $3.8 billion in new commitments for 112 projects, and its exposure reached a record high of $23.2 billion (see Figure 1 ). OPIC estimated that it helped mobilize $6.8 billion in capital and supported 13,000 new jobs in host countries that year. Sub-Saharan Africa represents the largest share of OPIC's portfolio by region. OPIC has committed $2.4 billion in financing and political risk insurance for Power Africa−a major public-private partnership coordinated by USAID−to date, including committing $12.4 million for a loan to support construction of a hydropower plant in Uganda in FY2017. Among other focus areas, OPIC currently has $5 billion invested in the Indo-Pacific in projects to expand access to energy, education, and financial services, as well as to support local farmers. On July 30, 2018, OPIC, the Japanese Bank for International Cooperation (JBIC, Japan's counterpart to OPIC), and the Australian government announced a trilateral partnership to mobilize investments in infrastructure projects in the Indo-Pacific region to support development, connectivity, and economic growth in the region. Other agencies, such as the U.S. Agency for International Development (USAID), also provide development finance. The IDFC is to take on the DFI mantle for the United States under the BUILD Act. At the bilateral level, national governments can operate DFIs. The United Kingdom was the first country to establish a DFI in 1948. Many countries have followed suit. In the United States, OPIC began operations in 1971, but the U.S. government's role in overseas investment financing predates OPIC's formal establishment. Bilateral DFIs are typically wholly or majority government-owned. They operate either as independent institutions or as a part of larger development banks or institutions. Their organizational structures have evolved, in some cases, due to changing perceptions of how to address identified development needs in the most effective way possible. Unlike OPIC, other bilateral DFIs tend to be permanent and not subject to renewals by their countries' legislatures. DFIs also can operate multilaterally, as parts of international financial institutions (IFIs), such as the International Finance Corporation (IFC), the private-sector arm of the World Bank. They can operate regionally through regional development banks as well. Examples of these banks include the African Development Bank (AfDB), the Asian Development Bank (AsDB), the European Bank for Reconstruction & Development (EBRD), and the Inter-American Development Bank (IDB). DFIs vary in their specific objectives, management structures, authorities, and activities. How does development finance relate to foreign assistance? Historically, official development assistance (ODA) has been a primary way that the United States and other developed countries have provided support for infrastructure projects in developing countries. However, foreign aid for infrastructure has declined over decades while the growth of direct private investment flows has outpaced ODA, making development finance an increasingly prominent way to encourage private investment in undercapitalized areas. Private investors face challenges investing in developing countries due to political risk, exchange rate risk, and weaknesses in legal, regulatory, and institutional environments, among other things. In such cases, government support, whether through equity, financing, or political risk insurance, may provide needed liquidity or assurances to catalyze private investment. How does the IDFC aim to respond to China's growing economic influence in developing countries? While it does not mention China by name, the BUILD Act alludes to concerns with state-directed investments, such as China's Belt and Road Initiative (BRI), which launched in 2013. The act states that it is U.S. policy to "facilitate market-based private sector development and inclusive economic growth in less developed countries" through financing, including to provide countries a robust alternative to state-directed investments by authoritarian governments and [U.S.] strategic competitors using best practices with respect to transparency and environmental and social safeguards, and which take into account the debt sustainability of partner countries (§1411). Supporters view the IDFC as a central part of the U.S. response to China's growing economic influence in developing countries, exemplified by the BRI—which could provide, by some estimates, anywhere from $1 trillion to $8 trillion in Chinese investments and development financing for infrastructure projects in developing countries (see text box ). The Administration and many Members of Congress have been critical of China's financing model, which they find to lack transparency, operate under inadequate environmental and social safeguards for projects, and employ questionable lending practices that may lead to unsustainable debt burdens in some poorer countries (so-called "debt diplomacy"). Under this view, the IDFC (when operational) may help the United States compete more effectively or strategically with China. While even a strengthened OPIC may not be able to compete "dollar-for-dollar" with China's DFI activity, supporters argue that the United States "can and should do more to support international economic development with partners who have embraced the private sector-driven development model." Others, however, argued that the act could have tightened the IDFC's focus with respect to China, for instance, by requiring the IDFC to have a specific focus on countering China's investment and economic influence; from this perspective, the failure to narrow the IDFC's scope makes it likely that the new entity may support projects of limited U.S. foreign policy and strategic interest—a concern that some critics have levied against OPIC. BUILD Act Formulation and Debate What is the BUILD Act's legislative history?15 In February 2018, two proposed versions of the BUILD Act, H.R. 5105 in the House and S. 2463 in the Senate, were introduced to create a new U.S. International Development Finance Corporation (IDFC). Both bills proposed consolidating all of OPIC's functions and certain elements of USAID—including the Development Credit Authority (DCA), Office of Private Capital and Microenterprise, and enterprise funds. A major difference between the two bills, as introduced, was that H.R. 5105 would have authorized the IDFC for seven years, while S. 2463 would have authorized it for two decades, until September 30, 2038. The House-passed version (July 17, 2018; H.Rept. 115-814 ) and Senate committee-reported version (June 27, 2018) bridged some differences, including both providing a seven-year authorization. On September 26, 2018, the House adopted a resolution ( H.Res. 1082 ) to pass the BUILD Act as part of the Federal Aviation Administration Reauthorization Act of 2018 (FAA Reauthorization Act; H.R. 302 ). The Senate followed with its passage of the BUILD Act as part of the FAA Reauthorization Act on October 3, 2018. On October 5, 2018, the President signed into law the FAA Reauthorization Act, with the BUILD Act in Division F. What is the Trump Administration's development finance policy approach? Although the President's FY2018 budget request called for eliminating OPIC's funding as part of its critical view of U.S. government agencies with international development orientations, the Administration ultimately pursued development finance reform through OPIC as an opportunity to respond to China's growing economic influence in developing countries. The Trump Administration included development finance consolidation in its FY2019 budget request and subsequent set of government-wide reorganization proposals. The Administration supported the BUILD Act bills introduced in Congress ( H.R. 5105 , S. 2320 ), viewing them as broadly consistent with its goals, while calling for some modifications. It later said that amendments to the BUILD Act fulfilled the Administration's goals, including to "align U.S. government development finance with broader foreign policy and development goals, enhancing the competitiveness and compatibility of the U.S. development finance toolkit." What was the policy debate over the BUILD Act? The BUILD Act follows long-standing debate among policymakers over whether or not government financing of private-sector activity is appropriate. Supporters argued that OPIC helps fill in gaps in private-sector support that arise from market failures and helps U.S. firms compete against foreign firms backed by foreign DFIs for investment opportunities—thereby advancing U.S. foreign policy, national security, and economic interests. Various civil society stakeholders have proposed consolidating the development finance functions of OPIC and other agencies into a new DFI in order to boost OPIC and make U.S. development finance efforts more competitive with those of foreign countries. Opponents held that OPIC diverts capital away from efficient uses and crowds out private alternatives, criticized OPIC for assuming risks unwanted by the private sector, and questioned the development benefits of its programs. They have called for terminating OPIC's functions or privatizing them. While the BUILD Act garnered overall support, specific aspects of it were subject to debate. Some development advocates expressed concern that the BUILD Act's transfer of DCA and other credit program authority from USAID to the IDFC may sever the close link between these funding mechanisms and the USAID development programs into which they have been embedded, potentially making the tools less effective and less development-oriented. Others saw potential for the DCA to become a more robust financing option for USAID programs under the new IDFC, with its expanded authorities. In response to these concerns, the BUILD Act includes many provisions, discussed later in this report, to promote coordination and linkages between USAID and the IDFC, and to emphasize the development mission of the IDFC. Some in the development community also questioned whether the new DFI would have a sufficiently strong development mandate, as well as raised concerns about the transparency, environmental, and social standards of the new DFI relative to OPIC. Some critics of OPIC supported strengthening statutorily the aim of the IDFC in specifically countering China's influence in the developing countries. Other possible policy alternatives include focusing on enhancing coordination of development finance functions among agencies or supporting development goals through multilateral and regional DFIs in which the United States plays a major leadership role. IDFC Organizational Structure and Management While the IDFC authorized by the BUILD Act has yet to be established, and some implementation questions remain, the act detailed many aspects of how the new entity should be structured, managed, and overseen by Congress. This section discusses the BUILD Act provisions that describe how the new IDFC is expected to function once established. What are the congressional committees of jurisdiction? The BUILD Act defines "appropriate congressional committees" as the Senate Foreign Relations and Appropriations committees and the House Foreign Affairs and Appropriations committees (§1402(1)). It imposes a number of reporting and notification requirements on the IDFC with respect to these congressional committees. These committees have typically been the same ones in which legislation related to OPIC and USAID is introduced. What is the IDFC's mission? The BUILD Act establishes the IDFC for the stated purpose of mobilizing private-sector capital and skills for the economic benefit of less-developed countries, as well as countries in transition from nonmarket to market economies, in support of U.S. development assistance and other foreign policy objectives (§1412(b)). This is very similar to the mission of OPIC, as described in the Foreign Assistance Act of 1961, as amended. The legislation includes several provisions intended to ensure that the corporation remains focused on this development mission. The act directs the IDFC to prioritize support to countries with low-income or lower-middle-income economies, establishes a position of Chief Development Officer on the board, and requires that a performance measurement system be developed that includes, among other things, standards and methods for ensuring the development performance of the corporation's portfolio. The annual report required by the BUILD Act also must include an analysis of the desired development outcomes for IDFC-supported projects and the extent to which the corporation is meeting associated development metrics, goals, and objectives. How will the IDFC be managed? The BUILD Act establishes a Board of Directors ("Board"), a Chief Executive Officer (CEO), a Deputy Chief Executive Officer (Deputy CEO), a Chief Risk Officer, a Chief Development Officer, and any other officers as the Board may determine, to manage the IDFC (§1413(a)). The BUILD Act vests all powers of the IDFC in the nine-member Board of Directors (§1413(b)). By statute, the Board is composed of a C hief Executive Officer ; four U.S. government officials —the Secretary of State, USAID Administrator, Secretary of the Treasury, and Secretary of Commerce (or their designees); and four non government members appointed by the President of the United States by and with the advice and consent of the Senate, with "relevant experience" to carry out the IDFC's purpose, which "may include experience relating to the private sector, the environment, labor organizations, or international development." These members have three-year terms, can be reappointed for one additional term, and serve until their successors are appointed and confirmed. The Board's Chairperson is the Secretary of State and the Vice Chairperson is the USAID Administrator (or their designees). The Board differs in size and potentially composition from that of OPIC's Board. By statute, OPIC's 15-member Board of Directors is composed of eight "private sector" Directors, with specific requirements for representation of small business, labor, and cooperatives interests, and seven "federal government" Directors (including the OPIC President, USAID Administrator, U.S. Trade Representative, and a Labor Department officer). The President of the United States appoints the Board Chairman and Vice Chairman from among the members of the Board. Five members of the Board constitutes a quorum for the transaction of business. The Board is required to hold at least two public hearings each year to allow for stakeholder input. What will be the responsibilities of the officers? The BUILD Act establishes four officers for IDFC management. A Chief Executive Officer, who is under the Board's direct authority, is responsible for the IDFC's management and exercising powers and duties as the Board directs (§1413(d)). The BUILD Act also establishes a Deputy Chief Executive Officer (§1413(e)). The Chief Executive Officer and Deputy Chief Executive Officer are appointed by the President of the United States, by and with the advice and consent of the Senate, and serve at the pleasure of the President. The act outlines the positions of the Chief Risk Officer and Chief Development Officer in more detail. Both officers are to be appointed by the CEO, subject to Board approval, from among individuals with senior-level experience in financial risk management and development, respectively. They each are to report directly to the Board and are removable only by a majority Board vote. The Chief Risk Officer, in coordination with the Audit Committee established by the act, is responsible for developing, implementing, and managing a comprehensive process for identifying, assessing, monitoring, and limiting risks to the IDFC (§1413(f)). The Chief Development Officer's responsibilities include coordinating the IDFC's development policies and implementation efforts with USAID, the Millennium Challenge Corporation (MCC), and other relevant U.S. government departments and agencies; managing IDFC employees dedicated to working on transactions and projects codesigned with USAID and other relevant U.S. government entities; and authorizing and coordinating interagency transfers of funds and resources to support the IDFC (§1413(g)). OPIC's enabling legislation does not include either a specific Chief Risk Officer or Chief Development Officer. Will the IDFC have any advisory support? The BUILD Act establishes a Development Advisory Council to advise the Board on the IDFC's development objectives (§1413(i)). By statute, its members are Board-appointed on the recommendation of the CEO and Chief Development Officer, and composed of no more than nine members "broadly representative" of NGOs and other international development-related institutions. Its functions are to advise the Board on the extent to which the IDFC is meeting its development mandate and any suggestions for improvements. What oversight structures will the IDFC have? The BUILD Act establishes several oversight structures to govern the agency overall and particular aspects. Unlike OPIC, which is overseen by the USAID Inspector General, the IDFC is to have its own Inspector General (IG) (§1414) to conduct reviews, investigations, and inspections of its operations and activities. In addition, the act requires the Board to establish a "transparent and independent accountability mechanism" to annually evaluate and report to the Board and Congress regarding statutory compliance with environmental, social, labor, human rights, and transparency standards; provide a forum for resolving concerns regarding the impacts of specific IDFC-supported projects with respect to such standards; and provide advice regarding IDFC projects, policies, and practices (§1415). The BUILD Act also requires the IDFC to establish a Risk Committee and Audit Committee to ensure monitoring and oversight of the IDFC's investment strategies and finances (§1441). Both committees are under the direction of the Board. The Risk Committee is responsible for overseeing the formulation of the IDFC's risk governance structure and risk profile (e.g., strategic, reputational, regulatory, operational, developmental, environmental, social, and financial risks) (§1441(b)), while the Audit Committee is responsible for overseeing the IDFC's financial performance management structure, including the integrity of its internal controls and financial statements, the performance of internal audits, and compliance with legal and regulatory finance-related requirements (§1444(c)). IDFC Operations For what purposes can the IDFC use its authorities? In general, the IDFC's authorities are limited to (§1421(a)) carrying out U.S. policy and the IDFC's purpose, as outlined in the statute; mitigating risks to U.S. taxpayers by sharing risks with the private sector and qualifying sovereign entities through cofinancing and structuring of tools; and ensuring that support provided is "additional" to private-sector resources by mobilizing private capital that would otherwise not be deployed without such support. The emphasis on additionality reflects OPIC's current policy, but is not explicitly in OPIC's enabling legislation. Policymakers have debated whether OPIC supports or crowds out private-sector activity. What financial authorities and tools will the IDFC have? Under the BUILD Act, the IDFC's authorities would expand beyond OPIC's existing authorities to make loans and guarantees and issue insurance or reinsurance (see Table 1 ). They would also include the authority to take minority equity positions in investments. USAID-drawn authorities include technical assistance and the establishment of enterprise funds. In addition, the IDFC would have the authority to conduct feasibility studies on proposed investment projects (with cost-sharing) and provide technical assistance. A chart depicting the current development finance functions of relevant U.S. agencies, as well as how those functions may be shifted by the BUILD Act, is in the Appendix . The IDFC's functions are discussed below. Loan and Guarantees. The IDFC is authorized to make loans or guarantees upon the terms and conditions that it determines (§1421(b)). Loans and guarantees are subject to the Federal Credit Reform Act of 1990 (FCRA). IDFC financing may be denominated and repayable in either U.S. dollars or foreign currencies, the latter only in cases where the Board determines there is a "substantive policy rationale." This is distinct from OPIC, which is limited to making loans in U.S. currency. Equity Investments. The BUILD Act authorizes the IDFC to take equity stakes in private investments (§1421(c)). The IDFC can support projects as a minority investor acquiring equity or quasiequity stake of any entity, including as a limited partner or other investor in investment funds, upon such terms and conditions as the IDFC may determine. Loans and guarantees may be denominated and repayable in either U.S. dollars or foreign currencies, the latter only in cases where the Board determines there is a "substantive policy rationale." The IDFC is required to develop guidelines and criteria to require that the use of equity authority has a clearly defined development and foreign policy purpose, taking into account certain factors. The BUILD Act places limitations on equity investment, both in terms of the specific project and the overall support. The total amount of support with respect to any project cannot exceed 30% of the total amount of all equity investment made to that project at the time the IDFC approves support. Furthermore, equity support is limited to no more than 35% of the IDFC's total exposure. The BUILD Act directs the IDFC to sell and liquidate its equity investment support as soon as commercially feasible commensurate with other similar investors in the project, taking into account national security interests of the United States. The addition of equity authority is potentially significant. OPIC does not have the capacity to make equity investments; it can only provide debt financing as a senior lender, meaning it is repaid first in the event of a loss. Foreign DFIs often have been reluctant to partner with OPIC because they would prefer to be on an equal footing. Potential expansion of OPIC's equity authority capability has met resistance from some Members of Congress in the past, based on discomfort with the notion of the U.S. government acquiring ownership stakes in private investments, among other concerns. Insurance and r einsurance . The IDFC may issue insurance or reinsurance to private-sector entities and qualifying sovereign entities assuring protection of their investments in whole or in part against political risks (§1421(d)). Examples include currency inconvertibility and transfer restrictions, expropriation, war, terrorism, civil disturbance, breach of contract, or non-honoring of financial obligations. Investment promotion . The IDFC is authorized to initiate and support feasibility studies for planning, developing, and managing of and procurement for potential bilateral and multilateral development projects eligible for support (§1421(e)). This includes training on how to identify, assess, survey, and promote private investment opportunities. The BUILD Act directs the IDFC, to the maximum extent practicable, to require cost-sharing by those receiving funds for investment promotion. Special projects and programs. The IDFC is authorized to administer and manage special projects and programs to support specific transactions, including financial and advisory support programs that provide private technical, professional, or managerial assistance in the development of human resources, skills, technology, capital savings, or intermediate financial and investment institutions or cooperatives (§1421(f)). This includes the initiation of incentives, grants, or studies for the energy sector, women's economic empowerment, microenterprise households, or other small business activities. Enterprise funds. The BUILD Act authorizes but does not require the transfer of existing USAID enterprise funds to the IDFC (§1421(g)). Existing Europe/Eurasia enterprise funds are winding down. The two newer funds, in Tunisia and Egypt, remain primarily funded by U.S. government grant funds and are private sector-managed, arguably requiring close USAID oversight and an in-country presence to ensure the funds fulfill a development, rather than a purely for-profit, mission. As such, their removal to an agency without either feature may make this model less effective as a development instrument. The BUILD Act also gives the IDFC authority to establish new enterprise funds. It has been argued, however, that the IDFC's authority to conduct equity investment would make enterprise funds unnecessary. Will the IDFC's activities have U.S. government backing? All of the IDFC's authorities, like prior support by OPIC and USAID components, are backed by the full faith and credit of the U.S. government. In other words, the full faith and credit of the U.S. government is pledged for full payment and performance of obligations under these authorities (§1434(e)). Will the IDFC have an exposure limit? The maximum contingent liability (overall portfolio) that the IDFC can have outstanding at any one time cannot exceed $60 billion (§1433). This is more than double OPIC's current exposure limit—$29 billion. In recent years, OPIC support has reached record highs—totaling $23.2 billion in FY2017. While the IDFC's exposure cap is small compared to the potentially trillions of dollars that China is pouring into development efforts like the BRI, supporters argue that the IDFC could catalyze other private investment to developing countries through the U.S. development finance model. How will the IDFC be funded? According to the BUILD Act, the IDFC will be funded through a Corporate Capital Account comprised of fees for services, interest earnings, returns on investments, and transfers of unexpended balances from predecessor agencies (§1434). Annual appropriations legislation will designate a portion of these funds that may be retained for operating and program expenses, while the rest will revert to the Treasury, much like the current OPIC funding process. Like OPIC, the new IDFC is expected to be self-sustaining, meaning that anticipated collections are expected to exceed expenses, resulting in a net gain to the Treasury. The act also authorizes transfers of funds appropriated to USAID and the State Department to the IDFC. This authority will allow USAID missions and bureaus to continue to fund DCA activities related to their projects through transfers, as they now do through transfers to the DCA office within USAID. The BUILD Act does not authorize annual appropriations levels for administrative and program expenses for the new IDFC, and it is unclear how future appropriations provisions for the IDFC will compare to current OPIC and DCA provisions. In FY2018, appropriators made $79.2 million of OPIC revenue available for OPIC's administrative expenses and $20 million available for loans and loan guarantees. DCA was appropriated $10 million for administrative expenses and authorized to use up to $55 million transferred from foreign assistance accounts managed by USAID to support loan guarantees. How are losses to be repaid? In general, if the IDFC determines that the holder of a loan guaranteed by the IDFC suffers a loss as a result of default by the loan borrower, the IDFC shall pay to the holder the percentage of loss per contract after the holder of the loan has made further collection efforts and instituted any required enforcement proceedings (§1423). The IDFC also must institute recovery efforts on the borrower. The BUILD Act puts limitations on the payment of losses, such as generally limiting it to the dollar value of tangible or intangible contributions or commitments made in the project plus interest, earnings, or profits actually accrued on such contributions or commitments to the extent provided by such insurance, reinsurance, or guarantee. The Attorney General must take action as may be appropriate to enforce any right accruing to the United States as a result of the issuance of any loan or guarantee under this title. The BUILD Act also imposes certain limitations on payments of losses. For how long is the IDFC authorized? The BUILD Act provides that the IDFC's authorities terminate seven years after the date of the enactment of the act (§1424). It also provides that the IDFC terminates on the date on which its portfolio is liquidated. This is markedly different from the annual extensions of authority required for OPIC in recent years. A longer-term authorization as given to the IDFC could be beneficial for supporting investments in infrastructure projects, which often are multiyear endeavors, as well as underscore a sustained U.S. commitment to respond to China's BRI. Statutory Parameters for IDFC Project Support Will there be terms and conditions of IDFC support? The BUILD Act authorizes the IDFC to set terms and conditions for its support, subject to certain parameters. Reason for support. The IDFC is only permitted to provide its support if it is necessary either to alleviate a credit market imperfection or to achieve a specified goal of U.S. development or foreign policy by providing support in the most efficient way to meet those objectives on a case-by-case basis (§1422(b)(1)). Length of support. The final maturity of a loan or guarantee cannot exceed 25 years or the debt servicing capabilities of the project to be financed by the loan, whichever is lesser (§1422(b)(2)). Risk-sharing. With respect to any loan guarantee to a project, the IDFC must require parties to bear the risk of loss in an amount equal to at least 20% of the guaranteed support by the IDFC to the project (§1422(b)(3))—compared to 50% risk-sharing in most cases for OPIC. U.S. financial interest. The IDFC may not make a guarantee or loan unless it determines that the borrower or lender is responsible and that adequate provision is made for servicing the loan on reasonable terms and protecting the U.S. financial interest (§1422(b)(4)). Interest rate. The interest rate for direct loans and interest supplements on guaranteed loans shall be set by reference to a benchmark interest rate (yield) on marketable Treasury securities or other widely recognized or appropriate comparable benchmarks, as determined in consultation with the Director of the Office of Management and Budget and the Secretary of the Treasury. The IDFC must establish appropriate minimum interest rates for loan guarantees, and other instruments as necessary. The minimum interest rate for new loans must be adjusted periodically to account for changes in the interest rate of the benchmark financial interest (§1422(b)(5) and (6)). Fees and premiums. The IDFC must set fees or premiums for support at levels that minimize U.S. government cost while supporting the achievement of objectives for that support. The IDFC must review fees for loan guarantees periodically to ensure that fees on new loan guarantees are at a level sufficient to cover the IDFC's most recent estimates of its cost (§1422(b)(7)). Budget authority. The IDFC may not make loans or loan guarantees except to the extent that budget authority to cover their costs is provided in advance in an appropriations act (§1422(b)(10)). Standards. The IDFC must prescribe explicit standards for use in periodically assessing the credit risk of new and existing direct loans or guaranteed loans. It also must rely upon specific standards to assess the developmental and strategic value of projects for which it provides support and should only provide the minimum level of support needed to support such projects (§1422(b)(9) and (11)). Seniority. Any loan or guarantee by the IDFC is to be on a senior basis or pari passu with other senior debt unless there is a substantive policy rationale for otherwise (§1422(b)(12)). In which countries can the IDFC operate? In general, the IDFC is to prioritize support for less-developed countries (i.e., with a "low-income economy or a lower-middle-income economy"), as defined by the World Bank (§1402 and §1411). It must restrict support in less-developed countries with "upper-middle-income economies" unless (1) the President certifies to Congress that such support furthers U.S. national economic or foreign policy interests; and (2) such support is designed to have "significant development outcomes or provide developmental benefits to the poorest population" of that country (§1412). This arguably narrows the IDFC's focus to low-income and lower-middle-income countries, compared to OPIC's statutory requirements and practice. The IDFC may provide support in any country the government of which has entered into an agreement with the United States authorizing the IDFC to provide support (§1431). What considerations will factor into the IDFC's decision to support projects? Preference for U.S. sponsors. The IDFC must give preferential consideration to projects sponsored by or involving private-sector entities that are "U.S. persons"—defined as either U.S. citizens or entities owned or controlled by U.S. citizens (§1451(b)). This presumably eases OPIC's requirement for projects to have a "U.S. connection" based on U.S. citizenship or U.S. ownership shares; the particular requirements vary by program. This change arguably opens up the possibility that the IDFC could support investments by foreign project sponsors, assuming they meet other statutory requirements. Preference for countries in compliance with i nternational trade obligations . The IDFC must consult at least annually with the U.S. Trade Representative (USTR) regarding countries' eligibility for IDFC support and compliance with international trade obligations (§1451(c)). The IDFC must give preferential consideration to countries in compliance with (or making substantial progress in coming into compliance with) their international trade obligations. While OPIC does not have a comparable obligation, the USTR (or a designated Deputy USTR) is a member of OPIC's Board of Directors. Worker rights. The IDFC can only support projects in countries taking steps to adopt and implement laws that extend internationally recognized worker rights (as defined in §507 of the Trade Act of 1974, 19 U.S.C. 2467) to workers in that country. It must include specified language in all contracts for support regarding worker rights and child labor (§1451(d)). These provisions appear to be similar to OPIC's requirements in terms of worker rights. Environmental and social impact. The Board is prohibited from voting in favor of any project that is likely to have "significant adverse environmental or social impact impacts that are sensitive, diverse, or unprecedented" unless it provides an impact notification (§1451(e)). The act requires that (1) the notification be at least 60 days before the date of the Board vote and take the form of an environmental and social impact assessment or initial audit; (2) the notification be made available to the U.S. public and locally affected groups and nongovernmental organizations (NGOs) in the host country; and (3) the IDFC include provisions in any contract relating to the project to ensure mitigation of any such adverse environmental or social impacts. OPIC's enabling legislation has substantially similar requirements as the IDFC's first two requirements with respect to environmental and social impacts. Women's economic empowerment consideration. The IDFC must consider the impact of its support on women's economic opportunities and outcomes and take steps to reduce gender gaps and maximize development impact by working to improve women's economic opportunities (§1451(f)). This is distinct from OPIC's statutory requirements. C ountries embracing private enterprise. The IDFC is directed to give preferential consideration to projects for which support may be provided in countries whose governments have demonstrated "consistent support for economic policies that promote the development of private enterprise, both domestic and foreign, and maintain the conditions that enable private enterprise to make full contribution to the development of such countries" (§1451(g)). The BUILD Act gives examples of market-based economic policies, protection of private property rights, respect for rule of law, and systems to combat corruption and bribery. OPIC's private enterprise-related requirement appears to be more limited. Small business support. The IDFC must, using broad criteria, to the maximum extent possible, give preferential consideration to supporting projects sponsored by or involving small business, and ensure that small business-related projects are not less than 50% of all projects for which the IDFC provides support and that involve U.S. persons (§1451(i)). OPIC's small business support requirement has a 30% target. What limitations will there be on the IDFC's support? Limitation on support for a single entity. No entity receiving IDFC support may receive more than an amount equal to 5% of the IDFC's maximum contingent liability (§1451(a)). In comparison, OPIC has specific limitations by program; for example, no more than 10% of maximum contingent liability of investment insurance can be issued to a single investor, and no more than 15% of maximum contingent liability of investment guarantees can be issued to a single investor. Boycott restriction. When considering whether to approve a project, the IDFC must take into account whether the project is sponsored by or substantially affiliated with any individual involved in boycotting a country that is "friendly" with the United States and is not subject to a boycott under U.S. law or regulation (§1451(h)). The measure is aimed at ensuring that beneficiaries of the new DFI's support are "not undermining [U.S.] foreign policy goals." Concerns about boycotts against Israel appear to figure prominently. International terrorism/human rights violations restriction . The IDFC is prohibited from providing support for a government or entity owned or controlled by a government if the Secretary of State has determined that the government has repeatedly provided support for acts of international terrorism or has engaged in a consistent pattern of gross violations of internationally recognized human rights (§1453(a)). In comparison, OPIC must take into account human rights considerations in conducting its programs. Sanctions restriction. The IDFC is also prohibited from all dealings related to any project prohibited under U.S. sanctions laws or regulations, including dealings with persons on the list of specially designated persons and blocked persons maintained by the Office of Foreign Assets Control (OFAC) of the Department of the Treasury, except to the extent otherwise authorized by the Secretaries of the Treasury or State (§1453(b) and (c)). OPIC is subject to sanctions restrictions as well. What requirements will the IDFC have to avoid market distortion? Commercial banks can provide financing for foreign investment, such as through project finance, and political risk insurance. The BUILD Act requires that before the IDFC provides support, it must ensure that private-sector entities are afforded an opportunity to support the project. The IDFC must develop safeguards, policies, and guidelines to ensure that its support supplements and encourages, but does not compete with, private-sector support; operates according to internationally recognized best practices and standards to avoid market-distorting government subsidies and crowding out of private-sector lending; and does not have significant adverse impact on U.S. employment (§1452). Monitoring and Transparency What performance measures and evaluation will the IDFC have? The BUILD Act requires the IDFC to develop a performance measurement system to evaluate and monitor its projects and to guide future project support, using OPIC's current development impact measurement system as a starting point (§1442). The IDFC must develop standards for measuring the projected and ex post development impact of a project. It also must regularly make information about its performance available to the public on a country-by-country basis. Measuring development impact can be complicated for a number of reasons, including definitional issues, difficulties isolating the impact of development finance from other variables that affect development outcome, challenges in monitoring projects for development impact after DFI support for a project ends, and resource constraints. Comparing development impacts across DFIs is also difficult as development indicators may not be harmonized. To the extent that the proposed DFI raises questions within the development community about whether it would be truly "developmental" at its core, rigorous adherence to development objectives through a measurement system will likely be critical to gauging its effectiveness. Moreover, Congress may choose to take a broader view of U.S. development impact, given the active U.S. contributions to regional and multilateral DFIs. What are the IDFC's reporting and notification requirements? At the end of each fiscal year, the IDFC must submit to Congress a report including an assessment of its economic and social development impact, the extent to which its operations complement or are compatible with U.S. development assistance programs and those of qualifying sovereign entities, and the compliance of projects with statutory requirements (§1443). In addition, no later than 15 days before the IDFC makes a financial commitment over $10 million, the Chief Executive Officer must submit to the appropriate congressional committees a report with information on the financial commitment (§1446(a) and (b)). The CEO also must notify the committees no later than 30 days after entering into a new bilateral agreement (§1446(c)). What information must it make available to the public? The IDFC must "maintain a user-friendly, publicly available, machine-readable database with detailed project-level information," including description of support provided, annual report information provided to Congress, and project-level performance metrics, along with a "clear link to information on each project" online (§1444). The new agency also must cooperate with USAID to engage with investors to develop a strategic relationship "focused at the nexus of business opportunities and development priorities" (§1445). This includes IDFC actions to develop risk mitigation tools and provide transaction-structuring support for blending finance models (generally referring to the strategic use of public or philanthropic capital to catalyze private-sector investment for development purposes). Implementation How and when is the IDFC expected to become operational? The BUILD Act requires the President to submit to Congress within 120 days of enactment a reorganization plan that details the transfer of agencies, personnel, assets, and obligations to the IDFC. The reorganization plan is expected to be submitted by early February 2019. The President must consult with Congress on the plan not less than 15 days before the date on which the plan is transmitted, and before making any material modification or revision to the plan before it becomes operational. The reorganization plan becomes effective for the IDFC on the date specified in the plan, which may not be earlier than 90 days after the President has transmitted the reorganization plan to Congress (§1462(e)). The actual transfer of functions may occur only after the OPIC President and CEO and the USAID Administrator jointly submit to the foreign affairs committees a report on coordination, including a detailed description of the procedures to be followed after the transfer of functions to coordinate between the IDFC and USAID (§1462(c)). During the transition period, OPIC and USAID are to continue to perform their existing functions. Thus, the IDFC could become operational as early as summer 2019 based on this timeline ( Figure 2 ). OPIC anticipates that the IDFC could become operational as of October 1, 2019. At that time, OPIC is to be terminated and its enabling legislation is to be repealed (§1464). How will the IDFC relate to other U.S. trade and investment promotion efforts? The IDFC is to replace OPIC, and, as such, would be among other federal entities that play a role in promoting U.S. trade and investment efforts. The Export-Import Bank (Ex-Im Bank) provides direct loans, loan guarantees, and export credit insurance to support U.S. exports, in order to support U.S. jobs. The Trade and Development Agency (TDA) aims to link U.S. businesses to export opportunities in overseas infrastructure and other development projects, in order to support economic growth in these overseas markets. TDA provides funding for project preparation activities, such as feasibility studies, and partnership building, such as reverse trade missions bringing foreign decisionmakers to the United States. The IDFC's authority to conduct feasibility studies and provide other forms of technical assistance has raised questions about overlap with the functions of TDA, but BUILD Act supporters note that while functions may overlap, they will be for different purposes—supporting U.S. investment abroad in the case of the IDFC and supporting U.S. exports in the case of TDA. There may also be some overlap of function between the IDFC and USAID if the reorganization plan calls for the transfer of the Office of Private Capital and Microenterprise from USAID to the IDFC and the IDFC starts its own microfinance programs, as microfinance activities are integrated throughout USAID and would not cease with the transfer of the office. Similarly, if the IDFC uses its authority to create new enterprise funds while declining to transfer existing funds under USAID authority, there may be some overlap in that authority as well. Issues for the 116th Congress The 116 th Congress will have responsibility for overseeing the implementation of the BUILD Act, including review of the reorganization plan, the transition it prescribes, and impact on U.S. foreign policy objectives. As part of this process, Congress may consider a number of policy issues, including the following: Is the Administration meeting the implementation requirements of the BUILD Act? Does the reorganization plan reflect congressional intent, and are the choices made within the discretion allowed by the BUILD Act justified? How can the IDFC best balance its mission to support U.S. businesses in competing for overseas investment opportunities with its development mandate? What are the policy trade-offs associated with the capacity limits, authorities, policy parameters, and other features formulated by Congress in the BUILD Act? Does the legislation find the right balance, or does the implementation process identify areas where legislative changes might be beneficial? In creating the BUILD Act, Congress gave great consideration to strategic foreign policy concerns. In addition to providing commercial opportunities for U.S. firms, development finance may shape how countries connect to the rest of the world through ports, roads, and other transportation and technological links, providing footholds for the United States to advance its approaches to regulations and standards. Another potential role for development finance is to provide a means to spread U.S. values on governance, transparency, and environmental and social safeguards. Does the current statutory framework enable the IDFC to respond effectively to U.S. strategic concerns, particularly with regard to China's BRI? More fundamentally, is the IDFC's aim to compete with, contain, or counter the BRI and Chinese world vision it represents? Beyond establishing the IDFC, Congress may consider whether to advocate for creating international "rules for the road" for development finance. Such rules could help ensure that the IDFC operates on a "level playing field" relative to its counterparts, given the variation in terms, conditions, and practices of DFIs internationally. U.S. involvement in developing such rules could help advance U.S. strategic interests. However, such rules would only be effective to the extent that major suppliers of development finance are willing to abide by them. For example, China is not a party to international rules on export credit financing, though it has been involved in recent negotiations to develop new rules on such financing. Should Congress press the Administration to pursue international rules on development finance? Is it feasible to engage China in this regard? Appendix. Reorganization of U.S. Government Development and/or Finance Functions

Members of Congress and Administrations have periodically considered reorganizing the federal government's trade and development functions to advance various U.S. policy objectives. The Better Utilization of Investments Leading to Development Act of 2018 (BUILD Act), which was signed into law on October 5, 2018 (P.L. 115-254), represents a potentially major overhaul of U.S. development finance efforts. It establishes a new agency—the U.S. International Development Finance Corporation (IDFC)—by consolidating and expanding existing U.S. government development finance functions, which are conducted primarily by the Overseas Private Investment Corporation (OPIC) and some components of the U.S. Agency for International Development (USAID). While the IDFC is expected to carry over OPIC's authorities and many of its policies, there are some key distinctions. For example, in comparison to OPIC, the new IDFC, by statute, is to have the following: More "tools" to provide investment support (e.g., authority to make limited equity investments and provide technical assistance). More capacity (a $60 billion exposure cap compared to OPIC's $29 billion exposure cap). A longer authorization period (seven years compared to OPIC's year-to-year authorization through appropriations legislation in recent years). More specific oversight and risk management (including its own Inspector General [IG], compared to OPIC, which is under the USAID IG's jurisdiction). A key policy rationale for the BUILD Act was to respond to China's Belt and Road Initiative (BRI) and China's growing economic influence in developing countries. In this regard, the IDFC aims to advance U.S. influence in developing countries by incentivizing private investment as an alternative to a state-directed investment model. The BUILD Act also aims to increase the effectiveness and efficiency of U.S. government development finance functions, as well as to achieve greater cost savings through consolidation. The BUILD Act requires the Administration to submit to Congress a reorganization plan within 120 days of enactment of the act, and the IDFC is not permitted to become operational any sooner than 90 days after the President has transmitted the reorganization plan. The 116th Congress will have responsibility for overseeing the Administration's implementation of the BUILD Act. As the IDFC is operationalized, Members of Congress may examine whether the current statutory framework allows the IDFC to balance both its mandates to support U.S. businesses in competing for overseas investment opportunities and to support development, as well as whether it enables the IDFC to respond effectively to strategic concerns especially vis-à-vis China. Congress also may consider whether to press the Administration to pursue international rules on development finance comparable to those that govern export credit financing. More broadly, the IDFC's establishment could renew legislative debate over the economic and policy benefits and costs of U.S. government activity to support private investment, and whether such activity is an effective way to promote broad U.S. foreign policy objectives.

CRS_R45583

Overview and Total Members in History Congress is composed of 541 individuals from the 50 states, the District of Columbia, Guam, the U.S. Virgin Islands, American Samoa, the Northern Mariana Islands, and Puerto Rico. Since 1789, 12,343 individuals have served as either Representatives (11,037 individuals) or as Senators (1,983 individuals). Of these individuals, 677 have served in both chambers. An additional 178 individuals have served in the House in the roles of territorial Delegates or Resident Commissioners. The following is a profile of the 116 th Congress (2019-2020). Party Breakdown In the 116 th Congress, the current party alignments as of March 7, 2019, are as follows: House of Representatives: 239 Democrats (including 4 Delegates), 199 Republicans (including 1 Delegate and the Resident Commissioner of Puerto Rico), and 3 vacant seats. Senate: 53 Republicans, 45 Democrats, and 2 Independents, who both caucus with the Democrats. Age The average age at the beginning of the 116 th Congress was 57.6 years for Representatives and 62.9 years for Senators. Table 1 shows the average ages at the beginning of the 116 th and three previous Congresses. The U.S. Constitution requires Representatives to be at least 25 years old when they take office. The youngest Representative in the 116 th Congress, and the youngest woman ever to serve in Congress, is Alexandria Ocasio-Cortez (D-NY), born October 13, 1989, who was 29 at the beginning of the 116 th Congress. The oldest Representative is Don Young (R-AK), born June 9, 1933, who was 85. Senators must be at least 30 years old when they take office. The youngest Senator in the 116 th Congress is Josh Hawley (R-MO), born December 31, 1979, who was 39 at the beginning of the Congress. The oldest Senator in the 116 th Congress is Dianne Feinstein (D-CA), born June 22, 1933, who was 85. Occupations According to data on occupations in the CQ New Members Guide , in the 116 th Congress law ties with public service/politics as the most commonly declared profession of Senators, followed by business; for Representatives, public service/politics is first, closely followed by business, then law. Table 2 uses data from the CQ Member Profiles to present the occupational categories most frequently listed as prior careers of Members of the 116 th Congress. A closer look at the range of prior occupations and previously held public offices of Members of the House and Senate at the beginning of the 116 th Congress, as listed in their CQ Member Profiles , also shows the following: 50 Senators with previous House service; 95 Members have worked in education, including teachers, professors, instructors, school fundraisers, counselors, administrators, or coaches (75 in the House, including 2 delegates, 20 in the Senate); 3 physicians in the Senate, 13 physicians in the House, plus 5 dentists and 3 veterinarians; 2 psychologists (all in the House), an optometrist (in the Senate), a pharmacist (in the House), and 2 nurses and 1 physician assistant (in the House); 7 ordained ministers, all in the House; 41 former mayors (34 in the House, 7 in the Senate); 13 former state governors (12 in the Senate, 1 in the House) and 7 lieutenant governors (4 in the Senate, 3 in the House); 16 former judges (all but 1 in the House) and 42 prosecutors (10 in the Senate, 32 in the House) who have served in city, county, state, federal, or military capacities; 2 former Cabinet Secretaries (1 in each chamber), and 3 Ambassadors (all in the House); 246 former state or territorial legislators (43 in the Senate, 203 in the House, including 2 Delegates and the Resident Commissioner from Puerto Rico); at least 89 former congressional staffers (19 in the Senate, 70 in the House, including 3 Delegates), as well as 6 congressional pages (3 in the House and 3 in the Senate); 3 sheriffs, 1 police chief and 3 other police officers, 1 firefighter, 3 CIA employees, and 1 FBI agent (all in the House); 3 Peace Corps volunteers, all in the House; 1 physicist and 1 chemist, both in the House; 11 engineers (10 in the House and 1 in the Senate); 20 public relations or communications professionals (4 in the Senate, 16 in the House), and 10 accountants (2 in the Senate and 8 in the House); 6 software company executives in the House and 2 in the Senate; 19 management consultants (5 in the Senate, 14 in the House), 5 car dealership owners (all in the House), and 4 venture capitalists (2 in the House, 2 in the Senate); 12 bankers or bank executives (3 in the Senate, 9 in the House), 29 veterans of the real estate industry (4 in the Senate, 25 in the House), and 10 Members who have worked in the construction industry (1 in the Senate, 9 in the House); 6 social workers (2 in the Senate, 4 in the House) and 3 union representatives (all in the House); 13 nonprofit executives in the House; 3 radio talk show hosts (1 in the Senate, 2 in the House); 4 radio or television broadcasters, managers, or owners (all in the House); 6 reporters or journalists (1 in the Senate, 5 in the House), a public television producer in the House, and a newspaper publisher in each chamber; 21 insurance agents or executives (4 in the Senate, 17 in the House) and 4 Members who have worked with stocks or bonds (all in the House); 1 artist, 1 book publisher, and 2 speechwriters (all in the House), and 1 documentary filmmaker in the Senate; 6 restaurateurs (5 in the House, 1 in the Senate), as well as 2 coffee shop owners, 1 wine store owner, and 1 whiskey distiller (all in the House); 27 farmers, ranchers, or cattle farm owners (5 in the Senate, 22 in the House); 1 almond orchard owner and vintner, as well as a forester and a fruit orchard worker (all in the House); 1 flight attendant and 1 pilot, both in the House; 3 professional football players, 1 hockey player, 1 baseball player, and 1 mixed martial arts fighter (all in the House); and 9 current members of the military reserves (8 in the House, 1 in the Senate) and 7 current members of the National Guard (all in the House). Other occupations listed in the CQ Member Profiles include emergency dispatcher, letter carrier, animal nutrition specialist, cake decorator, waiter, electrician, rodeo announcer, carpenter, computer systems analyst, software engineer, R&D lab executive, and explosives expert. Education As has been true in recent Congresses, the vast majority of Members (94.8% of House Members and 100% of Senators) at the beginning of the 116 th Congress hold bachelor's degrees. Sixty-eight percent of House Members and 77% of Senators hold educational degrees beyond a bachelor's. The CQ Member Profiles at the beginning of the 116 th Congress indicate the following: 17 Members of the House have no educational degree beyond a high school diploma; 6 Members of the House have associate's degrees as their highest degrees; 99 Members of the House and 18 Senators earned a master's degree as their highest attained degrees; 161 Members of the House (36.6% of the House) and 53 Senators (53% of the Senate) hold law degrees; 21 Representatives and 4 Senators have doctoral (Ph.D., D.Phil., Ed.D., or D. Min) degrees; and 21 Members of the House and 4 Senators have medical degrees. By comparison, approximately 35 years ago in the 99 th Congress (1985-1986), 85% of House Members and 88% of Senators held bachelor's degrees. Approximately 45 years ago, in the 94 th Congress (1975-1976), 82% of House Members and 88% of Senators held bachelor's degrees. About 60 years ago, in the 87 th Congress (1961-1962), 76% of House Members and 76% of Senators held bachelor's degrees. Five Representatives and one Senator are graduates of the U.S. Military Academy, two Representatives and one Senator graduated from the U.S. Naval Academy, and one Senator graduated from the U.S. Air Force Academy. Five Representatives and one Senator were Rhodes Scholars, two Representatives were Fulbright Scholars, two Representatives were Marshall Scholars, and two Representatives and one Senator were Truman Scholars. Congressional Service The average length of service for Representatives at the beginning of the 116 th Congress was 8.6 years (4.3 House terms); for Senators, 10.1 years (1.7 Senate terms). At the beginning of the 116 th Congress, 90 of the House Members, including the Resident Commissioner for Puerto Rico (20.4% of the total House Membership), had first been elected to the House in November 2018, and 9 of the Senators (9% of the total Senate membership) had first been elected to the Senate in November 2018. These numbers are higher than at the beginning of the 115 th Congress, when 11.8% of the House and 7% of the Senate were newly elected "freshmen." At the beginning of the 116 th Congress, 144 House Members, including 1 Delegate and the Resident Commissioner (32.7% of House Members), had no more than two years of House experience, and 19 Senators (19% of Senators) had no more than two years of Senate experience. For more historical information on the tenure of Members of Congress, see CRS Report R41545, Congressional Careers: Service Tenure and Patterns of Member Service, 1789-2019 , by William T. Egar and Amber Hope Wilhelm. Religion Ninety-seven percent of the Members of the 116 th Congress report an affiliation with a specific religion. Statistics gathered by the Pew Research Center on Religion and Public Life, which studies the religious affiliation of Representatives and Senators, and CQ at the beginning of the 116 th Congress showed the following: 54.9% of Members (233 in the House, 60 in the Senate) are Protestant, with Baptist as the most represented denomination, followed by Methodist; 30.5% of Members (141 in the House, 22 in the Senate) are Catholic; 6.4% of Members (26 in the House, 8 in the Senate) are Jewish; 1.9% of Members (6 in the House, 4 in the Senate) are Mormon (Church of Jesus Christ of Latter-day Saints); 2 Members (1 in the House, 1 in the Senate) are Buddhist, 3 Representatives are Muslim, and 3 Representatives are Hindu; and other religious affiliations represented include Greek Orthodox, Pentecostal Christian, Unitarian Universalist, and Adventist. Gender and Ethnicity Women Members A record 131 women Members (24.2% of the total membership) serve in the 116 th Congress, 22 more than at the beginning of the 115 th Congress. One hundred six women, including 3 Delegates as well as the Resident Commissioner, serve in the House and 25 in the Senate. Of the 106 women in the House, 91 are Democrats, including 2 of the Delegates, and 15 are Republicans, including 1 Delegate as well as the Resident Commissioner. Of the 25 women in the Senate, 17 are Democrats and 8 are Republicans. By comparison, approximately 35 years ago in the 99 th Congress (1985-1986), 23 women served in the House, and 2 in the Senate. Approximately 45 years ago, in the 94 th Congress (1975-1976), there were 19 women in the House, and none in the Senate. African American Members There are a record 58 African American Members (10.7% of the total membership) in the 116 th Congress, 6 more than at the beginning of the 115 th Congress. Fifty-five serve in the House, including two Delegates, and three serve in the Senate. This number includes one Representative, as well as one Senator, who are of African American and Asian ancestry, and two Representatives who are of African American and Hispanic ancestry. In this report, each of these four Members is counted as belonging to two ethnic groups. Fifty-four of the African American House Members, including two Delegates, are Democrats, and one is a Republican. Two of the Senators are Democrats and one is Republican. Twenty-four African American women, including two Delegates, serve in the House, and one serves in the Senate. By comparison, approximately 35 years ago in the 99 th Congress (1985-1986), 21 African American Members served in the House, and none in the Senate. About 60 years ago, in the 87 th Congress (1961-1962), there were 4 African American Members of Congress, all serving in the House. Hispanic/Latino American Members There are 50 Hispanic or Latino Members in the 116 th Congress, 9.2% of the total membership and a record number. Forty-five serve in the House, including two delegates and the Resident Commissioner, and 5 in the Senate. These numbers include two House Members who are also of Asian descent, and two House Members also of African ancestry; these Members are counted in both ethnic categories in this report. Of the Members of the House, 37 are Democrats (including 2 Delegates) and 8 are Republicans (including the Resident Commissioner). Fourteen are women, including the Resident Commissioner. Of the five Hispanic Senators (three Republicans, two Democrats), one is a woman. By comparison, approximately 35 years ago in the 99 th Congress (1985-1986), 14 Hispanic or Latino Members served in Congress. All 14 were male Members of the House. Asian/Pacific Islander American Members A record 20 Members of the 116 th Congress (3.8% of the total membership) are of Asian, South Asian, or Pacific Islander ancestry. Seventeen of them (16 Democrats, 1 Republican) serve in the House, and 3 (all Democrats) serve in the Senate. These numbers include one House Member and one Senator who are also of African American ancestry, and another House Member of Hispanic ancestry; these Members are counted in both ethnic categories in this report. Of those serving in the House, three are Delegates. Ten of the Asian, Pacific Islander, or South Asian American Members are female: seven in the House, and all three in the Senate. By comparison, approximately 35 years ago in the 99 th Congress (1985-1986), there were five Asian/Pacific Islander Americans in the House, and two in the Senate. American Indian Members There are four American Indian (Native American) Members of the 116 th Congress; two of each party, all in the House. This is two more than in the 115 th Congress, and a record number. Foreign Birth Twenty-four Representatives and five Senators (5.3% of the 116 th Congress) were born outside the United States. Their places of birth include Canada, Cuba, Ecuador, Germany, Japan, Peru, and India. Some of these Members were born to American citizens working or serving abroad. The U.S. Constitution requires that Representatives be citizens for seven years and Senators be citizens for nine years before they take office. Military Service At the beginning of the 116 th Congress, there were 96 individuals (17.8% of the total membership) who had served or were serving in the military, 6 fewer than at the beginning of the 115 th Congress (102 Members). According to lists compiled by CQ , the House as of January 2019 had 78 veterans (including 4 female Members, as well as 1 Delegate); the Senate had 18 veterans, including 3 women. These Members served in the Vietnam War, the Persian Gulf War, and combat or peacekeeping missions in Afghanistan, Iraq, and Kosovo, as well as during times of peace. Eight House Members and one Senator are still serving in the reserves, and seven House Members are still serving in the National Guard. Four of the seven female veterans are combat veterans. The number of veterans in the 116 th Congress reflects the trend of steady decline in recent decades in the number of Members who have served in the military. For example, 64% of the Members of the 97 th Congress (1981-1982) were veterans, and in the 92 nd Congress (1971-1972), 73% of the Members were veterans. For summary information on the demographics of Members in selected past Congresses, including age trends, occupational backgrounds, military veteran status, and educational attainment, see CRS Report R42365, Representatives and Senators: Trends in Member Characteristics Since 1945 , coordinated by R. Eric Petersen.

This report presents a profile of the membership of the 116th Congress (2019-2020) as of March 7, 2019. Statistical information is included on selected characteristics of Members, including data on party affiliation, average age, occupation, education, length of congressional service, religious affiliation, gender, ethnicity, foreign birth, and military service. In the House of Representatives, there are 239 Democrats (including 4 Delegates), 199 Republicans (including 1 Delegate and the Resident Commissioner of Puerto Rico), and 3 vacant seats. The Senate has 53 Republicans, 45 Democrats, and 2 Independents, who both caucus with the Democrats. Additionally The average age of Members of the House at the beginning of the 116th Congress was 57.6 years; of Senators, 62.9 years. The overwhelming majority, 96%, of Members of Congress have a college education. The dominant professions of Members are public service/politics, business, and law. Most Members identify as Christians, and the collective majority of these affiliate with a Protestant denomination. Roman Catholics account for the largest single religious denomination, and numerous other affiliations are represented, including Jewish, Mormon, Buddhist, Muslim, Hindu, Greek Orthodox, Pentecostal Christian, Unitarian Universalist, and Adventist. The average length of service for Representatives at the beginning of the 116th Congress was 8.6 years (4.3 House terms); for Senators, 10.1 years (1.7 Senate terms). A record 131 women serve in the 116th Congress: 106 in the House, including 3 Delegates and the Resident Commissioner, and 25 in the Senate. There are 55 African American Members of the House and 3 in the Senate. This House number includes two Delegates. There are 50 Hispanic or Latino Members (a record number) serving: 45 in the House, including 2 Delegates and the Resident Commissioner, and 5 in the Senate. There are 20 Members (14 Representatives, 3 Delegates, and 3 Senators) who are Asian Americans, Indian Americans, or Pacific Islander Americans. This is also a record number. A record four American Indians (Native Americans) serve in the House. The portions of this report covering political party affiliation, gender, ethnicity, and vacant seats may be updated as events warrant. The remainder of the report will not be updated.

GAO_GAO-18-522

Background SEC Examinations of FINRA The Office of Compliance Inspections and Examinations (OCIE) administers SEC’s nationwide examination and inspection program for registered SROs, broker-dealers, transfer agents, clearing agencies, investment companies, and investment advisers. OCIE conducts examinations and inspections to improve compliance, prevent fraud, monitor risk, and inform policy. Individual groups in OCIE have oversight responsibility for the various registered entities. The FINRA and Securities Industry Oversight (FSIO) program within OCIE performs examinations of FINRA and the Municipal Securities Rulemaking Board, an SRO that regulates the municipal bond market. As part of its FINRA oversight activities, FSIO conducts four types of reviews that may involve Section 964 areas. Program inspections are reviews of FINRA operations and program areas (for example, FINRA’s review of applications by broker-dealers seeking to become members). Oversight examinations are single, stand-alone examinations of specific examinations that FINRA conducts of its member firms. FSIO initiates an oversight examination when its examinations of a broker- dealer find deficiencies FSIO believes should have been identified by FINRA in its own examination of the broker-dealer. Thematic oversight examinations are a series of oversight examinations that evaluate FINRA’s review of a particular regulatory area across a number of its member firms. Tips, complaints, and referrals are allegations or statements of concern about possible violations of securities laws or risky conduct received by SEC. FSIO reviews FINRA-related tips, complaints, and referrals by evaluating facts and circumstances and conducting background research. The reviews may result in FINRA-related inspections or examinations or may be used for inspection planning purposes. To help identify the FINRA programs and topics that it will review, FSIO uses a risk-based approach that includes an annual assessment of high- risk areas and consideration of the areas specified in Section 964. According to SEC staff, FSIO also conducts ongoing monitoring of FINRA’s activities through reviews of information provided by FINRA and meetings with FINRA officials. Standards Useful for Assessing Examination Policies and Procedures Generally accepted government auditing standards define performance audits as those that provide findings or conclusions based on an evaluation of sufficient, appropriate evidence against criteria. Performance audit objectives can include assessments of program effectiveness, economy, and efficiency; internal control; compliance; and prospective analyses. SEC’s examinations of SROs share many of the attributes of performance audits, including their objectives. For example, examinations (including inspections) of FINRA enable FSIO staff to evaluate compliance with applicable laws and regulations; FINRA rules, regulations, or by-laws; or both. Although SEC is not required to follow the auditing standards when examining SROs, these standards and guidance provide a framework for conducting high-quality reviews that can serve as useful criteria in evaluating a regulatory agency’s examination or inspection programs. Areas of generally accepted government auditing standards relevant to SRO examinations include independence, competence, quality control and assurance, planning, supervision, evidence, documentation, and reporting: Independence refers to the audit organization and individual auditor’s need to be independent and include documentation proving independence. Competence refers to the extent to which audit staff collectively should possess adequate professional competence and technical knowledge, skills, and expertise. Quality control and assurance refers to a system of quality control that an organization should establish that is designed to provide the organization with reasonable assurance that its personnel comply with professional standards and legal requirements. Planning includes creating a written audit plan for each audit. Supervision requirements include sufficient guidance and direction to the staff assigned to the audit to address the audit objectives and follow applicable requirements, while staying informed about significant problems encountered, reviewing the work performed, and providing effective on-the-job training. Evidence refers to sufficient, appropriate evidence to provide a reasonable basis for the auditor’s findings and conclusions. Audit documentation requirements state that auditors must prepare documentation related to planning, conducting, and reporting for each audit. Finally, communication of the results entails auditors issuing audit reports. SEC’s FINRA Oversight Activities Covered Key Areas Identified in the Dodd- Frank Act Since fiscal year 2015, SEC examinations related to FINRA included reviews of all areas identified in Section 964. We determined that FSIO completed at least one examination covering each of the Section 964 areas since fiscal year 2015 (see table 1). In total, FSIO began or completed 61 examinations (program inspections, oversight examinations, and thematic oversight examinations) related to FINRA programs and operations in that period. Some examinations evaluated other aspects of FINRA’s programs and operations (those not specifically identified in Section 964), such as market surveillance and restitution for harmed investors. FSIO examinations either focused on a single Section 964 area or considered multiple areas. Some examinations focused specifically on a single Section 964 area. For example, in 2017 FSIO reviewed FINRA’s arbitration program, which provides retail investors a venue for resolving disputes with their brokers. Other examinations considered one or more of the areas as part of a broader scope. For instance, a program inspection completed in 2016 touched on FINRA’s arbitration services, cooperation with state securities regulators, transparency, and other topics. Another program inspection involved governance, policies on former employees, and other topics. FSIO examinations most frequently covered FINRA examinations (41 of 61). Nearly all of the oversight examinations reviewed at least some aspect of FINRA examinations. In two cases, the oversight examinations also covered another area—review of advertising by FINRA members. Selected Guidance Used for FINRA Governance Inspections Generally Was Consistent with Relevant Auditing Standards We found that OCIE policies and procedures used for examining FINRA since fiscal year 2015 generally were consistent with the requirements of generally accepted government auditing standards. SEC uses an examination manual to conduct its SRO examinations. We previously found that OCIE policies and procedures (including the prior version of the manual) generally were consistent with the requirements of the auditing standards that we determined were most relevant to assessing examination policies and procedures: independence, competence, quality control and assurance, planning, supervision, evidence, documentation, and reporting. We compared the current and prior versions of the examination manual. More specifically, we selected requirements for planning, prefieldwork scoping, and communicating findings from the current manual and compared those with similar sections in the prior version of the manual. We found that the new version includes the same material as the prior version while also incorporating additional guidance in certain areas. The planning section of the current version includes two additional requirements on the inclusion of non-National Examination Program staff. The communicating findings section of the current version included two additional requirements related to extensions of time to respond to disposition letters. Two of the four additional requirements were generally consistent with government auditing standards, and the remaining two additional requirements were minor adjustments that did not materially change the requirements. Therefore, we deemed the selected sections of the current version of the manual to also be consistent with the auditing standards. Inspections of FINRA Governance Were Consistent with SEC Internal Guidance OCIE (and from 2016, FSIO) program inspections of FINRA governance in fiscal years 2015–2017 were consistent with internal examination guidance. OCIE identified five inspections in that period that related to FINRA governance. Each of the inspections focused on one of the following areas: (1) code of conduct, (2) executive and employee compensation practices, (3) investment portfolio, (4) compliance resource provider program, and (5) the funding mechanism for its regulatory services agreement. FINRA’s code of conduct imposes restrictions on employees’ investments and requires financial disclosures that are uniquely related to its role as a securities regulator. The code also outlines FINRA’s ethical commitments and expectations and provides guidance on what employees must do to meet them. FINRA’s executive and employee compensation practices consist of salary and incentive compensation determined by FINRA’s Management Compensation Committee using operational, strategic, and financial factors, in addition to individual performance. FINRA’s investment portfolio is governed by a policy based on the degree of risk appropriate for FINRA assets, as applied by its board to its investment objectives. In the compliance resource provider program, FINRA worked with organizations to offer firms compliance-related products and services at a discounted price or with additional features. According to FINRA staff, this program was discontinued in May 2017 and replaced with FINRA’s Compliance Vendor Directory. FINRA’s regulatory service agreements are designed to provide market surveillance, financial surveillance, examinations, investigations, and disciplinary services to other entities, including the New York Stock Exchange LLC and the Chicago Board Options Exchange. For our review, we judgmentally selected the most relevant requirements from the section of the examination manual related to planning inspections and the most relevant requirements from the section of the manual related to communicating inspection findings to determine if OCIE conducted the inspections in accordance with its guidance. The planning section covers planning examinations and prefieldwork scoping and requires the examination team to discuss the results of background research and determine an appropriate scope for the examination as early as possible. The communicating findings section requires entities to be provided with timely and concise communications on the results. It also discusses how examination staff should take further actions for those findings that could involve notifications to other regulators. We reviewed relevant inspection-related documentation (including scope memorandums, disposition letters, emails, and information extracted from an examination database) and compared them against the selected requirements to determine if the guidance was followed. We tallied our results with a scorecard methodology (see fig. 1). We found that all five inspections we reviewed met all requirements applicable to that particular inspection. For example, across all the inspections, OCIE examiners held prefieldwork meetings and documented and received approval for the scope of the examinations. Additionally, all five inspections met the required 180-day completion deadline and closed the inspection with a disposition letter. In cases in which requirements were not applicable, the reasons generally were that a triggering event had not occurred and no further action was needed. For instance, the scope was not modified in any of the inspections, so the requirement for approval of such modifications did not apply. Furthermore, none of the inspections included non-National Examination Program staff (such as personnel from SEC’s Enforcement Division), and so requirements surrounding participation by those groups did not apply. Agency Comments We provided a draft of this report to SEC for their review and comment. In its comment letter, which is reprinted in appendix II, SEC concurred with our findings and appreciated our attention to the issues discussed in the report. SEC also provided technical comments on the draft report, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, Inc., and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology This report (1) determines if the Securities and Exchange Commission’s (SEC) oversight of the Financial Industry Regulatory Authority, Inc.’s (FINRA) operations and programs since fiscal year 2015 included the 10 areas specified in Section 964 of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), (2) evaluates the extent to which selected SEC internal guidance on conducting examinations of FINRA follows generally accepted government auditing standards, and (3) evaluates the extent to which examinations of FINRA’s governance practices followed SEC’s internal guidance. To assess whether oversight of FINRA by SEC’s Office of Compliance Inspections and Examinations (OCIE) included the Section 964 areas, we requested and reviewed documentation for all examinations since fiscal year 2015 (from October 2014 through April 2018) that OCIE staff identified as relating to Section 964 areas. We use the term “examination” to include program inspections, two types of oversight examinations, and oversight activities stemming from tips and referrals. The documentation included scope memorandums, deficiency letters, and closing letters to the file for OCIE examinations. We evaluated whether the documentation indicated that an examination’s scope and findings covered one or more Section 964 areas or included other areas related to FINRA oversight that were not specified in Section 964. To determine the extent to which OCIE’s internal guidance on conducting examinations of FINRA followed generally accepted government auditing standards, we compared SEC’s examination manual against generally accepted auditing standards. We reviewed selected sections of the current version of the manual and the earlier version. We judgmentally selected the two sections that most directly related to our focus on self- regulatory organization (SRO) inspections, which focused on preparing for examinations and communicating examination findings. Other areas of the examination manual that were not relevant focused on administration and organizational issues. We relied on our work that found that the earlier version of the manual followed the auditing standards and also interviewed pertinent staff within OCIE to discuss the guidance and why it did or did not include certain elements. We analyzed any differences between the versions to determine whether changes or additions in the current version of the manual also followed auditing standards. In addition, we interviewed FINRA staff to gain a general understanding of how OCIE staff work with them to conduct examinations. To determine the extent to which OCIE’s program inspections of FINRA’s governance in fiscal years 2015–2017 followed OCIE’s internal guidance, we used a scorecard methodology to compare inspections of FINRA’s governance with the examination manual and draft updates. We only reviewed the extent to which examinations followed specified guidelines and did not evaluate the analysis, findings, or disposition of the examinations. We created a checklist of relevant elements from the examination manual by judgmentally selecting 6 requirements from the planning inspections section of the manual and 11 requirements from the communicating findings section of the manual that were most applicable to our focus on the actual SRO inspection process. Other requirements that we deemed less relevant include examinations of exempt reporting advisers and the process for approving examination documents. The planning section of the manual covers planning examinations and prefieldwork scoping and requires the examination team to discuss the results of background research and determine an appropriate scope for the examination as early as possible. The communication of examination findings section requires entities to be provided with timely and concise communications on the results. It also discusses how examination staff should take further actions for those findings that could involve notifications to other regulators. We then reviewed different types of inspection-related documentation to determine whether the guidance was followed. For instance, we assessed certain inspection requirements, such as compliance with changing the scope of the inspection, based on formal written documentation such as scope memorandums and disposition letters. We assessed other requirements (such as whether prefieldwork team meetings were held) based on informal documentation, such as email appointments. We also relied on other internal documentation, which included the examination tracking database, which is used to certify compliance with a requirement to complete an inspection within 180 days from the completion of audit work. Two analysts then independently compared the elements against documentation for the five OCIE inspections to determine the extent to which the inspections documented the requirements outlined in the examination manual. Analysts assigned a rating of “yes” if the element was found in the inspection materials we reviewed, “no” if there was no mention of the element in the inspection materials we reviewed, “partially” if the element was not fully addressed in the inspection materials we reviewed, and “n/a” if the element was not applicable to the inspection. We also interviewed pertinent staff within OCIE to discuss the guidance and why it did or did not include certain elements. We conducted this performance audit from November 2017 to July 2018 in accordance with generally accepted government auditing standards. These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Securities and Exchange Commission Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Karen Tremba (Assistant Director), Jon D. Menaster (Analyst in Charge), Kevin Averyt, Farrah Graham, Marc Molino, Akiko Ohnuma, Barbara Roesmann, and Jessica Sandler made key contributions to this report.

The securities industry is generally regulated by a combination of federal and industry oversight. FINRA, a self-regulatory organization, is responsible for regulating securities firms doing business with the public in the United States. SEC oversees FINRA's operations and programs. Section 964 of the Dodd-Frank Act includes a provision for GAO, following an initial report, to triennially review and report on aspects of SEC's oversight of FINRA. GAO issued its first report in May 2012 ( GAO-12-625 ) and its second report in April 2015 ( GAO-15-376 ). This report (1) determines if SEC's oversight of FINRA included the 10 areas specified in Section 964 of the Dodd-Frank Act and (2) evaluates the extent to which selected SEC internal guidance for examinations of FINRA follows generally accepted government auditing standards and the extent to which SEC's examinations of FINRA's governance practices followed SEC internal guidance. GAO reviewed all SEC examinations relating to a Section 964 area completed since fiscal year 2015 (including five that were governance-related), reviewed certain SEC procedures used to examine self-regulatory organizations against Government Auditing Standards , and compared completed inspections against SEC guidance. GAO also interviewed SEC and FINRA staff. Since fiscal year 2015, Securities and Exchange Commission (SEC) examinations of the Financial Industry Regulatory Authority, Inc. (FINRA) covered each of the 10 areas specified in Section 964 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), such as governance, funding, and transparency. The most commonly covered area was FINRA examinations of its members. Selected SEC guidance used to examine FINRA, including requirements for planning, prefieldwork scoping, and communicating findings, was consistent with generally accepted government auditing standards, and SEC inspections of FINRA were consistent with SEC's guidance. The five governance-related inspections of FINRA that GAO reviewed were consistent with SEC guidance for planning examinations and communicating findings (see fig.). Not all the requirements were applicable (because in certain instances completion of one requirement eliminated the need to satisfy others).

GAO_GAO-18-324

Background MDA is responsible for developing a number of systems, known as elements, with the purpose of defending against ballistic missile attacks. MDA’s mission is to combine these elements into an integrated system- of-systems, known as the Ballistic Missile Defense System. Specifically, the goal of the BMDS is to combine the abilities of two or more elements to achieve objectives that would not have been possible for any individual element. These emergent abilities are known as “integrated capabilities” or “BMDS-level capabilities.” Table 1 provides a list and description of elements included in our review. MDA’s Acquisition Flexibilities and Steps to Improve Traceability and Oversight When MDA was established in 2002, it was granted exceptional flexibilities to set requirements and manage the acquisition of the BMDS—developed as a single program—that allow MDA to expedite the fielding of assets and integrated ballistic missile defense capabilities. These flexibilities allow MDA to diverge from DOD’s traditional acquisition life cycle and defer the application of acquisition policies and laws designed to facilitate oversight and accountability until a mature capability is ready to be handed over to a military service for production and operation. Some of the laws and policies include such things as: obtaining the approval of a higher-level acquisition executive before making changes to an approved baseline, reporting certain increases in unit cost measured from the original or current baseline, obtaining an independent life-cycle cost estimate prior to beginning system development and/or production and deployment, and regularly providing detailed program status information to Congress, including specific costs, in Selected Acquisition Reports. In response to concerns related to MDA’s flexibilities, Congress and DOD have taken a number of actions. For example, Congress enacted legislation in 2008 requiring MDA to establish cost, schedule, and performance baselines—starting points against which to measure progress—for each element that has entered the equivalent of system development or is being produced or acquired for operational fielding. MDA reported its newly established baselines to Congress for the first time in its June 2010 BMDS Accountability Report. Since that time, Congress has provided more detailed requirements for the content of these baselines. Additionally, to enhance oversight of the information provided in the BMDS Accountability Report, MDA continues to incorporate suggestions and recommendations from us. However, not all of our recommendations have been fully implemented. MDA’s Process for Delivering Capabilities Because MDA is not a military service, it does not abide by the same policies that the services use for delivering capabilities. Instead, a process exists whereby MDA declares an asset or capability ready for delivery for potential operational use. During this process, MDA communicates the capabilities and limitations of its delivery, and provides evidence supporting these assertions. Representatives from the receiving military service or combatant command then have the ability to assess this evidence and decide whether to accept the new capability. Because the military services conduct minimal missile defense testing of their own, this process is one of the only ways to convey vital performance information. The accuracy of this information is especially important as it informs training materials, doctrine, and deployment decisions. Typically, MDA makes capability deliveries through approved changes to its Operational Capacity Baseline (OCB). Proposed changes to the baseline are coordinated with the warfighter, including the affected combatant commands. Subsequently, the combatant commands assess these element capabilities to determine whether to accept them. This process is used for the vast majority of deliveries, including relatively minor ones such as software patches and updates. In recent years, MDA has declared major capabilities ready for delivery through a process that culminates in the issuance of a Technical Capability Declaration (TCD). According to MDA officials, the primary purpose of a TCD is to allow MDA’s senior management to manage the delivery of integrated, BMDS-level capabilities that require more than one element to function; however, TCDs have also been issued in response to mandates from the President. MDA’s Contracting Practices Though MDA has flexibilities in managing the acquisition process, it must follow the same contracting regulations that apply to DOD, including the Federal Acquisition Regulation and the Department of Defense Federal Acquisition Regulation Supplement (DFARS). We reviewed MDA’s use of a particular type of contract action that authorizes a contractor to begin work before contract terms, specifications, or price have been agreed upon. These “undefinitized contract actions” are permitted by the DFARS, with certain limitations. Undefinitized contract actions are generally used when negotiation of a definitive contract action is not possible in sufficient time to meet the government’s requirements and the government’s interest demands that the contractor be given a binding commitment so that contract performance can begin immediately. Under the DFARS, undefinitized contract actions must include a specific “not-to-exceed” price. Once the action’s terms, specifications, and price have been agreed upon or determined, a process known as definitization, the contract action converts to a “definitive” contract. Under the DFARS, undefinitized contract actions must contain definitization schedules that provide for definitization by the earlier of (1) 180 days after issuance or (2) the date on which the amount of funds obligated under the action is more than 50 percent of the not-to-exceed price. Once the government has received a qualifying proposal from the contractor, however, the government can extend the undefinitized period another 180 days. Similarly, the government may obligate up to 75 percent of the not-to-exceed price, if the contractor submits the qualifying proposal before 50 percent of the not-to-exceed price has been obligated. The amount of funds obligated should be consistent with the contractor’s requirements for the undefinitized period. Figure 1 shows the expected time frame and amount the government should spend within a specified period. Models and Simulations Used in Operational Testing of the BMDS The BMDS is a system of systems that cannot be completely assessed using intercept flight tests that are operationally representative because of the system’s scope and complexity and safety constraints. Consequently, MDA, independent DOD testing organizations, and the warfighter must rely heavily on representations of the integrated BMDS called models and simulations in ground testing, rather than live tests, to test the operational performance of the whole BMDS against attacks with more threats represented. In ground testing, each BMDS element is represented by a model and connected to a computer framework. During ground test execution, a model of threat ballistic missiles is applied to the framework and stimulates the modeled representations of BMDS elements to react. The resulting simulation models a BMDS engagement. Figure 1 illustrates the BMDS ground test sequence. To ensure that BMDS models and simulations accurately represent the real-world operational BMDS capabilities and that the limitations of the model are understood, they are verified, validated, and accredited. The verification, validation, and accreditation process is designed to identify and gather evidence needed to certify that the model and its associated data used in ground testing are acceptable for operational testing. No model is completely representative of the real world so the verification, validation, and accreditation process is used to assess the extent to which it reflects the operational performance of the BMDS in the real world, and how any modeling deficiencies impacted ground test results. Any modeling limitations identified in the verification, validation, and accreditation process restrict the extent to which ground test data can be used for BMDS assessment. For example, limitations in modeled sensor tracking of the threat restrict the extent to which tracking data can be relied on for interpreting operational real-world performance. Figure 2 illustrates the verification, validation, and accreditation process. The BMDS Operational Test Agency (OTA) is responsible for analyzing the verification and validation data for the models used in operational BMDS tests and provides accreditation recommendations to the Commanding General, Army Test and Evaluation Command, an independent accreditation authority for operational testing. In this role, the BMDS OTA develops accreditation criteria and assesses if the model can be used for operational assessments against these criteria. The BMDS OTA is also responsible for analyzing the extent to which the threat model, once it is applied to the ground testing framework, can be traced back to the threat model that MDA developed and the intelligence community’s description of the threat. MDA Made Some Progress, but Did Not Meet Many of Its Acquisition Goals, and Has Inconsistently Applied Its Capability Delivery Processes In fiscal year 2017, MDA made some progress delivering assets, including BMDS-level capabilities and conducting tests. However, MDA did not meet many of its goals as expressed in the Ballistic Missile Defense System Accountability Report for fiscal year 2017, its integrated master test plan, and master integration plan. Specifically, MDA continued to deliver interceptors for three elements and successfully conducted its first test against an intercontinental ballistic missile target. In addition, MDA announced the delivery of one package of integrated BMDS-level capabilities through a technical capability declaration (TCD), which had been delayed from the previous year, and planned to complete the delivery of another set of capabilities by March 2018. MDA, however, did not complete its goals for delivering assets, specifically for the THAAD interceptors or conducting planned testing for Aegis BMD. We also identified several deficiencies in MDA’s processes for communicating progress in delivering integrated capabilities. MDA Achieved Mixed Results in Delivering Assets and BMDS-Level Capabilities, Adhering to the Planned Test Schedule MDA made progress delivering assets against its backlogs from fiscal year 2016, while its test program achieved several notable milestones. MDA also delivered several new integrated capabilities, though not always on time and often with reduced content compared to what was planned to be delivered. In addition, not all deliveries and testing objectives were met, and MDA made a number of changes, additions, and deletions to its test and capability delivery schedule during the year. Elements: While BMDS elements made progress delivering assets, including some that were delayed from fiscal year 2016, MDA did not meet all of its asset delivery goals as planned. For a summary of MDA’s major asset deliveries for fiscal year 2017, see table 2 below. Both the Aegis Standard Missile-3 (SM-3) Block IB and Ground-based Midcourse Defense (GMD) programs succeeded in achieving their asset delivery goals for the fiscal year, although both included acceptance of assets delayed from prior fiscal years. Specifically, due to quality issues and design problems discovered during testing, production on the Aegis SM-3 Block IB interceptor was temporarily halted in fiscal year 2016, and as a result MDA fell short of its deliveries for that year by 15 interceptors. To make up for this, MDA rolled over an additional 15 interceptor deliveries into fiscal year 2017, for a total delivery of 55 interceptors. In addition, MDA achieved its goal of delivering 44 ground-based interceptors by the end of calendar year 2017. However, some programs that achieved their milestones continued to employ high-risk approaches to acquisition, which we have recommended MDA reduce in previous reports. In addition, MDA maintains an ambitious schedule for key programs, such as for GMD’s Redesigned Kill Vehicle program. For more information regarding specific programs, see appendixes II through X. Other MDA elements missed asset delivery milestones. The Command, Control, Battle Management, and Communications (C2BMC) software spiral (or version) 8.2-1 was previously due to be delivered in October 2017, but was delayed again from its new date of December 2017 to second quarter of 2018. This spiral will play an important role in several tests of integrated capabilities, such as FTM-29, which was executed in January 2018. The Terminal High Altitude Area Defense (THAAD) program’s delivery of interceptor Lot 6 was scheduled to be delivered by the end of June 2017, but has since been delayed to the second quarter of 2018. THAAD officials stated this delay was due to a component production issue as well as the addition of 12 additional interceptors to the fiscal year 2017 procurement. Additionally, the Army and MDA have reached an impasse regarding the transfer of the THAAD program from MDA to the Army. MDA and the Army have been directed by the Deputy Secretary of Defense to develop a memorandum of agreement that would guide the transfer of the THAAD and AN/TPY-2 programs to the Army, and the National Defense Authorization Act for fiscal year 2018 requires the Secretary of Defense to transfer the acquisition authority of all missile defense programs that have received full-rate production authority, which includes THAAD, to the military departments not later than the date the President’s fiscal year 2021 budget is submitted. The Army, however, has identified a $10.1 billion requirements gap, and the Secretary of the Army issued a memo that he would non-concur with the transfer of the THAAD program in its current state. There is currently no plan or timeline to resolve the issue. We will continue to follow this issue in our future work. Finally, additional delays to the construction of the Aegis Ashore facility in Poland resulted in significant schedule compression, reducing the time allotted for installation and checkout activities from 16.5 months to 9.5 months. MDA initially maintained that the site would be delivered on schedule, but early in fiscal year 2018 the agency announced that the site would not be delivered until at least December 2019. Integrated BMDS Capability Increments: MDA also encountered challenges delivering packages of integrated capabilities, which it refers to as “increments.” Increment deliveries signify delivery of integrated BMDS-level capabilities, which are designed to significantly improve effectiveness and efficiency of the BMDS over its constituent elements working independently. MDA planned to deliver two increments in 2017, but both were delayed, and some constituent capabilities were removed and are planned to be delivered in future increments. For instance, MDA was late in delivering Increment 3, known as “Discrimination Improvements for Homeland Defense – Near Term.” We previously reported on schedule slips to this increment from its initial September 2016 delivery date to December 2016. However, program documentation indicates that MDA encountered further challenges in fiscal year 2017 that required an additional delay to March 2017. According to MDA officials, this most recent delay was driven by additional time needed to analyze testing results. However, we found that GMD had experienced development delays for some software upgrades leading up to assessment and integration activities. Moreover, MDA’s Increment 4, known as “Enhanced Homeland Defense,” was not completed in December 2017 as planned, because a C2BMC and a key GMD upgrade initially planned to support four BMDS-level capabilities intended for this increment would not be available until the second quarter of fiscal year 2018. MDA officials told us that they will rely on the current GMD software version, which lacks some key improvements, until this upgrade is delivered. Additionally, MDA significantly reduced the content of its BMDS cyberdefense capability planned for Increment 4. MDA documentation originally planned to deliver this capability with 10 elements and, prior to testing, the BMDS OTA declared four elements to be priorities. Of these four, MDA has conducted the assessment for only three. The remaining BMDS elements will deliver cyberdefense capabilities in future increment deliveries. MDA’s plans for delivery of future capabilities continue to be volatile. For example, plans for Increment 6 in fiscal year 2021, which will include delivering a new radar and kill vehicle for GMD, now require its capabilities to be broken up into three sub-increments delivered across several years, some as late as 2023, with multiple new capabilities added and several others deferred to Increment 7. Many of these delays continue to postpone achievement of BMDS integration, needed to improve performance against realistic attacks with multiple ballistic missiles. Most recently, MDA again delayed a capability designed to improve automated coordination between regional BMD shooters—that is, Aegis BMD, THAAD, and Patriot. While initially planned for delivery in 2015 with Increment 2, in fiscal year 2017, the capability was further delayed, from 2020 to 2023. In addition, a further integration capability that would centralize and automate command decisions across the BMDS will not be available until December 2025. See figure 3 for more information on how capabilities have been delayed within and across increments. Testing: MDA successfully completed most of its planned tests in fiscal year 2017 and achieved several notable milestones, though MDA continued to add, alter, delete, or delay parts of its test schedule throughout the year. Within the elements included in this report, MDA had nine tests in its fiscal year 2017 test plan, of which it conducted six as planned. MDA also added three additional tests to its plan over the course of the year. A summary of these tests can be found in table 3. Many of these tests are notable firsts for MDA, though others indicate continuing challenges. FTG-15 was a success, in which a Ground-Based Interceptor with a Configuration-2 booster and a CE-II Block I Exo-atmospheric Kill Vehicle intercepted for the first time an intercontinental ballistic missile with threat representative characteristics. In addition, this was the first use of the new booster avionics and upgrades to the software. The success of this test was necessary to deliver Increment 4’s requirements for Enhanced Homeland Defense. However, Department of Defense operational testing officials stated that the complexity and objectives of the test had been scaled back from what MDA originally planned. SFTM-01 was a success, in which an Aegis BMD SM-3 Block IIA missile intercepted a medium-range ballistic missile target. This was the first intercept test for the Aegis BMD SM-3 Block IIA. SFTM-02 was a failure, as the Aegis BMD SM-3 Block IIA interceptor failed to intercept its medium-range ballistic missile target. MDA officials stated that the interceptor acted “as designed” during the test, and the Navy is considering whether changes to its tactics, techniques, and procedures may be warranted. MDA officials maintained that this developmental test existed in part for risk- reduction ahead of fiscal year 2018’s FTM-29, in which the Aegis BMD SM-3 Block IIA would have to intercept an intermediate-range ballistic missile for the first time. Despite the failure, MDA has chosen not to reschedule and has instead re-assigned SFTM-02’s objectives to FTM-29. FTT-18 was a success, in which a THAAD battery intercepted an intermediate-range ballistic missile target. This test was originally planned for several years ago, as part of the 2015 delivery of Increment 2, and has been delayed in part due to issues with range availability. This is the first demonstration of THAAD against an intermediate-range ballistic missile target despite a THAAD battery having been delivered to Guam for this mission in 2013. FET-01, previously known as FTT-15, was a success, demonstrating THAAD’s ability to intercept a target in the endo-atmospheric stage of flight. MDA re-classified the test a “Flight Experiment” midway through fiscal year 2017 to reflect its more observational and experimental nature. The test objectives for FET-01 have changed several times, and while the final iteration of test objectives did not include intercept as an objective, an intercept against a medium-range ballistic missile target was achieved nonetheless. MDA’s Process for Managing the Delivery of BMDS-Level Capabilities Is Not Applied Consistently and Has Unclear Requirements When MDA declares a capability ready for delivery to warfighters, it communicates the capabilities and limitations of the delivered asset. This information is critical for allowing warfighters to make informed decisions about whether to accept the capability, how to prepare for its deployment, and how to plan for its use. Typically this process occurs through the Operational Capacity Baseline (OCB) change process, which is structured around the delivery of new capabilities to individual elements. Alternately, as noted above, when MDA declares a key integrated, BMDS-level capability ready for delivery, it does so through a process which culminates in the issuance of a Technical Capability Declaration (TCD). The TCD is a memorandum signed by the Director, MDA and is usually reserved for significant new capabilities such as: those mandated by the President; or delivery of integrated BMDS-level capabilities that require more than one element to function. This last category of capabilities is especially important as, according MDA’s charter, the BMDS is intended to be an integrated and interoperable system. Integration is important in order to counter the larger-scale and more complex attacks that are likely to occur during a conflict. We have reported since 2014 that MDA has taken steps to improve the management and reporting of integrated capabilities, and to increase the level of BMDS integration. While MDA has recently made some progress in the area of integrated capabilities, the majority of MDA’s capability deliveries continue to be made at the element level. Until recently, MDA has done little to document the requirements and process for issuing a TCD, resulting in an inconsistent and, at times, ad- hoc process. We found inconsistencies in MDA’s decisions regarding which integrated, BMDS-level capabilities MDA would deliver through a TCD, and which it would not. For example, since 2015, the agency planned to deliver 14 integrated, BMDS-level capabilities, but delivered only 7 through the TCD process. According to MDA’s prior capability delivery documents, several of these excluded capabilities were intended to be part of the formal TCD delivery during the planning stage, but were dropped at some later point. According to MDA officials, those deliveries were made when all their constituent elements were delivered via the OCB process. MDA officials acknowledged that distinctions between requirements for element-level deliveries and BMDS-level capabilities were not readily apparent in their policy and took steps in fiscal year 2017 to do so. MDA issued a memorandum on Technical Capability Declaration Planning and Definitions in June 2017 to help distinguish element-level OCB deliveries and deliveries of integrated BMDS capabilities that would occur via TCD. This document established several definitions and requirements such as assigning responsibilities, establishing lines of authority, and defining some requirements that are not found in the other guidance document that MDA uses to govern TCD. The June 2017 memorandum also identified which capabilities through 2023 that MDA will deliver via a TCD, and identified some ways to add a new capability to the list of those receiving a TCD. While MDA’s new policy represents a substantial improvement in the management of the TCD process, it does not address several important problems with the TCD process. Specifically, although MDA has identified capabilities that it plans to deliver using a TCD, it does not identify any criteria or reasoning that guided this determination. It also does not explain the criteria MDA will apply to future capabilities under consideration for a TCD, leaving open the possibility of the same inconsistent application MDA has used in the past. Moreover, the capabilities it identified for a TCD are only a subset of all planned integrated, BMDS-level capabilities. Consequently, only some integrated capabilities are currently planned to be delivered to the warfighter with comprehensive information about their performance and limitations at the BMDS level. Unless MDA requires that all integrated capabilities are delivered via the TCD process, as the BMDS becomes more integrated, military services and other decision makers will have reduced insight into the capabilities and limitations of the BMDS as a whole. MDA’s June 2017 policy also establishes some processes governing the requirements for, and development of, test plans in support of a TCD, but it does not address some of the most problematic aspects of this process to date. Specifically, the new policy requires convening an Assessment Requirements Review board to develop a baseline for a planned TCD, determine what capabilities will be included, and identify what test plans will be necessary to generate the “body of evidence” that MDA will provide in support of the TCD’s assertions regarding capabilities and limitations. However, we found that Assessment Requirements Reviews can be held shortly before the planned delivery date—which affords no opportunity to build the test plan around the requirements identified in the review. MDA held Assessment Requirement Reviews in preparation for two of the previous three TCDs. The timing of these reviews in relation to the date of the TCD’s issuance suggests that they had little influence on MDA’s actual test plans. MDA officials stated that an Assessment Requirement Review is ideally held 18 months to 2 years prior to the issuance of the related TCD. However, we found that, for recently issued TCDs, the reviews were held much closer to the beginning of testing and the planned TCD delivery. For example, for the TCD issued in December 2017 that delivered 44 ground-based interceptors, MDA held this review less than 8 weeks in advance. Figure 4 depicts the timeline of the Assessment Requirements Review as compared to the start of testing for the TCD and the TCD delivery date. Because these reviews identify requirements that must be tested, the Assessment Requirements Review would ideally inform MDA’s test plans so that each component of the integrated capability could be adequately tested by the planned delivery date. But because the policy does not give exact requirements, process, and key milestones necessary to issue a TCD, MDA is able to hold an Assessment Requirements Review that merely acknowledges the results of tests already completed. These practices are consistent with our prior findings on MDA, which identified a lack of a management framework for delivering integrated capabilities, and showed that the lack of this framework resulted in concurrency, fragmentation of development activities, and delays for some originally planned capabilities. According to DOD’s guidance on acquisition and testing, a program’s test and evaluation strategy should begin with a review of requirements so that management can devise a test and evaluation strategy that generates the knowledge necessary to inform the acquisition and operational decisions of a program. Holding the Assessment Requirement Review so close to the planned delivery date affords no opportunity to build the test plan around the requirements identified in the review, and instead only ratifies the results of a test plan that was not necessarily developed with these requirements in mind. MDA’s Use of Undefinitized Contract Actions Poses Cost and Schedule Risks to the Government Undefinitized contract actions are authorized when the negotiation of a definitive contract is not possible in sufficient time to meet the government’s requirements and government interests demand that the contractor be given a binding commitment so that contract performance can begin immediately, and are subject to certain limitations. Our analysis of MDA contracting from fiscal year 2013 to fiscal year 2017 shows that the combined not-to-exceed price of all undefinitized contract actions entered in a given year, and the average time it takes to definitize undefinitized contract actions, have increased. GAO has reported that while this type of contract action may be necessary under certain circumstances, it is considered risky in part because the government may incur unnecessary costs if requirements change before the contract is definitized. Though MDA reports on its contracting activities in its annual BMDS Accountability Report, its reporting on details unique to undefinitized contract actions is often inconsistent or even absent. MDA’s Acquisition Management Instruction 5013.02-INS states that undefinitized contract actions will be used only on “an extremely limited basis” and only when negotiating contract terms before the contractor begins work is not feasible, such as when delay “would adversely impact mission accomplishment.” Our prior work, as well as that of the DOD inspector general, has found that this type of contract action is considered risky in part because the government may incur unnecessary costs if requirements change before the contract is definitized. Under undefinitized contract actions, substantial funds may be obligated before essential questions of contract scope and system design have been settled. Over the past 5 years, the average length of the undefinitized period and not-to-exceed price for MDA’s undefinitized contract actions have increased. Since 2013, MDA has entered into 11 undefinitized contract actions as shown in table 4. MDA’s use of undefinitized contract actions has fluctuated between one and five instances per year. The combined not-to-exceed price of all such contract actions entered into each year has increased, however, from $2.5 million in fiscal year 2013 to $1.4 billion in fiscal year 2017 as shown in figure 5. The average time to definitize these contract actions has steadily increased as well, from 78 days in fiscal year 2013, to over 600 days in fiscal year 2016 (see figure 6). Two undefinitized contracts were awarded in fiscal year 2017 and both exceeded 180 days without definitization. The value of MDA’s undefinitized contract actions entered into in a given year, as measured by their combined not-to-exceed prices, has risen significantly. The length of the undefinitized period has also risen on average. Together, these figures show that MDA may be initiating contractor work with incomplete knowledge of the requirements or costs involved. With regard to the increasing duration of the undefinitized period, MDA contracting officials told us that when they do not achieve definitization within 180 days, it is often because the contractor’s proposal is not adequately supported by a sound estimate, and negotiation past 180 days is necessary to achieve a fair and reasonable price. They added that the task of making this determination is made more complicated by the highly developmental nature of the work that MDA often conducts. For example, the 2015 undefinitized contract action for Aegis BMD SM-3 Block IIA test interceptors remained undefinitized for 629 days. According to MDA officials, this delay was due in part to the difficulty of accurately estimating costs on a highly developmental project. MDA officials reported having to develop a substantial knowledge base and consult closely with other DOD entities that would have insight into the costs of similar projects, after the undefinitized contract action was entered into. Using an undefinitized contract action in this case, however, was not without risk to the government. MDA made major financial commitments to a program before it fully understood the requirements or the costs. To mitigate the risks related to these contract actions, MDA’s Instruction requires all undefinitized contract actions to be supported by a determination and findings that articulates the requirement to begin performance prior to a negotiated agreement, the not-to-exceed price and the definitization schedule. The DFARS and MDA instruction require all undefinitized contract actions to be approved by the Director, MDA. MDA officials told us that they interpret the MDA Instruction to require that the Director, MDA, sign determination and findings documents in support of undefinitized contract actions. In addition, MDA contracting officials stated that to further mitigate the risks related to undefinitized contract actions, they, as a matter of practice, strive to obligate only the minimum amount of funding necessary to achieve definitization. Officials indicated that doing so limits the cost risk for the government, and forces programs to think carefully about what work needs to be done prior to definitization and its likely costs. While the Director, MDA is required to sign the determination and findings document, in one instance, this document specifically authorized the program to amend the requirements and not-to-exceed price without further formal approval from the Director, MDA. This specific undefinitized contract action was the largest MDA has entered into since fiscal year 2013. MDA entered into the undefinitized contract action in May 2017, authorizing the design, development, and initial production of the GMD program’s Redesigned Kill Vehicle (RKV), with a not-to-exceed price of $1.088 billion. This undefinitized contract action will allow MDA to continue with the RKV program despite significant cost, schedule, and performance risks, some of which the determination and findings document for the RKV undefinitized contract action acknowledged. When MDA released its acquisition strategy for the RKV in 2015, it predicted the phase covered by this contract action would cost approximately $800 million, covering initial testing and production of up to eight RKVs for initial fielding. Officials stated that the current contract action, with a not-to-exceed price of $1.088 billion, is for only four interceptors, although since it is undefinitized, that is subject to change. If the RKV program definitizes this contract action according to its schedule in May 2018, after 12 months, this will result in the definitization of the contract action with less than a year remaining before the program’s critical design review. In other words, the government will have agreed on contract terms, including costs, after much of the design work and related costs have been incurred. As of February 2018, MDA reports obligating $324 million, or 30 percent of the not-to-exceed price, to this undefinitized contract action. This is in excess of the $244 million planned for the undefinitized period at the time of award. As part of MDA’s annual BMDS Accountability Report, MDA reports on its planned performance and schedule for the coming fiscal year across several baselines, one of which is dedicated to contracting performance. MDA provides these baselines in response to statutory requirements. By establishing these baselines and then reporting any deviations in cost, schedule, or performance as a program proceeds, the BMDS Accountability Report provides information for oversight by identifying areas of program risk and their causes to decision makers. Baselines also help ensure that the full financial commitment is considered before embarking on major development efforts. These reports contain some information on undefinitized contracts. However, the information is often inconsistently presented and distributed throughout the report. Information specific to undefinitized contract actions is often absent, such as the following: the definitization schedule (that is, the expected time frame for finalizing contract terms); the amount of funds obligated to the action for the undefinitized period; or any changes to the above that have occurred since award of the action. As a result, decision makers in Congress have limited insight into how MDA is handling the risks that come with undefinitized contract actions, or how the programs enacting these contracts are performing. For example, these reports do not typically disclose how much has been obligated under an undefinitized contract action, or if this amount has increased since the contract was awarded. They do not report if the not-to-exceed value has been revised, or if the current definitization schedule adheres to the schedule determined at the time of award. Despite Steps Taken to Improve BMDS Modeling Capabilities, Modeling Challenges Limit the Credibility and Accuracy of BMDS Performance Data Despite taking steps to improve the realism of the models it uses for ground testing, MDA continues to face challenges with its models. As a result, decision makers lack key information about BMDS performance, which could lead to miscalculations about how best to employ the BMDS and where to focus future capability development and investment. Specifically, MDA continues to encounter challenges with ensuring that its models and simulations are accredited for operational testing when they are used to test BMDS capabilities, resulting in uncertain performance outcomes in assessments supporting BMDS deliveries. Additionally, accreditation status and modeling limitations for these assessments are not communicated to most decision makers in Congress and some in the DOD and executive branch, limiting their insight into the data limitations underlying their decisions to make investments in and employ the BMDS. Finally, MDA’s assessment of the resources needed to validate and accredit its current models does not match requested funding for this effort. MDA Has Taken Steps to Improve Its Modeling Capabilities, but Most Delivered BMDS Capabilities Were Tested Using Unaccredited Models Since MDA cannot conduct enough system-level flight testing of the entire BMDS to completely assess BMDS performance, BMDS decision makers within MDA, DOD, Congress, and the executive branch use information from model-based ground tests to evaluate the operational effectiveness of the BMDS. The results from these model-based operational tests inform many acquisition and operational decisions, including: capability delivery, asset fielding, and interceptor inventory. Model-based testing also informs the warfighter’s tactics, techniques, and procedures to maximize BMDS effectiveness such as how many interceptors they will fire at a threat; and the capability gap analysis, the basis for warfighter requests for new capabilities. Recognizing the importance of models and simulations, MDA has taken steps to improve its ability to provide realistic modeled representations of the integrated BMDS necessary to assess operational performance. For instance: In 2009, MDA adjusted its test baseline, known as the Integrated Master Test Plan, and refocused its testing on collecting data needed for model development and accreditation. In 2016, MDA developed an update to a framework that is used to integrate the modeled representations of BMDS elements for assessments, and in 2017 continued an effort to develop digital end- to-end models and simulations to increase modeling capabilities and to expand the scope of BMDS assessments in the future. In 2017, MDA increased its collaboration with BMDS OTA to prioritize modeling needs and to address them. Despite these steps, MDA continues to deliver assets and capabilities using models that have not been accredited. In April 2016 and May 2017, we found that MDA had delivered EPAA Phase 2 capabilities in December 2015 using models that have not been accredited to support the delivery. MDA continued this practice by delivering two sets of BMDS-level capabilities since 2015, relying on operational tests conducted with models that were not accredited for use in such an assessment. The next delivery, expected at the end of the second quarter of fiscal year 2018, has also been tested using mostly unaccredited models. Relying on models that are not accredited for operational assessment increases the risk that modeling errors are not discovered, and a single undetected modeling error can distort the assessment results for the entire BMDS. DOD’s acquisition instruction requires that models and simulations used in operational assessments be verified, validated, and accredited. Although, as noted above, MDA is generally exempt from DOD acquisition policies, its own modeling and simulation policy requires that models and simulations used in operational assessments be verified, validated, and accredited for that use. Moreover, experts at DOD, MDA, and other institutions we interviewed agree that models should be verified, validated, and accredited to ensure that decisions based on models are informed by the correct data, and that the limitations of that data are understood. Additionally, according to DOD officials, defense acquisition programs that follow DOD acquisition regulations verify, validate, and accredit their models before operational assessments. However, our analysis indicates that the accreditation of many MDA models for operational assessment is, in most cases, not completed in time to support testing. In fact, many of them are not complete even after a capability has been delivered. Additionally, BMDS OTA officials said that models that are not accredited before delivery are not generally accredited later on. Figure 7 shows the percentage of accredited models that were used in the operational assessment of each BMDS capability delivery in 2015 through 2017. BMDS models are not accredited for operational assessment in large part for three reasons: (1) MDA does not provide sufficient evidence to the BMDS OTA for accreditation, (2) some models do not accurately represent BMDS performance in the real world, and (3) the threat model used to stimulate the test cannot be traced to the original intelligence community assessment. These challenges affect assessments across the entire BMDS engagement, from detection and processing of the threat to the intercept. While modeling uncertainty in any one of these areas affects uncertainty for the BMDS as a whole, factored together this uncertainty is magnified. Lack of Data: In some cases, MDA did not provide the BMDS OTA data needed to accredit the models used in operational ground testing, even though it is a signatory to the BMDS OTA’s accreditation plan. This plan identifies the data needed to achieve accreditation and directs that these data should be provided at least 60 days prior to official operational ground testing. MDA officials noted that the BMDS OTA recently changed its data requirements for accreditation and that they were unable to meet the new requirements in time to inform the capability deliveries shown above. However, we have found that MDA has encountered similar challenges since 2009. In fact, according to BMDS OTA officials, MDA has never completely provided the needed data on time and often missed numerous subsequent deadlines. In many cases, MDA failed to deliver the required data even after it tested and delivered its capabilities, and in some instances the data MDA provided did not meet the BMDS OTA’s requirements. As we have previously reported, disruptions to MDA’s testing program—such as flight test failures and delays—reduce the amount of real-world data that is available to accredit models. We also found that MDA proceeded with model-based ground tests and capability deliveries without leveraging the knowledge it planned to obtain from these tests. For example, in 2016 and 2017, we found that MDA delivered the European Phased Adaptive Approach Phase 2, even though key models, such as the model for Aegis Ashore, were unaccredited. Additionally, in other instances, MDA lacks technical data and other model information that is needed for accreditation, especially for models representing older systems. In 2017, as noted above, MDA and the BMDS OTA increased their collaboration to improve model accreditation status and, in 2017, co- developed a list of prioritized modeling deficiencies. Additionally, MDA is making progress in gathering and providing model data for operational assessment accreditation. MDA officials reported that based on this increasing collaboration, they expect that more models will be accredited in 2018. It is unlikely, however, that all models will achieve accreditation prior to the upcoming December 2018 delivery of the European Phased Adaptive Approach Phase 3. Modeling Deficiencies: Another reason that some models are not accredited for operational use is that certain models contain deficiencies, such as optimistic representations of BMDS performance and simplistic representations of BMDS environments. In these cases, while MDA initially supplied BMDS OTA with the relevant data, the model’s performance failed to meet the criteria for accreditation. Subsequently, MDA did not provide supporting rationale to explain these failures, or to explain how the modeling issues skewed the overall performance results. For example, in 2016, the BMDS OTA compared modeled sensor tracking data used in recent ground tests to real-world sensor tracking data and found that the models representing some radars performed better than the real-world radar. These modeling deficiencies can affect other BMDS elements that rely on sensor data and can artificially inflate BMDS performance. In one case, Aegis BMD’s launch-on-remote capabilities were over-estimated. As a result, the BMDS OTA could not accredit the models, and thus verify that ground test results that support Aegis’s launch-on-remote capability and other tested capabilities are credible and reliable. MDA is working to address this issue and it is too early to assess progress. Additionally, some models used in operational assessments are overly simplistic. For example, modeled representations of the battle scene in moments after intercept do not display the resulting complex scene that is caused by the large quantity of missile and interceptor debris. This deficiency limits insight into how the BMDS will perform during realistic ballistic missile attacks that could require follow-on interceptors to be launched, and how the BMDS will determine that the incoming threats have been destroyed. According to BMDS OTA and MDA officials, MDA’s efforts to develop digital models can help in this area, by providing more processing power and great scalability for engagement complexity; however, the capability is not expected to be mature until 2021 or later. Threat Models Cannot Be Traced Back to Underlying Threat Assessments: The value of ground test-generated data is dependent on the quality of the threat model that stimulates the test. However, the BMDS OTA has never been able to accredit threat models before operational testing, and in some cases, after testing. As is the case with other models, in some cases, the BMDS OTA does not receive data needed to accredit the models from MDA in a timely manner. Additionally, the BMDS OTA cannot trace the threat model used in ground testing to the threat model that MDA developed based on the intelligence community’s threat assessment. For example, according to BMDS OTA officials, during a past ground test event, a model representing a BMDS element rejected the intended threat model and instead ran its own internal threat model. As a result, the test did not reflect real world conditions where the entire BMDS would be exposed to the same threat stimulus. BMDS OTA officials said that MDA’s ground test architecture is not designed to generate the data needed to confirm that all elements are reacting to the same model during ground testing, meaning that unbeknownst to testers, other BMDS elements could also reject the approved threat model during testing. These deficiencies introduce ambiguity into the test results including the extent to which the BMDS operated as an integrated system of systems against a common threat set. BMDS OTA officials said that MDA is currently working on a pathfinder activity to help understand and rectify the traceability issue. Information about the Accreditation Status and Limitations of Models Used in Operational Assessments Is Not Communicated to Decision Makers Although the warfighter and other decision makers inside DOD, Congress, and the executive branch rely on models to provide information about BMDS effectiveness, MDA’s capability delivery documentation does not include information about the quality of modeling data. Specifically, MDA’s TCD memos and OCB change packages, which describe technical capabilities delivered to the warfighter and their limitations, do not discuss the extent to which the models used to assess the new capability are verified, validated, and accredited for assessment, or how ground test results were affected by model limitations. As a result, decision makers do not have complete information about the validity of the capability assertions in these documents and how much confidence should be placed in reported BMDS performance. According to Standards for Internal Control in the Federal Government, decision makers need access to reliable and timely information to make operational decisions. Additionally, according to DOT&E guidance, in cases where models and simulations cannot be validated and accredited, any modeling results should be caveated with a clear explanation of which areas of performance assessment could be affected by the lack of accreditation. Lack of such information could lead to miscalculations about how best to employ the BMDS or uninformed decisions about where to focus future capability development and investment. While the BMDS OTA has recently begun to brief some combatant commands on how modeling limitations impact the warfighters’ understanding of delivered capabilities, these briefings are not readily available to other stakeholders and decision makers, such as cognizant congressional committees or others in DOD and the executive branch. In its report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2017, the House Armed Services Committee requested that MDA brief the House and Senate Armed Services Committees on the accreditation status of models used in testing indicating that congressional decision makers benefit from such information. Including information about model accreditation and limitations in TCD and OCB packages would ensure decision makers in DOD, Congress, and the executive branch have the same necessary information to inform their decisions. Funding Decisions May Delay Some Modeling Capability Development Moving forward, the Director, MDA will have to make difficult decisions on balancing funding priorities, including the need to adequately fund the validation and accreditation of models. MDA has started to make progress validating and accrediting existing models using DOT&E and OTA recommended criteria. However, MDA’s assessment of the resources needed to validate and accredit its current models and simulations does not match funding levels it requested for this effort. MDA determined that it needs an additional $99 million for fiscal years 2017- 2022 to accredit BMDS models and simulations. MDA requested $395.7 million from 2017-2022 to meet modeling and simulation needs. Figure 8 shows MDA’s fiscal year 2018 funding request for model development and the additional funding, over the 5 year period, that would be required to verify, validate, and accredit its models. Additionally, funding is not requested for the verification, validation, and accreditation of some models used in BMDS assessments because MDA officials said that they do not have written agreements with the military services that operate these elements defining funding and technical requirements for this purpose. Specifically, while the Army and the Air Force develop and accredit models to support their missions for the Patriot, the Space-based Infrared System, and the BMDS communication systems, these models have to be modified to accurately represent their BMDS roles for BMDS operational assessments. While MDA does fund the development of the Space-based Infrared System and BMDS communication models for use in BMDS assessment, it does not fund the verification, validation, and accreditation of these models or the Patriot model. Additionally, MDA officials report that it currently has no written agreements with the Army or the Air Force to define funding and technical requirements for these models for BMDS assessment. Because these requirements are not formally agreed upon and communicated between MDA and the Services, the verification, validation, and accreditation of these models is often unfunded, further complicating MDA’s and the BMDS OTA’s verification, validation, and accreditation analyses. Standards for Internal Control in the Federal Government states that organizations should assign responsibility and delegate authority to achieve their objectives. Additionally, in our prior work we found that all acquisitions efforts should have well defined roles and responsibilities for all stakeholders. Although MDA and the BMDS OTA were able to accredit the Space-based Infrared System and BMDS communications models in 2017, future upgrades to these BMDS elements will require verification, validation, and accreditation to ensure that they continue to accurately reflect the real-world system. Moreover, DOD and Congress have instructed the transfer of missile defense programs that have received full-rate production authority, which would include THAAD and Aegis BMD, to the military services for operations, which may increase the scope of this issue. Even though these systems will no longer be under MDA management, they will still be part of the BMDS and, like the Space-based Infrared System and Patriot, will require model updates to reflect changes to the tactical systems. However, as noted above, there are currently no agreements between MDA and the services to fund these modeling requirements, increasing the risk that model upgrades will not be implemented, thus preventing their verification, validation and accreditation for operational testing. If MDA and the services do not agree to the technical and funding requirements for models of elements used in BMDS testing but operated by the services before the elements are transferred, disagreements will likely continue to impede the verification, validation, and accreditation of those models, decreasing confidence in test results and understanding of how the real-world BMDS will operate. Conclusions MDA continues to make mixed progress in delivering assets and integrated capabilities. Moreover, its processes for communicating the extent and limitations of these capabilities can be improved. While MDA met several significant milestones in fiscal year 2017, MDA failed to deliver either of its two most recent packages of integrated capabilities on time, and its plans for future capabilities, even in the near term, continue to be characterized by a high degree of fluidity. MDA has recently taken steps to document in policy its processes for communicating the extent and limitations of deliveries of integrated capabilities. However, these policies still do not clearly specify the exact requirements, process, and key milestones needed to complete some capability deliveries. Moreover, they do not require that all integrated BMDS capabilities are delivered using a process that describes their performance and limitations at the level of the BMDS, rather than at the element level, increasing the risk of delivered capabilities not being communicated properly to their end users: the warfighter. In addition, while no contracting strategy can be completely risk-free, trends in the not-to-exceed prices and duration of MDA’s undefinitized contract actions indicate a troubling pattern. Making major commitments to large developmental programs before important questions of scope and price have been determined exposes the government to increasing amounts of risk. MDA’s inconsistent and incomplete reporting on its use of undefinitized contract actions makes it even more difficult for Congress and decision makers to exercise oversight and track these risks. Finally, deficiencies and limitations in the models used to support operational testing of the BMDS, including the lack of accreditation, provides decision makers with some flawed information about BMDS performance. Because flight tests cannot provide complete information on BMDS performance, it is important that ground tests can be relied upon to provide accurate and representative data. This flawed information could lead to miscalculations about how best to employ the BMDS and uninformed decisions about where to focus future capability development and investment. If steps are not taken to improve BMDS models and to communicate their status and limitations clearly to decision makers, there is a risk that the BMDS will not perform as expected when needed to defend the United States at home, its regional allies, and deployed forces. Recommendations for Executive Action We are making the following six recommendations to the Under Secretary of Defense for Research and Engineering: The Under Secretary of Defense for Research and Engineering should ensure that the Director, MDA, takes the following actions: The Director, MDA should revise MDA policies to require that all integrated capabilities—capabilities that require integration of two or more elements—be included in a Technical Capability Declaration. (Recommendation 1) The Director, MDA should clarify, in written policy, the exact requirements, process, and key milestones necessary to issue a Technical Capability Declaration, including a requirement that the Assessment Requirements Review be held in such a time frame that it can provide meaningful input to MDA’s test plans. (Recommendation 2) The Director, MDA should include information on current undefinitized contract actions in the BMDS Accountability Report, including the not-to- exceed price, the definitization schedule, the amount of funds obligated for the undefinitized period, and any changes since the contract action was entered into. (Recommendation 3) The Director, MDA should ensure that models used for operational tests are validated and accredited for such assessments. To help achieve this, MDA should provide the BMDS Operational Test Agency all evidence previously agreed to and needed to accredit models before ground testing events, as specified in the BMDS OTA accreditation plan. (Recommendation 4) The Director, MDA should include in capability delivery packages, such as the Technical Capability Declaration memos and Operational Capability Baseline change packages, the following: a. The verification, validation, and accreditation status of the models used in operational ground tests; and b. Modeling and simulation limitations that affect operational ground test results. (Recommendation 5) The Director, MDA and the Secretaries of the Armed Services responsible for operating BMDS elements should develop written agreements as soon as feasible for modeling and simulations technical and funding requirements for any BMDS elements that are service- operated but represented in BMDS performance assessments. (Recommendation 6) Agency Comments and Our Evaluation DOD provided written comments on a draft of this report. DOD’s comments are reprinted in Appendix I and summarized below. DOD and MDA also provided technical comments which were incorporated as appropriate. In its response, DOD concurred with five out of six of our recommendations, and partially concurred with one. In addition, DOD recommends the closure of five recommendations. However, we believe that it is premature to close out four of the five recommendations until all of its planned actions are fully implemented. For the remaining recommendation, we agree with DOD and will undertake the steps to close out the recommendation. DOD partially concurred with our first recommendation to revise MDA policy to require all integrated capabilities—capabilities requiring the integration of two or more elements— be declared and delivered via the Technical Capability Declaration (TCD) process. While DOD agreed with the intent of this recommendation, DOD stated that the Director, MDA will determine which major integrated capabilities should be delivered via the TCD process. The Department also noted that the agency developed a list of such capabilities that it will update annually. These actions are an improvement over the current process, but they do not meet the full intent of our recommendation. Specifically, the list of future TCDs that MDA produced is not inclusive of all future integrated capabilities. In addition, MDA’s policy does not articulate definitive standards for identifying capabilities requiring a TCD and leaves this decision to the discretion of the Director, MDA. As we’ve identified in this report, some capabilities have been deleted from or added to planned TCDs without explanation. The new policy leaves open the possibility of continued inconsistent application of the TCD process. This poses the risk that not all integrated capabilities will be delivered to warfighters with comprehensive information about their performance and limitations at the BMDS level. We continue to believe that in order for the agency to meet the full intent of our recommendation, it should establish in policy a clear, definitive standard for which capabilities require a TCD for delivery. In addition, DOD recommends the closure of the first two recommendations to (1) revise MDA’s policies to require that all integrated capabilities be included in a TCD; and (2) clarify the exact requirements, process, and key milestones necessary to issue a TCD as it contends that its new Policy Memorandum 90 meets the intent of our recommendation. This memorandum is dated March 28, 2018 and was provided to us on May 8, 2018. As such, we have not had an opportunity to fully assess the memorandum and the process laid out in it. However, as noted above, this new Policy Memorandum 90 leaves open the possibility of continued inconsistent application of the TCD process. This poses the risk that not all integrated capabilities will be delivered to warfighters with comprehensive information about their performance and limitations at the BMDS level. In order for the agency to meet the full intent of our recommendation, MDA should establish in policy a clear, definitive standard for which capabilities require a TCD for delivery. In addition, DOD writes that the same Policy Memorandum 90 satisfies the second recommendation to clarify the exact requirements, process, and key milestones necessary to issue a TCD. We believe it necessary to wait until MDA delivers a TCD in accordance with the new parameters set out in the memorandum before this recommendation can be closed. For the third recommendation to include information on current undefinitized contract actions in the BMDS Accountability Report, DOD states that the BMDS Accountability Report for 2018, approved by the Director, MDA on March 9, 2018 provides the information necessary for closure. We concur with this assessment will take the necessary steps to close this recommendation. In responding to our fourth recommendation requiring the Director, MDA to ensure that models used for operational tests are validated and accredited for such assessments, DOD states that MDA is actively working with the BMDS Operational Test Agency (BMDS OTA) to resolve any issues associated with, and the reporting of, modeling limitations. However, as we found in this report, according to BMDS OTA officials, MDA has never completely provided the needed data on time and often missed numerous subsequent deadlines to support the validation and verification of its models from BMDS OTA. Consequently, we believe it is premature to close out the fourth recommendation, but we will continue to track MDA’s progress and timeliness in providing the evidence previously agreed to and needed to accredit models before ground testing events. In responding to our fifth recommendation to include the verification, validation and accreditation status used in operational ground tests in capability delivery packages, such as TCDs and Operational Capability Baseline change packets, DOD states that MDA has made significant progress over the last year in achieving the BMDS OTA accreditation of MDA’s models and simulations. In addition, it states that the addition of MDA policy will ensure the verification, validation and accreditation status of each model will be discussed and assessed by the Operational Capability Baseline Working Group for each capability delivery package. We agree that MDA has made significant progress over the last year, however, we believe it premature to close out the recommendation until BMDS OTA can ensure that the status of the models used, as stated in our recommendation, are included in subsequent capability delivery packages such as the Technical Capability Declaration memos and Operational Capability Baseline change packages. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Undersecretary of Defense for Research and Engineering, and to the Director, MDA. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix XI. Appendix I: Comments from the Department of Defense Appendix II: Aegis Ballistic Missile Defense (BMD) Weapons System Program Overview Aegis Ballistic Missile Defense is the naval component of the Missile Defense Agency’s (MDA) Ballistic Missile Defense System. It consists of the Aegis Ballistic Missile Defense Weapon System (AWS), including a radar and Standard Missile-3 (SM-3) interceptors. MDA is developing the Aegis BMD weapons system in versions called spirals that expand on preceding capabilities. Deliveries of the spirals are planned to support MDA’s capabilities for Regional and Homeland defense. Specifically, MDA delivered Aegis BMD 5.0 Capability Upgrade (5.0CU) in fiscal year 2016 for the European Phase Adaptive Approach (EPAA) Phase 2, but had not verified its full capability before delivery. In fiscal year 2017, the program delivered Aegis BMD 4.1 on ships with legacy hardware in order to provide similar ballistic missile defense capabilities to those of Aegis BMD 5.0 CU. MDA plans to deliver additional upgrades for such ships in 2019 and 2023. Additionally, the program is developing Aegis BMD 5.1 with upgrades for EPAA Phase 3, planned for December 2018. The Aegis BMD program also plans to deliver additional upgrades in 2023, called Aegis BMD 6.0, capitalizing on Navy’s upgrades to the Aegis radar. For specifics on Aegis Ashore and the Aegis BMD SM-3 interceptors, see appendixes III, IV and V, respectively. Table 5 provides key fiscal year 2017 AWS program facts. Aegis BMD resolved some prior challenges and delivered capabilities initially planned for delivery with European Phased Adaptive Approach Phase 2 MDA resolved software challenges and testing delays for Aegis BMD 5.0 CU and delivered Aegis BMD 4.1, expanding the number of ships with EPAA Phase 2 missile defense capabilities. While MDA delivered initial Aegis BMD capabilities for EPAA Phase 2 with AWS 4.0.2 prior to the December 2015 Technical Capability Delivery (TCD), planned capabilities would not be available until the subsequent versions—Aegis BMD 5.0CU and 4.1—completed development and fielding. However, both encountered technical challenges and schedule slips, as well as testing delays. In fiscal year 2017, MDA continued work on Aegis BMD 5.0 CU and 4.1 and overcame some of these challenges. Specifically: Aegis BMD 5.0 CU: MDA completed Aegis BMD 5.0 CU certification late in fiscal year 2017, resolving prior technical challenges and testing delays. Specifically, MDA implemented fixes to significant defects that were in the software at the time of initial delivery. Additionally, in December 2016 and August 2017, MDA flight tested fleet and ship self-defense capability against medium-range ballistic missiles in terminal phase of flight –a capability initially planned for December 2015. Aegis BMD 4.1: MDA also delivered Aegis BMD 4.1 in August 2017, after multiple schedule slips. While initially scheduled for delivery in support of the EPAA Phase 2 TCD, the spiral was first delayed to the middle of fiscal year 2016 due to technical and cost challenges. Subsequently, activities for Aegis BMD 4.1 were suspended in 2016 to reassess the program and delivery was delayed to September 2019, to align it with a related Navy effort. In fiscal year 2017, MDA resumed activities for Aegis BMD 4.1, and certified the delivery of ballistic missile defense capabilities in August 2017. These ballistic missile defense capabilities are currently being integrated with the Navy’s larger Aegis combat system, into a single computer program called Aegis Baseline 5.4, which is still scheduled for delivery in September 2019. MDA mitigated key Aegis BMD Weapons System challenges for EPAA Phase 3, but they will not be verified until 2018 According to MDA’s program management documentation, Aegis BMD 5.1 is on track for delivery in support of EPAA Phase 3 in December 2018, as the program overcame or reduced key risks. For example, despite a lack of schedule margin, the program met a key software development milestone in June 2017, and delivered it for system-level ground tests, which will assess integrated BMDS capabilities for EPAA Phase 3. It also met all objectives in a fiscal year 2017 flight test. Additionally, the program reduced the ongoing programmatic risk to Aegis BMD 5.1 that could affect its interoperability with other elements. However, testing to demonstrate the risk has been resolved is not yet complete. According to the Aegis BMD program management documentation, upgrades to the Aegis communication management system, which are managed by the Navy, lag behind MDA’s Aegis BMD 5.1 development schedule. The lag in development could result in integration challenges between these upgrades, and could impact Aegis integration with other BMD elements, including the capability to intercept threats entirely on tracks from forward based radars – called Engage on Remote. In fiscal year 2017, MDA and the Navy took steps to mitigate this risk. However, MDA has yet to demonstrate the fixes in a flight test. Moreover, MDA documentation indicates that if issues are discovered, they could impact the Aegis BMD 5.1 mission and could result in interoperability restrictions against Aegis BMD 5.1. Lastly, Engage on Remote could also be affected if development challenges with C2BMC, which forwards threat track data from forward based sensors to Aegis BMD, are not mitigated. For more information on the C2BMC element, see Appendix VI. Aegis BMD is developing additional capabilities for deployment in 2023 and beyond, leveraging Navy’s Aegis upgrades In fiscal year 2017, MDA continued to develop Aegis BMD capabilities that are expected to be deployed in 2023. Specifically, MDA continued developing and maturing capabilities for an effort it started at the end of fiscal year 2016 called Aegis BMD 6.0. Aegis BMD 6.0 is planned to provide capabilities against more threat types, larger raids, better discrimination, and improved communication with its interceptors. Additionally, it takes advantage of the Navy’s effort to replace the Aegis SPY-1 radar with a more capable SPY-6, and to overhaul the entire Aegis combat system. While it is early in development, MDA has begun identifying knowledge gaps that could diminish planned capabilities and took initial steps to address disconnects between Navy’s effort and its own. According to program management documentation, MDA plans to develop an Aegis BMD 6.0 acquisition baseline late in fiscal year 2018. The acquisition baseline is expected to detail Aegis BMD 6.0 planned capabilities, its schedule, and cost. MDA is also planning additional upgrades to Aegis BMD 4.1, called Aegis BMD 4.2. Specifically, MDA plans to collaborate with the Navy to integrate and field refurbished and upgraded SPY-1 Antennas onto legacy ships. This modification improves radar sensitivity resulting in improved tracking capabilities and is planned for delivery in fiscal year 2023. MDA plans to begin developing and maturing technologies for this upgrade in fiscal year 2019, and baseline the effort at the end of fiscal year 2020. Appendix III: Aegis Ashore Program Overview Aegis Ashore is a land-based, or ashore, version of the ship-based Aegis Ballistic Missile Defense (BMD). Aegis Ashore is designed to track and intercept ballistic missiles in the middle of their flight using Aegis BMD Standard Missile-3 (SM-3) interceptors. Key components include a vertical launching system, interceptors, and an enclosure, called a deckhouse, that contains the SPY-1 radar and command and control system. DOD deployed an Aegis Ashore test facility in Hawaii in April 2014. The test facility has been used to flight test Aegis Ashore, and in some cases, Aegis BMD SM-3 interceptors. MDA deployed its first operational site in Romania in fiscal year 2016 as part of the European Phased Adaptive Approach (EPAA) Phase 2, and is currently constructing a second site in Poland for delivery in 2018 as part of EPAA Phase 3. Both operational sites are intended to provide additional coverage for the defense of Europe. Aegis Ashore will share many components with the sea-based Aegis BMD and will use future versions of the Aegis weapon system currently in development, including the Aegis BMD SM-3 Block IIA interceptor. The Missile Defense Agency (MDA) plans to equip Aegis Ashore with a modified version of the Aegis weapon system software that will share many components with the sea-based Aegis BMD. For further details on the Aegis Weapon System and Aegis BMD interceptors, see appendixes II, IV, and V. Table 6 provides key fiscal year 2017 Aegis Ashore program facts. The Aegis Ashore facility in Poland became increasingly reliant on concurrency to meet its schedule, but construction issues eventually forced a delay of at least one year Construction of the Aegis Ashore site in Poland has not overcome an initial delay that was largely due to contractor performance issues. MDA and the Army Corps of Engineers, which manages military construction at the site, took a number of measures to mitigate or reverse these delays, including working to modify the Army Corps of Engineers’ contract to permit joint occupancy of the site for a longer duration, and for the contractor to provide more granular project data to the Army Corps of Engineers. Also, the contractor has moved key personnel on site, and added a second shift. Program officials stated that they have withheld some award fees from the contractor over these issues. Program documentation states the contractor continues to be late in submitting documentation needed to move forward. If this and other issues are not corrected, it will increase the risk of further schedule slips. To make up for these delays, MDA introduced increasing levels of concurrency into its schedule, and shortened key phases of the delivery process. MDA has reduced the time allotted for Installation and Checkout activities from 16.5 months to 6.5 months. These activities would occur concurrently with the final phases of construction at the site. For example, installation of the deckhouse at the Poland site was scheduled for the end of the fourth quarter, fiscal year 2017, but was delayed to the end of the first quarter, fiscal year 2018. Despite this, installation and checkout activities still began in the fourth quarter of fiscal year 2017. The Navy’s systems testing procedures, which are needed prior to operational acceptance of the site, will have occurred mostly concurrently with the final stages of MDA’s construction and installation work on the site. MDA maintained through all of fiscal year 2017 that the site would be ready for delivery in December 2018 as scheduled. Program documentation noted that further program concurrency presented risks not only to the Aegis Ashore program, but to multiple elements relying on timely delivery of the site, up to and including the scheduled EPAA Phase 3 declaration. Early in fiscal year 2018, MDA announced that construction of the Poland site would not be completed until at least December 2019. The Poland and Romania sites both experienced unforeseen program challenges Both Aegis Ashore sites in Europe have faced continuing challenges in several areas. For example, attrition problems have complicated efforts to keep the Poland site’s construction on schedule. These problems led to several persistent vacancies in important positions during the fiscal year. At one point in fiscal year 2017, the program lacked a full-time onsite program manager or dedicated government safety engineer, as well as other important positions. These roles had been, up to that point, filled by deputies in an acting capacity or were divided among others. MDA officials have also pointed to morale problems at the Poland site, where conditions for sailors are relatively austere. The Romania site has required more post-delivery support from MDA than was originally planned, largely due to quality and design issues in several areas. This post-construction wrap-up work was accounted for in MDA’s plans, but was originally planned to be complete by late fiscal year 2016. However, MDA has continued to provide warranty-like support in areas such as water supply, seismic-activity certification, and compatible electrical systems. Program officials stated that many of these issues arose from having to adapt Aegis systems to Romanian infrastructure, which in some cases proved to be a more complicated task than expected. Despite the issues encountered, the Romania site has remained operational throughout all of this work. Appendix IV: Aegis Ballistic Missile Defense (BMD) Standard Missile-3 (SM-3) Block IB Program Overview The Aegis BMD Standard Missile-3 (SM-3) Block IB is a ship- and shore- based missile defense system interceptor designed to intercept short- to intermediate-range ballistic missiles during the middle stage of their flight. The Aegis BMD SM-3 interceptor has multiple versions in development or production: the SM-3 Blocks IA, IB, and IIA. Compared to the Aegis BMD SM-3 Block IA, the Block IB features an enhanced target seeker for increased discrimination, an advanced signal processor for engagement coordination, an improved throttleable divert and attitude control system for adjusting its course, and increased range. The Aegis BMD SM-3 Block IB interceptor is linked with the Aegis Ballistic Missile Defense (BMD) Weapons System and Aegis Ashore. For additional information about the Aegis Weapon Systems, see Appendix II and for Aegis Ashore, see appendix III. Recent technical and production problems have continually delayed a decision to authorize full production of the Aegis BMD SM-3 Block IB due to reliability concerns. Since fiscal year 2015, Aegis BMD SM-3 Block IB production has been delayed by several technical issues. In response to a GAO recommendation, program officials in 2015 delayed the decision to enter full-rate production until they could implement further testing and design changes. In fiscal year 2016, two failures during testing forced a suspension of interceptor deliveries, causing the program to miss its delivery target for the year. Table 7 provides key fiscal year 2017 Aegis BMD SM-3 Block IB program facts. The Aegis BMD SM-3 Block IB program made progress against its delivery backlog from the previous year, and mitigated some technical risks, though others remain The Aegis BMD SM-3 Block IB experienced two failures in fiscal year 2016, the investigation of which forced a temporary suspension of interceptor deliveries. As a result, MDA delivered only 33 interceptors out of a planned 47 for the year. MDA added the remaining interceptors to its planned delivery for fiscal year 2017, resulting in a target of 54 interceptors. The program successfully delivered 55 interceptors over the course of the year, and thus made up for the existing backlog. The program tracked two technical risks during fiscal year 2017, one of which it succeeded in removing, and another which will not be implemented into the production process until the third quarter of fiscal year 2018. According to MDA officials, the program successfully managed the transition of the production of the system’s Throttleable Divert and Attitude Control System to a new facility without experiencing significant delays or quality issues. In the other case, a component that was implicated in a previous test failure is currently undergoing a redesign. Program officials stated that they plan to have the new design certified by the second quarter of fiscal year 2018, and incorporated into the production line by the end of the third quarter. As we reported last year, problems testing a redesigned third-stage rocket motor on the Aegis BMD SM-3 Block IB forced the program to postpone its planned full production decision until the second quarter of fiscal year 2017, and successive delays have ensued. Though the tests validating the redesign were successful, the Undersecretary of Defense for Acquisition, Technology, and Logistics issued an Acquisition Decision Memorandum in February 2017 requesting an additional flight test in fiscal year 2017 as well as supporting analyses from the Director, Operational Test and Evaluation and the office of Cost Assessment and Program Evaluation. The memorandum issued these requirements in support of a planned full production decision in the first quarter of fiscal year 2018. Full-rate production for the Aegis BMD SM-3 Block IB was initially scheduled for fourth quarter, fiscal year 2012. MDA had one Aegis BMD SM-3 IB flight test scheduled for fiscal year 2017 at that time (FTM-24), and added another (FTM-26) in response to the Acquisition Decision Memorandum’s requirement, but neither were held as scheduled. MDA delayed FTM-24 to fiscal year 2020, in order to first analyze the new target missile’s performance to ensure it would work within the parameters of the test. While FTM-24’s delay was due to its very specific test design, its timing in fiscal year 2017 would have afforded additional information about the reliability of the interceptor that will not now be available before the full production decision. MDA deleted FTM-26 several months after adding it, and moved its objectives to coincide with NATO’s Formidable Shield – 17 naval exercises which took place in early fiscal year 2018 (wherein the system did achieve a successful intercept). As a result of the delay in conducting a test for production-readiness, the program is currently planning on a production decision in second quarter, fiscal year 2018. Appendix V: Aegis Ballistic Missile Defense (BMD) Standard Missile-3 (SM-3) Block IIA Program Overview The Aegis Ballistic Missile Defense (BMD) Standard Missile-3 (SM-3) interceptor has multiple versions in development or production: the Aegis BMD SM-3 Blocks IA, IB, and IIA. The latest version, the Aegis BMD SM- 3 Block IIA interceptor, provides increased speed and range, more sensitive seeker technology, and an advanced kinetic warhead than previous versions. It is expected to defend against short-, medium-, and intermediate-range ballistic missiles. Additionally, most of the Aegis BMD SM-3 Block IIA components will differ from other the prior versions, and therefore requires new technology to be developed specifically for it. For additional information on the Aegis BMD SM-3 Block IB interceptor, see appendix IV. Initiated in 2006 as a cooperative development program with Japan, the Aegis BMD SM-3 Block IIA program was added as a capability to support the European Phased Adaptive Approach (EPAA) Phase 3 architecture to defend against longer-range threats. The Aegis BMD SM-3 Block IIA interceptor is planned to be fielded with Aegis Weapons System 5.1. For additional information on Aegis Weapons System, see appendix II. Table 8 provides key fiscal year 2017 Aegis BMD SM-3 Block IIA program facts. The Aegis BMD SM-3 Block IIA program has experienced mixed results in testing performance and problems with program execution, with consequences for cost and schedule The first intercept flight test using the Aegis BMD SM-3 Block IIA interceptor, SFTM-01, was conducted in February 2017. It was originally scheduled for fiscal year 2016, but was delayed to evaluate technical issues discovered during previous tests. During this test, the Aegis BMD SM-3 Block IIA interceptor successfully engaged a medium-range ballistic missile (MRBM) target. The next intercept flight test, SFTM-02, occurred 4 months later, in June 2017. However, the interceptor failed to reach its MRBM target during this test. MDA convened a failure review board to identify the cause of the failure, and concluded that the failure was not attributable to a fault in the design or performance of the interceptor itself. The Navy is currently considering changes to its tactics, techniques, and procedures to address the findings from the failure review board. Two prior non-intercept tests using the Aegis BMD SM-3 Block IIA interceptor, although considered successful, showed potential design issues with the missile’s guidance system, which steers the interceptor to the target. Consequently, the program decided to develop a replacement component. The redesigned component passed initial acceptance testing and the program plans to employ it during FTM-29, which is scheduled for the second quarter of fiscal year 2018. The program continues to experience unit cost growth due to several factors, including decreases in the total amount being procured and increases in shipping costs. According to MDA officials, shipping costs grew because MDA underestimated the cost to ship missile components manufactured in Japan to the US on US-flagged ships. MDA officials stated that they did not adequately account for these costs when establishing the original baseline cost. Since 2014 the program’s unit cost has increased by almost 60 percent, from $24 million in fiscal year 2014 to $39 million in fiscal year 2017. Program officials stated that they do not expect either of these issues to lead to further cost growth in the future. Further delays or technical challenges within the Aegis BMD SM-3 Block IIA program could impact the EPAA Phase 3 declaration The Aegis BMD SM-3 Block IIA program has limited schedule margin to address any issues prior to operational testing to meet the EPAA Phase 3 declaration by the first quarter of fiscal year 2019. For the EPAA Phase 3 declaration, the Aegis BMD SM-3 Block IIA interceptor must demonstrate the ability to intercept an intermediate-range ballistic missile (IRBM) target using remote sensor data. The program has one flight test, FTM-29, prior to its operational flight test. This test was originally scheduled for the first quarter of fiscal year 2018, but was delayed to the second quarter, and the launch site for the test was moved to the land-based Aegis Ashore facility in Hawaii. Adapting the Aegis BMD SM-3 Block IIA interceptor for a land-based test delayed this test further, from the first quarter to the second quarter of fiscal year 2018. Despite these delays, the dates for the operational test of the Aegis BMD SM-3 Block IIA—FTO-03 E1—and the EPAA Phase 3 declaration remain unchanged: the third quarter of fiscal year 2018 and first quarter of fiscal year 2019, respectively. That leaves the program approximately 3 to 5 months to resolve any issues discovered during FTM-29, prior to the operational test, which is needed to support the EPAA Phase 3 declaration. In addition, FTM-29 will be the Aegis BMD SM-3 Block IIA interceptor’s first test against an IRBM, first test of its ability to engage a target using remote sensor data, and the first test with to incorporate the new missile guidance system component incorporated. As a result of the complex test environment and limited time between tests, any significant failure during FTM-29 could lead to a delay in the EPAA Phase 3 declaration. Appendix VI: Command, Control, Battle Management, and Communications (C2BMC) Appendix VI: Command, Control, Battle Management, and Communications (C2BMC) Program Overview C2BMC is a global system of hardware—workstations, servers, and network equipment—and software that integrates all missile defense elements of the Ballistic Missile Defense System (BMDS). Specifically, it allows users to plan operations, see the battle develop, and manage BMDS sensors. As the integrator, C2BMC enables the defense of a larger area than the individual BMDS elements operating independently and against more missiles simultaneously, thereby potentially conserving interceptor inventory. MDA is developing C2BMC in spirals, or software and hardware upgrades designed to improve various aspects of the integrated BMDS performance. MDA fielded Spiral 6.4 in 2011 and plans to complete the fielding of Spiral 8.2-1 by March 2018. The program is working on efforts for additional capabilities in the future. Table 9 provides an overview of C2BMC spiral development and table 10 provides key fiscal year 2017 C2BMC program facts. C2BMC Spiral 6.4 supported delivery of discrimination upgrades but cyber vulnerabilities continue to place the BMDS at risk At the beginning of 2017, MDA completed the Spiral 6.4 assessment, which was designed to enable capabilities for Increment 3, Near Term Discrimination Improvements for Homeland Defense. The spiral performed nominally during testing, providing discrimination tasking from a forward-positioned radar for long-range threats, multiple-radar discrimination tasking of a threat, and several fixes related to sequencing and timing of messages. These tests provided performance data, which informed MDA’s Technical Capability Delivery for Increment 3 in March 2017. Despite this success, however, the spiral continues to have cyber vulnerabilities that place the BMDS operations in certain geographic areas at risk. For example, Spiral 6.4 has been in use since 2011, and its operating system (Windows XP) as well as other supporting software products will remain in the field well past their end of life cycle and support by vendors. According to program documentation, upgrading these systems before they are replaced by subsequent spirals is cost prohibitive, but program documentation does not indicate the cost. While MDA is in the process of fielding Spiral 8.2-1 to replace Spiral 6.4 in the Strategic, Northern and Pacific Commands by March 2018, Spiral 6.4 will remain operational at the European and Central Commands until the delivery of Spiral 8.2-3 in early fiscal year 2019. According to fiscal year 2017 MDA program reviews, the likelihood that critical cyber vulnerabilities are discovered is low for the remaining two years, and, according to MDA, no fielded system has been exploited to date. However, known vulnerabilities have been exploited in lab experiments. Moreover, MDA program documentation from fiscal year 2017 acknowledges that new security deficiencies could still be discovered, and if those or known deficiencies are exploited, mission capabilities like BMD planning, radar control, track reporting, and situational awareness may be significantly degraded. MDA collaborated with Combatant Commands to monitor and minimize the risks. MDA Continued its Development of C2BMC Spiral 8.2-1 and expects its fielding in Fiscal Year 2018 In fiscal year 2017, MDA mitigated developmental risks necessary to complete the development and testing of C2BMC Spiral 8.2-1 in fiscal year 2018. Spiral 8.2-1—planned to support Enhanced Homeland Defense capabilities—was initially planned for delivery by December 2017, but, according to MDA officials, the delivery was delayed to allow additional time for assessment of results from BMD system-level ground test campaign called Ground Test (GT)-07a. Prior to GT-07a, the program identified risks that could affect interoperability with other elements and threat tracking, but, according to recent program documentation, MDA implemented fixes to many of them before the testing began. At the time of our assessment, MDA’s analysis was ongoing. However, MDA plans to complete its fielding by March 2018. Spiral 8.2-3 continues to face technical challenges and cost increases MDA has begun testing Spiral 8.2-3, which is planned for fielding throughout fiscal year 2019, but it continues to face technical challenges and cost risk. This spiral is to replace Spiral 8.2-1 at the Strategic, Northern and Pacific Command, and Spiral 6.4 at European and Central Commands. According to MDA, the spiral is designed to enable a five-fold increase in the size of area that can be defended by the BMDS, and is an integral part of EPAA Phase 3. However, the program continues to track a prior risk and identified a new risk to an element level C2BMC capability needed for EPAA Phase 3 called Engage on Remote. Specifically, program documentation indicates that processing of data about threat missile flight paths, known as threat tracks, has issues that could reduce the likelihood of the successful engagements utilizing Aegis Ballistic Missile Defense in Engage on Remote scenarios. C2BMC has faced similar challenges with threat tracking capabilities for prior spirals, which required delays certain aspects of integration with Aegis BMD until fixes were implemented. MDA is implementing fixes to these issues in Spiral 8.2-3, which once fielded should resolve these integration issues, but it still needs to assess them in the ongoing test campaign for EPAA Phase 3. Since 2016, MDA Spiral 8.2-3 costs have increased by about 20 percent, from $68 million to $82 million. According to MDA documentation, the increase is due to several factors, including higher than expected costs for architecture and system engineering, as well as testing and integration requirements, and additional requirements for cybersecurity, which increased algorithm complexity required for Engage on Remote. MDA officials stated that some of the cost increases for cybersecurity were driven by DOD-wide cyber requirements, implemented in March 2014. Further cost increases, according to MDA, were driven by a warfighter request for geographic redundancy. While the original concept for 8.2-3 had the suites for Central and European Command at each location, MDA met the warfighter request by installing the suites at different locations so that losing a single node would not result in the loss of all capability for the warfighter. According to the C2BMC program, implementation of this requirement cost about $6.4 million. MDA identified requirements for Spiral 8.2-5, but it is already facing potential technical, as well as schedule and cost challenges MDA identified element requirements for Spiral 8.2-5, which is planned for delivery in fiscal year 2021. This Spiral will integrate the Long Range Discriminating Radar and provide additional BMDS-level planning, track processing, and battle management capabilities. While MDA currently plans to hold the Preliminary Design Review by March 2018 and may report its acquisition baseline for the first time in the subsequent BMDS Accountability Report, program management documentation has already identified two specific challenges: Program documentation indicates that the Northern Command has concerns about performance issues associated with threat track processing, called System Track, for GMD engagements. While this is a key C2BMC function, track processing has been a challenge for other spirals supporting prior and upcoming regional and homeland defense capabilities. MDA is currently working with stakeholders to address this issue. The program also identified disconnects between LRDR, GMD and C2BMC, which are driving up element development and test costs, and delayed some capabilities initially planned to be delivered along with the LRDR. MDA developed a mitigation plan and established a working group to coordinate with stakeholders to address these issues. Appendix VII: Ground-based Midcourse Defense (GMD) Appendix VII: Ground-based Midcourse Defense (GMD) Program Overview The GMD system is a missile defense interceptor system designed to defend the United States against a limited intermediate and intercontinental ballistic missile attack from countries such as North Korea and Iran. To counter such threats to the homeland, GMD, in conjunction with a network of ground-, sea-, and space-based sensors, launches interceptors from missile fields based in Fort Greely, Alaska and Vandenberg Air Force Base, California. After launching from in-ground silos, the interceptor boosts towards the incoming enemy missile and releases an Exoatmospheric Kill Vehicle (EKV) to find and destroy the threat. GMD also has ground support and fire control systems that the warfighter relies upon to operate the system. Since the program’s initiation in 1996, DOD has spent over $45 billion developing, operating, and maintaining the GMD system, including: fielding ground station assets and a fleet of 44 interceptors; upgrading, redesigning, refurbishing, and retrofitting the system; successfully performing 5 out of 9 intercept tests and 3 out of 3 non-intercept tests; and developing Multi Object Kill Vehicle technology. Three of the intercept tests failed because of problems with the EKV while one of the tests failed because of a target failure, which is not associated with the GMD system. MDA has efforts ongoing to address concerns with the existing fleet of interceptors and increase protection to the U.S. homeland. In March 2013, the Secretary of Defense directed MDA to increase the number of fielded GMD interceptors from 30 to 44 by the end of 2017. To achieve this fielding goal, MDA performed a limited redesign of the CE-II, called the CE-II Block I, to fix known issues, address obsolescence, and improve producibility and cost. MDA also performed an extensive upgrade to the boost vehicle to improve reliability and address obsolescence issues. Although the CE-II Block I will address some concerns with the CE-II design, MDA determined a more complete redesign of the CE-II was needed. MDA subsequently developed an acquisition strategy and began developing the new kill vehicle, called the Redesigned Kill Vehicle (RKV). The RKV is intended to be more reliable, producible, testable, and cost effective. Table 11 provides key fiscal year 2017 GMD program facts. Fiscal Year 2017 was one of GMD’s most successful years for results achieved Fiscal year 2017 was a seminal year for the GMD program, as it achieved a number of major accomplishments. Over the past several years, the GMD program developed the newest interceptor version equipped with the CE-II Block I EKV and C2 boost vehicle. The program conducted its first successful flight test of this interceptor in May 2017 when it successfully intercepted a target representative of an intercontinental ballistic missile—another first for the GMD system. MDA proceeded to produce and field eight of these new interceptors and complete the refurbishment of Missile Field 1 in Fort Greely, Alaska, enabling the program to meet its directive from the Secretary of Defense to field 44 interceptors by the end of 2017. The program also fielded a software upgrade to the fire control segment of the GMD ground station, which included some improvements for battle management and discrimination. In addition, the program completed a preliminary design review for the RKV in March 2017. The program was able to execute all of these activities while also maintaining 24/7 availability of the system to the warfighter during a heightened period of North Korean missile testing. GMD’s cost now exceeds $67 Billion, the fourth highest among DOD’s weapon systems In total, the GMD program’s total cost has increased to over $67 billion and that total is likely to continue to increase as MDA defines future capability increments. In March 2013, we reported the total cost of the GMD program was estimated to be approximately $41 billion. Since that time, MDA defined new capability increments that included major GMD initiatives, such as the RKV and Multi Object Kill Vehicle efforts, which increased the program’s total cost. GMD is now the fourth most expensive DOD weapon system among a portfolio of 78 major defense acquisition programs, totaling approximately $1.5 trillion. As seen in table 12 below, only the F-35 and two naval programs are projected to cost more than the GMD system, demonstrating the department’s level of resources committed to defending the U.S. homeland against a long range ballistic missile attack. In November 2017, the President submitted to Congress an amendment to the fiscal year 2018 budget request for DOD to, among other things, increase current missile defense capacity, expand the sensor network, and accelerate technology development efforts. According to MDA, the request for additional funds was in direct response to recent demonstrations of advanced and accelerated capabilities by North Korea. MDA’s justification materials for the budget amendment includes an addition $774 million for GMD to build a new, 20-silo missile field at Fort Greely, begin procuring four additional interceptors, continue booster development, accelerate RKV development, and to add a non-intercept target to an initial RKV flight test. In total, MDA now plans to spend over $14 billion on GMD over the next six years with 64 total interceptors fielded by 2023. New Director, MDA revised the GMD acquisition strategy to keep the current prime contractor in place, reversing plans for MDA to lead system integration The new direction of the GMD program reflects a decision by the Director, MDA to set aside a strategy approved in 2016 by the prior Director for the government to take on the role of system integrator. Since the late 1990s, Boeing has been the GMD prime contractor, performing the role of system integrator. In 2011, Boeing competitively won a follow-on GMD development and sustainment contract that runs through December 2018. According to MDA, the government serving as the system integrator provides several benefits, such as eliminating organizational conflicts of interest issues—where industry tests and delivers assets based on requirements it wrote—and providing an unbiased assessment of system performance. However, a subsequent review team identified gaps and risks with implementing the strategy and the agency determined that transitioning to the new strategy at a time of heightened threat activity created unacceptable levels of risk for defending the U.S. homeland. On January 31, 2018, MDA awarded a sole-source contract modification to Boeing to extend the current development and sustainment contract. The contract modification has a total value of $6.56 billion and includes the accelerated delivery of a new 20-silo missile field, development of a new boost vehicle and the RKV, procurement of 20 new interceptors, and ground system upgrades. MDA faced a difficult choice, as both options included advantages and disadvantages. Under the prior approved strategy, MDA expected to achieve cost savings through competition. According to MDA, the sole- sourced labor rates for new development efforts under the recently modified development and sustainment contract have proven to be significantly higher than originally planned. In addition, MDA stated that the contract modification process is also often very lengthy, making it difficult for the agency to respond to the rapidly changing threat environment. MDA also stated that the lack of competition makes it challenging for the government to achieve favorable contract outcomes. Conversely, the government taking on the role of system integrator would make it responsible for managing multiple contracts. MDA plans to implement measures to mitigate some of the current challenges with extending the development and sustainment contract and ultimately provide the GMD program with a level of continuity during the current period of heightened threat activity. MDA’s plan to accelerate the Redesigned Kill Vehicle effort may instead prolong it In October 2017, MDA informed the Under Secretary of Defense for Acquisition, Technology and Logistics (USD(AT&L)) that it had revised the RKV acquisition plan that was previously established in 2015 and approved by the USD(AT&L). This revision, in response to the advancement of the North Korean missile threat, accelerates the RKV’s development by concurrently performing development and production and reducing the number of necessary flight tests. MDA removed the previously-established alignment between flight tests and production decisions, which enables the program to begin production well before the system’s design is stabilized. In addition, MDA now plans to contract for production, on a sole source basis with the current GMD prime contractor, rather than through a full and open competition. According to MDA, the acceleration plan does not change the content of the RKV’s development plan and the program will continue to execute the same engineering processes including hardware qualifications essential to delivering the RKV. However, MDA’s revision of the RKV acquisition plan is more likely to prolong the effort rather than accelerate it. Our prior best practice work has shown that finding a balance between resources available (i.e., time and funding) and needed operational attributes (i.e., reliability and effectiveness) and obtaining buy-in from across the department is essential for program success. Although some risk may be necessary, programs that rely on heightened levels of concurrent development and production, starting production before stabilizing the design, and other risky practices greatly increase the likelihood a program will fail to deliver reliable, effective capabilities in an accelerated manner. The revised RKV plan no longer includes some of the key best practices, such as alignment between testing and production decisions included in the 2015 RKV plan. In addition, MDA has already experienced development delays and was operating on the threshold schedule of the prior acquisition plan, with no additional margin for delays. Moreover, MDA did not vet the revised plan in a similar manner to that of the 2015 RKV acquisition plan, which Congress required to be subject to approval by the USD(AT&L) and include rigorous elements for systems engineering, design, integration, development, testing and evaluation. The revised plan is also inconsistent with the acquisition best practice to “fly before you buy”, as MDA will begin production based on the results of design reviews rather than flight testing. In May 2017, we recommended that the Secretary of Defense require the Director of DOD’s Office of Cost Assessment and Program Evaluation (CAPE) perform a comprehensive review of the RKV acquisition strategy and provide any recommendations to the Secretary of Defense that the Director deems necessary and appropriate to obtain CAPE’s concurrence for the RKV program’s acquisition strategy. DOD did not concur with our recommendation, stating that CAPE and other organizations had previously reviewed the strategy prior to USD(AT&L)’s approval. As we noted in our report, CAPE raised serious concerns about the plan and expected MDA would encounter development delays. MDA justified the prior RKV plan, in part, so that it could begin urgently replacing the less reliable CE-Is as expeditiously as possible, which were fielded between 2004 and 2007. Under the newly accelerated plan, MDA does not plan to begin replacing the CE-I interceptors until after it has fielded the additional 20 RKV-equipped GBIs in 2024. However, GBIs only have an initial service life of 20 years and MDA previously decided not to make any upgrades to the CE-I because of initial plans to begin replacing them with RKVs in 2020. We continue to believe that DOD should implement our recommendation in order to ensure that MDA’s plans for the RKV are viable and meet the needs of the warfighter. Appendix VIII: Sensors A family of satellite-, sea-, and land-based radars provides worldwide sensor coverage to enable the Ballistic Missile Defense System (BMDS) to effectively detect and track threat missiles through all phases of their trajectory. Land-based BMDS sensors include the Army/Navy Transportable Radar Surveillance and Control Mode-2 (AN/TPY-2), Upgraded Early Warning Radars (UEWR), and the future Long Range Discrimination Radar (LRDR). Figure 16 below illustrates the locations of select BMDS sensors world-wide. AN/TPY-2 is a transportable X-band high resolution radar that is capable of tracking all classes of ballistic missiles. AN/TPY-2 in the forward-based mode is capable of detecting and tracking missiles in all stages of flight to support Aegis BMD and GMD engagements and provides threat missile data to C2BMC. AN/TPY-2 in the terminal mode can track missiles in the later stages of flight to support THAAD engagements. Five AN/TPY-2 radars for use in forward-based mode are deployed to support regional defense: two in U.S. European Command, two in U.S. Pacific Command, and one in U.S. Central Command. Two AN/TPY-2 radars for use in terminal mode is also deployed to U.S. Pacific Command. UEWR are U.S. Air Force early warning radars that are upgraded and integrated into the BMDS to provide sensor coverage for critical early warning, tracking, object classification, and cueing data. Upgraded Early Warning Radars are located in Beale, California; Fylingdales, United Kingdom; and Thule, Greenland. MDA awarded a contract to upgrade the early warning radars in Clear, Alaska and at Cape Cod, Massachusetts, and both of these assets are approaching their operational acceptance for use in the BMDS. The upgrades to the Clear and Cape Cod Early Warning Radar sites are joint MDA / Air Force projects. Both organizations are contributing funding to these sites. LRDR is being designed as an S-band radar intended to address the need for persistent, precision tracking and discrimination capability in the Pacific sensor architecture. MDA anticipates the addition of LRDR will optimize the employment of the Ground-based Midcourse Defense (GMD) interceptors and address evolving threats. The radar will be located at Clear Air Force Station, Alaska with initial operational capability planned for 2020. Table 13 provides key fiscal year 2017 Sensors program facts. AN/TPY-2 Program transitions to a new development phase To address future requirements and as part of its spiral development process, AN/TPY-2 transitioned from its Increment 2 software development phase to its Configuration 3 software development phase. The transition results in Configuration 3 subsuming all unfinished Increment 2 content including 44 percent of development costs ($60 million), 31 percent of productions costs ($61 million), 88 percent of operations and support costs ($2,281 million), and 100 percent of disposal costs ($30 million). Four Knowledge Points and Technical Performance Metrics for the program were also carried over from Increment 2. New capabilities were also added in Configuration 3 including electronic protection and discrimination improvements. Additionally, the Conditional Materiel Release of software upgrade CX 2.1.0 was delayed from the first quarter of fiscal year 2017 to the first quarter of fiscal year 2018. To mitigate this delay, MDA executed an Urgent Software Release for CX 2.1.1 to support the fielding of Command, Control and Battle Management (C2BMC) S6.4-3 in December 2016. UEWR operational acceptances delayed for Beale, Clear, Cape Cod, and Fylingdales Sites The UEWR is executing a concurrent development approach to improve UEWR Object Classification (OC), Data Processor/Signal Processor (DP/SP), and Bias Correction capabilities, and to certify the UEWR Clear and Cape Cod sites for use in the BMDS. Because of this concurrent development, a delay in the Beale UEWR’s operational acceptance for the OC and DP/SP program has had cascading effects on the same upgrades for the Clear, Cape Cod, and Fylingdales UEWRs in addition to the BMDS Certification for the Clear UEWR, delaying the use of these key radar capabilities. These delays are shown in figure 17 below: The delay in Beale’s Operational Acceptance was due in part to the following: The contractor, Raytheon, delivered unacceptable UEWR technical orders that required rework. Development and operational testing supporting the operational acceptance were delayed because the operators required remediation of all emergency operational maintenance issues found on the operational UEWRs. Some UEWR software required fixes to address deficiencies. Other programs were competing for test time on needed equipment. The delay in operational acceptance will affect the delivery of Bias Correction for the Clear and Cape Cod UEWRs in addition to the delivery of and Data Processor/ Signal Processor improvements to support the missile defense mission of Beale, Clear, Cape Cod, and Fylingdales UEWRs. It has also delayed the BMDS Certification of the Clear UEWR. Because the program currently has sufficient schedule margin before the Cape Cod BMDS Certification, the delays have not yet affected the missile defense mission for that radar. The program office is working with Raytheon on a recovery plan to address the Technical Order issues and other issues that arose from the developmental and operational testing conducted in July 2017. We have previously reported that concurrent development increases program risk for cost and schedule delays caused by redesigns and retrofits needed after testing has occurred. In fiscal year 2017, MDA made progress towards stabilizing LRDR’s design, by completing a preliminary design review in March 2017 and a critical design review in September 2017. The program also began production of long lead radar electronic components and awarded a military construction contract for the Mission Control Facility. However, the program has experienced challenges integrating multiple facilities- related projects, which require synchronization between MDA, the U.S. Air Force, the U.S. Army Corps of Engineers, and contractors. For example, in fiscal year 2017, the LRDR program began demolishing a decommissioned, Cold War-era radar, which sits on the planned LRDR site at Clear Air Force Station. The program discovered that the radar’s foundation and surrounding soil contained steel and concrete coated with polychlorinated biphenyl (PCB), which was a common industrial material used at the time of the radar’s construction in the late 1950s. PCBs do not readily break down once in the environment and have been demonstrated to cause a variety of adverse health effects. In April 2017, the U.S. Army Corps of Engineers modified its contract for the removal of the PCB- contaminated foundation and soil and plans to complete excavation and removal by early fiscal year 2018. Demolition is now expected to be completed in 2019 and the additional costs for these complications are not covered under the program’s resource baseline. In June 2017, the LRDR program initiated a power study with the commercial power supplier for the LRDR radar. The program expects to complete the study on LRDR’s power demands on the commercial electrical grid, as well as assess updated U.S. Northern Command concept of operations to determine the extent, if any, of system capabilities, limitations, and mitigations. During the LRDR critical design review, MDA officials stated that U.S. Air Force informed the agency that it required 24/7 availability of the radar if it is to become operational. According to MDA officials, the current LRDR design, with its reliance on commercial power and limited back-up generators, would not provide that capability. MDA officials stated the program plans to increase the number of back-up generators, which may increase the military construction costs and annual operational expense of the radar. A November 2016 study of LRDR’s power system performed for MDA by a contractor indicated that agreements with the commercial power provider place limitations on the warfighter’s ability to operate the radar without consulting the commercial power provider in advance and that emergency activation of the radar could result in other commercial power provider customers having their power supply temporarily switched off if the generators were not brought online in time. The LRDR program has also encountered design challenges with the radar’s circuit card assemblies, as the planned design included the use of pure tin parts, which are susceptible to corrosion. Lockheed Martin, the prime contractor for the LRDR program, plans to replace some of the pure tin parts with parts that have a lead-based finish, as available. The program does not anticipate there to be enough of these parts available and estimated that redesigning the pure tin parts would result in an approximate 9-month delay. For those parts that cannot be readily replaced, Lockheed Martin plans to use corrosion mitigation techniques, such as applying conformal coating to the circuit card assemblies and applying lead solder. Although MDA maintains that these mitigation techniques will ensure corrosion-free operations, government and industry studies show that such mitigations reduce, but do not eliminate the risk, Lockheed Martin is conducting on-site inspections and providing additional information on the historical use of pure tin parts in similar systems and anticipates being able to clear the unmitigated, pure tin parts through the MDA’s Parts, Materials, and Processes control board. Appendix IX: Targets and Countermeasures Program Overview The Missile Defense Agency’s (MDA) Targets and Countermeasures procures missiles to serve as targets during the developmental and operational testing of independent or integrated ballistic missile defense system (BMDS) elements. Specifically, this program supplies MDA with short-, medium-, intermediate-, and intercontinental-range targets to test, verify, and validate the BMDS elements’ performance in threat relevant environments. As targets are solely test assets, they are not operationally fielded. The number of targets that the program supplies vary based on each element’s requirements and testing schedule. While some targets have been used for years, others have been recently added or are now being developed to more closely represent current and future threats. The quality and availability of these targets is instrumental to the execution of MDA’s flight test schedule. Table 14 provides key fiscal year 2017 Targets and Countermeasure program facts. First successful intercept test using an ICBM was achieved during GMD flight test, FTG-15 Despite challenges MDA has previously experienced using new targets during intercept flight tests, in fiscal year 2017, the program successfully flew the first intercontinental ballistic missile (ICBM) range target to support a critical intercept test for the GMD element. The GMD element provides the warfighter capability to engage and destroy intermediate- and intercontinental-range ballistic missile threats for the protection of the United States. In March 2013, the Secretary of Defense announced plans to increase the number of deployed GMD interceptors called Ground- based interceptors (GBI) from 30 to 44 by the end of 2017. To do this, a test—FTG-15—was needed to collect data on the GBI’s new booster design and demonstrate its performance against a target at the ICBM threat range before completing this mandated fielding goal. The successful flight of the ICBM target, the GBI’s performance against the target, and other information gathered during this test will provide the warfighter with a better understanding of the GBI’s capabilities and limitations. For further details on the GMD element, see appendix VII. Program planning to award contract for additional targets despite cost growth, schedule delays, and unproven performance The Targets and Countermeasures program is planning to contract for up to 12 additional medium range ballistic missile (MRBM) T1/T2 targets despite cost growth, schedule delays, and the lack of demonstrated performance. In fiscal year 2014, the program competitively awarded the initial contract for 6 MRBM T1/T2 targets with an option for an additional 12, for a total of 18. According to program officials, the contract was structured with a fixed price for the target and incentives to ensure successful execution during testing. However, the contractor has been underperforming since the award. First, this target’s costs have continued to significantly increase as some MDA officials originally warned. One of MDA’s reasons for selecting the current MRBM T1/T2 contractor was because it offered a lower price. However, some officials within MDA objected to this award due to the near certainty that the contractor would overrun costs. Since then, both MDA and Defense Contract Management Agency (DCMA) officials have acknowledged that the contractor did not adequately account for the costs associated with this target. Consequently, this target’s costs have been volatile, and despite changes and rebaselines, the contractor has been unable to meet projections. In fiscal year 2017, the program conducted another review to address significant cost growth and set new projections, and despite a relatively steady period of performance against these new projections, DCMA officials believe that this contractor will continue to have increasing costs. In addition, the first delivery of this target has been delayed almost five years beyond the original plan primarily due to contractor performance issues. There was an initial delay because the contract was awarded later than planned due to an investigation of an unsubstantiated procurement integrity allegation. However, since then, contractor performance issues have further delayed the first target delivery, necessitating several substitute targets for tests in the interim. Finally, since the program will not fly the first target in a test until the second quarter of fiscal year 2019, the target’s performance has yet to be demonstrated. Hence, buying an additional 12 targets without confirmation of the target’s performance is a significant risk for the program, as even one failure would delay all future tests with this target, and ultimately, the entire test program. Appendix X: Terminal High Altitude Area Defense (THAAD) Appendix X: Terminal High Altitude Area Defense (THAAD) Program Overview THAAD is a rapidly-deployable ground-based system able to defend against short-, medium-, and intermediate- range ballistic missile attacks during the middle and end stages of a missile’s flight. THAAD is organized as a battery that consists of interceptors, launchers, an Army Navy / Transportable Surveillance (AN/TPY-2) radar, a fire control and communications system, and other support equipment. The first two batteries were originally conditionally accepted by the Army for operational use. Since then, THAAD received urgent materiel release approval from the Commanding General of the United States Army Aviation and Missile Command to enable an earlier delivery of equipment for THAAD batteries one through six for operational use to meet the Army’s request to support urgent warfighter needs. The MDA plans to continue THAAD production through fiscal year 2024, for a total of 7 batteries, 503 interceptors, and 7 radars. MDA has two THAAD acquisition efforts—THAAD 1.0 and THAAD 2.0. THAAD 1.0 is for the production of the batteries, interceptors, and supporting hardware and provides the warfighter with initial integrated defense against short- and medium-range threats in one region. Appendix X: Terminal High Altitude Area Defense (THAAD) THAAD 2.0 is primarily software enhancements that expand THAAD’s ability to defend against threats in multiple regions and at different ranges, and adds debris mitigation and other upgrades. Table 15 provides key fiscal year 2017 THAAD program facts. THAAD Successfully Completed Two Flight Tests, but Delayed Several Hardware and Software Deliveries, Impacting Warfighter Capabilities THAAD successfully completed two tests. In FTT-18 (previously scheduled for fiscal year 2015), THAAD successfully intercepted an Intermediate Range Ballistic Missile (IRBM)-representative target, demonstrating THAAD’s capability against IRBM threats. THAAD has been deployed to Guam since 2013 to defend against IRBM threats, but this is the first time it has demonstrated that capability in a flight test. According to program officials, for the second planned flight test originally named FTT-15, MDA changed the name to Flight Experiment THAAD (FET)-01 to more accurately reflect the experimental purpose of the test. However, an intercept was formerly a primary test objective in FTT-15, but this objective was removed before the test name was changed to FET-01. In FET-01, although not a primary objective, THAAD did complete an intercept of a medium-range ballistic missile target with countermeasures. Despite the intercept, the test revealed significant operational limitations. THAAD delayed the delivery of several key hardware and software deliveries that will impact warfighter capabilities. Figure 20 shows the delayed hardware and software deliveries. Appendix X: Terminal High Altitude Area Defense (THAAD) Appendix X: Terminal High Altitude Area Defense (THAAD) interceptors due to a production issue that had cascading schedule effects on interceptor production and delivery. Parts Quality Issues Were Resolved but Delayed Interceptor Deliveries In May 2017, we found that THAAD interceptor production was halted due to a parts quality issue discovered when a connector in the interceptor failed multiple testing iterations. Upon investigation, the contractor learned that one of its sub-contractors changed the manufacturing process on the connector without informing Lockheed Martin. According to program officials, Lockheed Martin halted interceptor delivery but continued interceptor production. The connector was redesigned and incorporated into 20 interceptors, which again failed testing before being deployed. After a second redesign the connector passed testing and interceptor delivery resumed in April 2017. As of December 2017, there were 16 interceptors that had been produced but not yet fitted with the redesigned connector. Program officials report that the delay should result in about 2 months of delivery delays of the last interceptor lot currently under contract. According to program officials, to prevent similar problems from occurring again, the government revised the Parts Materials and Processes Control plan to provide improved guidance and clarity related to parts selection and change control; added additional criteria to annual audits to enhance review of supplier parts management, materials, and processes; and tightened controls on suppliers to report any significant changes. MDA and Army are at an Impasse Regarding Transfer of THAAD Program to the Army Appendix X: Terminal High Altitude Area Defense (THAAD) THAAD, that would be the Army) not later than the date the President’s fiscal year 2021 budget is submitted. However, in a memo from the Secretary of the Army, the Army said that it would non-concur with a transfer of the THAAD program in its current state because it cannot meet the Army’s global mission requirements. To meet global mission requirements for the THAAD mission, the Army requires about $10.1 billion of additional hardware, life-cycle sustainment funding, and AN/TPY-2 upgrades. MDA is willing to transfer to the Army the THAAD program of record as is. An official from the Army said that this impasse has existed before, but that the recent reprioritization of the THAAD mission contributed to it. For further details on the AN/TPY-2 program, see appendix VIII. Table 16 below shows the difference between the THAAD program of record and the Army’s requirements. Appendix X: Terminal High Altitude Area Defense (THAAD) MDA’s requirements and warfighter requirements exist and can lead to situations such as this impasse. Consequently, we recommended that the Secretary of Defense require MDA to develop a plan to transition operational requirements analysis currently performed within MDA’s Achievable Capabilities List to the U.S. Combatant Commanders, with U.S. Strategic Command as the lead entity and, in the interim, require MDA to obtain their concurrence of the Achievable Capabilities List prior to its release. The Department of Defense (DOD) did not agree with our recommendation. However, as evidenced by the discrepancy between the Army’s and MDA’s requirements for the THAAD and AN/TPY-2 program, the difference between MDA’s requirements and those of the warfighter will continue to present substantial problems to DOD in executing the missile defense mission, and we continue to believe that our recommendation should be implemented. Appendix XI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, LaTonya Miller, Assistant Director; Matthew Ambrose; Kristine Hassinger; Helena Johnson; Joe Kirschbaum; Wiktor Niewiadomski; Steven Stern; Brian Tittle; Hai V. Tran; Alyssa Weir; Tonya Woodbury; and Robin Wilson made key contributions to this report. Related GAO Products Missile Defense: Some Progress Delivering Capabilities, but Challenges with Testing Transparency and Requirements Development Need to Be Addressed. GAO-17-381. Washington, D.C.: May 2017. Missile Defense: Opportunities Exist to Reduce Acquisition Risk and Improve Reporting on System Capabilities. Washington, D.C.: Mar. 2015. Missile Defense: Mixed Progress in Achieving Acquisition Goals and Improving Accountability. GAO-14-351. Washington, D.C.: Apr. 2014. Missile Defense: Opportunity to Refocus on Strengthening Acquisition Management. GAO-13-432. Washington, D.C.: Apr. 2013. Missile Defense: Opportunity Exists to Strengthen Acquisitions by Reducing Concurrency. GAO-12-486. Washington, D.C.: Apr. 2012. Missile Defense: Actions Needed to Improve Transparency and Accountability. GAO-11-372. Washington, D.C.: Mar. 2011. Defense Acquisitions: Missile Defense Transition Provides Opportunity to Strengthen Acquisition Approach. GAO-10-311. Washington, D.C.: Feb. 2010 Defense Acquisitions: Production and Fielding of Missile Defense Components Continue with Less Testing and Validation Than Planned. GAO-09-338. Washington, D.C.: Mar. 2009 Defense Acquisitions: Progress Made in Fielding Missile Defense, but Program is Short of Meeting Goals. GAO-08-448. Washington, D.C.: Mar. 2008 Defense Acquisitions: Missile Defense Acquisitions Strategy Generates Results but Delivers Less at a Higher Cost. GAO-07-387. Washington, D.C.: Mar. 2007 Defense Acquisitions: Missile Defense Agency Fields Initial Capability but Falls Short of Original Goals. GAO-06-327. Washington, D.C.: Mar. 2006. Defense Acquisitions: Status of Ballistic Missile Defense Program in 2004. GAO-05-243. Washington, D.C.: Mar. 2005 Missile Defense: Actions Are Needed to Enhance Testing and Accountability. GAO-04-409. Washington, D.C.: Apr. 2004.

Since 2002, MDA has been developing a Ballistic Missile Defense System that can identify and intercept enemy threats. MDA has received approximately $132 billion and is planning to spend an additional $47.8 billion through fiscal year 2022 to continue its efforts. The National Defense Authorization Act for Fiscal Year 2012 included a provision that GAO annually assess and report on the extent to which MDA has achieved its acquisition goals and objectives. This report addresses (1) the progress MDA made in achieving fiscal year 2017 goals; (2) the extent to which MDA uses contracting vehicles known as undefinitized contract actions; and (3) the extent to which models provide credible information about the system's operational performance. To do this work, GAO reviewed planned fiscal year 2017 baselines and other documentation and assessed them against baseline reviews and GAO's acquisition best practices guides. In addition, GAO interviewed relevant officials. In fiscal year 2017, the Missile Defense Agency (MDA) made mixed progress in achieving its delivery and testing goals. MDA continued to deliver assets to the military services. However, system-level integrated capabilities, such as some discrimination and integrated cyber defense improvements, were delayed and delivered with performance limitations. Several programs achieved notable firsts, including the first intercept of an Intercontinental Ballistic Missile. However, one program experienced a failure, and other tests were delayed or deleted. Moreover, GAO found challenges in MDA's processes for communicating the extent and limitations of integrated capabilities when they are delivered. As a result, warfighters do not have full insight into the capabilities MDA delivers. GAO found that the average length of the undefinitized period and the not-to-exceed price of MDA's undefinitized contract actions, which authorize contractors to begin work before an agreement on terms, specifications, or price have been agreed upon, have increased over the past 5 years. While MDA policy permits use of undefinitized contracts on a limited basis, GAO and others have found that they can place unnecessary cost risks on the government. MDA does not completely assess BMDS performance using traditional flight tests. Instead, MDA relies on models, some of which produce data with limited credibility. According to Department of Defense and MDA policy, models used to operationally assess weapons systems must be accredited to ensure they reflect the real-world system. In addition, using unaccredited models increases the risk that test results could be distorted, and leaves decision makers without key information on how the system will perform. While MDA has taken steps to improve its models, it has used many models in system operational ground tests that were not certified for that use (see figure). Additionally, MDA does not communicate model limitations to some decision makers. Percentage of Accredited Models Used in Operational Assessments of Ballistic Missile Defense System Capability Deliveries, 2015 through 2017

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T his report describes actions taken by the Administration and Congress to provide FY2020 appropriations for Commerce, Justice, Science, and Related Agencies (CJS) accounts. The dollar amounts in this report reflect only new appropriations made available at the start of the fiscal year. Therefore, the amounts do not include any rescissions of unobligated or deobligated balances that may be counted as offsets to newly enacted appropriations, nor do they include any scorekeeping adjustments (e.g., the budgetary effects of provisions limiting the availability of the balance in the Crime Victims Fund). In the text of the report, appropriations are rounded to the nearest million. However, percentage changes are calculated using whole, not rounded, numbers, meaning that in some instances there may be small differences between the actual percentage change and the percentage change that would be calculated by using the rounded amounts discussed in the report. Overview of CJS The annual CJS appropriations act provides funding for the Departments of Commerce and Justice, select science agencies, and several related agencies. Appropriations for the Department of Commerce include funding for agencies such as the Census Bureau, the U.S. Patent and Trademark Office, the National Oceanic and Atmospheric Administration, and the National Institute of Standards and Technology. Appropriations for the Department of Justice (DOJ) provide funding for agencies such as the Federal Bureau of Investigation; the Bureau of Prisons; the U.S. Marshals; the Drug Enforcement Administration; and the Bureau of Alcohol, Tobacco, Firearms, and Explosives, along with funding for a variety of public safety-related grant programs for state, local, and tribal governments. The vast majority of funding for the science agencies goes to the National Aeronautics and Space Administration and the National Science Foundation. The annual appropriation for the related agencies includes funding for agencies such as the Legal Services Corporation and the Equal Employment Opportunity Commission. Department of Commerce The mission of the Department of Commerce is to "create the conditions for economic growth and opportunity." The department promotes "job creation and economic growth by ensuring fair and reciprocal trade, providing the data necessary to support commerce and constitutional democracy, and fostering innovation by setting standards and conducting foundational research and development." It has wide-ranging responsibilities including trade, economic development, technology, entrepreneurship and business development, monitoring the environment, forecasting weather, managing marine resources, and statistical research and analysis. The department pursues and implements policies that affect trade and economic development by working to open new markets for U.S. goods and services and promoting pro-growth business policies. It also invests in research and development to foster innovation. The agencies within the Department of Commerce, and their responsibilities, include the following: International Trade Administration (ITA) seeks to strengthen the international competitiveness of U.S. industry, promote trade and investment, and ensure fair trade and compliance with trade laws and agreements; Bureau of Industry and Security (BIS) works to ensure an effective export control and treaty compliance system and promote continued U.S. leadership in strategic technologies by maintaining and strengthening adaptable, efficient, and effective export controls and treaty compliance systems, along with active leadership and involvement in international export control regimes; Economic Development Administration (EDA) promotes innovation and competitiveness, preparing American regions for growth and success in the worldwide economy; Minority Business Development Agency (MBDA) promotes the growth of minority owned businesses through the mobilization and advancement of public and private sector programs, policy, and research; Economics and Statistics Administration (ESA) is a federal statistical agency that promotes a better understanding of the U.S. economy by providing timely, relevant, and accurate economic accounts data in an objective and cost-effective manner; Census Bureau , a component of ESA, measures and disseminates information about the U.S. economy, society, and institutions, which fosters economic growth, advances scientific understanding, and facilitates informed decisions; National Telecommunications and Information Administration (NTIA) advises the President on communications and information policy; United States Patent and Trademark Office (USPTO) fosters innovation, competitiveness, and economic growth domestically and abroad by providing high-quality and timely examination of patent and trademark applications, guiding domestic and international intellectual property (IP) policy, and delivering IP information and education worldwide; National Institute of Standards and Technology (NIST) promotes U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology enhancing economic security; and National Oceanic and Atmospheric Administration (NOAA) provides daily weather forecasts, severe storm warnings, climate monitoring to fisheries management, coastal restoration, and support of marine commerce. Department of Justice DOJ's mission is to "enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behavior; and to ensure fair and impartial administration of justice for all Americans." DOJ also provides legal advice and opinions, upon request, to the President and executive branch department heads. The major DOJ offices and agencies, and their functions, are described below: Office of the United States Attorneys prosecutes violations of federal criminal laws, represents the federal government in civil actions, and initiates proceedings for the collection of fines, penalties, and forfeitures owed to the United States; United States Marshals Service (USMS) provides security for the federal judiciary, protects witnesses, executes warrants and court orders, manages seized assets, detains and transports alleged and convicted offenders prior to sentencing to their court hearings, 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 the Drug Enforcement Administration for the investigation of federal drug violations; Drug Enforcement Administration (DEA) investigates federal drug law violations; coordinates its efforts with other federal, state, and local law enforcement agencies; develops and maintains drug intelligence systems; regulates the manufacture, distribution, and dispensing of legitimate controlled substances; 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; Federal Prison System ( Bureau of Prisons; BOP ) houses offenders sentenced to a term of incarceration for a federal crime and provides for the operation and maintenance of the federal prison system; Office on Violence Against Women (OVW) provides federal leadership in developing the nation's capacity to reduce violence against women and administer justice for and strengthen services to victims of domestic violence, dating 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; Office of Sex Offender Sentencing, Monitoring, Apprehending, Registering, and Tracking; and Office of Victims of Crime; and Community Oriented Policing Services (COPS) advances the practice of community policing by the nation's state, local, territorial, and tribal law enforcement agencies through information and grant resources. Science Offices and Agencies The science offices and agencies support research and development and related activities across a wide variety of federal missions, including national competitiveness, space exploration, and fundamental discovery. Office of Science and Technology Policy The primary function of the Office of Science and Technology Policy (OSTP) is to provide the President and others within the Executive Office of the President with advice on the scientific, engineering, and technological aspects of issues that require the attention of the federal government. The OSTP director also manages the National Science and Technology Council, which coordinates science and technology policy across the executive branch of the federal government, and cochairs the President's Council of Advisors on Science and Technology, a council of external advisors that provides advice to the President on matters related to science and technology policy. The National Space Council The National Space Council, in the Executive Office of the President, is a coordinating body for U.S. space policy. Chaired by the Vice President, it consists of the Secretaries of State, Defense, Commerce, Transportation, and Homeland Security; the Administrator of NASA; and other senior officials. The council previously existed from 1988 to 1993 and was reestablished by the Trump Administration in June 2017. National Science Foundation The National Science Foundation (NSF) supports basic research and education in the nonmedical sciences and engineering. The foundation was established as an independent federal agency "to promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense; and for other purposes." The NSF is a primary source of federal support for U.S. university research in the nonmedical sciences and engineering. It is also responsible for significant shares of the federal science, technology, engineering, and mathematics (STEM) education program portfolio and federal STEM student aid and support. National Aeronautics and Space Administration The National Aeronautics and Space Administration (NASA) was created to conduct civilian space and aeronautics activities. It has four mission directorates. The Human Exploration and Operations Mission Directorate is responsible for human spaceflight activities, including the International Space Station and development efforts for future crewed spacecraft. The Science Mission Directorate manages robotic science missions, such as the Hubble Space Telescope, the Mars rover Curiosity, and satellites for Earth science research. The Space Technology Mission Directorate develops new technologies for use in future space missions, such as advanced propulsion and laser communications. The Aeronautics Research Mission Directorate conducts research and development on aircraft and aviation systems. In addition, NASA's Office of STEM Engagement (formerly the Office of Education) manages education programs for schoolchildren, college and university students, and the general public. Related Agencies The annual CJS appropriations act includes funding for several related agencies: U.S. Commission on Civil Rights informs the development of national civil rights policy and enhances enforcement of federal civil rights laws; Equal Employment Opportunity Commission is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy, gender identity, and sexual orientation), national origin, age (40 or older), disability, or genetic information; International Trade Commission investigates the effects of dumped and subsidized imports on domestic industries and conducts global safeguard investigations, adjudicates cases involving imports that allegedly infringe intellectual property rights, and serves as a resource for trade data and other trade policy-related information; Legal Services Corporation is a federally funded nonprofit corporation that provides financial support for civil legal aid to low-income Americans; Marine Mammal Commission works for the conservation of marine mammals by providing science-based oversight of domestic and international policies and actions of federal agencies with a mandate to address human effects on marine mammals and their ecosystems; Office of the U.S. Trade Representative is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries; and State Justice Institute is a federally funded nonprofit corporation that awards grants to improve the quality of justice in state courts and foster innovative, efficient solutions to common issues faced by all courts. The Administration's FY2020 Budget Request The Administration requests $71.388 billion for CJS for FY2020, which is $1.520 billion (-2.1%) less than the $72.908 billion appropriated for CJS for FY2019 (see Table 1 ). When comparing the Administration's FY2020 request to the FY2019 funding, it should be considered that the Administration formulated its FY2020 budget request before full-year appropriations for FY2019 were enacted. The Administration requests the following: $12.214 billion for the Department of Commerce, which is $801 million (+7.0%) more than FY2019 enacted funding; $30.529 billion for the Department of Justice, which is $405 million (-1.3%) less than FY2019 enacted funding; $28.092 billion for the science agencies, which is $1.491 billion (-5.0%) less than FY2019 enacted funding; and $552 million for the related agencies, which is $425 million (-43.5%) less than FY2019 enacted funding. The increase in funding for the Department of Commerce is almost entirely the result of a proposed $2.334 billion (65.7%) increase for the Census Bureau's Periodic Censuses and Programs account. The funding is requested to help the Census Bureau conduct the decennial 2020 Census. The Administration's FY2020 budget for CJS proposes eliminating several agencies and programs: EDA, NIST's Manufacturing Extension Partnership, NOAA's Pacific Coastal Salmon Recovery Fund, the Community Relations Service (its functions would be moved to DOJ's Civil Rights Division), the COPS Office (grants for community policing activities would be moved to OJP), NASA's Office of STEM Engagement (formerly the Office of Education), and the Legal Services Corporation. The Administration requests some funding for the EDA ($30 million) and Legal Services Corporation ($18 million) to help provide for an orderly closeout of these agencies. The Administration proposes a $30 million (-75.0%) reduction for the Minority Business Development Administration. It proposes to change the agency's focus to being a policy office that concentrates on advocating for the minority business community as a whole rather than supporting individual minority business enterprises. The Administration proposes to move funding for the High Intensity Drug Trafficking Areas (HIDTA) program to the DEA. Currently, HIDTA funding is administered by the Office of National Drug Control Policy. The Administration's requested funding for many CJS accounts is below FY2019 levels; however, there are a few exceptions, which include the following: BIS (+$10 million, +8.1%), Economic and Statistical Analysis (+$7 million, +6.9%), NTIA (+$3 million, +7.4%), the Executive Office of Immigration Review (+$110 million, +19.6%), DOJ's general legal activities (+$23 million, +2.6%), the U.S. Marshals' Federal Prisoner Detention account (+$315 million, +20.3%), DOJ's National Security Division (+$8 million, +8.1%), ATF (+$52 million, +3.9%), and the Office of the U.S. Trade Representative (+$6 million, +11.3%). The Administration proposes renaming three of NASA's accounts: the Space Technology account would be changed to the Exploration Technology account, the Exploration account would be changed to the Deep Space Exploration Systems account, and the Space Operations account would be changed to the Low Earth Orbit and Spaceflight Operations account. Unlike the Administration's FY2019 budget, which proposed a new account structure for NASA, the FY2020 budget proposal does not appear to include a realignment of items that would be funded from these accounts. The annual CJS appropriations act traditionally includes an obligation cap of funds expended from the Crime Victims Fund (CVF). The Administration's FY2020 budget does not include a proposed obligation cap for the CVF. Rather, the Administration proposes a new $2.300 billion annual mandatory appropriation for crime victims programs. Within this amount, $492.5 million would be for the OVW, $10.0 million would be for oversight of OVC programs by the OIG, $12.0 million would be for developing innovative crime victims services initiatives, and a set-aside of up to $115.0 million would be for tribal victims assistance grants. From the remaining amount, the Office for Victims of Crime (OVC) would provide formula and non-formula grants to the states to support crime victim compensation and victims services programs. Also, the Administration's budget includes a proposal to transfer all of the ATF's responsibilities related to alcohol and tobacco enforcement to the Department of the Treasury's Tax and Trade Bureau. The Administration argues that the proposed realignment will allow the ATF to focus on its efforts to prevent violent crime. The proposal does not affect how much the Administration requests for the ATF for FY2020. Table 1 outlines the FY2019 funding and the Administration's FY2020 request for the Department of Commerce, the Department of Justice, the science agencies, and the related agencies. Historical Funding for CJS Figure 1 shows the total CJS funding for FY2010-FY2019, in both nominal and inflation-adjusted dollars (more-detailed historical appropriations data can be found in Table 2 ). The data show that nominal funding for CJS reached a 10-year high in FY2019, though in inflation-adjusted terms, funding for FY2019 was lower than it was in FY2010. There is a cyclical nature to total nominal funding for CJS because of appropriations for the Census Bureau. Overall funding for CJS traditionally starts to increase a few years before the decennial census, peaks in the fiscal year in which the census is conducted, and then declines immediately thereafter. This is discussed in more detail below. Increased funding for CJS also coincides with increases to the discretionary budget caps under the Budget Control Act of 2011 (BCA, P.L. 112-25 ). The BCA put into effect statutory limits on discretionary spending for FY2012-FY2021. Under the act, discretionary spending limits were scheduled to be adjusted downward each fiscal year until FY2021. However, legislation was enacted that increased discretionary spending caps for FY2014 to FY2019. A sequestration of discretionary funding, ordered pursuant to the BCA, cut $2.973 billion out of the total amount Congress and the President provided for CJS for FY2013. Since then, funding for CJS has increased as more discretionary funding has been allowed under the BCA. Figure 2 shows total CJS funding for FY2010-FY2019 by major component (i.e., the Department of Commerce, the Department of Justice, NASA, and the NSF). Although decreased appropriations for the Department of Commerce (a 47.4% reduction) mostly explain the overall decrease in CJS appropriations from FY2010 to FY2013, cuts in funding for DOJ (-8.7%) and NASA (-9.8%) also contributed. Funding for NSF held relatively steady from FY2010 to FY2013. Overall CJS funding has increased since FY2014, and this is partially explained by more funding for the Department of Commerce to help the Census Bureau prepare for the 2020 decennial census. While funding for the Department of Commerce decreased from FY2018 to FY2019, it is partly the result of the department receiving $1.000 billion in emergency supplemental funding for FY2018. If supplemental funding is excluded, appropriations for the Department of Commerce increased 2.5% from FY2018 to FY2019. While increased funding for the Department of Commerce partially explains the overall increase in funding for CJS since FY2014, there have also been steady increases in funding for DOJ (+11.5%), NASA (+21.8%), and NSF (+12.6%), as higher discretionary spending caps have been used to provide additional funding to these agencies. Also, increased funding for the Department of Commerce is not only the result of more funding for the Census Bureau. Funding for NOAA increased by 41.0% from FY2014 to FY2018 and funding for NIST increased by 15.9% over the same time period. However, funding for both of these agencies decreased from FY2018 to FY2019, meaning that the increase in the Department of Commerce's funding during this time period was almost solely attributable to increased funding for the Census Bureau.

This report describes actions taken by the Trump Administration and Congress to provide FY2020 appropriations for Commerce, Justice, Science, and Related Agencies (CJS) accounts. The annual CJS appropriations act provides funding for the Department of Commerce, which includes agencies such as the Census Bureau, the U.S. Patent and Trademark Office (USPTO), the National Oceanic and Atmospheric Administration (NOAA), and the National Institute of Standards and Technology (NIST); the Department of Justice (DOJ), which includes agencies such as the Federal Bureau of Investigation (FBI), the Bureau of Prisons (BOP), the U.S. Marshals, the Drug Enforcement Administration (DEA), and the U.S. Attorneys; the National Aeronautics and Space Administration (NASA); the National Science Foundation (NSF); and several related agencies such as the Legal Services Corporation and the Equal Employment Opportunity Commission. The Administration requests $71.388 billion for CJS for FY2020, which is $1.520 billion (-2.1%) less than the $72.908 billion appropriated for CJS for FY2019. The Administration's request includes $12.214 billion for the Department of Commerce, $30.529 billion for the Department of Justice, $28.092 billion for the science agencies, and $552 million for the related agencies. The Administration's FY2020 budget proposes eliminating several CJS agencies and programs, including the Economic Development Administration, the Community Oriented Policing Services Office, NASA's STEM Engagement Office (formerly the Office of Education), and the Legal Services Corporation. The Administration proposes reducing funding for many accounts in CJS, though there are a few exceptions—the most notable of which is the proposed $2.334 billion increase for the Census Bureau's Periodic Censuses and Programs account. The increased funding is requested to help the Census Bureau conduct the decennial 2020 Census.

CRS_R45707

Introduction Prior to the September 2001 terrorist attacks on the United States, insurers generally did not exclude or separately charge for coverage of terrorism risk. The events of September 11, 2001, changed this as insurers realized the extent of possible terrorism losses. Estimates of insured losses from the 9/11 attacks are more than $45 billion in current dollars, the largest insured losses from a nonnatural disaster on record. These losses were concentrated in business interruption insurance (34% of the losses), property insurance (30%), and liability insurance (23%). Although primary insurance companies—those that actually sell and service the insurance policies bought by consumers—suffered losses from the terrorist attacks, the heaviest insured losses were absorbed by foreign and domestic reinsurers, the insurers of insurance companies. Because of the lack of public data on, or modeling of, the scope and nature of the terrorism risk, reinsurers felt unable to accurately price for such risks and largely withdrew from the market for terrorism risk insurance in the months following September 11, 2001. Once reinsurers stopped offering coverage for terrorism risk, primary insurers, suffering equally from a lack of public data and models, also withdrew, or tried to withdraw, from the market. In most states, state regulators must approve policy form changes. Most state regulators agreed to insurer requests to exclude terrorism risks from commercial policies, just as these policies had long excluded war risks. Terrorism risk insurance was soon unavailable or extremely expensive, and many businesses were no longer able to purchase insurance that would protect them in future terrorist attacks. In some cases, such insurance is required to consummate various transactions, particularly in the real estate, transportation, construction, energy, and utility sectors. Although the evidence is largely anecdotal, some were concerned that the lack of coverage posed a threat of serious harm—such as job loss—to these industries, in turn threatening the broader economy. In November 2002, Congress responded to the fears of economic damage due to the absence of commercially available coverage for terrorism with passage of the Terrorism Risk Insurance Act (TRIA). TRIA created a three-year Terrorism Insurance Program to provide a government reinsurance backstop in the case of terrorist attacks. The TRIA program was amended and extended in 2005, 2007, and 2015. Following the 2015 amendments, the TRIA program is set to expire at the end of 2020. (A side-by-side of the original law and the three reauthorization acts is in Table 1 .) The executive branch has been skeptical about the TRIA program in the past. Bills to expand TRIA were resisted by then-President George W. Bush's Administration, and previous presidential budgets under then-President Obama called for changes in the program that would have had the effect of scaling back the TRIA coverage. The current Administration has not called for specific changes to TRIA, but has indicated that it is "evaluating reforms…to further decrease taxpayer exposure." The insurance industry largely continues to support TRIA, as do commercial insurance consumers in the real estate and other industries that have formed a "Coalition to Insure Against Terrorism" (CIAT). However, not all insurance consumers have consistently supported the renewal of TRIA. For example, the Consumer Federation of America has questioned the need for the program in the past. Although the United States has suffered attacks deemed "terrorism" since the passage of TRIA, no acts of terrorism have been certified and no payments have occurred under TRIA. For example, although the April 2013 bombing in Boston was termed an "act of terror," by the President, the insured losses in TRIA-eligible insurance from that bombing did not cross the $5 million statutory threshold to be certified under TRIA. (See precise criteria under the TRIA program below.) Goals and Specifics of the Current TRIA Program The original TRIA legislation's stated goals were to (1) create a temporary federal program of shared public and private compensation for insured terrorism losses to allow the private market to stabilize; (2) protect consumers by ensuring the availability and affordability of insurance for terrorism risks; and (3) preserve state regulation of insurance. Although Congress has amended specific aspects of the original act, the operation of the program generally usually follows the original statute. The changes to the program have largely reduced the government coverage for terrorism losses, except that the 2007 amendments expanded coverage to domestic terrorism losses, rather than limiting the program to foreign terrorism. Terrorism Loss Sharing Criteria To meet the first goal, the TRIA program creates a mechanism through which the federal government could share insured commercial property and casualty losses with the private insurance market. The role of federal loss sharing depends on the size of the insured loss. For a relatively small loss, there is no federal sharing. For a medium-sized loss, the federal role is to spread the loss over time and over the entire insurance industry. The federal government provides assistance up front but then recoups the payments it made through a broad levy on insurance policies afterwards. For a large loss, the federal government is to pay most of the losses, although recoupment is possible (but not mandatory) in these circumstances as well. The precise dollar values where losses cross these small, medium, and large thresholds are uncertain and will depend on how the losses are distributed among insurers. For example, for loss sharing to occur, an attack must meet a certain aggregate dollar value and each insurer must pay out a certain amount in claims—known as its deductible. For some large insurers, this individual deductible might be higher than the aggregate threshold set in statute, meaning that loss sharing might not actually occur until a higher level than the figure set in statute. The criteria under the TRIA program in 2019 are as follows: 1. An individual act of terrorism must be certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and Attorney General; losses must exceed $5 million in the United States or to U.S. air carriers or sea vessels for an act of terrorism to be certified. 2. The federal government shares in an insurer's losses due to a certified act of terrorism only if "the aggregate industry insured losses resulting from such certified act of terrorism" exceed $180 million (increasing to $200 million in 2020). 3. The federal program covers only commercial property and casualty insurance, and it excludes by statute several specific lines of insurance. 4. Each insurer is responsible for paying a deductible before receiving federal coverage. An insurer's deductible is proportionate to its size, equaling 20% of an insurer's annual direct earned premiums for the commercial property and casualty lines of insurance specified in TRIA. 5. Once the $180 million aggregate loss threshold and 20% deductible are met, the federal government would cover 81% of each insurer's losses above its deductible until the amount of losses totals $100 billion. 6. After $100 billion in aggregate losses, there is no federal government coverage and no requirement that insurers provide coverage. 7. In the years following the federal sharing of insurer losses, but prior to September 30, 2024, the Secretary of the Treasury is required to establish surcharges on TRIA-eligible property and casualty insurance policies to recoup 140% of some or all of the outlays to insurers under the program. If losses are high, the Secretary has the authority to assess surcharges, but is not required to do so. (See " Recoupment Provisions " below for more detail.) Initial Loss Sharing The initial loss sharing under TRIA can be seen in Figure 1 , adapted from a Congressional Budget Office (CBO) report. The exact amount of the 20% deductible at which TRIA coverage would begin depends on how the losses are distributed among insurance companies. In the aggregate, 20% of the direct-earned premiums for all of the property and casualty lines specified in TRIA totaled approximately $42 billion in 2017, according to the latest data collected by the Treasury Department. TRIA coverage is likely, however, to begin well under this amount as the losses from an attack are unlikely to be equally distributed among insurance companies. Recoupment Provisions The precise amount TRIA requires the Treasury to recoup after the initial loss sharing is determined by the interplay between a number of different factors in the law and insurance marketplace. The general result of the recoupment provisions is that, for attacks that result in under $37.5 billion in insured losses, the Treasury Secretary is required to recoup 140% of the government outlays through surcharges on property and casualty insurance policies. For events with insured losses over $37.5 billion, the Secretary has discretionary authority to recoup all the government outlays and may be required to partially recoup the government outlays depending on the size of the attacks and the amount of uncompensated losses paid by the insurance industry. (See the Appendix for more information on exact recoupment calculations.) If the requirement for recoupment is triggered, TRIA requires the government to recoup all payments prior to the end of FY2024. Because the last reauthorization of TRIA occurred in January 2015, such recoupment would be completed within a 10-year timeframe following the previous reauthorization. For an attack causing significant insured loses, however, this requirement could result in high surcharges being applied for a relatively short time. The recoupment surcharges are to be imposed as a percentage of premiums paid on all TRIA-eligible property and casualty insurance policies, but the Secretary has the authority to adjust the amount of the premiums taking into consideration differences between rural and urban areas and the terrorism exposures of different lines of insurance. Program Administration The administration of the TRIA program was originally left generally to the Treasury Secretary. This was changed somewhat in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The act created a new Federal Insurance Office (FIO) to be located within the Department of the Treasury. Among the duties specified for the FIO in the legislation was to assist the Secretary in the administration of the Terrorism Insurance Program. TRIA Consumer Protections TRIA addresses the second goal—to protect consumers—by requiring insurers that offer TRIA-covered lines of insurance to make terrorism insurance available prospectively to their commercial policyholders. This coverage may not differ materially from coverage for other types of losses. Each terrorism insurance offer must reveal both the premium charged for terrorism insurance and the possible federal share of compensation. Policyholders are not, however, required to purchase coverage under TRIA. If a policyholder declines to purchase terrorism coverage, the insurer may exclude terrorism losses. Federal law does not limit what insurers can charge for terrorism risk insurance, although state regulators typically have the authority under state law to modify excessive, inadequate, or unfairly discriminatory rates. Preservation of State Insurance Regulation TRIA's third goal—to preserve state regulation of insurance—is expressly accomplished in Section 106(a), which provides that "Nothing in this title shall affect the jurisdiction or regulatory authority of the insurance commissioner [of a state]." The Section 106(a) provision has two exceptions, one permanent and one temporary (and expired): (1) the federal statute preempts any state definition of an "act of terrorism" in favor of the federal definition and (2) the statute briefly preempted state rate and form approval laws for terrorism insurance from enactment to the end of 2003. In addition to these exceptions, Section 105 of the law also preempts state laws with respect to insurance policy exclusions for acts of terrorism. Coverage for Nonconventional Terrorism Attacks The TRIA statute does not specifically include or exclude property and casualty insurance coverage for terrorist attacks according to the particular methods used in the attacks, such as nuclear, biological, chemical, and radiological (NBCR) and cyber terrorism risks. Such nonconventional means, however, have the potential to cause losses that may or may not end up being covered by TRIA and have been a source of particular concern and attention in the past. Nuclear, Biological, Chemical, and Radiological Terrorism Coverage Some observers consider a terrorist attack with some form of NBCR weapon to be the most likely type of attack causing large scale losses. The current TRIA statute does not specifically include or exclude NBCR events; thus, the TRIA program in general would cover insured losses from terrorist actions due to NCBR as it would for an attack by conventional means. The term insured losses , however, is a meaningful distinction. Except for workers' compensation insurance, most insurance policies that would fall under the TRIA umbrella include exclusions that would likely limit insurer coverage of an NCBR event, whether it was due to terrorism or to some sort of accident, although these exclusions have never been legally tested in the United States after a terrorist event. If these exclusions are invoked and do indeed limit the insurer losses due to NBCR terrorism, they would also limit the TRIA coverage of such losses. Language that would have specifically extended TRIA coverage to NBCR events was offered in the past, but was not included in legislation as enacted. In 2007, the Government Accountability Office (GAO) was directed to study the issue and a GAO report was issued in 2008, finding that "insurers generally remain unwilling to offer NBCR coverage because of uncertainties about the risk and the potential for catastrophic losses." In the past, legislation (e.g., H.R. 4871 in the 113 th Congress) would have provided for differential treatment of NBCR attacks under TRIA, but such legislation has not been enacted. Cyber Terrorism Coverage Concern regarding potential damage from cyber terrorism has grown as increasing amounts of economic activity occur online. The TRIA statute does not specifically address the potential for cyber terrorism, thus, there was uncertainty about such attacks would be covered in the same manner as terrorist attacks using conventional means. In 2016, state insurance regulators introduced a new Cyber Liability line of insurance, raising questions as to whether coverage under this line would be covered under TRIA, or whether it would not be covered under the law's exclusion of "professional liability" insurance. The Department of the Treasury released guidance in December 2016 clarifying that "stand-alone cyber insurance policies reported under the 'Cyber Liability' line are included in the definition of 'property and casualty insurance' under TRIA." Despite Treasury's guidance, cyber terrorism coverage remains a particular concern. The Treasury Department devoted a specific section of the latest report on TRIA to cyber coverage, reporting that 50% of standalone cyber insurance policies (based on premium value) included terrorism coverage. The take-up rate for those choosing cyber coverage that is embedded in policies covering additional perils was 54%. These rates are similar to, but slightly lower than, the 62% take-up rate for general terrorism coverage found across all TRIA-eligible lines. Background on Terrorism Insurance Insurability of Terrorism Risk Stripped to its most basic elements, insurance is a fairly straightforward operation. An insurer agrees to assume an indefinite future risk in exchange for a definite current premium. The insurer pools a large number of risks such that, at any given point in time, the ongoing losses will not be larger than the current premiums being paid, plus the residual amount of past premiums that the insurer retains and invests, plus, in a last resort, any borrowing against future profits if this is possible. For the insurer to operate successfully and avoid failure, it is critical to accurately estimate the probability of a loss and the severity of that loss so that a sufficient premium can be charged. Insurers generally depend upon huge databases of past loss information in setting these rates. Everyday occurrences, such as automobile accidents or natural deaths, can be estimated with great accuracy. Extraordinary events, such as large hurricanes, are more difficult, but insurers have many years of weather data, coupled with sophisticated computer models, with which to make predictions. Many see terrorism risk as fundamentally different from other risks, and thus it is often perceived as uninsurable by the private insurance market without government support for the most catastrophic risk. The argument that catastrophic terrorism risk is uninsurable typically focuses on lack of public data about both the probability and severity of terrorist acts. The reason for the lack of historical data is generally seen as a good thing—few terrorist attacks are attempted and fewer have succeeded. Nevertheless, the insurer needs some type of measurable data to determine which terrorism risks it can take on without putting the company at risk of failure. As a replacement for large amounts of historical data, insurers turn to various forms of terrorism models similar to those used to assess future hurricane losses. Even the best model, however, can only partly replace good data, and terrorism models are still relatively new compared with hurricane models. One prominent insurance textbook identifies four ideal elements of an insurable risk: (1) a sufficiently large number of insureds to make losses reasonably predictable; (2) losses must be definite and measurable; (3) losses must be fortuitous or accidental; and (4) losses must not be catastrophic (i.e., it must be unlikely to produce losses to a large percentage of the risks at the same time). Terrorism risk in the United States would appear to fail the first criterion as terrorism losses have not proved predictable over time. Losses to terrorism, when they occur, are generally definite and measurable, so terrorism risk could pass under criteria two. Such risk, however, also likely fails the third criterion due to the malevolent human actors behind terrorist attacks, whose motives, means, and targets of attack are constantly in flux. Whether it fails the fourth criterion is largely decided by the underwriting actions of insurers themselves (i.e., whether the insurers insure a large number of risks in a single geographic area that would be affected by a terrorist strike). Unsurprisingly, insurers generally have sought to limit their exposures in particular geographic locations with a conceptually higher risk for terrorist attacks, making terrorism insurance more difficult to find in those areas. International Experience with Terrorism Risk Insurance27 Although the U.S. experience with terrorism is relatively limited, other countries have dealt with the issue more extensively and have developed their own responses to the challenges presented by terrorism risk. Spain, which has seen significant terrorist activity by Basque separatist movements, insures against acts of terrorism via a broader government-owned reinsurer that has provided coverage for catastrophes since 1954. The United Kingdom, responding to the Irish Republican Army attacks in the 1980s, created Pool Re, a privately owned mutual insurance company with government backing, specifically to insure terrorism risk. In the aftermath of the September 11, 2001, attacks, many foreign countries reassessed their terrorism risks and created a variety of approaches to deal with the risks. The UK greatly expanded Pool Re, whereas Germany created a private insurer with government backing to offer terrorism insurance policies. Germany's plan, like the United States' TRIA, was created as a temporary measure. It has been extended since its inception, most recently until the end of 2019. Not all countries, however, concluded that some sort of government backing for terrorism insurance was necessary. Canada specifically considered, and rejected, creating a government program following September 11, 2001. Previous U.S. Experience with "Uninsurable" Risks Terrorism risk post-2001 is not the first time the United States has faced a risk perceived as uninsurable in private markets that Congress chooses to address through government action. During World War II, for example, Congress created a "war damage" insurance program and it expanded a program insuring against aviation war risk following September 11, 2002. Since 1968, the National Flood Insurance Program has covered most of the insured flooding losses in the United States. The closest previous analog to the situation with terrorism risk may be the federal riot reinsurance program created in the late 1960s. Following large scale riots in American cities in the late 1960s, insurers generally pulled back from insuring in those markets, either adding policy exclusions to limit their exposure to damage from riots or ceasing to sell property damage insurance altogether. In response, Congress created a riot reinsurance program as part of the Housing and Urban Development Act of 1968. The federal riot reinsurance program offered reinsurance contracts similar to commercial excess reinsurance. The government agreed to cover some percentage of an insurance company's losses above a certain deductible in exchange for a premium paid by that insurance company. Private reinsurers eventually returned to the market, and the federal riot reinsurance program was terminated in 1985. The Terrorism Insurance Market Post-9/11 and Pre-TRIA The September 2001 terrorist attacks, and the resulting billions of dollars in insured losses, caused significant upheaval in the insurance market. Even before the attacks, the insurance market was showing signs of a cyclical "hardening" of the market in which prices typically rise and availability is somewhat limited. The unexpectedly large losses caused by terrorist acts exacerbated this trend, especially with respect to the commercial lines of insurance most at risk for terrorism losses. Post-September 11, insurers and reinsurers started including substantial surcharges for terrorism risk, or, more commonly, they excluded coverage for terrorist attacks altogether. Reinsurers could make such rapid adjustments because reinsurance contracts and rates are generally unregulated. Primary insurance contracts and rates are more closely regulated by the individual states, and the exclusion of terrorism coverage for the individual insurance purchaser required regulatory approval at the state level in most cases. States acted fairly quickly, and, by early 2002, 45 states had approved insurance policy language prepared by the Insurance Services Office, Inc. (ISO, an insurance consulting firm), excluding terrorism damage in standard commercial policies. The lack of readily available terrorism insurance caused fears of a larger economic impact, particularly on the real estate market. In most cases, lenders prefer or require that a borrower maintain insurance coverage on a property. Lack of terrorism insurance coverage could lead to defaults on existing loans and a downturn in future lending, causing economic ripple effects as buildings are not built and construction workers remain idle. The 14-month period after the September 2001 terrorist attacks and before the November 2002 passage of TRIA provides some insight into the effects of a lack of terrorism insurance. Some examples in September 2002 include the Real Estate Roundtable releasing a survey finding that "$15.5 billion of real estate projects in 17 states were stalled or cancelled because of a continuing scarcity of terrorism insurance" and Moody's Investors Service downgrading $4.5 billion in commercial mortgage-backed securities. This picture, however, was not uniform. For example, in July 2002, The Wall Street Journal reported that "despite concerns over landlords' ability to get terrorism insurance, trophy properties were in demand." CBO concluded in 2005 that "[TRIA] appears to have had little measurable effect on office construction, employment in the construction industry, or the volume of commercial construction loans made by large commercial banks," but CBO also noted that a variety of economic factors at the time "could be masking positive macroeconomic effects of TRIA." After TRIA TRIA's "make available" provisions addressed the availability problem in the terrorism insurance market, as insurers were required by law to offer commercial terrorism coverage. However, significant uncertainty existed as to how businesses would react, because there was no general requirement to purchase terrorism coverage and the pricing of terrorism coverage was initially high. Analyzing the terrorism insurance market in the aftermath of TRIA is challenging as well since there was no consistent regulatory reporting by insurers until P.L. 114-1 required detailed reporting, which Treasury began in 2016. Before this time, data on terrorism insurance typically stemmed from insurance industry surveys or rating bureaus. In examining the terrorism insurance market since TRIA, it is also important to note that no terrorist attacks have occurred that reached TRIA thresholds, thus property and casualty insurance has not made any large scale payouts for terrorism damages. The initial consumer reaction to the terrorism coverage offers was relatively subdued. Marsh, Inc., a large insurance broker, reported that 27% of their clients bought terrorism insurance in 2003. This take-up rate, however, climbed relatively quickly to 49% in 2004 and 58% in 2005. Marsh reported that, since 2005, the overall take-up rate has remained near 60%, with Marsh reporting a rate of 62% in 2017. The Treasury reports based on industry data calls have found similar or higher take-up rates. For 2017, Treasury found that the take-up rate based on premium volumes was 62%, whereas based on policy counts, the rate was 78%. The price for terrorism insurance has appeared to decline over time, although the level of pricing reported may not always be comparable between sources. The 2013 report by the President's Working Group on Financial Markets, based on survey data by insurance broker Aon, showed a high of above 7% for the median terrorism premium as a percentage of the total property premium in 2003, with a generally downward trend, and more recent values around 3%. The trend may be downward, but there has been variability, particularly across industries. For example, Marsh reported rates in 2009 as high as 24% of the property premium for financial institutions and as low as 2% in the food and beverage industry. In the 2013 Marsh report, this variability was lower as 2012 rates varied from 7% in the transportation industry and the hospitality and gaming industry to 1% in the energy and mining industry. In 2017, Marsh found rates varying from 10% in hospitality and gaming to 2% in energy and mining and construction industries. The 2018 Treasury report, based on lines of insurance, not on industry category, found premiums varying from 6.1% in excess workers' compensation to 1.4% in ocean marine in 2017. Treasury found that the total premium amount paid for terrorism coverage in 2017 was approximately $3.65 billion, or 1.75%, of the $209.15 billion in total premiums for TRIA-eligible lines of insurance. Since the passage of TRIA, Treasury estimates that a total of approximately $38 billion was earned for terrorism coverage by non-related insurers, with another $7.4 billion earned by captive insurers (which are insurers who are owned by the insureds). In general, the capacity of insurers to bear terrorism risk has increased over the life of the TRIA program. The combined policyholder surplus among all U.S. property and casualty insurers was $686.9 billion at the end of 2017 compared to $408.6 billion (inflation adjusted) at the start of 2002. This $686.9 billion has been bolstered by the estimated $38 billion in premiums paid for terrorism coverage over the years without significant claims payments. The policyholder surplus, however, backs all property and casualty insurance policies in the United States and is subject to depletion in a wide variety of events. For example, extreme weather losses could particularly draw capital away from the terrorism insurance market, because events such as hurricanes share some characteristics—low frequency and the possibility of catastrophic levels of loss—with terrorism risk. Evolution of Terrorism Risk Insurance Laws Table 1 presents a side-by-side comparison of selected provisions from the original TRIA law, along with the reauthorizing laws of 2005, 2007, and 2015. Appendix. Calculation of TRIA Recoupment Amounts Table A-1 contains illustrative examples of how the recoupment for the government portion of terrorism losses under TRIA might be calculated in the aggregate for various sizes of losses. The total amount of the combined deductibles in the table is simply assumed to be 30% of the insured losses for illustrative purposes. (The actual deductible amount is, as detailed above, based on the total amount of premiums collected by each insurer.) Without knowing the actual distribution of losses due to a terrorist attack, it is impossible to know what the actual total combined deductible amount would be. Table conclusions with regard to recoupment, however, hold across different actual deductible amounts. The specific provisions of the law define the "insurance marketplace aggregate retention amount" (Column F) for 2019 as the lesser of $37.5 billion or the total amount of insured losses (Column A). The "mandatory recoupment amount" (Column G) is defined as the difference between $37.5 billion and the aggregate insurer losses that were not compensated for by the program (i.e., the total of the insurers' deductible (Column B) and their 19% loss share (Column C)). If the aggregate insured loss is less than $37.5 billion, the law requires recoupment of 140% of the government outlays (Column H). For insured losses over $37.5 billion, the mandatory recoupment amount decreases, thus the Secretary would be required to recoup less than 133% of the outlays. Depending on the precise deductible amounts, the uncompensated industry losses (Column D) may eventually rise to be greater than $37.5 billion, which would then mean that the mandatory recoupment provisions would not apply. The Secretary would still retain discretionary authority to apply recoupment surcharges no matter what level uncompensated losses reached.

Prior to the September 11, 2001, terrorist attacks, coverage for losses from such attacks was normally included in general insurance policies without additional cost to the policyholders. Following the attacks, such coverage became expensive, if offered at all. Moreover, some observers feared that the absence of insurance against terrorism loss would have a wider economic impact, because insurance is required to consummate a variety of transactions (e.g., real estate). For example, if real estate deals were not completed due to lack of insurance, this could have ripple effects—such as job loss—on related industries like the construction industry. Terrorism insurance was largely unavailable for most of 2002, and some have argued that this adversely affected parts of the economy, while others suggest the evidence is inconclusive. Congress responded to the disruption in the insurance market by passing the Terrorism Risk Insurance Act of 2002 (TRIA; P.L. 107-297), which created a temporary three-year Terrorism Insurance Program. Under TRIA, the government would share the losses on commercial property and casualty insurance should a foreign terrorist attack occur, with potential recoupment of this loss sharing after the fact. In addition, TRIA requires insurers to make terrorism coverage available to commercial policyholders, but does not require policyholders to purchase the coverage. The program expiration date was extended in 2005 (P.L. 109-144), 2007 (P.L. 110-160), and 2015 (P.L. 114-1). Over the course of such reauthorizations, the prospective government share of losses has been reduced and the recoupment amount increased, although the 2007 reauthorization also expanded the program to cover losses from acts of domestic terrorism. The TRIA program is currently slated to expire at the end of 2020. In general terms, if a terrorist attack occurs under TRIA, the insurance industry covers the entire amount for relatively small losses. For a medium-sized loss, the government assists insurers initially but is then required to recoup the payments it made to insurers through a broad levy on insurance policies afterwards—the federal role is to spread the losses over time and over the entire insurance industry and insurance policyholders. As the size of losses grows larger, the federal government covers more of the losses without this mandatory recoupment. Ultimately, for the largest losses, the government is not required to recoup the payments it has made, although discretionary recoupment remains possible. The precise dollar values where losses cross these small, medium, and large thresholds are uncertain and will depend on how the losses are distributed among insurers. The specifics of the current program are as follows: (1) a terrorist act must cause $5 million in insured losses to be certified for TRIA coverage; (2) the aggregate insured losses from certified acts of terrorism must be $180 million in a year for the government coverage to begin (this amount increases to $200 million in 2020); and (3) an individual insurer must meet a deductible of 20% of its annual premiums for the government coverage to begin. Once these thresholds are met, the government covers 81% of insured losses due to terrorism (this amount decreases to 80% in 2020). If the insured losses are less than $37.5 billion, the Secretary of the Treasury is required to recoup 140% of government outlays through surcharges on TRIA-eligible property and casualty insurance policies. As insured losses rise above $37.5 billion, the Secretary is required to recoup a progressively reduced amount of the outlays. At some high insured loss level, which will depend on the exact distribution of losses, the Secretary would no longer be required to recoup outlays. Since TRIA's passage, the private industry's willingness and ability to cover terrorism risk have increased. According to data collected by the Treasury, in 2017, approximately 78% of insureds purchased the optional terrorism coverage, paying $3.65 billion in premiums. Over the life of the program, premiums earned by unrelated insurers have totaled $38 billion. This relative market calm has been under the umbrella of TRIA coverage and in a period in which no terrorist attacks have occurred that resulted in government payments under TRIA. It is unclear how the insurance market would react to the expiration of the federal program, although at least some instability might be expected were this to occur. With the upcoming 2020 expiration of the program, the 116th Congress may consider legislation to extend TRIA; to date, no such legislation has been introduced.

GAO_GAO-18-591

Background Native American Population and Indian Country Over 4 million people in the United States identified as Native American based on 2016 United States Census estimates, of which 29 percent were youth. As of June 2018, there were 573 federally recognized Indian tribes. According to BIA, as of June 2018, there were approximately 497 Indian land areas in the United States administered as federal Indian reservations or other tribal lands (e.g., pueblos, villages, and communities). These land areas, which span more than 56 million acres and 37 states, and vary in size, can generally be referred to as Indian country. Indian country is in remote, rural locations, and also near urban areas. Native Americans live both inside and outside of these land areas, and Indian country may have a mixture of Native American and non- Native American residents. Jurisdiction over crime in Indian country differs according to several factors and affects how Native American youth become involved with justice systems, as discussed further below. Youth in State and Local, Federal, and Tribal Justice Systems Youth who commit offenses can enter one or more justice systems at the state and local, federal, and tribal levels. Although state and local, federal, and tribal justice systems have unique characteristics, they all generally proceed through certain phases, including arrest, prosecution and adjudication, and in some instances, placement and confinement in a detention facility. State and local. State and local justice systems have specific courts– often at the county or city level–with jurisdiction over youth alleged to have committed an act of juvenile delinquency or a crime. This jurisdiction can be conferred by the state’s laws and exercised by courts at the city, county, or municipal levels, and each state and local entity’s processing of youth is unique. There are more than 2,400 courts across the country with juvenile jurisdiction, and a majority of these are at the city, county, or municipal, i.e., local, level. Generally, a youth is either referred to juvenile court or released. Juvenile courts handle two types of petitions: delinquency or waiver. A delinquency petition is the official charging document filed in juvenile court by the state. A juvenile’s case may be dismissed, handled informally (without filing a petition for adjudication), or handled through adjudication by the court. In some more serious situations, the case can be handled by a criminal court. Juvenile cases that are handled informally or through adjudication can result in various outcomes, including probation, commitment to an institution or other residential facility, another sanction (e.g., community service), or dismissal. Federal. Unlike state systems, the federal justice system does not have a separate court with jurisdiction over juvenile cases. Youth that are proceeded against in federal court are generally adjudicated in a closed hearing before a U.S. district or magistrate judge and their cases are either declined or they can be adjudicated delinquent. Delinquent adjudications can result in outcomes such as probation, commitment to a correctional facility, or the requirement to pay restitution. Youth under the age of 18 who are confined in federal facilities, including Native American youth, are housed in juvenile facilities overseen by the Federal Bureau of Prisons (BOP), which contracts with other entities to manage those facilities. Tribal. Tribal justice systems vary. A number of tribes have tribal judicial systems, some with separate juvenile courts, and others rely on state courts or the federal system. As of April 2018, there were approximately 89 adult and juvenile jail facilities and detention centers in Indian country, according to BIA officials. In addition, DOI’s BIA directly manages some facilities, called juvenile detention centers, on tribal lands. Jurisdiction of Federal, State, and Tribal Justice Entities Outside and Inside Indian Country Outside Indian country. A state generally has jurisdiction to proceed against a youth who has committed a crime or act of juvenile delinquency outside of Indian country. This jurisdiction is generally exercised in each state by local courts (e.g., at the county and city levels). Federal law limits federal jurisdiction over youth if a state has jurisdiction over the youth and has a system of programs and services adequate for their needs. Since the passage of the Juvenile Justice and Delinquency Prevention Act in 1974, federal law has reflected an intent to support state and local community-level programs for the prevention and treatment of juvenile delinquency, and to avoid referral of juvenile cases out of the state and local systems while balancing against the need to protect the public from violent offenders. Consistent with this, the Federal Juvenile Delinquency Code provides that a youth alleged to have committed an act of juvenile delinquency, with certain exceptions, will not fall under federal jurisdiction unless (1) the juvenile court or other appropriate court of a state does not have jurisdiction over the youth, (2) the state does not have available programs and services adequate for the needs of the youth, or (3) the offense charged is a violent felony or an enumerated offense involving controlled substances and there is a substantial federal interest in the case or the offense to warrant the exercise of federal jurisdiction. Inside Indian country. For both youth and adults, the exercise of criminal jurisdiction in Indian country depends on several factors. These factors include the nature of the crime, the status of the alleged offender and victim—that is, whether they are Indian or not—and whether jurisdiction has been conferred on a particular entity by statute. Additionally, the Federal Juvenile Delinquency Code generally applies to all juveniles alleged to have committed an act of juvenile delinquency, whether inside or outside Indian country. As a general principle, the federal government recognizes Indian tribes as “distinct, independent political communities” that possess powers of self-government to regulate their “internal and social relations,” which includes enacting substantive law over internal matters and enforcing that law in their own forums. The federal government, however, has authority to regulate or modify the powers of self-government that tribes otherwise possess, and has exercised this authority to establish jurisdiction over certain crimes in Indian country. For example, the Major Crimes Act, as amended, provides the federal government with criminal jurisdiction over Indians in Indian Country charged with serious, felony-level offenses enumerated in the statute, such as murder, manslaughter, kidnapping, burglary, and robbery. The General Crimes Act, the Major Crimes Act, and Public Law 280, which are broadly summarized in table 1, are the three federal laws central to the exercise of criminal jurisdiction in Indian country. The exercise of criminal jurisdiction by state governments in Indian country is generally limited to two instances: when both the alleged offender and victim are non-Indian, or when a federal statute confers, or authorizes, a state to assume criminal jurisdiction over Indians in Indian country. Otherwise, only the federal and tribal governments have jurisdiction in Indian country. Table 2 summarizes aspects of federal, state, and tribal jurisdiction over crimes committed in Indian country. Federal Agencies Responsible for Investigation, Prosecution, and Confinement of Youth within the Federal Justice System Federal agencies that come into contact with youth alleged to have committed an act of juvenile delinquency are to do so in accordance with the Federal Juvenile Delinquency Code. When a youth enters the federal justice system, several components within DOJ and DOI, among others, have responsibility for investigating and prosecuting his or her crimes. DOJ’s Federal Bureau of Investigation (FBI) has investigative responsibilities, including in Indian country, where it works with tribes to investigate crime. The FBI refers criminal investigations to a United States Attorney’s Office for prosecution. In the course of the federal criminal justice process, a U.S. attorney is involved in the process of investigating, charging, and prosecuting an offender, among other responsibilities. Under the direction of the Attorney General, the United States Attorney’s Office may prosecute crimes committed in Indian country where federal jurisdiction exists, as discussed above. DOJ’s U.S. Marshals Service (USMS) also has a role in the federal criminal justice process. Its mission areas include fugitive apprehension and federal prisoner security and transportation, among other responsibilities. USMS has arrest jurisdiction for enforcing the federal process anywhere in the United States, including Indian country. DOJ’s BOP is responsible for the custody and care of federal inmates and offenders, including youth. BOP works in coordination with the federal courts to assist in locating a detention facility within the youth’s jurisdiction, where possible. Figure 1 describes the key DOJ entities and their respective responsibilities related to the federal criminal justice process. Within DOI, BIA is statutorily responsible for enforcing not only federal law in Indian country but also tribal law, with the consent of the tribe. However, in certain situations, a tribe may assume this function from DOI pursuant to a self-determination contract or self-governance compact. BIA supports tribes in their efforts to ensure public safety and administer justice within Indian country through, for example, providing uniformed police and criminal investigative services for a number of tribes. Other agencies and departments with roles in the federal criminal justice process for youth include federal courts, the Administrative Office of the U.S. Courts, and the U.S. Sentencing Commission. Federal courts have the authority to decide cases and sentence offenders, among other things. The Administrative Office of the U.S. Courts provides a broad range of support services to the federal courts, which are responsible for adjudicating the cases of youth in the federal justice system. The U.S. Sentencing Commission is an independent judicial branch agency responsible for, among other things, collection, preparation, and dissemination of information on sentences imposed across federal courts. Data on Youth Involvement in Justice Systems There is no single, centralized data source that contains data for youth involved in all justice systems and across all phases of the justice process. Rather, there are several disparate data sources at each level (federal, state and local, or tribal) and phase (arrest, prosecution, and confinement). Further, while some agencies, such as USMS and BOP, share a unique identifier for an individual within the federal data sources, there is no unique identifier across all federal and state and local data sources. For purposes of this review, and given privacy concerns related to juvenile data, we were unable to track individuals across all phases of the federal justice system or identify the number of unique youth who came into contact with federal, state and local, or tribal justice systems. In addition to there being no single database that houses all relevant data on youth in the tribal, state and local, and federal justice systems, each database also varies in how it defines Native American, as well as how it determines whether youth are Native American for purposes of the data source. For example, some agencies define Native American broadly, as an individual having origins in any of the indigenous peoples of North America, including Alaska Natives. In contrast, DOJ’s Executive Office for United States Attorneys (EOUSA), in its prosecution data, defines the term Indian based on statute and case law, which generally considers an Indian to have both a significant degree of Indian blood and a connection to a federally recognized tribe. In addition, BOP determines that a youth is Native American for purposes of its data by reviewing documentation including charging documents, while USMS relies on individuals self- reporting their race upon being taken into custody. See appendix II for additional information and descriptions of these differences. Federal Grant Programs That May Address Juvenile Delinquency Federal departments and agencies, including DOJ and HHS, provide funding through several types of mechanisms for Native American populations and tribal lands, including mandatory grant programs, compacts and contracts, discretionary grants, and cooperative agreements. As discussed above, our analysis focused on discretionary grants and cooperative agreements. Discretionary grants are competitive in nature, whereby the granting agency has discretion to choose one applicant over another. DOJ’s Office of Justice Programs (OJP) awards discretionary grants to states, tribal organizations, territories, localities, and organizations to address a variety of issues, including to help prevent and reduce juvenile delinquency and victimization and improve their youth justice systems. DOJ also provides grant funding for training and technical assistance to enhance and support tribal governments’ efforts to reduce crime and improve the function of criminal justice in Indian country. Cooperative agreements are similar to discretionary grants in that federal agencies generally award them to grantees based on merit and eligibility. However, in contrast to a discretionary grant, federal agencies generally use cooperative agreements when they anticipate that there will be substantial federal, programmatic involvement with the recipient during the performance of the financially-assisted activities, such as agency collaboration or participation in program activities. Task Force and Commission Reports Related to Native American Youth and Juvenile Justice Two reports focused on Native American youth exposure to violence and ways to address and mitigate the negative impact of this exposure when it occurs, as well as ways to develop knowledge and spread awareness about children’s exposure to violence. In addition, both reports discussed factors that indicate Native American youth are uniquely positioned in regards to their contact with the justice systems, and included recommendations specific to Native American youth interaction with justice systems at the federal, state, and tribal levels. Appendix III describes actions agencies reported taking related to selected recommendations from these reports. Available Data Indicate Native American Youth Involvement in Justice Systems Declined from 2010 through 2016 and Differed in Some Ways from That of Non-Native American Youth From 2010 through 2016, the number of Native American youth involved with state and local and federal justice systems declined, according to our analysis of available data. This decline occurred across all phases of the justice process: arrest, adjudication, and confinement in facilities. The involvement of these Native American youth in the state and local and federal justice systems was also concentrated in certain geographic areas. Further, the vast majority of these Native American youth came into contact with state and local justice systems, not the federal system. Analysis of available data also indicates that the percent of Native American youth involved in the federal justice system during the period reviewed was greater than their representation in the nationwide youth population. In contrast, the percent of Native American youth involved in most state and local justice systems was similar to their representation in youth populations in those states. Moreover, the involvement of Native American and non-Native American youth in the federal justice system showed several differences (in types of offenses, for example), while their involvement in state and local justice systems showed several similarities. DOJ officials and representatives of Native American organizations we interviewed attributed the greater percent of Native American youth involved in the federal justice system and the differences shown by our analysis to federal government jurisdiction over crimes in Indian country, as well as the absence of general federal government jurisdiction over non-Native American youth. Involvement of Native American Youth in the Justice Systems Declined from 2010 through 2016 The number of Native American youth involved with state and local and federal justice systems declined from 2010 through 2016 across all phases of the justice process—arrest, adjudication, and confinement in facilities, according to our analysis of available data. The majority of Native American youth involved with state and local justice systems were located in 11 of the 50 states, and all Native American youth involved with the federal justice system were located in 5 of the 12 federal circuits. Further, most Native American youth were involved in state and local justice systems rather than in the federal system. Comprehensive data from tribal justice systems on the involvement of Native American youth were not available. However, we identified and reviewed a few data sources that provided certain insights about the arrest, adjudication, and confinement of Native American youth by tribal justice systems. See appendix IV for a summary of our analysis of data from these sources. Arrests State and local and federal. Analysis of available data indicates that from calendar years 2010 through 2016, there were 105,487 arrests of Native American youth by state and local law enforcement agencies (LEAs), and over this period, arrests generally declined by 40 percent. As shown in table 3, arrests declined from 18,295 in 2010 to 11,002 in 2016. During the same period, there were 246 federal custodies of Native American youth due to arrest by federal LEAs; the number of federal custodies also generally declined during the period—from 60 in 2010 to 20 in 2016. According to available data, the majority (about 75 percent) of Native American youth arrested by state and local LEAs from calendar years 2010 through 2016 were located in 10 states: Alaska, Arizona, Minnesota, Montana, New Mexico, North Dakota, Oklahoma, South Dakota, Washington, and Wisconsin. All of these ten states had a higher than average percentage of Native Americans among the states’ overall youth populations, according to 2016 U.S. Census estimates we reviewed. For example, of all the states Alaska had the largest percentage of Native Americans among its youth population, at 19 percent in 2016. In contrast, the percent of Native American youth in the youth population in many (26) states was less than 1 percent. In 2016, the largest number of arrests by state and local LEAs occurred in Arizona and South Dakota, as shown in figure 2. All Native American youth in federal custody with USMS due to a federal LEA arrest from fiscal years 2010 through 2016 were located in 4 of the 12 federal circuits—the 2nd, 8th, 9th, and 10th circuits (see figure 3), according to our analysis of available data. These four circuits include 25 states. State and local. Available data show that from calendar year 2010 through calendar year 2014, state and local courts processed fewer cases involving Native American youth. For example, during the period, state and local courts received about 86,400 delinquency cases involving Native American youth, and the number of cases declined by about 19 percent from 19,200 in 2010 to 15,600 in 2014, as shown in table 4. The number of cases petitioned, or requested that a court adjudicate, and the number of cases adjudicated delinquent also declined, by about 20 percent and 26 percent, respectively. Among delinquency cases received during the period, state and local courts petitioned about half (49,000 cases, or 57 percent). Among all petitioned cases, about two-thirds (32,900 cases, or 67 percent) were adjudicated delinquent. Among youth found delinquent during the period, more than half—65 percent (21,300)—received probation, 24 percent (7,800) were placed in an institution or other residential facility, and 12 percent (3,800) received some other sanction, such as community service. Federal. Available data show that federal courts received 349 Native American youth suspects from fiscal years 2010 through 2014 (see table 4, above), and the annual number fluctuated over the period but declined slightly overall (59 in 2010 compared to 57 in 2014). Of the suspects received, federal courts declined to adjudicate 138 and adjudicated 167 youth as delinquent or guilty. The number of delinquent or guilty outcomes declined overall from 37 in 2010 to 20 in 2014. According to analysis of available data, all Native American youth referred to a United States Attorney from fiscal years 2010 through 2014 were located in 4 of the 12 federal circuits—the 6th, 8th, 9th, and 10th circuits, as shown in figure 4. These four circuits include 26 states. Annually, the number of referrals to each circuit was similar throughout the period. State and local. The number of Native American youth confined in state and local residential facilities declined by about 37 percent between 2011 and 2015, from at least 861 in 2011 to at least 544 in 2015, according to our analysis of data from the biennial Census of Juveniles in Residential Placement survey. The majority of Native American youth (approximately 65 percent) were confined in 9 states when the biennial survey was taken in 2011, 2013, and 2015. Generally, these states included Alaska, Arizona, Minnesota, Montana, North Dakota, Oklahoma, Oregon, South Dakota, and Washington (see figure 5 for 2015 census results). All of these states had a higher than average percentage of Native Americans among the states’ overall youth population in 2015. Federal. From fiscal years 2010 through 2016, a total of 138 Native American youth who had been sentenced were admitted to juvenile facilities overseen by BOP; this number declined over the period from 37 in 2010 to 6 in 2016, according to our analysis of available data. Court proceedings for these individuals had been finalized and the individuals were sentenced to a juvenile facility overseen by BOP. Agency and Organization Perspectives DOJ officials and representatives from five Native American organizations we interviewed provided various perspectives on the decline and geographic distribution of Native American youth in justice systems that our analysis showed. Specifically, DOJ officials noted that the number of youth involved in state and local, federal, and tribal systems has been declining for several years across all races, not just Native American youth. However, when asked about this decline, representatives from three of the five Native American organizations we interviewed stated that data on the number of Native American youth in justice systems, especially at the state level, is underreported and often inconsistent. Representatives from two of those organizations noted that when a youth comes into contact with state juvenile justice systems, states are not required to ask about Native American status, which results in inconsistent tracking and underreporting of Native American youth involved with state systems. Representatives from one of these organizations, which provides assistance in national policy areas, noted that states are not required to contact a youth’s identified tribe to confirm the youth’s tribal affiliation. These representatives also noted that some states may inquire about tribal affiliation when youth come into contact with the state’s justice system, but the states do not have a reliable process to identify Native American youth. In addition, these same representatives noted that Native American youth are often unlikely to share their ethnicity with state officials, or anyone outside of their community. Representatives from another organization noted that state court judges are not required to ask about Native American status, which could also potentially result in undercounting of Native American youth in state systems. Representatives from another organization which commented on the decline stated that because state and federal data only capture more serious offenses, lesser crimes handled at the tribal level often go unreported. Representatives from two of the organizations we interviewed did not question the decline in the number of Native American youth involved in federal and state and local systems, but noted that there has been a movement away from criminalizing youth in general. Rather, these representatives explained that there is more of a focus on restorative justice, diversion, and alternatives to incarceration, as well as a movement toward more trauma-informed care. Representatives from one of these two organizations noted that a number of states have worked out civil diversion agreements with local tribes, which provide opportunities for the tribe to practice restorative justice with delinquent youth instead of confining them. Regarding the distribution of Native American youth by state, representatives from four of the five organizations we interviewed noted that the number of youth involved with state justice systems is higher in those states with a larger Native American population, and thus were not surprised by the states our analysis showed to have the highest numbers of Native American youth involved in their state and local justice systems. These representatives also provided additional perspectives on why some states might have higher numbers of youth involved with their justice systems. For example, representatives from one organization noted that in certain states, not all tribes have tribal law enforcement, which could potentially lead to higher state involvement in Native American juvenile cases that might otherwise be handled by tribes. Representatives from another organization noted that some states have a reputation for more aggressively adjudicating delinquent Native American youth. Data Show that Representation of Native American Youth in the Federal Justice System Was Greater Than Their Representation in the Youth Population, but Their Representation in Most State and Local Justice Systems Was Comparable The percentage of youth who were Native American among those involved with the federal justice system from 2010 through 2016 was greater than the percent of Native American youth in the nationwide youth population, according to analysis of available data. In contrast, state-by- state analysis showed that the percent of youth who were Native American among those involved with state and local justice systems during the period was similar to many states’ Native American youth population. Federal justice system. The percent of youth arrested, referred for adjudication, and confined at the federal level from 2010 through 2016 who were Native American (13 to 19 percent) was greater than the percent of Native Americans in the nationwide youth population during the same period (1.6 percent). For example, the percent of youth in USMS custody and arrested by federal LEAs during the period who were Native American was 18 percent (246 Native American youth out of 1,358 total youth arrested from fiscal years 2010 through 2016), as shown in table 5. According to DOJ officials, the federal juvenile population of Native Americans has historically been higher than their representation in the nationwide population due to federal government jurisdiction over certain crimes in Indian country, which requires the federal government to prosecute offenses that would commonly be prosecuted by states if committed outside of Indian country. According to DOJ officials, a small handful of federal criminal statutes apply to all juveniles, such as immigration and drug statutes, but the federal government has been granted greater jurisdiction over Native American youth than non-Native American youth by federal laws that apply to crimes committed in Indian Country, such as the Major Crimes Act. For example, one DOJ official noted that the Major Crimes Act gives the federal government exclusive jurisdiction over crimes such as burglary and sex offenses committed in Indian country. This differs from the treatment of non-Native American youth, who are not prosecuted in the federal system for the same types of offenses, because the federal government does not have jurisdiction over those youth for such offenses. Non-Native American youth are instead subject to the general juvenile delinquency jurisdiction of state and local courts. Further, DOJ officials stated that a significant portion of Indian country is in states where Public Law 280 does not apply, and thus the federal government generally has criminal jurisdiction for major crimes in Indian Country. Additionally, DOJ officials stated that tribal justice systems are often underfunded and do not have the capacity to handle Native American youths’ cases. Therefore, when both federal and tribal justice systems have jurisdiction, they said that the federal system may be the only system in which the youth’s case may be adjudicated. For these reasons, the number of Native American youth offenders in the federal justice system is disproportionate to non-Native American juveniles in accordance with population size, according to DOJ officials. State and local justice systems. State-by-state analysis of arrest data showed some variation in the percentage of Native Americans among youth arrested by state and local LEAs from calendar years 2010 through 2016. For example, as figure 6 illustrates, in most states, the percentage of youth arrested by state and local LEAs in 2016 who were Native American was similar to the percent of Native American youth in the states’ population. However, in four states—Alaska, Montana, North Dakota, and South Dakota—the percentage of Native Americans among the youth arrested by state and local LEAs was at least 5 percentage points higher. In two states—New Mexico and Oklahoma—it was at least 4 percentage points lower. State-by-state analysis of state and local confinement data for 2015 showed a similar pattern. As figure 7 illustrates, in most states, the percent of youth confined at state and local facilities in 2015 who were Native American was similar to the percent of Native American youth in the states’ population. However, six states—Alaska, Minnesota, Montana, North Dakota, South Dakota, and Wyoming—the percentage of Native Americans among the youth confined in state and local facilities was at least 5 percentage points higher. In one state—New Mexico—it was 11 percentage points lower. Agency and organization perspectives. According to DOJ officials, as noted above, federal jurisdiction over crimes in Indian country results in a higher percentage of Native American youth (compared to non-Native American youth) involved with the federal justice system. In addition, a DOJ official noted that that certain states may have a higher percentage of Native Americans among youth confined in that state’s facilities if those Native American youth reside more in urban or other areas that are not Indian country, and are thus more likely subject to state and local jurisdiction. Conversely, the official said that for those states with lower Native American youth confined in state facilities compared to the Native American youth population in the state overall, the youth may reside more in Indian country, resulting in their contact with the federal judicial system more than the state or local justice systems. Representatives from four of the five Native American organizations we interviewed noted that federal jurisdiction is a key contributor to the higher percentage of Native American youth involved at the federal justice level. While Involvement Declined, Available Data Indicate Several Differences between Native American and Non- Native American Youth in the Federal Justice System Although the involvement of youth in the federal justice systems declined for both Native Americans and non-Native Americans from 2010 through 2016, analysis of available data indicates that there were several differences between the two groups in characteristics such as types of offenses charged. According to DOJ officials, some of these differences were due to federal jurisdiction over Indians for major crimes (such as person offenses) in Indian country as well as the absence of general federal government jurisdiction over non-Native American youth. Involvement in the Federal Justice System Declined for Both Groups Available data indicate that the involvement of youth in the different stages of the federal justice system declined for both Native Americans and non-Native Americans from fiscal years 2010 through 2016. For example, federal custodies due to arrests by federal LEAs declined for both groups, as shown in table 6; the number of suspects referred to federal courts declined for both groups (table 7); and BOP confinements declined for both groups (table 8). Native American and non-Native American youth were involved with the federal justice system for different offenses from fiscal years 2010 through 2016. We analyzed the types of offenses for all youth and grouped them into five broad categories—drug and alcohol, person, property, public order, and other. Analysis of available data indicates that the majority of Native American youth were involved with the federal justice system for offenses against a person. In contrast, the majority of involvement of non-Native American youth was due to public order or drug and alcohol offenses. Arrests. As figure 8 illustrates, out of the broad offense categories, 49 percent of Native American youth were arrested by a federal LEA and in USMS custody due to an offense against a person. In contrast, 5 percent of non-Native American youth were arrested by a federal LEA for person offenses during the period. Instead, most non-Native American youth were arrested by a federal LEA for public order or drug and alcohol offenses (70 percent total for both). The top two specific offenses among Native American youth were assault and sex offenses; the top two specific offenses among non-Native Americans were drug-related and immigration violations, according to analysis of available data. Federal data include youth in USMS custody after a federal arrest but may not capture all arrests by federal law enforcement agencies. USMS uses the race category “American Indian or Alaskan Native” and includes persons having origins in any of the indigenous peoples of North America, including Alaskan Natives. According to USMS officials, race is self- reported by the individual at the time of the custody intake. Non-Native American categories in USMS data are Asian, Black, and White. Referrals for adjudication. As figure 9 illustrates, most Native American youth referred to federal courts were referred for the broad category of offenses against a person (67 percent). However, most non-Native American youth were referred to federal courts for the broad categories of public order offenses or drug and alcohol offenses (44 and 31 percent, respectively). Among Native American youth, the top two specific offenses were sex offenses and assault. Among non-Native Americans, the top two specific offenses were drug-related and immigration violations. EOUSA defines the term Indian based on statute and case law, which generally considers an Indian to have both a significant degree of Indian blood and a connection to a federally recognized tribe. According to EOUSA officials, race is identified by the U.S. Attorney when reviewing documentation associated with the individual, such as tribal enrollment certifications. Confinement. As figure 10 illustrates, out of the five broad offense categories, 67 percent of Native American youth were sentenced and confined by the federal justice system from fiscal years 2010 through 2016 for an offense against a person; most non-Native American youth were confined by the federal justice system for drug and alcohol offenses (about 39 percent) or public order offenses (also 30 percent). The top two specific offenses among Native American youth were sex offenses and assault. The top two specific offenses among non-Native American youth were for drug-related and immigration violations. Agency and organization perspectives on variations in offenses. According to DOJ officials, the reason most Native American youth were arrested, adjudicated, and confined for person offenses was due to federal jurisdiction over Indians for major crimes (such as person offenses like burglary and sex offenses) in Indian country. Specifically, officials noted that Native American youth are arrested and confined in the federal system for more serious offenses because the Major Crimes Act confers jurisdiction on the federal government for person offenses. In contrast, agency officials also noted that the federal government does not have jurisdiction over the same types of offenses committed by non-Indian youth and therefore those youth cannot be arrested by federal agencies for person offenses. Rather, according to one DOJ official, the federal government only has general jurisdiction applying to both Native American and non-Native American youth in limited instances, such as for certain immigration and drug offenses. The jurisdictional structure present in Indian country requires the federal government to prosecute offenses that would otherwise be handled in state court outside of Indian country, according to DOJ officials. Representatives from all of the five Native American organizations we interviewed noted, similarly to DOJ officials, that federal jurisdiction over crimes in Indian country is typically for more serious offenses (specifically under the Major Crimes Act), such as person offenses. In contrast, as noted by one organization, youth engaged in property and substance abuse offenses are more typically brought into state custody. Two of the organizations’ representatives we met with noted in addition that alcohol abuse plays a role in person offenses, often co-occurring with these offenses. Outcomes Varied among Youth Referred for Federal Adjudication The distribution of outcomes among youth who were referred to federal prosecutors for adjudication in federal courts between fiscal years 2010 and 2016 was different for Native American and non-Native American youth. For example, as figure 11 shows, a larger percentage of referrals for adjudication involving Native American youth were declined by federal prosecutors compared to non-Native American cases—36 percent among Native American youth compared to 12 percent among non-Native American. Further, a smaller percentage of Native American than non- Native American referrals resulted in delinquent or guilty outcomes—42 percent among Native American youth compared to 63 percent among non-Native American. Length of sentence. Native American youth who were sentenced and confined by the federal justice system—in BOP’s custody—had longer sentences compared to non-Native American youth from fiscal years 2010 through 2016, according to analysis of available data. About half (52 percent) of the Native American youth confined during the period were sentenced for 13 to 36 months. Most non-Native American youth (62 percent) had shorter sentences of up to 12 months. According to DOJ officials, Native American youth had longer sentences due to federal government jurisdiction over major crimes in Indian country. As a result of its jurisdiction, officials said that the federal government arrests and incarcerates Native American youth for more serious crimes, such as sex offenses, which carry longer sentences. In contrast, non-Native American youth served sentences for crimes which carried shorter sentences, such as immigration and drug offenses, as noted above. The difference in sentence length may also be attributed to a number of additional variables that can affect the length of sentence, such as prior delinquent or criminal history and the nature and circumstances of the offense. Distance from residence. Among youth admitted and confined in the federal justice system from fiscal years 2010 through 2016, data show that Native American youth were in facilities closer to their residences or homes compared to non-Native American youth (see table 9). For example, on average, Native American youth who were under the supervision of the United States Probation Office were 296 miles closer to their residence or home compared to non-Native Americans. In addition, on average, Native American youth who were in BOP’s custody were 175 miles closer to their residence compared to non-Native Americans. Further, among both groups and on average, youth under the supervision of the United States Probation Office were closer to their residence or home compared to youth who were in BOP’s custody. Age category and gender of youth involved in the federal justice system from fiscal years 2010 through 2016 were similar among Native American and non-Native American youth. Specifically: Most youth arrested by federal LEAs and in USMS custody were male (89 and 91 percent, respectively) and 15 to 17 years old (86 and 92 percent, respectively). Most youth who came into contact with federal courts were 15 to 17 years old (80 and 88 percent, respectively). Most youth confined at federal facilities were male (89 and 96 percent, respectively) and 15 to 17 years old (93 and 99 percent, respectively). Available Data Indicate That There Were Several Similarities between Native American and Non- Native American Youth in State and Local Justice Systems Analysis of available data indicates that there were several similarities between Native American and non-Native American youth involvement with state and local justice systems over the period analyzed. Involvement in State and Local Justice Systems Declined for Both Groups, but Extent of Decline Varied The involvement of both Native American and non-Native American youth in state and local justice systems declined for arrests, referrals for adjudication, and confinements in recent years (see tables 10 through 12). However, the extent of the decline varied between the two groups. For example, as the tables show, the declines in arrests and referrals for adjudication were greater for Native American youth, while the decline in confinements was greater for non-Native American youth. The distribution of offenses for youth involved in state and local justice systems in recent years was similar among Native American and non- Native American youth. As noted above, we analyzed the types of offenses for all youth and grouped them into five broad categories—drug and alcohol, person, property, public order, and other. Arrests. Available data show that among youth arrested by state and local LEAs between calendar years 2010 through 2016, a similar percentage of Native American and non-Native American youth were arrested for the five broad offense category types. For example, as figure 12 illustrates, the largest percent of offenses among both groups during the period were in the broad category of offenses against property—with 25 percent among Native American youth and 28 percent among non- Native American youth. The next most common broad category of offense for Native Americans arrested by state and local LEAs was drug and alcohol offenses (23 percent); a smaller percent of non-Native Americans were arrested for drug and alcohol offenses (16 percent). The top four specific offenses among Native American youth arrested by state and local LEAs during the period were larceny/theft, alcohol, assault, and status offenses. Similarly, the top four specific offenses among non- Native American youth during the period were larceny/theft, assault, status offenses, and drugs. Adjudication. Generally, the offenses associated with delinquency cases received by state and local courts between calendar years 2010 and 2014 were similar for both Native American and non-Native American youth, according to analysis of available data. The largest percentage of offenses among delinquency cases for both groups was for the broad offense category of property offenses (38 and 36 percent). Confinement. Generally, Native American and non-Native American youth adjudicated and confined at state and local facilities were admitted for similar offenses, according to our analysis of DOJ biennial census data from 2011, 2013, and 2015. As figure 13 illustrates, in 2015, a similar percentage of youth, for both groups, were confined due to three broad categories of offenses—public order, person, and property. At least 29 percent and at most 32 percent of youth were confined for each category of offense. A much smaller percentage of youth, for both groups, were confined for the broad category of drug and alcohol offenses. Some of the most common specific offenses among both Native American and non-Native American youth in 2015 were assault, probation or parole violation, sex offenses, and burglary. The majority of Native American and non-Native American youth referred to state and local courts and confined at state and local facilities were male and 15 to 17 years old during the periods for which we obtained data. For example, table 13 illustrates the demographics of youth adjudicated and confined in state and local facilities. Outcomes of delinquency cases in state and local courts were generally similar for Native American youth and non-Native American youth between 2010 and 2014, according to analysis of available data. For example, more than half of all cases received by the courts for both groups were petitioned—formally processed—as table 14 illustrates. Facility types. Native American and non-Native American youth confined at state and local facilities were placed in similar types of facilities. As table 15 illustrates, the majority of youth for both groups were in private facilities at the time of DOJ’s 2015 biennial census. Time of confinement. Native American and non-Native American youth at state and local facilities had similar characteristics for the length of time they had been confined at the time of the 2015 biennial census. As table 16 illustrates, the majority of youth, for both groups, had been confined for more than 120 days. DOJ and HHS Offered at Least 122 Grant Programs; Tribal Governments or Native American Organizations Were Eligible for Almost All but in a Sample of Applications We Reviewed, Applied Primarily for Programs Specifying Native Americans We identified 122 discretionary grant programs across several issue areas such as violence or trauma, justice system reform, and alcohol and substance abuse that DOJ and HHS offered from fiscal years 2015 through 2017 that grantees could use to help prevent or address delinquency among Native American youth. DOJ and HHS awarded approximately $1.2 billion in first year awards during this period, about $207.7 million of which they collectively awarded to tribal governments and Native American organizations. Tribal governments and Native American organizations were eligible for almost all of these grant programs, but we found in a sample we reviewed that they primarily applied for those that specified tribes or Native Americans as a primary beneficiary. Additionally, officials from selected tribal governments, Native American organizations, DOJ, and HHS stated that certain factors affect tribal governments and Native American organizations’ ability to apply successfully for grant programs that awardees could use to help prevent or address delinquency among Native American youth. DOJ and HHS Offered at Least 122 Grant Programs That Could Be Used to Help Prevent or Address Delinquency among Native American Youth We identified 122 discretionary grants and cooperative agreements (grant programs) for which DOJ and HHS offered funding from fiscal years 2015 through 2017 that grantees could use to help prevent or address delinquency among Native American youth. See appendix V for a list of these programs. DOJ and HHS awarded approximately $1.2 billion in first-year awards to grantees through the 122 programs over the period, as shown in figure 14. Of the $1.2 billion, HHS and DOJ collectively awarded $207.7 million to tribal governments and Native American organizations. HHS awarded $106.5 million and DOJ awarded $101.2 million. As previously discussed, tribal governments and Native American organizations also received other federal funding that could help prevent or address delinquency among Native American youth. The DOJ and HHS grant programs we identified included 27 programs that specified tribes or Native Americans as a primary beneficiary and 95 programs that did not specify this but that could include tribes or Native Americans as beneficiaries. For example, the Cooperative Agreements for Tribal Behavioral Health, which HHS’s Substance Abuse and Mental Health Services Administration (SAMHSA) offered in fiscal years 2016 and 2017, is a grant program that specified tribes or Native Americans as a primary beneficiary. Its purpose is to prevent and reduce suicidal behavior and substance use, reduce the impact of trauma, and promote mental health among Native American youth. On the other hand, the Sober Truth on Preventing Underage Drinking Act grant program, which SAMHSA offered in fiscal year 2016 to prevent and reduce alcohol use among youth and young adults, is an example of a program that did not specify tribes or Native Americans as a primary beneficiary but could nonetheless benefit them. As previously discussed, available data indicate that alcohol offenses constitute the second-highest specific offense for which Native American youth were arrested by state and local LEAs from calendar years 2010 through 2016. Within DOJ’s OJP, an example of a grant program that specified tribes or Native Americans as a primary beneficiary is the Defending Childhood American Indian/Alaska Native Policy Initiative: Supporting Trauma- Informed Juvenile Justice Systems for Tribes program. This grant program was offered by OJP’s Office of Juvenile Justice and Delinquency Prevention (OJJDP) for funding in fiscal year 2016. The goal of the grant program is to increase the capacity of federally recognized tribes’ juvenile justice and related systems to improve the life outcomes of youth who are at risk or who are involved in the justice system and to reduce youth exposure to violence. Another grant program, the Youth with Sexual Behavior Problems Program, which OJJDP offered from fiscal years 2015 through 2017, is an example of a grant program that did not specify tribes or Native Americans as a primary beneficiary but that could nonetheless benefit them. As previously discussed, available data indicate that the second-highest specific offense for which Native American youth were arrested by federal LEAs from 2010 through 2016 was sex offenses. This grant program provided services for youth sexual offenders, their victims, and the parents and caregivers of the offending youth and victims. The 27 grant programs that specified tribes or Native Americans as a primary beneficiary awarded a total of $250.2 million over the fiscal year 2015 through 2017 period, while the 95 programs that did not were awarded $944.4 million (see fig.15). Of the 122 grant programs we identified, tribal governments and Native American organizations received funding primarily from the 27 grant programs that specified tribes or Native Americans as a primary beneficiary. Of the $250.2 million in awards from these 27 grant programs, tribal governments and Native American organizations received $193.2 million, or about 77 percent of the total. Alternatively, of the $944.4 million in awards from the 95 grant programs that did not specify tribes or Native Americans as a primary beneficiary, tribal governments and Native American organizations received $14.5 million, or 1.5 percent of the total. The 122 grant programs focused on one or more issue areas in their funding opportunity announcements relevant to helping prevent or address delinquency among Native American youth. The most common issue areas were violence or trauma (34 programs), justice system reform (25 programs), and alcohol and substance abuse (22 programs). Table 17 lists the issue areas and the number of DOJ and HHS grant programs that focus on each issue area. Violence or trauma. Thirty-four of the 122 grant programs supported activities such as researching, preventing, addressing, or providing services related to youth violence or trauma. For example, the purpose of the Communities Addressing Childhood Trauma grant program, administered by HHS’s Office of Minority Health, is to test the effectiveness of activities that seek to promote healthy behaviors among minority or disadvantaged youth who have experienced childhood trauma and are thus at risk for poor health and life outcomes. Another example is DOJ’s Coordinated Tribal Assistance Solicitation’s (CTAS) Tribal Youth Program. One of the priority areas of this grant program is preventing, intervening, and treating children exposed to violence through the development and implementation of trauma-informed practices in pertinent programs and services. DOJ’s Comprehensive Anti-gang Strategies and Programs grant supports evidence-based strategies in communities trying to reduce and control gang-related crime and violence through coordinating prevention, intervention, enforcement, and reentry programs. As mentioned earlier in the report, available data indicate the top specific offense for which Native American youth were arrested by federal LEAs from 2010 through 2016 was assault. Justice system reform. Twenty-five of the 122 grant programs supported activities such as researching and analyzing the effectiveness of efforts to reform the youth justice system and enhancing the capacity of justice system institutions with which youth could come into contact. For example, one goal of the Tribal Civil and Criminal Legal Assistance Grants, Training, and Technical Assistance grant program, administered by DOJ’s Bureau of Justice Assistance, is to enhance tribal court systems and improve access to them, as well as to provide training and technical assistance related to tribal justice systems. Another example is DOJ’s National Girls Initiative grant program. The goal of this program is to support the engagement of stakeholders such as youth justice specialists, law enforcement officers, advocates, and youth defenders to improve the justice system and its responses to girls and young women. Alcohol and substance abuse. Twenty-two of the 122 grant programs supported activities such as preventing or reducing youth consumption of alcohol and drugs. For example, the stated purpose of DOJ’s CTAS Juvenile Healing to Wellness Courts grant program is to support tribes seeking to establish new courts within their existing judicial institutions to respond to alcohol and substance use issues among youth and young adults. (See text box below for an example of the activities a grantee planned to implement with this grant program.) As previously discussed, one of the top offenses we observed of Native American youth arrested by state and local LEAs is drug and alcohol offenses. Department of Justice (DOJ) Coordinated Tribal Assistance Solicitation (CTAS) Juvenile Healing to Wellness Court Grantee: Confederated Tribes of Coos, Lower Umpqua and Siuslaw Indians In fiscal year 2015, the Confederated Tribes of Coos, Lower Umpqua and Siuslaw Indians, a federally recognized tribe located within the state of Oregon, received funding from the DOJ CTAS Juvenile Healing to Wellness Court grant program. Tribal officials told GAO that they are in the process of growing their healing to wellness court and aim to use this grant program to reduce the criminal penalties for substance abuse in their community. Moreover, they said that the “peace-giving court” would look at solutions such as treatment and restorative justice rather than focus on criminal fines and incarceration. As of October 2017, tribal officials said they had three court employees and were planning to use some of the program funding to hire a liaison between other court systems to refer tribal members to their tribal court. Mental and emotional health. Sixteen of the 122 grant programs supported activities such as improving the mental health and wellness of youth. For example, HHS’s Planning and Developing Infrastructure to Improve the Mental Health and Wellness of Children, Youth and Families in American Indian/Alaska Natives Communities grant program focuses on increasing the capacity and effectiveness of mental health systems serving tribal and urban Indian communities by designing a coordinated network of community-based services and supports that address the needs of Native American youth and their families. (See text box below for an example of the activities a grantee planned to implement with this grant program.) Department of Health and Human Services (HHS) Planning and Developing Infrastructure to Improve the Mental Health and Wellness of Children, Youth and Families in American Indian/Alaska Natives Communities Grantee: Native Health of Phoenix In fiscal year 2017, Native Health of Phoenix—an urban Indian community health center with a mission to increase the health and well-being of Native American and other residents in the Phoenix, Arizona metropolitan area—received funding from the HHS Planning and Developing Infrastructure to Improve the Mental Health and Wellness of Children, Youth and Families in American Indian/Alaska Natives Communities grant program. Native Health of Phoenix explained that the grant program would allow the organization to work on trauma-informed care, provide counseling services through role models (with a particular interest in using Native American veterans as mentors), and possibly expand the age group served by an existing program, Wellness Warriors, which currently focuses on promoting healthy living for 7- to 12-year-old youth and their families. Reentry and recidivism. Twelve of the 122 grant programs supported activities such as facilitating youths’ successful reintegration into their communities and reducing the likelihood of subsequent contact with the criminal justice system. For example, the objective of the Second Chance Act Technology-Based Career Training Program for Incarcerated Adults and Juveniles, administered by DOJ’s Bureau of Justice Assistance, is to provide career training programs for incarcerated adults and youth in the 6 to 36 months before their release and to connect them with follow-up services after their release. Another example is DOJ’s Second Chance Act Strengthening Relationships Between Young Fathers, Young Mothers, and Their Children grant program offered funding in fiscal year 2016. The goal of this grant program is to reduce recidivism and support responsible parenting practices of young fathers and mothers who were transitioning from detention, out-of-home placement, or incarceration back to their families and communities. Mentoring. Eleven of the 122 grant programs supported activities such as providing mentoring services to at-risk or high-risk youth and researching or evaluating the impact of various mentoring programs and practices on youth outcomes. For example, DOJ’s Mentoring for Youth: Underserved Populations grant program supports the implementation and delivery of various mentoring services for youth with disabilities, youth in foster care, and lesbian, gay, bisexual, transgender, and questioning youth. Another example is HHS’s Native Youth Initiative for Leadership, Empowerment, and Development grant program. One area of interest in the program includes peer role model development where young Native American adults (18 to 24 years old) serve as role models for mid- adolescents (15 to 17 years old), who in turn serve as role models for even younger members (younger than 15 years old) in their communities. Suicide prevention. Seven of the 122 grant programs supported activities such as preventing or reducing the risk of suicidal thoughts or behavior and self-harm among youth. For example, one purpose of the Substance Abuse and Suicide Prevention Program, formerly known as the Methamphetamine and Suicide Prevention Initiative grant program, administered by HHS’s Indian Health Service, is to support early intervention strategies and positive youth development to reduce the risk for suicidal behavior and substance abuse among Native American youth. (See text box below for an example of the activities a grantee planned to implement with this grant program.) Department of Health and Human Services (HHS) Substance Abuse and Suicide Prevention Program Grantee: Fairbanks Native Association In fiscal year 2016, the Fairbanks Native Association, whose officials describe it as a Native American non-profit organization that provides social services, education, and behavioral health services to residents of the Fairbanks and North Pole communities as well as other residents of Alaska, received funding from HHS’s Indian Health Service’s Substance Abuse and Suicide Prevention Program (formerly known as the Methamphetamine and Suicide Prevention Initiative grant program). According to Fairbanks Native Association officials, one of the evidence-based practices they implemented for the Substance Abuse and Suicide Prevention Program was Coping and Support Training (CAST). CAST is a 12-lesson skills training program used by schools, community centers, and other organizations for middle and high school-aged youth whose program features include building self-esteem and creating a crisis response plan for responding to a range of suicide-risk behavior, among other activities. Justice system data and analysis. Seven of the 122 grant programs supported activities such as collecting, improving the collection of, or analyzing data related to the youth or tribal justice systems. For example, DOJ’s Annual Survey of Jails in Indian country, 2016-2019 grant program funded the collection of information from all known correctional facilities operated by tribal governments or the Bureau of Indian Affairs. Some of the information the program sought to collect included the number of adults and youth held, the gender of the inmates, and average daily population, among other data. Runaway and homeless youth. Six of the 122 grant programs supported activities such as providing services to youth who have run away from home or who are experiencing homelessness. For example, the primary goal of HHS’s Transitional Living Program and Maternity Group Homes grant program is to help runaway and homeless youth establish sustainable living and well-being for them and, if applicable, their dependent children through the provision of shelter and other services. Cultural identity. Four of the 122 grant programs supported activities such as promoting and preserving Native American cultural traditions to and for tribal youth. For example, the purpose of HHS’s Native American Language Preservation and Maintenance grant program is to ensure the survival and vitality of Native American languages. Other. Six of the 122 grant programs supported activities in other issue areas above such as school safety, tribal justice infrastructure, and social and economic development. Tribal Governments and Native American Organizations Were Eligible for Almost All Grant Programs We Identified, But in a Sample We Reviewed, Applied Primarily for Those Specifying Native Americans Tribal Governments or Native American Organizations Were Eligible for Almost All Grant Programs We Identified Tribal governments or Native American organizations were eligible for almost all of the 122 DOJ and HHS grant programs we identified from fiscal years 2015 through 2017 that grantees could use to prevent or address delinquency among Native American youth: they were eligible for 70 of 73 DOJ programs and 48 of 49 HHS programs. For the 3 DOJ grant programs for which these entities were not eligible to apply, DOJ officials explained that tribal governments or Native American organizations were not eligible for the Smart on Juvenile Justice: Reducing Out-of-Home Placement grant program because the funding stream that supports the program—unallocated funds from Title II of the Juvenile Justice and Delinquency Prevention Act—can only be awarded to states that are in compliance with the four core requirements of the act. For the other 2 grant programs, DOJ OJP officials explained that because the focus of these programs is statewide or countywide, eligibility under this program was limited to states and local units of government that have developed a statewide or countywide plan to reduce recidivism and improve outcomes for youth in contact with the juvenile justice system. These officials added that tribal governments would not have the capacity to respond to the requirements of these programs as designed since tribal juvenile justice systems operate differently than states and counties. The one HHS program that neither tribal governments nor Native American organizations were eligible to apply for was the Preventing Teen Dating and Youth Violence by Addressing Shared Risk and Protective Factors program, administered by the Centers for Disease Control and Prevention (CDC). CDC officials explained that this grant program was limited to funding to local, city, and county public health departments with a demonstrated high burden of violence and the highest capacity to prevent teen dating violence and youth violence based on research findings on teen dating violence and youth violence prevention, as well as lessons learned from their previous investments in these areas. These officials also said that CDC encourages local, city, and county public health departments to work with tribal populations in the area. Tribal Governments and Native American Organizations Generally Applied for Grant Programs that Specified Tribes or Native Americans as a Primary Beneficiary in Sample We Reviewed Although tribal governments and Native American organizations were eligible for almost all of the DOJ and HHS grant programs we identified, we found in a non-generalizable sample of applications we reviewed that these organizations applied primarily for grant programs that specified tribes or Native Americans as a primary beneficiary. Specifically, for the applications we reviewed for 18 DOJ grant programs, tribal governments and Native American organizations accounted for over 99 percent of the applications for the 5 grant programs within the sample that specified tribes or Native Americans as a primary beneficiary and approximately 1 percent of the applications in the 13 DOJ grant programs that did not specify them as a primary beneficiary. See figure 16. In our review of applications for 19 HHS grant programs, tribal governments and Native American organizations accounted for 90 percent of the applications for the 6 grant programs in the sample that specified tribes or Native Americans as a primary beneficiary. However, they accounted for only 2 percent of the applications for the 13 HHS grant programs in our sample that did not specify tribes or Native Americans as a primary beneficiary. See figure 17. DOJ and HHS officials identified various reasons why tribal governments and Native American organizations might not apply for grant programs that do not specify tribes or Native Americans as a primary beneficiary: Tribal governments and Native American organizations might not be aware that they are eligible to apply for certain grant programs. Tribal governments and Native American organizations might believe that that their applications to a grant program that do not specify tribes or Native Americans as a primary beneficiary will not be competitive with other applications. For example, DOJ OJP officials told us that tribes may have concerns about devoting resources to preparing applications for such grant programs because they may not end up being successful. Tribal governments and Native American organizations might prefer to apply for those grant programs that specify tribes or Native Americans as a primary beneficiary. For example, DOJ OJP officials stated that tribes might be familiar and comfortable with applying for the CTAS, a single application for the majority of DOJ’s tribal grant programs. In addition, HHS CDC officials stated that more tribes apply and successfully compete for grant programs that specify tribes or Native Americans as a primary beneficiary because they are designed specifically for tribal populations, thus allowing for “culturally- appropriate activities,” which may include healing and religious practices that promote wellness, language integration that promote cultural sustainability and identity, and traditional storytelling that promotes life lessons and teachings. Officials from 10 tribal governments and Native American organizations also provided perspectives on whether or not a grant program’s focus on tribes or Native Americans as a primary beneficiary affected their decision to apply for the program. Officials from 6 of 10 of the tribal governments and Native American organizations indicated that they would consider any grant program that met the needs of their communities, although officials from 3 of these 6 indicated a preference in some instances for grant programs that focused on tribes or Native Americans. Officials from the remaining 4 of 10 tribal governments and Native American organizations indicated that a grant program’s focus or lack thereof on tribes or Native Americans could affect their ability to apply for it. For example, officials from one federally recognized Oregon tribe explained that their tribe does not apply for grant programs that do not specify tribes or Native Americans as a primary beneficiary because their applications are not typically competitive in a state or nationwide applicant pool. Instead, they said that their tribe applies for funding specific to their community because they are more likely to succeed with those applications. These officials also said that a benefit of applying for grant programs that specify tribes or Native Americans as a primary beneficiary is that technical assistance provided to grant recipients is tailored to tribes. Officials from another federally recognized tribe in Oklahoma noted that their tribe prefers to apply for grant programs that specify tribes or Native Americans as primary beneficiaries due to the limited resources they have available to prepare grant applications, as well as the high level of competition for nationwide federal grant programs. Finally, officials from a tribal nonprofit corporation in Alaska that represents several federally recognized tribes explained that although their decision to apply for any federal grant program depends on the needs of their community, grant programs that specify tribes or Native Americans as a primary beneficiary understand the challenges of tribal communities, particularly living in rural environments and having to travel vast distances to implement grant program funding. Officials from Tribal Governments, Native American Organizations, and Agencies Noted Factors that Affect Successful Application for Grant Programs Officials from tribal governments and Native American organizations that applied for federal grant programs that could help prevent or address delinquency among Native American youth, as well as DOJ and HHS officials, identified various factors they believe affect the ability of tribal governments and Native American organizations to successfully apply for federal grant programs. For example, some tribal governments and Native American organizations found being able to call or meet with federal officials during the application process to be helpful but that short application deadlines are a challenge. Additionally, a non-generalizable sample of DOJ and HHS summary statements that provide peer review comments for unsuccessful applications that tribal governments and Native American organizations submitted for these grant programs noted various weaknesses within these unsuccessful applications. Perspectives from tribal governments and Native American organizations. We collected perspectives from a non-generalizable sample of 10 tribal governments and Native American organizations on what federal practices they find helpful or challenging when applying for grant programs related to preventing or addressing delinquency among Native American youth. Regarding helpful federal practices during the application process, the tribal governments and Native American organizations most frequently responded that they found being able to call or meet with federal officials if they had questions about or need help on their application particularly helpful. For example, representatives from one federally recognized tribe in Nevada explained some agencies have help desks that provide a systematic walkthrough of technical issues applicants might encounter when applying for grant programs. In addition, officials from a tribal nonprofit corporation in Alaska that represents several federally recognized tribes stated attending grantee meetings and having face-to-face contact with agency officials to ask questions was very useful when applying for a particular HHS award. Officials from 9 of the 10 tribal governments and Native American organizations provided the following perspectives on the biggest challenges they have faced when applying to receive federal grant program funding. The window available for applying for federal grant programs is too short. Six of 9 tribal governments and Native American organizations noted this as a challenge. For example, officials from a federally recognized tribe based in the Southwest said that the tribe’s biggest challenge is a short turnaround, usually 4 to 8 weeks, from a grant program’s funding opportunity announcement to its deadline. Similarly, officials from a federally recognized tribe in Oklahoma suggested that federal agencies provide longer application periods for grant programs. These officials added that more time would allow the tribes to coordinate amongst themselves better, prepare stronger applications, and obtain the necessary tribal approvals for a grant program. Collecting data for grant program applications is difficult. Four of 9 tribal governments and Native American organizations we spoke with noted this as a challenge. For example, a representative from a federally recognized tribe in Nevada stated that the tribe needs accurate data for its grant applications to describe the tribe and its needs, yet the tribe does not currently have quality data on issues such as substance abuse or youth employment. In addition, officials from a tribal nonprofit corporation in Alaska that represents several federally recognized tribal governments told us that the biggest challenge in preparing a CTAS application is collecting data specific to their tribes’ region. These officials explained that for reports on juvenile justice, their tribes’ region is sometimes grouped with another area, which makes it difficult to extrapolate data specific to their tribes. According to these officials, due to the challenges in obtaining these data, preparing grant applications to address gaps and for services needed is difficult. Scarcity of grant writers and other personnel makes it difficult to complete a quality application. Four of 9 tribal governments and Native American organizations noted this as a challenge. For example, officials from a federally recognized tribe in Oklahoma said that not having a grant writer is a significant challenge for the tribe when applying for federal grant programs. These officials mentioned that additional training sessions on grant writing and feedback from grant reviewers would help the tribe prepare stronger applications. In addition, representatives from a federally recognized tribe in Oregon stated that they encounter challenges with the research and evaluation requirements of some grant programs because hiring someone to fulfill this role can take 2 to 3 months and the number of qualified individuals in their service area is limited. Perspectives from DOJ and HHS officials. We also obtained perspectives from officials from DOJ OJP and seven HHS operating divisions on reasons why some tribal governments and Native American organizations might be more successful than others in applying for federal funding, as well as the challenges these entities face when applying for federal funding. According to DOJ and HHS officials, some of the reasons why some tribal governments and Native American organizations might be more successful than others are in applying for federal funding include the following: Larger and better-resourced tribal governments and Native American organizations are more successful at applying for federal funding. For example, DOJ OJP officials explained that larger tribes with more resources are more successful at applying successfully for grant programs because they are able to hire grant writers to assist with applications. In addition, officials from HHS’s SAMHSA noted that successful applicants are usually larger tribes that have ample resources and experienced staff to write proposals for federal funding. HHS Centers for Disease Control officials stated that larger and better-resourced tribes with sufficient public health infrastructure and capacity tend to apply more and to be more competitive when they do. Tribal governments and Native American organizations that have received federal funding before are more likely to be successful again. Specifically regarding the CTAS program, DOJ OJP officials explained that once tribes are successful at one CTAS application, they are typically successful on subsequent CTAS submissions because they use the successful application as a template. In addition, officials from the HHS’s Indian Health Service explained that tribes that are repeat grantees might be more likely to submit applications to even more grants because they are well-versed in the process. Moreover, officials from SAMHSA explained that tribes that have previously received federal funding might be better equipped to document their experience in a specific area in subsequent grant applications. According to agency officials, one of the biggest organizational challenges that tribal governments and Native American organizations encounter when applying to receive federal grant program funding is obtaining and retaining staff. For example, officials from HHS’s National Institutes of Health stated that the limited scientific and grant writing staff, as well as high staff turnover within tribes pose the biggest challenges they face when applying for federal funding. Officials from HHS’s CDC and Administration for Children and Families operating divisions also identified limited grant writing staff as one of the biggest challenges that tribal governments and Native American organizations face when applying to receive federal funding from grant programs. Moreover, officials from HHS’s SAMHSA explained that tribes have difficulty finding qualified staff to live and work in the remote areas where many tribes are located. Finally, DOJ OJP officials explained that some tribes might not have sufficient resources more generally to put together a competitive application due to specific tribal government structures and justice systems being relatively new compared to state and local governments. Review of summary statements on unsuccessful applications. We reviewed a sample of 29 DOJ summary statements from fiscal years 2015 through 2017 that provided peer review comments for unsuccessful applications that tribal governments and Native American organizations submitted for the grant programs we identified. These summary statements most frequently cited the following overall weaknesses within the unsuccessful applications from tribal governments and Native American organizations: Application contained unclear or insufficient details on how the applicant would implement or achieve outcomes of the proposed program (19 of 29 peer review summary statements); Application contained unclear or insufficient details on how the applicant would measure the success or ensure the sustainability of the proposed program (15 of 29 peer review summary statements); Application contained unclear or insufficient details on the budget of the proposed program (14 of 29 peer review summary statements); Applicant submitted a poorly written or organized application (12 of 29 peer review summary statements); Application contained unclear or insufficient data/statistical information to support the proposed program (12 of 29 peer review summary statements); and Application contained unclear or insufficient details on the goals and objectives of the proposed program (11 of 29 peer review summary statements). We also reviewed a sample of 30 HHS peer review summary statements from fiscal years 2015 through 2017 provided to tribal governments and Native American organizations that unsuccessfully submitted applications for the grant programs we identified. Specifically, all of these statements contained a section that evaluated the strengths and weaknesses of the applicant’s proposed approach or plan for implementing the grant program funding. These 30 statements most frequently cited the following weaknesses in that section: Insufficient details regarding activities or strategies of proposed approach or plan (24 of 30 peer review summary statements); Insufficient details on the goals or objectives of the proposed approach or plan (12 of 30 peer review summary statements); Insufficient details on the potential partners or stakeholders involved in the proposed approach or plan (12 of 30 peer review summary statements); Insufficient linkages between various elements in proposal or plan (11 of 30 peer review summary statements); Insufficient details on the project timeline presented within the proposed approach or plan (9 of 30 peer review summary statements); and Insufficient details on how the applicant organization would staff the proposed approach or plan (8 of 30 peer review summary statements). We asked officials from the tribal governments and Native American organizations from which we collected perspectives how useful they found the feedback federal agencies provided through peer review comments or other means on unsuccessful grant program applications since fiscal year 2015. Some tribal governments and Native American organizations found the feedback useful while others noted that feedback was sometimes not particularly helpful. For example, officials from a tribal university affiliated with a federally recognized tribe based in the Southwest noted that they have received helpful feedback on unsuccessful applications through e-mail correspondence. However, officials from a tribal nonprofit corporation in Alaska that represents several federally recognized tribes noted that the peer review feedback they received was inconsistent year to year. Meanwhile, officials from a federally recognized tribe in Oklahoma noted that they have found the peer review feedback to be helpful overall and that they use the feedback to improve their weaknesses and reinforce their strengths when submitting future applications. Agency Comments We provided a draft of this report to DOJ, HHS, DOI, the Administrative Office of the United States Courts, the U.S. Sentencing Commission, and the Department of Education for review and comment. DOJ, DOI, and the Administrative Office of the United States Courts provided technical comments that we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the Attorney General, Secretary of Health and Human Services, Secretary of the Interior, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Gretta L. Goodwin at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology This report addresses (1) what available data show about the number and characteristics of Native American youth in the federal, state and local, and tribal justice systems; and (2) what discretionary grant programs federal agencies fund that could help prevent or address delinquency among Native American youth, and the extent to which tribal governments and Native American organizations have access to them. To address the first objective, we obtained and analyzed record-level and summary data from federal, state and local, and tribal justice systems from 2010 through 2016. Figure 18 illustrates the data sources we included in our report for each phase of the justice process (arrest, adjudication, and confinement) in each justice system (federal, state and local, and tribal). Generally, state and local entities include those managed by states, counties, or municipalities. As figure 18 illustrates, we utilized a number of data sources. When analyzing the data, certain characteristics and a number of methodological decisions were applicable to multiple data sources: Generally, state and local data we obtained were maintained by calendar year. In contrast, federal data were maintained by fiscal year. For purposes of this report, we refer where appropriate to calendar years or fiscal years in presenting the results of our analysis. Generally, the record-level and summary data we analyzed included information about youth who had come into contact with the justice systems, such as their age, race, gender, type of offense, and the year they came into contact with the justice system. For purposes of our analysis, we defined youth to include persons who were under 18 years of age at the time of arrest, adjudication, or confinement, unless otherwise noted. In many instances, the agencies calculated the youth’s age for us and placed the record in one of the following age categories: under 13, 13-14, and 15-17. For purposes of our analysis, we identified Native American youth as defined by each data source and identified by the agencies providing the data. For example, the Department of Justice (DOJ) Federal Bureau of Investigation’s (FBI) Uniform Crime Reporting (UCR) Summary Reporting System (SRS) data uses the race category “American Indian or Alaska Native” and includes persons having origins in any of the original peoples of North and South America (including Central America) and who maintain tribal affiliation or community attachment. In comparison, the Executive Office for United States Attorneys (EOUSA), in its prosecution data, defines the term Indian based on statute and case law, which generally considers an Indian to have both a significant degree of Indian blood and a connection to a federally recognized tribe. If a record did not contain race information we did not include the record in any our analysis. In regard to type of offense, unless otherwise noted, we obtained and analyzed information about the lead or most serious offense associated with the youth who came into contact with the federal or state and local justice systems. The data sources contained hundreds of specific offenses, such as simple assault, illegal entry, and rape. To assist our analysis of the data, we took the following steps: 1. We categorized specific offenses for all data sources into 1 of 22 offense categories, such as assault, immigration, and sex offense. To determine the 22 categories we considered categories used in our prior work and consulted FBI’s UCR offense codes. The placement of specific offenses into offense categories was carried out by an analyst, reviewed by additional analysts, and confirmed by an attorney. 2. We grouped the offense categories into five broad categories— drug and alcohol, person, property, public order, and other. To determine the five broad categories we considered categories presented in National Center for Juvenile Justice’s (NCJJ) annual Juvenile Court Statistics reports. The placement of offense categories into a broad category was carried out by an analyst and confirmed by an attorney. Table 18 describes the five broad categories and 22 offense categories. Some data sources contained additional information about youth, such as the youths’ geographic location (i.e., state or U.S. Circuit), outcome of the youths’ involvement with the justice system (e.g., adjudicated delinquent; placed in a facility or on probation), type of facility where the youth was placed (e.g., private, state, tribal), length of sentence, distance between youth’s residence and facility, and time in confinement. Generally, record-level information contained in these data systems are collected when the youth comes into contact with the justice system. In some instances, youth provide certain information (e.g., gender and race) to justice system officials. In other cases, justice officials obtain information from documentation associated with the youth, such as identification documents (e.g., tribal enrollment certifications) or pre- sentence investigation reports. Several of the record-level data sets we obtained were administrative data maintained by agencies. These data generally included information generated as cases are handled and are used to help the agency manage its operations. In particular, we obtained and analyzed record-level and summary data from the following federal, state and local, and tribal data sources: Record-level data from four DOJ agencies: 1. The United States Marshals Service’s (USMS) Justice Detainee Information System. This data system is USMS’s case management system for prisoners in custody, among other things. USMS provided us a data set with 1,589 records for youth admitted into USMS custody after being arrested by a law enforcement agency (LEA). Our analysis focused on the following key variables: fiscal year of custody start date, race, gender, age category, original offense description, arresting agency, and circuit. USMS collects information about individuals admitted into custody. USMS receives youth from various LEAs and collects information on the LEA that arrests the individual. We limited our analysis to youth arrested by federal agencies (e.g. FBI) and did not include youth who had been arrested by non-federal LEAs (e.g., municipalities). USMS custody data may not represent all individuals arrested by federal agencies, but identifies a minimum number of arrests for a given period. We used USMS custody data because we did not identify a data source for all federal arrests. The data USMS provided us was limited to individuals who were under 18 when they were admitted to USMS custody and USMS determined the age category for each record. 2. EOUSA’s Legal Information Office Network System. This data system was the EOUSA’s case management system for tracking declinations and litigation in criminal matters and cases, among other things. EOUSA provided us a data set with 2,361 records for suspects received. Our analysis of EOUSA data focused on the following key variables: fiscal year suspect was received, Native American status, age category, lead charge, circuit, and disposition. EOUSA used multiple variables from its Legal Information Office Network System to confirm that the individual was under 18. However, for 25 percent of the records (583 of 2,361), EOUSA could not provide an age category for the juvenile because the age was either unknown or EOUSA officials questioned the age information. When we analyzed the data by age categories, we excluded records with unknown or unreliable age categories. However, we included all EOUSA records when we analyzed other variables contained in the EOUSA data (e.g., offense). To analyze the offense associated with the individual, we used EOUSA’s “lead charge” variable which consists of statutory citations. To identify the offense, we researched each statutory citation. 3. The Office of Justice Programs’ (OJP) Census of Juveniles in Residential Placement (CJRP). This data source contains data collected through a biennial census of state and local (not federal) residential facilities housing youth in 2011, 2013 and 2015 that was administered by the United States Census Bureau on behalf of OJP. OJP provided us a data set with 165,141 records. Our analysis of CJRP data focused on the following key variables: calendar year, age group, race, facility state, gender, most serious offense, agency type (who placed the individual), facility type, and time in placement. State and local facilities include those managed by states, counties, municipalities, and tribal governments as well as private facilities, among others. CJRP has historically achieved response rates near or above 90 percent. However, participation in the CJRP is voluntary and response rates from tribal facilities have been lower. The source for the information collected by the census, such as age, were administrative records maintained by individual residential facilities. These data include youth who were in custody on the day of the census. We limited our analysis of the CJRP data to (1) individuals who were under the age of 18 on the date of the census and (2) youth who had been adjudicated—we did not include youth who were awaiting a trial or whose adjudication was pending. Finally, we excluded youth who were located in the Virgin Islands and Puerto Rico because no other data set appeared to include data for these geographic areas. The data set we analyzed contained 98,830 records. 4. Federal Bureau of Prisons’ (BOP) SENTRY data system. This system is BOP’s case management system for tracking information (e.g., admission type and sentencing) about prisoners in BOP’s custody. For this review, BOP provided two data sets. One data set was limited to youth who were adjudicated and sentenced to a facility overseen by BOP and contained 1,324 records. Our analysis of these BOP data was focused on the following key variables: fiscal year sentenced, age category, race, offense, and sentence length. BOP determined the age category for each record and the data were limited to individuals who were under 18. The second data set included youth who were admitted into a facility overseen by BOP but were not necessarily adjudicated and contained 925 records. Our analysis of these BOP data was focused on the following key variables: fiscal year admitted, race, distance, and admission assignment. BOP ensured the data were limited to individuals who were under 18. BOP provided the distance information by calculating the distance between a juvenile’s residence and the facility where a juvenile was placed. To analyze the distance information we created two categories of admission types: juveniles under the supervision of the United States Probation Office and juveniles in custody of BOP. Our analysis of these four DOJ data sources was limited through 2016 because when we initiated our analysis in April 2017 it was the most current data available. Record-level data from the Department of the Interior’s (DOI) Bureau of Indian Affairs (BIA) for youth arrested and admitted to three BIA- operated juvenile detention centers. We reviewed juvenile detention documents maintained by the three centers: Northern Cheyenne, Standing Rock, and Ute Mountain Ute. The types of documents included admission sheets and arrestee custody receipts, among others. We created a data set of admissions to the three centers using information contained in the documents provided. Our data set contained 956 records and included the following variables: unique ID, admission date, and charges (offense). Documents contained information about multiple offenses for individual admissions and did not identify the most serious or lead offense. As such, we included all offenses in our analysis of the centers’ information. Our analysis of this information was limited to 2012 through 2016 because records prior to 2012 were not available for any center when we initiated our analysis in April 2017. However, our data set does not contain records for 2012 for the Ute Mountain Ute center because that center did not have any of the source documents before 2013. Also, our data set did not contain records for 2012 through 2015 for the Standing Rock Youth Services Center because that center opened in May 2016. Summary data from DOJ’s FBI UCR SRS. The FBI’s primary objective is to generate a reliable set of crime statistics for use in law enforcement administration, operation, and management. FBI provided us with 7 years of data in separate annual files, which initially contained 1,529,736 gender-specific records. To analyze race, we summarized the data across gender. In addition, the records included summary records for drug and gambling offenses as well as records for specific drug offenses (e.g., sale, possession) and gambling offenses (e.g., bookmaking, lottery). To prevent over-counting, we excluded records with specific information from our analysis. These steps reduced our data set to 582,089 records with which we performed our analysis of UCR SRS data, which focused on the following key variables: calendar year, race, state, and offense. The majority of law enforcement agencies submit arrest data to the FBI through the UCR program. In 2016, about 90 percent of city, county, university and college, state, tribal, and federal agencies eligible to participate in the UCR Program submitted data (16,782 of 18,481). Although UCR SRS predominantly contains data from state and local LEAs, some federal and tribal LEAs report data into SRS. Agencies submit data monthly that must meet UCR’s data quality guidelines, such as using uniform definitions. There is no available data for the state of Florida because, according to DOJ officials, Florida does not follow UCR guidelines and reports only arrest totals which cannot be housed in the UCR SRS database. Further, a few states reported limited arrest data during the scope of our review (e.g., Illinois). Our analysis of these data was limited through 2016 because when we initiated our analysis in April 2017 it was the most current data available. Summary data from the NCJJ Easy Access to Juvenile Court Statistics (NCJJ’s juvenile court data) which is supported through funding from DOJ’s OJP. NCJJ obtains case-level and court-level data from state and local juvenile courts. This online juvenile court data is an interactive web-based application that allows users to analyze the actual databases that NCJJ uses to produce its annual Juvenile Court Statistics reports. The summary data available represents national estimates of delinquency cases handled by U.S. courts with juvenile jurisdiction. Our analysis of these data was limited to 2010 through 2014 because this was the most current data available when we conducted our analysis. The summary data we downloaded contained 86,400 cases spanning calendar years 2010 through 2014. Our analysis of NCJJ’s juvenile court data online focused on the following key variables: calendar year, race, offense, gender, and age. Summary data included in DOJ’s Bureau of Justice Statistics reports, such as the Jails in Indian Country report from 2016. This report provides information gathered from Bureau of Justice Statistics’ annual survey of Indian country jails, and includes all Indian country correctional facilities operated by tribal authorities or BIA. Our analysis of these data was limited to the survey reports covering years 2014, 2015, and 2016, and contained the number of Native American youth confined in tribal operated jails in Indian country as of June each year. We assessed the reliability of the record-level and some of the summary data by conducting electronic testing of the data and interviewing knowledgeable agency officials about the data systems. We assessed the reliability of the remaining summary data by interviewing knowledgeable agency officials about the summary data. We determined that the record-level and summary data sources included in this report were sufficiently reliable for the purposes of our reporting objectives. We determined that some record-level and summary data sources, such as certain data related to arrests and sentencing information, contained information already provided by other data sources or contained too few Native American youth observations to provide reliable, reportable information. We did not include these data sources in our report. We also determined that some data variables in certain data sources were not reliable for our purposes. For example, two data sources did not contain reliable information for the race of individuals. We did not include these data sources in our report. For each data source, we calculated the number and percent of Native American and non-Native American youth involved at each phase of the justice process (arrest, referral for adjudication, and confinement) for all three justice systems (federal, state and local, and tribal), where data were available. Generally, non-Native American records included Asian, Black, and White. Some data sources included other race categories— such as Pacific Islander and Hispanic. We then analyzed the characteristics of youth involvement with the justice system, such as the youths’ race, age category, gender, type of offense, geographic location, outcome of the youths’ involvement with the justice system, type of facility where the youth was placed (e.g., private, state, tribal), length of sentence, distance between youth’s residence and facility, and time in confinement, where data were available. If a record was missing a value for the characteristic we were analyzing (e.g., race, offense, gender, or age)—for example, the value was either blank or was “unknown”—we did not include the record in the analysis of that characteristic. We also analyzed the representation of Native American youth involved with the federal and state and local justice systems by comparing justice system data to 2010 U.S. Decennial Census information and U.S. Census estimates from 2011 to 2016. Specifically, for the federal system, we identified the representation of Native American youth in USMS’s custody data, EOUSA’s adjudication data, and BOP’s confinement data for fiscal years 2010 through 2016. We then identified the representation of Native American youth among the total youth population for the United States from the 2010 U.S. Decennial Census (as of April 1, 2010) and its updated estimates from 2011 through 2016 (as of July 1 for each year). Using these data, we compared the representation of Native American youth among each component of the federal justice system (i.e., USMS custody, EOUSA adjudication, and BOP confinement) to the total youth population for the United States. Similarly, we also compared the representation of Native American youth by individual states. To do this, we identified the representation of Native American youth in FBI’s UCR SRS arrest data as well as CJRP’s confinement data for individual states. We then identified the representation of Native American youth among the youth population for individual states from the U.S. Census’s 2010 decennial data and its updated estimates from 2011 through 2016. Using these data, we compared the representation of Native American youth among state and local justice systems (i.e., FBI’s UCR SRS arrest and CJRP’s confinement data) to the representation of Native Americans among the youth population for individual states. Because there is no single, centralized data source that contains data for youth involved in all justice systems (federal, state and local, tribal) and across all phases of the justice process (arrest, adjudication, confinement), it is not possible to track individuals through all phases of the justice system or identify the number of unique youth who have come into contact with the justice systems. Further, data are not comparable across data sources because data sources vary in how they define Native American and how they determine whether youth are Native American. Some federal agencies, such as USMS and BOP, share a unique identifier for an individual within the federal data sources. However, for purposes of this review and given privacy concerns related to juvenile data, we were unable to track individuals across phases of the federal justice system. We also collected perspectives from agency officials and five Native American organizations regarding factors that might contribute to the data characteristics we observed. We selected the five Native American organizations to include organizations whose mission and scope focuses in whole or in part on Native American juvenile justice issues and that have a national or geographically-specific perspective. The views of these organizations are not generalizable to all Native American organizations but provide valuable insights. To address our second objective on discretionary grant programs that federal agencies fund that could help prevent or address delinquency among Native American youth, we analyzed discretionary grants and cooperative agreements available for funding from fiscal years 2015 through 2017. To identify the discretionary grants and cooperative agreements, we conducted a keyword search of “youth or juvenile” in Grants.gov—an online repository that houses information on over 1,000 different grants across federal grant-making agencies. For the purposes of this review, we define “discretionary grant programs” to include both discretionary grants and cooperative agreements. We focused on discretionary grants and cooperative agreements because federal agencies generally award them to an array of entities based on a competitive review process, whereas federal agencies are generally required by statute to limit awards from the other types of grants to specific entities, typically U.S. state, local, and territorial governments. We then reviewed the search results of the three agencies with the highest number of grant program matches—DOI, DOJ, and the Department of Health and Human Services (HHS). Two analysts independently read the Grants.gov summary descriptions of the programs included in these search results and selected programs for which the description related to risk or protective factors discussed in the DOJ Office of Juvenile Justice and Delinquency Prevention (OJJDP) Tribal Youth in the Juvenile Justice System literature review; risk or protective factors identified in the July 2015 Technical Assistance Network for Children’s Behavioral Health brief on American Indian and Alaska Native Youth in the Juvenile Justice System; juvenile justice system reform principles, findings, or recommendations identified in Chapter 4 of the November 2014 Attorney General’s Advisory Committee on American Indian/Alaska Native Children Exposed to Violence report, Ending Violence so Children Can Thrive;or proposals to reform the juvenile justice system identified in Chapter 6 of the November 2013 Indian Law and Order Commission Report to the President and Congress of the United States, A Roadmap for Making Native America Safer. We also used the following principles to identify and select relevant grant programs: We excluded grant programs that focused specifically on victims as opposed to at risk youth or offenders. We included grant programs that specify tribes or Native Americans if the program’s funding opportunity announcement mentioned youth explicitly. We included grant programs that do not specify tribes or Native Americans as a primary beneficiary if the program’s funding opportunity announcement mentioned youth explicitly and if the program focused primarily on serving youth populations. After two analysts independently completed their initial determinations of which grant programs they considered relevant, they either confirmed their agreement or discussed any differences of opinion until they reached a consensus. If they could not reach agreement on whether a given program was relevant, a third, supervisory analyst made the final determination. We also reviewed the grant program funding opportunity announcements on HHS and DOJ’s websites and worked with officials from these agencies to identify any additional grant programs that could be relevant for the purposes for our review. We provided a list of the grant programs that we identified to DOJ and HHS for confirmation both during and after fiscal year 2017. Our final list of grant programs includes 122 programs. Despite these steps, it is possible that our analysis did not identify all relevant grant programs. We next determined which of 122 grant programs we identified specified tribes or Native Americans as a primary beneficiary and which did not by reviewing funding opportunity announcements for the programs to determine if the funding opportunity announcement’s title, executive summary, overview, or purpose specifically referenced tribes or Native Americans as the main or one of few beneficiaries of the proposed grant program funding. After a first analyst completed initial determinations of which of the grant programs specified tribes or Native Americans as a primary beneficiary, a second analyst reviewed those determinations and either confirmed agreement or discussed any differences of opinion until both analysts reached a consensus. We categorized each program into one or more issue areas (e.g., violence or trauma, substance abuse, mentoring, etc.). We used the risk and protective factors discussed in the OJJDP Tribal Youth in the Juvenile Justice System literature review as initial issue areas and added additional areas, as needed, for programs that did not fit within the initial areas. To determine the extent to which tribal governments or Native American organizations had access to the 122 grant programs, we reviewed both the eligibility of those organizations to apply for the grant programs and their level of success in applying for the grant programs. We defined “tribal governments” as the governing bodies of federally recognized tribes. We defined “Native American organizations” as organizations affiliated with federally recognized tribes, such as tribal colleges and universities, as well as non-tribal organizations that focus on serving Native American populations, such as urban Indian organizations. To determine whether tribal governments or Native American organizations were eligible to apply for the grant programs we identified, an analyst first reviewed the eligibility information within each of the grant program’s funding opportunity announcements. In instances where the analyst could not definitively determine whether tribal government or Native American organizations were eligible to apply for a given grant program, the analyst reviewed the program’s Grants.gov synopsis or followed up with agency officials. After the analyst made an initial determination of eligibility, a second analyst reviewed those determinations and either confirmed agreement or discussed any differences of opinion until both analysts reached a consensus. We also consulted with DOJ and HHS officials regarding those grant programs for which tribal governments or Native American organizations were ineligible to apply to determine the reasons why. To determine tribal governments and Native American organizations’ level of success in applying for the grant programs, we analyzed fiscal year 2015 through 2017 award data for the programs to determine the extent to which tribal governments and Native American organizations received funding from them. We also reviewed a non-generalizable sample of applications from 37 grant programs to determine the extent to which tribal governments and Native American organizations applied for these grant programs. Specifically, we requested the sample of applications from each of the five DOJ OJP offices and bureaus and seven HHS operating divisions from which we identified the 122 grant programs that either had a relatively larger estimated total program funding amount on Grants.gov for fiscal years 2015, 2016, or 2017 than other grant programs within the same OJP offices or HHS operating divisions or had specified tribes or Native Americans as a primary beneficiary. We assessed the reliability of the data we used by questioning knowledgeable officials. We determined that the data were sufficiently reliable for the purposes of this report. To determine some of the factors that affected the ability of tribal governments and Native American organizations to apply successfully for grant programs that could help prevent or address delinquency among Native American youth, we: interviewed or received written responses from DOJ and HHS officials to obtain their perspectives, interviewed or received written responses from representatives from a non-generalizable sample of 10 tribal governments and Native American organizations that applied for or received funding from one or more of the 122 grant programs, and reviewed a non-generalizable sample of 29 DOJ and 30 HHS peer review summary statements from unsuccessful applications that tribal governments and Native American organizations submitted for selected grant programs that we identified as relevant for the purposes of this review. We selected our non-generalizable sample of tribal governments and Native American organizations to include those that received multiple awards from relevant grant programs; tribal governments and Native American organizations that applied unsuccessfully for more than one relevant grant program; tribal governments with juvenile detention centers with the highest average daily populations in 2016; and tribal governments located in the states with the largest number of juvenile offenders in residential placement per 100,000 juveniles for American Indians according to the 2015 Easy Access to the Census of Juvenile Residential Placement. We analyzed the results of our interviews with representatives of the tribal governments and Native American organizations as well as with agency officials to discern possible themes regarding factors that affect tribal governments and Native American organizations’ ability to apply successfully for the relevant grant programs we identified. We selected the non-generalizable sample of peer review summary statements from grant programs that had a larger estimated total program funding amount on Grants.gov for fiscal years 2015, 2016, or 2017 than other grant programs within the same OJP offices or HHS operating divisions or had specified tribes or Native Americans as a primary beneficiary. However, if we could not identify an application from a tribal government or Native American organization from a given grant program from which we requested applications, we did not request peer review summary statements from that program. We then conducted a content analysis of the weaknesses noted in the statements submitted by tribal governments or Native American organizations in order to discern common themes. The information we obtained from the agency officials as well as representatives of the tribal governments and Native American organizations cannot be generalized more broadly to all tribal governments and Native American organizations or the applications they submitted for federal funding from fiscal year 2015 through 2017. However, the information provides important context and insights into the challenges tribal governments and Native American organizations face in applying for federal funding that could help prevent or address delinquency among Native American youth, as well as some of the common weaknesses that DOJ and HHS peer reviewers identified in unsuccessful applications from tribal governments and Native American organizations. We conducted this performance audit from November 2016 through September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Definitions and Agency Determinations of Native American Status in Data Sources Appendix III: Actions Agencies Reported Taking Related to Selected Task Force and Commission Recommendations The 2014 Attorney General Task Force report, Ending Violence so Children Can Thrive and the 2013 Indian Law and Order Commission report, A Roadmap for Making Native America Safer, both recommended actions related to Native American youth and youth justice issues. These recommendations included actions federal agencies could take to address some of the challenges noted in the reports, such as exposure to violence, abuse and neglect, and poverty. Table 20 provides examples of actions relevant federal agencies reported taking related to these recommendations. Appendix IV: Native American Youth Involvement with Tribal Justice Systems Comprehensive data from tribal justice systems on the involvement of Native American youth were not available. However, we identified and reviewed a few data sources that provided certain insights about the arrest, adjudication, and confinement of Native American youth by tribal justice systems. Following is a summary of our analysis of data from these sources. Arrests. Although comprehensive data on the number of tribal law enforcement agency (LEA) arrests were not available, we obtained and reviewed admission records from three juvenile detention centers in Indian country managed by the Department of the Interior’s Bureau of Indian Affairs (BIA). Based on those records, at least 388 Native American tribal youth were admitted to these three facilities in 2016, as shown in table 21. In the Northern Cheyenne facility for which we obtained records for 5 years, the number of youth admitted increased yearly between 2012 and 2016, from 14 to 204. According to BIA officials, this growth in the number of youth admitted to the Northern Cheyenne facility likely reflects an increase in admissions of Native American youth from surrounding tribes. Specifically, because the Northern Cheyenne facility is centrally located, they said it admits youth from other tribes which have grown accustomed to sending their youth to the facility. BIA officials also noted that the Northern Cheyenne facility services an area where there is a high rate of delinquency among youth, and because the facility works well with Native American youth struggling with delinquency issues, many tribes elect to send their delinquent youth to the facility. Further, since 2012, the Northern Cheyenne facility increased its bed space and staff, thus increasing its capacity to admit more youth, according to BIA officials. Even though comprehensive tribal arrest data are not available, DOJ’s Bureau of Justice Statistics (BJS) is currently undertaking an effort to increase collection of arrest data from tribal LEAs. Specifically, this data collection activity is the Census of Tribal Law Enforcement Agencies. This collection activity, which BJS plans to conduct in 2019, is to capture information including tribal LEA workloads and arrests, tribal LEA access to and participation in regional and national justice database systems, and tribal LEA reporting of crime data into FBI databases. Adjudication. Comprehensive data were not available to describe the extent to which tribal courts processed Native American youth, or adjudicated them delinquent or found them guilty. However, BJS concluded a tribal court data collection effort—the National Survey of Tribal Court Systems—in 2015. Through this survey, BJS gathered information from more than 300 tribal courts and other tribal judicial entities on their criminal, civil, domestic violence and juvenile caseloads, and pretrial and probation programs, among other things. DOJ officials told us that BJS has analyzed the data, and plans to release results in the future. Confinement. According to data published by DOJ’s Bureau of Justice Statistics, the number of youth in Indian country jails declined from 190 in 2014 to 170 in 2016 (about an 11 percent decrease). Appendix V: Selected Grant Programs That Could Help Prevent or Address Delinquency among Native American Youth Appendix V: Selected Grant Programs That Could Help Prevent or Address Delinquency among Native American Youth Department of Justice (73 grant programs) Office of Juvenile Justice and Delinquency Prevention (OJJDP) Grant program Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Tribal government or Native American organizations eligible to apply (Yes/No)? Grant program Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Grant program Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Tribal government or Native American organizations eligible to apply (Yes/No)? Grant program Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Grant program Tribal government or Native American organizations eligible to apply (Yes/No)? Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Bureau of Justice Statistics (BJS) Office of Sex Offender Sentencing, Monitoring, Apprehending, Registering, and Tracking Department of Health and Human Services (49 grant programs) Substance Abuse and Mental Health Services Administration (SAMHSA) Grant program Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Grant program Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Tribal government or Native American organizations eligible to apply (Yes/No)? Grant program Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? Administration for Children and Families Administration for Children and Families Office of Minority Health Yes Office of Minority Health Yes Office of Minority Health Yes Office of Minority Health Yes Centers for Disease Control and Prevention (CDC) Grant program Tribal government or Native American organizations eligible to apply (Yes/No)? Grant program specified tribes or Native Americans as a primary beneficiary (Yes/No)? For the purposes of the review, we define “tribal governments” as the governing bodies of federally recognized tribes and “Native American organizations” as organizations affiliated with federally recognized tribes, such as tribal colleges and universities, as well as non-tribal organizations that focus on serving Native American populations, such as urban Indian organizations. According to DOJ officials, the National Intertribal Youth Leadership Development Initiative grant program had no successful applicants in fiscal year 2017. grantees. Tribal governments and Native American organizations are eligible to apply for the Drug- Free Communities Support Program, thus making them potentially eligible for the Sober Truth on Preventing Underage Drinking Act Grants program. Health Resources Services Administration issued a fiscal year 2017 Behavioral Health Workforce Education and Training for Paraprofessionals and Professionals funding opportunity announcement, but according an agency official the fiscal year 2017 funding opportunity announcement does not focus on professionals who provide services to youth, whereas the fiscal year 2016 funding opportunity does. Appendix VI: GAO Contacts and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact name above, Taylor Matheson, Assistant Director; Tonnye’ Conner-White, Analyst-in-Charge; Anne Akin; Steven Rocker; and Emily Flores made key contributions to this report. Also contributing were Jessica Ard; Melinda Cordero; Elizabeth Dretsch; Eric Hauswirth; Kristy Love; Grant Mallie; Amanda Miller; Heidi Nielson; and Claire Peachey.

Native American youth face unique challenges when it comes to their contact with justice systems. Research shows that risk factors such as high rates of poverty and substance abuse make them susceptible to being involved with justice systems at the federal, state and local, and tribal levels. GAO was asked to examine the extent of Native American youth involvement in justice systems, and federal grant programs that may help address Native American youth delinquency. This report examines (1) what available data show about the number and characteristics of Native American youth in federal, state and local, and tribal justice systems; and (2) federal discretionary grant programs that could help prevent or address delinquency among Native American youth, and tribal government and Native American organizations' access to those grants. GAO analyzed federal, state and local, and tribal arrest, adjudication, and confinement data from 2010 through 2016 (the most recent available) from DOJ and the Department of the Interior. GAO also analyzed DOJ and HHS grant program award documentation from fiscal years 2015 through 2017, and application information for a sample of the grant programs chosen based on the amount of funding awarded and other factors. GAO also interviewed officials from DOJ, HHS, and 10 tribal governments or Native American organizations chosen to include successful and unsuccessful applicants to the grant programs, among other things. GAO's analysis of available data found that the number of American Indian and Alaska Native (Native American) youth in federal and state and local justice systems declined across all phases of the justice process—arrest, adjudication, and confinement—from 2010 through 2016. During this period, state and local arrests of Native American youth declined by almost 40 percent from 18,295 in 2010 to 11,002 in 2016. The vast majority of Native American youth came into contact with state and local justice systems rather than the federal system. However, more Native American youth were involved in the federal system than their percentage in the nationwide population (1.6 percent). For example, of all youth arrested by federal entities during the period, 18 percent were Native American. According to Department of Justice (DOJ) officials, this is due to federal jurisdiction over certain crimes involving Native Americans. Comprehensive data on Native American youth involvement in tribal justice systems were not available for analysis. GAO's analysis showed several differences between Native American and non-Native American youth in the federal justice system. For example, the majority of Native American youths' involvement was for offenses against a person, such as assault and sex offenses. In contrast, the majority of non-Native American youths' involvement was for public order offenses (e.g., immigration violations) or drug or alcohol offenses. On the other hand, in state and local justice systems, the involvement of Native American and non-Native American youth showed many similarities, such as similar offenses for each group. DOJ and the Department of Health and Human Services (HHS) offered at least 122 discretionary grants and cooperative agreements (grant programs) from fiscal years 2015 through 2017 that could be used to address juvenile delinquency among Native American youth. DOJ and HHS made approximately $1.2 billion in first-year awards to grantees during the period, of which the agencies awarded approximately $207.7 million to tribal governments or Native American organizations. Officials from the agencies, tribal governments, and Native American organizations identified factors they believe affect success in applying for grant programs. For example, some tribal governments and Native American organizations found being able to call or meet with federal officials during the application process helpful but found that short application deadlines are a challenge.

GAO_GAO-18-408T

Background With a staff of over 47,000 members, the Coast Guard operates a multimission fleet of 201 fixed and rotary-wing aircraft and over 1,400 boats and ships. Operational control of surface and air assets is divided into two geographic Areas (Pacific and Atlantic), within which are nine Districts consisting of 37 sectors and the stations within them. The Coast Guard’s program oversight, policy development, and personnel administration are carried out at the Coast Guard’s headquarters. As shown in table 1, the Coast Guard is responsible for 11 statutory missions identified in the Homeland Security Act of 2002, as amended. The Coast Guard manages these missions through six mission programs, also listed in table 1. As part of its marine safety mission, for example, the Coast Guard conducts, among other activities, safety inspections and vessel accident investigations, including those involving commercial fishing vessels, which are part of an industry with one of the highest death rates of any industry in the United States. For each of its 11 missions, the Coast Guard has developed goals and targets to assess and communicate agency performance. The Coast Guard’s performance assessment process also includes identifying performance gaps and implementing corrective actions to address unmet performance goals. As part of its process, the Coast Guard is to establish targets for the current and subsequent 2 fiscal years, according to Coast Guard officials. Each target is set by the Coast Guard, but according to the Coast Guard’s Annual Performance Report (APR), some are derived from external factors. For example, DHS requires that Coast Guard set a 100 percent target for the percent of people in imminent danger saved in the maritime environment. Further, several of the Coast Guard’s assets used to conduct these missions are approaching the end of their intended service lives. As part of its efforts to modernize its assets used to carry out various missions, the Coast Guard has begun acquiring new vessels, such as the National Security Cutter, the Fast Response Cutter as well as other assets. However, concerns surrounding the affordability of this effort remain as the Coast Guard continues to pursue multiple new acquisitions without long-term planning to guide the affordability of its acquisition portfolio. Figure 1 shows the Coast Guard’s Fast Response Cutter and National Security Cutter. Coast Guard Actions that Could Improve Data Quality We previously reported on actions the Coast Guard could take to ensure that, among other things, it addresses limitations posed by incomplete data, the use of unrealistic asset performance data, and limitations with its performance goal data, for more effective program management. Examples of data limitations that we have recommended that the Coast Guard take action on are below. Improve completeness of mission data. In December 2017, we found that several different federal agencies play a role in overseeing and promoting commercial fishing vessel safety, including the Coast Guard. As part of its marine safety activities, the Coast Guard conducts, among other activities, safety inspections and vessel accident investigations. Commercial fishing has one of the highest death rates of any industry in the United States and vessel disasters are the leading cause of fatalities among fishers, according to the National Institute for Occupational Safety and Health. However, our December 2017 review found that more information is needed to calculate vessel safety statistics that could enhance the Coast Guard’s knowledge about accident, injury, and fatality trends involving commercial fishing vessels. The Coast Guard collects some data on commercial fishing vessels that operate in federal waters—including a vessel’s length and construction date—but data on the population of the active U.S. commercial fishing vessel fleet are not complete. Between 2006 and 2015, the Coast Guard investigated 2,101 commercial fishing vessel accidents that were identified as occurring in federal waters. While the number of accidents generally increased over this time period, the number of injuries and fatalities declined over the same 10-year period. However, we could not assess the number of accidents, injuries, and fatalities by fishery— meaning the area in which a certain type of fish (e.g., shrimp, salmon, crab) is caught—because the Coast Guard’s data is not complete. Further, we were unable to calculate the rates of commercial fishing vessel accidents, injuries, and fatalities, because reliable data on certain information needed to do so—including the total number of vessels that are actively fishing and the fishery or region in which the vessel operates—are either not maintained or are not collected by the Coast Guard or other federal agencies. Having this information could be useful to carrying out the Coast Guard’s marine safety mission, which includes enforcing laws to prevent death, injury and property loss in the marine environment. We recommended in our December 2017 report that the Coast Guard ensure that data it collects during commercial fishing vessel incident investigations is accurately captured. We also recommended that the Coast Guard work with stakeholders to form a working group to determine an efficient means to establish a reliable estimate of the population of active commercial fishing vessels. The Coast Guard agreed with both recommendations, and in February 2018 informed us that it is in the process of developing additional data fields to capture more information, such as the fishery in which the commercial fishing is involved, and is engaging stakeholders to establish an appropriate working group. We will continue to monitor these actions. Use more realistic asset performance data. In our May 2016 report on Coast Guard strategic planning, we found that the Coast Guard did not provide field units with realistic goals for allocating assets, by mission. We reported that the Coast Guard’s strategic allocations of assets were based on unrealistic assumptions about the performance capacity of its assets and did not reflect asset condition and unscheduled maintenance. This was due, in part, to the Coast Guard not including information from its field units on the actual performance of its assets. For example, agency officials noted that one of its classes of cutters was 50 years old and these cutters were hampered by mechanical failures requiring emergency dry dock repairs, which resulted in reduced availability to carry out their missions during the year. In another example, a field unit stated that based on historical use, it planned for 575 hours per vessel for one type of cutter instead of the 825 hours performance capacity. Because actual asset use has consistently fallen below asset performance capacities, there is not a direct alignment between the Coast Guard’s strategic operational goals and its prospects for achieving those goals. As a result, the headquarters’ strategic intent, which is based on asset capacity rather than actual performance, did not provide the field with strategic, realistic goals for allocating assets by mission. Agencies should use quality information that is appropriate, current, complete, accurate, accessible, and timely to achieve objectives and address related risks. We recommended that the Coast Guard incorporate field unit input, such as information on assets’ actual performance, to inform more realistic asset allocation decisions. The Coast Guard concurred with this recommendation, and in February 2018 informed us that it plans to address this recommendation through changes to two process documents that are under revision, with an expected completion date in March 2018. Improve performance goal data. In our October 2017 review of Coast Guard performance goals, we reported that the Coast Guard and DHS identified limitations with two of the seven selected performance goals we reviewed, including the five year average number of recreational boating deaths and injuries. In particular, officials believe that many recreational boating injuries that do not require hospitalization are not reported to the Coast Guard. These officials believe that the amount of underreporting may vary over time due to changes in industry trends, making it difficult to accurately determine actual injury rates and program performance. We determined that the data for this performance goal was not sufficiently reliable for the purposes of our reporting objectives due to these likely limitations. We found that the Coast Guard did not report the possible extent of these limitations with this performance goal in its fiscal year 2016 APR. For the other performance goal, the Coast Guard and DHS identified limitations with the number of detected incursions of foreign fishing vessels violating U.S. waters, which is publicly reported in DHS’s APR. DHS’s review of this performance goal, reported in August 2015, raised questions about the validity of this goal—that is, whether it provides a useful measure of the Coast Guard’s performance. Specifically, the review noted that this performance goal is intended to measure a deterrence effect, but doing so is inherently difficult and may lead to contradictory interpretations of performance. In October 2017, we found that the data for this performance goal was sufficiently reliable for our reporting objective purposes, but questions remain about its validity. Reliable data is not a useful indication of performance unless it is also a valid representation of the goal being addressed. DHS officials reported that they did not include a discussion of the limitations for this performance goal in DHS’s fiscal year 2015 APR because the performance goal met the minimum threshold for data reliability despite the goal’s limitations. Coast Guard officials reported they were aware of these limitations and were working with DHS and OMB to improve the performance goal and implement corrective actions within 1 to 2 years. We recommended that the Coast Guard assess the extent to which documentation on performance data reliability contains appropriate information on known data reliability limitations and update these documents, as needed, based on the results of the assessment. The Coast Guard concurred and in February 2018, informed us that it had taken initial actions to address our recommendation. However, our preliminary review of these actions indicates that further action will be needed to fully address our recommendation, such as documenting and reporting the limitations of performance data. Coast Guard Actions that Could Improve Transparency of Data for Reporting on Its Mission Performance and Capital Planning Our previous reports have identified areas in which the Coast Guard could improve the transparency of its data used for reporting on its mission performance and planning. Improve transparency of data on mission performance. In our October 2017 report on performance goals, we found that the Coast Guard’s APR has not been released publicly since 2011 due to a previous DHS leadership decision. Consequently, there has not been full visibility over performance across all of the Coast Guard’s missions. For example, one of the Coast Guard’s missions—defense readiness—has no goals that are publicly reported or shared with Congress, even though measures related to defense readiness are included in the Coast Guard’s APR. Coast Guard officials stated that they could see the benefit of publicly releasing their APR; however, DHS’s decision to limit the number of performance goals shared publicly has so far deterred the Coast Guard from pursuing the public release of its APR. DHS officials told us that the department is concerned about conflicting information that a component’s APR might present because it is vetted and produced separately from the DHS APR. However, the lack of transparency regarding performance data shared publicly and with Congress can result in an incomplete picture of mission performance and can limit effective oversight of Coast Guard operations. As a result, the public and Congress may be unable to determine the extent to which the Coast Guard is meeting its missions. We recommended that future Coast Guard APRs be available on the Coast Guard’s public website. The Coast Guard concurred with this recommendation and in February 2018, the Coast Guard informed us that it had completed its 2017 APR and are determining an appropriate approach for making it publicly available. Improve capital planning transparency. In our previously issued work on the Coast Guard’s annual 5-year capital investment plan (CIP), we found that the CIP does not consistently reflect current total cost estimates or the effects of tradeoffs that are made as part of the annual budget cycle. We made several recommendations in recent years intended to help the Coast Guard plan for future acquisitions and the difficult tradeoff decisions it will likely face. The Coast Guard generally concurred with these recommendations and is in various stages of implementation. For example, in 2017 we reported that we have made recommendations that DHS and the Coast Guard take several actions to gain an understanding of what the Coast Guard needs to meet its mission within its likely acquisition funding levels. These recommended actions included the Coast Guard: (1) conducting a comprehensive portfolio review across all its acquisitions to develop revised baselines that meet mission needs and reflect realistic funding scenarios and (2) developing a 20-year plan that identifies all necessary recapitalization efforts and any fiscal resources likely necessary to complete these efforts. For example, in 2014 we recommended the Coast Guard develop a 20-year fleet modernization plan that identifies all acquisitions needed to maintain the current level of service and the fiscal resources needed to acquire them. Without these efforts, the Coast Guard will continue, as it has in recent years, to plan its future acquisitions through the annual budgeting process, an approach that has led to delayed and reduced capabilities. In 2016, the Coast Guard revised its 2005 Mission Needs Statement, which provides a basic foundation for long-term investment planning that is to serve as the basis for evaluating the effectiveness of various fleet mixes, and inform the Coast Guard’s CIP. However, the 2016 Mission Needs Statement did not identify specific assets the Coast Guard needs to achieve its missions, nor did it update the annual hours it needs from each asset class to satisfactorily complete its missions. The Coast Guard has stated it is developing a 20-year Long-term Major Acquisition Plan, but it has not stated when the plan will be completed or what will be included in this plan, such as potential trade-offs that could be made across the Coast Guard’s portfolio of acquisitions to better meet mission needs within realistic funding levels. A long-term plan with a tradeoff analysis would facilitate a full understanding of the affordability challenges facing the Coast Guard while it builds the Offshore Patrol Cutter. DHS concurred with our 2014 recommendation, but it is unclear when the Coast Guard plans to complete the 20-year plan. Chairman Hunter, Ranking Member Garamendi, and members of the sub- committee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. GAO Contacts and Staff Acknowledgments If you or your staff members have any questions about this testimony, please contact Nathan Anderson at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals making key contributions to this work, and the underlying reports on which it is based, include Dawn Hoff (Assistant Director); Andrew Curry (Analyst-in-Charge); Chuck Bausell; David Bieler; Richard Cederholm; John Crawford; Timothy J. DiNapoli; Michele Fejfar; Laurier R. Fish; Peter Haderlein; Eric Hauswirth; Laura Jezewski; Tracey King; Benjamin Licht; Marie A. Mak; Gary Malavenda; Diana Moldafsky; Heidi Nielson; Meg Ullengren; and Kayli Westling. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The Coast Guard, a component of DHS, serves as the principal federal agency responsible for maritime safety, security, and environmental stewardship in U.S. ports and waterways. To ensure that the Coast Guard is effectively fulfilling its missions, agency managers must have accurate information and base decisions on sound analyses for effective program management. This statement discusses Coast Guard actions needed to (1) improve the quality of data used for program management and (2) improve the transparency of its data for reporting on mission performance and planning. This statement is based on relevant products GAO issued from June 2014 through December 2017 on Coast Guard strategic planning and management issues, as well as related recommendation follow-up conducted through February 2018. GAO reviewed applicable laws, regulations, policies and guidance. GAO also interviewed Coast Guard officials responsible for administering these programs and obtained information on how they used data to inform decisionmaking. GAO interviewed a range of stakeholders, including federal and industry officials. GAO's prior work recommended multiple actions to improve the Coast Guard's program management by improving the quality of data it uses to manage and report on its mission performance. Specifically, GAO recommended actions such as collecting more complete data and clarifying the data limitations to facilitate more effective program management. For example, in December 2017, GAO found that more information is needed to calculate vessel safety statistics that could enhance the Coast Guard's knowledge about accident, injury, and fatality trends involving commercial fishing vessels. Having more complete information could be useful to carrying out its marine safety mission, and GAO recommended, among other things, that the Coast Guard ensure that data collected during commercial fishing vessel incident investigations is accurately captured. In 2018, the Coast Guard reported taking initial steps to capture more accurate data. GAO's prior work also identified areas where the Coast Guard could improve the transparency of the data it uses for reporting on its mission performance as well its capital planning purposes. For example, in an October 2017 report on performance goals, GAO found the Coast Guard's Annual Performance Report (APR) has not been released publicly since 2011. Consequently, there has not been full visibility over performance across all of the Coast Guard's missions. Coast Guard officials stated that a decision by Department of Homeland Security (DHS) leadership to limit the number of performance goals shared publicly had deterred the Coast Guard from public release of its APR. GAO recommended that APRs be available on the Coast Guard's website; the Coast Guard plans to publicly release future APRs. In addition, previous GAO reports found that the Coast Guard's annual 5-year capital investment plan, which projects acquisition funding needs for the upcoming 5 years, did not consistently reflect current total cost estimates or the effects of tradeoffs made as part of the annual budget cycle. GAO made recommendations to help the Coast Guard plan for future acquisitions and the difficult trade off decisions it will face given funding constraints. The Coast Guard agreed, but it is unclear when it will complete the 20-year plan.

CRS_R44857

T he Constitution gives no direct role to Congress in conducting federal law enforcement. While Congress enjoys the legislative power under Article I of the Constitution, which includes substantial authority to investigate the executive branch pursuant to its oversight function, criminal investigations and prosecutions are generally considered core executive functions entrusted with the executive branch un der Article II. Because of the potential conflicts of interest that may arise when the executive branch investigates itself, however, there have often been calls for prosecutors with independence from the executive branch. In response, Congress and the U.S. Department of Justice (DOJ) have used both statutory and regulatory mechanisms to establish a process for such inquiries. These responses have attempted, in different ways, to balance the competing goals of independence and accountability with respect to inquiries of executive branch officials. This report first analyzes the use of special prosecutors and independent counsels that were authorized under now-expired provisions of the Ethics in Government Act of 1978, as well as the use of special counsels that are currently authorized by DOJ regulations. A glossary of terms at the beginning of the report briefly defines these italicized terms (see Table 1 ). The report continues with an examination of various legal questions relevant to these efforts. As a threshold matter, some have challenged the appointment of a special counsel under the current regulations as unconstitutional under the Appointments Clause. More broadly, designing a statutory framework for criminal investigations and prosecutions with independence from the executive branch raises questions about how this can be achieved consistent with the requirements of the Constitution. For instance, the Supreme Court upheld the constitutionality of the since-expired independent counsel statute in the 1988 case of Morrison v. Olson , but has not applied the reasoning of Morrison in subsequent cases raising related issues. The constitutional status of a statutory framework analogous to the independent counsel statute is thus subject to debate. Several bills introduced in the 116 th Congress (including S. 71 and H.R. 197 , which merge aspects of two preceding bills introduced in the 115 th Congress, S. 1735 and S. 1741 ) statutorily insulate a special counsel from removal, echoing aspects of the independent counsel statute's provisions. Whether such proposals would withstand constitutional challenge today might ultimately turn on the continued vitality of the analysis applied in Morrison . Historical Background on the Use of Independent Investigations of Alleged Wrongdoing In part to counter perceptions that executive officials suspected of criminal wrongdoing may be subject to different standards than individuals outside the government, independent investigations have sometimes been used to determine whether officials have violated the law. The government has used a range of options to conduct these types of inquiries: special prosecutors, independent counsels, and special counsels. Executive branch officials have noted, however, that "there is no perfect solution" to achieving the goal of avoiding potential conflicts or the appearance thereof that may arise as a result of the executive branch investigating its own officials. While special prosecutors investigated executive officials prior to the 1970s, the events commonly known as Watergate led to perhaps the most famous use of an independent investigation in U.S. history. Specifically, the break-in and burglary of the Democratic National Committee Headquarters at the Watergate Hotel in 1972 led to widespread allegations of wrongdoing by senior officials in the executive branch and calls for the appointment of a prosecutor who could conduct an investigation independent of political interference. In the midst of the Watergate controversy, Elliot Richardson, whose nomination to be Attorney General was being considered by the Senate Committee on the Judiciary, agreed to name an independent special prosecutor to pursue the Watergate allegations. Once confirmed by the Senate, the Attorney General, under his own authority, appointed Archibald Cox as special prosecutor for the Watergate investigation in 1973. The President subsequently ordered DOJ officials to fire the special prosecutor later that year, leading to public outcry, the appointment of another special prosecutor, and, ultimately, the initiation of impeachment proceedings by Congress. Following these events, Congress enacted a new mechanism—discussed in the following section—for the use of special prosecutors who would be appointed by a three-judge panel upon the request of the Attorney General. Special Prosecutors and Independent Counsels, as Authorized Under the Ethics in Government Act Congress enacted the Ethics in Government Act of 1978 out of a broad intent "to preserve and promote the integrity of public officials and institutions." The statute addressed a number of concerns about the ethical behavior of some public officials in the wake of the Watergate scandal. Title VI of the statute (hereinafter "the independent counsel statute") established a mechanism for the appointment of individuals to lead independent investigations and prosecutions in certain circumstances. The statute originally designated these individuals as "special prosecutors" and later renamed them as "independent counsels." Two of the most commonly known examples of appointments of independent counsels under the statute involved incidents known generally as Iran-Contra and Whitewater. In 1986, Lawrence E. Walsh was appointed as independent counsel to investigate potential criminal misconduct of government officials related to the sale of arms to Iran and alleged diversion of profits from the sale to support the "the military activities of the Nicaraguan contra rebels" in violation of federal law. That investigation resulted in criminal charges for 14 individuals, most of whom were convicted, though some convictions were overturned on various grounds. In 1994, Kenneth Starr was appointed as independent counsel to investigate potential violations of federal criminal or civil law related to President Clinton or First Lady Hillary Rodham Clinton's relationship with Madison Guaranty Savings and Loan Association, Whitewater Development Corporation, or Capital Management Services, as well as any allegations arising out of that investigation. That investigation led to a myriad of charges for a number of individuals, but did not include indictments of the President or First Lady. Appointment Process Appointment of independent counsels under the statute occurred in two steps, requiring the involvement of both the Attorney General and a panel of federal judges. Role of the Attorney General The independent counsel statute generally directed the Attorney General to conduct a preliminary investigation upon receiving information about potential wrongdoing by certain officials in the executive branch or from presidential campaign committees. If, within 30 days of receiving such information, the Attorney General determined that the information was specific and from a credible source, the Attorney General was required to conduct a preliminary investigation for a period of up to 90 days. The statute did not require the Attorney General to acknowledge or notify any other parties that such information had come to his attention, but did require that the Attorney General inform the court that he had commenced a preliminary investigation. The conclusions reached in that initial investigation determined whether an independent counsel would be appointed to investigate the underlying allegations further. The statute required that the Attorney General request appointment of a special prosecutor by the special division of a federal court (discussed below) under three sets of circumstances. First, if the 90-day window for the preliminary investigation passed without a determination that further investigation or prosecution was not warranted, the Attorney General was required to request the appointment by the court. Second, if the Attorney General's initial investigation determined that further investigation or prosecution was warranted, the Attorney General was also required to request the appointment by the court. Finally, if the preliminary investigation indicated that further action was not warranted, but additional information was subsequently revealed which led the Attorney General to determine that further investigation or prosecution was indeed warranted, the Attorney General was mandated to conduct a preliminary investigation based on that information. Following that investigation, the statute required the Attorney General to seek appointment of an independent counsel under the same circumstances— i.e. , if no determination had been made within 90 days or if the Attorney General determined further investigation was warranted. The Attorney General's decision to request an appointment under the statute was not subject to judicial review. While the Attorney General was not authorized under the statute to appoint the independent counsel, he was required to provide the court with "sufficient information to assist" the court in the selection of the appointed individual and to define the jurisdiction of the inquiry. Role of the Court While the Attorney General conducted the initial investigation to determine whether an independent investigation was warranted, the independent counsel statute required that a special division of the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit), composed of three federal judges or Justices, appoint the independent counsel. The Chief Justice of the U.S. Supreme Court assigned three federal judges or Justices to that division for two-year assignments. The statute's provisions regarding assignment of the three-judge panel required that the panel include a judge from the D.C. Circuit and that not more than one judge or Justice be from any single court. Any judge or Justice serving in the special division of the court that appointed the independent counsel was barred from participating in any judicial proceeding involving the independent counsel while he or she was still serving in that position or any proceeding involving the exercise of the independent counsel's official duties. Based on recommendations from the Attorney General regarding the selection and jurisdiction of the independent counsel, the three-judge panel had the final authority to make the appointment and define the prosecutorial jurisdiction. The court was expressly barred from appointing "any person who holds or recently held any office of profit or trust under the United States." Scope of Authority "[W]ith respect to all matters in [the] independent counsel's prosecutorial jurisdiction," Congress granted the independent counsel "full power and independent authority to exercise all investigative and prosecutorial functions and powers of the Department of Justice, the Attorney General, and any other officer or employee of the Department of Justice . . . ." Examples of the independent counsel's enumerated authorities included conducting investigations and grand jury proceedings; engaging in judicial proceedings, including litigation and appeals of court decisions; reviewing documentary evidence; determining whether to challenge the use of testimonial privileges; receiving national security clearances, if appropriate; seeking immunity for witnesses, warrants, subpoenas, and other court orders; obtaining and reviewing any tax return; and carrying out prosecutions in court, including filing indictments. The independent counsel could request DOJ assistance in the course of his or her investigation, including access to materials relevant to the jurisdiction of the inquiry and the necessary resources and personnel to perform his or her assigned duties. Removal Other than impeachment, the independent counsel could be subject to removal "only by the personal action of the Attorney General and only for good cause, physical or mental disability . . ., or any other condition that substantially impairs the performance of such independent counsel's duties." In other words, the independent counsel was generally not subject to the control and oversight of any other official within the executive branch. If the Attorney General exercised his removal authority, he or she was required to notify the special division of the court responsible for the initial appointment and the Committees on the Judiciary of both the House of Representatives and the Senate, identifying the reasons for removal. Termination of Independent Counsel Inquiries The inquiry led by the independent counsel under the statute could be terminated under two methods. First, the statute directed that the office of the independent counsel would terminate upon notification by the independent counsel to the Attorney General that the investigation and any subsequent prosecutions had been completed. Second, the statute permitted the special division of the court—by its own choice or by the recommendation of the Attorney General—to terminate the office at any time if the investigation had been completed or sufficiently completed, allowing DOJ to formally complete the inquiry under its own processes. In either case, the independent counsel was required to submit a report to the special division of the court detailing the work completed. The report was required to include "a description of the work of the independent counsel, including the disposition of all cases brought." Statutory Reauthorizations and Eventual Lapse of the Independent Counsel Statute When the independent counsel statute was originally enacted in 1978, Congress provided that its authority would lapse five years after enactment. Investigations that had already started pursuant to the provisions were permitted to continue, but no new investigations could be initiated at that time. Rather than allow the statute to lapse, Congress reauthorized the law, with some amendments, several times. It was reauthorized in 1983 and 1987, and remained in effect until 1992, when Congress allowed the law to expire. The statute was again reauthorized in 1994, following concerns related to the investigation of the Whitewater controversy during the interim years. However, concerns over whether the independent counsel possessed too much power, which arose after the extensive independent counsel investigations of the Iran-Contra affair and the Whitewater controversy, resulted in the law's ultimate expiration and nonrenewal in 1999. Legal Authority of Special Counsels Under Current Law Following the expiration of the independent counsel statute, DOJ promulgated regulations in 1999, which are currently still in effect, to establish procedures for the appointment of special counsels pursuant to the Attorney General's general administrative hiring authority. DOJ described these regulations as "strik[ing] a balance between independence and accountability in certain sensitive investigations." DOJ acknowledged at the time the regulations were promulgated, however, that "there is no perfect solution" to achieving that goal. Thus far, it appears the special counsel regulations have been invoked infrequently. In 1999, shortly after the regulations were promulgated, the Attorney General appointed former U.S. Senator John Danforth as special counsel to investigate events related to the government actions that occurred six years earlier at the Branch Davidian compound in Waco, Texas. The special counsel's investigation found no wrongdoing on the part of federal law enforcement officials. In May 2017, Deputy Attorney General Rod Rosenstein—acting in place of Attorney General Jeff Sessions, who had recused himself from the investigation—issued a publicly-available order (public order) appointing former Federal Bureau of Investigation Director Robert S. Mueller III as special counsel. Rosenstein indicated in the public order that the appointment had been made pursuant to general statutory authority to manage DOJ investigations, but directed that the investigation would be subject to the agency's regulations governing the scope and administration of special counsel investigations. Specifically, the public order directed the special counsel to investigate efforts of the Russian government "to influence the 2016 election and related matters." DOJ later issued a non-public memorandum that set forth in more detail the scope of the investigation and definition of the special counsel's authority. That memorandum explained that the public order "was worded categorically in order to permit its public release without confirming specific investigations involving specific individuals." It should be noted that the Attorney General also possesses general statutory authority to appoint DOJ staff to conduct or coordinate particular investigations. DOJ has used this authority previously to appoint individuals who were referred to as "special counsels" to investigate particular matters. This authority differs from the special counsel regulations because it involves assignment of an internal agency official rather than an individual from outside the government. For example, in 2003, then-Deputy Attorney General James Comey (acting in place of then-Attorney General John Ashcroft, who had recused himself from the investigation) used this statutory authority to appoint Patrick Fitzgerald to lead an investigation of whether White House or other federal officials unlawfully leaked the identity of a Central Intelligence Agency officer to a reporter. While referred to as a special counsel, Fitzgerald was serving as a U.S. Attorney when named to lead the investigation, precluding an appointment under the special counsel regulations. While an individual referred to as a "special counsel" thus may be appointed under either the general statutory authority or under the specific special counsel regulations, those named under the regulations might be viewed as possessing more independence, as they are appointed from outside the agency and are insulated by the regulations from removal except for cause. DOJ may also task other arms of the Justice Department—such as the Office of the Inspector General—to investigate high-profile, sensitive, and resource-intensive matters regarding "the Department's compliance with certain legal requirements and [internal] policies and procedures." For example, recently, in response to concerns raised by some Members of Congress with respect to "certain prosecutorial and investigative determinations made by the [Department of Justice] in 2016 and 2017," Attorney General Sessions considered, but declined to pursue, a separate special counsel inquiry related to allegations of potential misconduct within the Department, noting that special counsel appointments are "by design, . . . reserved for use in only the most 'extraordinary circumstances.'" Such circumstances, according to Sessions, require the Attorney General to determine that "'the public interest would be served by removing a large degree of responsibility for the matter from the Department of Justice.'" Instead, the Attorney General indicated that DOJ's Inspector General has been tasked with reviewing the actions that the Members had suggested be the subject of the second special counsel inquiry, including allegations about DOJ's compliance with legal requirements and internal policies. Instead, the Attorney General announced that he had tasked John W. Huber, U.S. Attorney for the District of Utah, to lead the investigation into those allegations, emphasizing that Huber would be working "from outside the Washington, D.C. area and in cooperation with the Inspector General." DOJ Special Counsel Regulations Appointment and Selection by the Attorney General or the Acting Attorney General Under the DOJ regulations that supplanted the independent counsel provisions, the authority to appoint and select a special counsel resides solely with the Attorney General (or his surrogate, if the Attorney General has recused himself from the matter), rather than with the judicial branch. The regulations generally state that the Attorney General "will appoint a Special Counsel" to conduct certain investigations or prosecutions. To make such an appointment, the Attorney General must determine that (1) a criminal investigation is warranted; (2) the normal processes of investigation or prosecution would present a conflict of interest for DOJ, or other extraordinary circumstances exist; and (3) public interest requires a special counsel to assume those responsibilities. When DOJ promulgated the special counsel regulations, it explained the type of conflicts that might lead to the appointment of a special counsel: "[t]here are occasions when the facts create a conflict so substantial or the exigencies of the situation are such that any initial investigation might taint the subsequent investigation, so that it is appropriate for the Attorney General to immediately appoint a Special Counsel." After receiving information that could warrant consideration of an independent investigation, the Attorney General generally has discretion under the regulations to determine whether and when the appointment of a special counsel would be appropriate. The Attorney General may appoint a special counsel immediately; may require an initial investigation to inform his decision about whether to appoint a special counsel; or "may direct that appropriate steps be taken to mitigate any conflicts of interest, such as recusal of particular officials," to permit the investigation to be concluded within "the normal processes." In the event that the Attorney General has recused himself from a particular matter upon which a special counsel appointment might be appropriate, the regulations contemplate that the Acting Attorney General will take responsibility for the appointment process. Federal law provides that the Deputy Attorney General would serve as the Acting Attorney General. Individuals appointed as special counsels under these regulations must be chosen from outside the federal government. Such individuals must be "a lawyer with a reputation for integrity and impartial decisionmaking, and with appropriate experience to ensure both that the investigation will be conducted ably, expeditiously and thoroughly, and that investigative and prosecutorial decisions will be supported by an informed understanding of the criminal law and Department of Justice policies." The special counsel may hold other professional roles during his or her service, but is required to agree that the duties of the appointment will take "first precedence." Scope of Jurisdiction and Authority Like the appointment and selection process, the sole authority to determine the scope of the special counsel's inquiry rests with the Attorney General. The jurisdiction of the inquiry is determined by "a specific factual statement" about the matter to be investigated, which is provided by the Attorney General to the special counsel at the outset of the appointment. Beyond that general jurisdiction, the special counsel is also authorized "to investigate and prosecute federal crimes committed in the course of, and with intent to interfere with, the Special Counsel's investigation, such as perjury, obstruction of justice, destruction of evidence, and intimidation of witnesses." While these are the original parameters of a special counsel's jurisdiction, additional matters may be assigned to the special counsel as the inquiry proceeds. To expand the jurisdiction, the special counsel must find such an expansion is necessary to complete the original assignment or necessary "to investigate new matters that come to light in the course of his or her investigation." Upon such finding, the special counsel's jurisdiction may be expanded only after consultation with the Attorney General, who then has the authority to determine whether to assign the additional matters to the special counsel or "elsewhere." Within the jurisdiction identified by the Attorney General, the special counsel has relatively broad authority to carry out his or her inquiry. According to the regulations, "the Special Counsel shall exercise, within the scope of his or her jurisdiction, the full power and independent authority to exercise all investigative and prosecutorial functions of any United States Attorney." The scope of the special counsel's authority under DOJ regulations has been the subject of legal challenge in the course of Special Counsel Robert Mueller III's investigation that began in 2017. That inquiry resulted in several indictments, including against Paul Manafort, the former chairman of President Trump's 2016 campaign, for crimes such as conspiracy to launder money; tax fraud; obstruction of justice and witness tampering; failure to register as an agent of a foreign principal; false statements; and failure to file reports of foreign bank and financial accounts. Manafort filed a motion to dismiss the criminal indictment lodged against him, challenging the indictment as an unlawful exercise of the special counsel's authority. Specifically Manafort argued that the factual matter named as the special counsel's original jurisdiction in the May 2017 public appointment order (i.e., "any links and/or coordination between the Russian government and individuals associated with the campaign of President Donald Trump," as well as "any matters that arose or may arise directly from the investigation, and any other matters within the scope of 28 C.F.R. § 600.4(a)" ) would preclude the charges made against him. According to Manafort, because the charges made against him do not relate to links with the Russian government or actions taken during his time as a campaign manager in 2016 and because the public order's general authority does not grant authority on sufficiently specific matters as required by DOJ regulations, the special counsel cannot pursue the charges filed against him without seeking additional authority under the regulations. The government's response to these claims disclosed and explained additional documents outlining the scope of the investigation. DOJ acknowledged that the applicable regulations require the special counsel to be provided a "'specific factual statement of the matter to be investigated,'" but emphasized that "the regulations do not provide that the factual statement must be in an appointment order or otherwise made public." According to a subsequent memorandum from Acting Attorney General Rosenstein that was partially released with the government's filing, while the initial order "was worded categorically in order to permit its public release without confirming specific investigations involving specific individuals," a subsequent memorandum provided "a more specific description" of allegations deemed to be authorized as part of the special counsel investigation. Such development of the parameters of jurisdiction during the course of an investigation, according to DOJ, are necessary for "an effective investigation [which] must have some latitude to extend beyond the known facts at the time of [the appointment]." Ultimately, the courts that considered Manafort's motion to dismiss his indictments rejected his challenge to the special counsel's authority. For example, a federal district court in Virginia considering Manafort's motion concluded that while many of the charges pursued against Manafort "on their face, appear unrelated to the 2016 Presidential election," the investigation and issues charged in the particular case fell "squarely within the jurisdiction outlined" under the appointment order. The court emphasized that the appointment order's broad grant of authority to investigate "any links" between campaign officials and the Russian government permitted investigation into relationships with individuals supported by, even if not members of, the Russian government, such as members of a pro-Russia Ukrainian political party. Moreover, with respect to charges filed by the special counsel that did not pertain directly to the campaign and Russia, a D.C. federal court held such charges, such as tax evasion with regard to proceeds resulting from Manafort's relationship with pro-Russian entities, fell within the special counsel's jurisdiction as "'matters that arose or may arise directly from the investigation.'" A federal district court in Virginia further relied upon the later DOJ memorandum that clarified the scope of the special counsel's original appointment as a source of the special counsel's authority, explaining that the original appointment order was worded categorically so that it could be publicly released and noting that the clarifying memorandum specifically authorized the special counsel to investigate crimes related to these other charges. Accordingly, the D.C. federal court rejected Manafort's argument that the special counsel's authority amounted to a "'blank check'" for limitless investigation, reading the appointment order's language as "tightly drafted" to give "the Special Counsel flexibility from the start to manage the investigation and pursue matters that arose 'directly' from the issues within his purview." Oversight and Removal The DOJ special counsel regulations limit the special counsel's relatively broad authority to conduct an inquiry by first subjecting his or her conduct to DOJ rules, regulations, procedures, practices, and policies. Special counsels are directed to consult with the appropriate offices within DOJ or the Attorney General directly if necessary. Additionally, special counsels are subject to discipline for misconduct and breach of ethical duties that are generally applicable to DOJ employees. Second, the DOJ regulations contemplate some oversight of the special counsel by the Attorney General. Specifically, they direct the special counsel to "determine whether and to what extent to inform or consult with the Attorney General or others within the Department about the conduct of his or her duties and responsibilities." The regulations expressly require the special counsel to "notify the Attorney General of events in the course of his or her investigation in conformity with the Departmental guidelines with respect to Urgent Reports." Under DOJ internal guidance, attorneys must inform DOJ leadership of certain events, including "major developments in significant investigations and litigation" such as the filing of criminal charges. DOJ has explained that conformance with this notification requirement "guarantees a 'resulting opportunity for consultation' between the Attorney General and the Special Counsel about the anticipated action, which 'is a critical part of the mechanism through which the Attorney General can discharge his or her responsibilities with respect to the investigation.'" While the regulations indicate that special counsels "shall not be subject to the day-to-day supervision of any official," the rules authorize the Attorney General to "request that the Special Counsel provide an explanation for any investigative or prosecutorial step." If, after giving the views of the special counsel "great weight," the Attorney General's review of such actions leads him to "conclude that the action is so inappropriate or unwarranted under established Departmental practices that it should not be pursued," the Attorney General must notify the Chairman and Ranking Members of the Judiciary Committees in Congress of that decision with an explanation. Aside from review of particular actions, the regulations also grant the Attorney General authority to discipline or remove the special counsel. This authority may be exercised "only by the personal action of the Attorney General." In other words, to comply with the regulations, the Attorney General himself must remove the special counsel, not the President or a surrogate (unless, as noted previously in this report, the Attorney General has recused himself in the matter under investigation). A decision to remove the special counsel must be made with "good cause," such as misconduct, a dereliction of duty, incapacity, the existence of conflicts of interest, or violation of departmental policies. The Attorney General must report his decision to remove the special counsel, with an explanation of that decision, to both the Chairman and Ranking Members of the Judiciary Committees of Congress. Review and Conclusion of Special Counsel Inquiries Although the special counsel regulations do not provide an explicit timeline for inquiries or a special counsel's tenure, they do require the special counsel to report to DOJ periodically about the budget of operations for the inquiry as well as with status updates in some circumstances. Specifically, the special counsel must provide a proposed budget within 60 days of the appointment. The special counsel must also provide annual reports regarding the status of the investigation and budget requests 90 days prior to the beginning of the fiscal year. The Attorney General is required to review the special counsel's annual report and determine whether the investigation should continue and with what budget. When the special counsel's inquiry concludes, the special counsel must provide a confidential report to the Attorney General with explanations of the decisions made in the course of the inquiry in favor of or declining to prosecute any charges. The regulations do not expressly provide for disclosure of this report to any other parties, nor do they further identify the parameters of the content of that report. The regulations do, however, require the Attorney General to make certain reports to the Chairs and Ranking Members of the Judiciary Committees of each house of Congress, including upon the conclusion of the investigation. The regulations' only guidance regarding the Attorney General's concluding report's content is that the report must include "an explanation for [the] action," "including, to the extent consistent with applicable law, a description and explanation of instances (if any) in which the Attorney General concluded that a proposed action by a Special Counsel was so inappropriate or unwarranted under established Departmental practices that it should not be pursued." The regulation's use of the word "including," which generally denotes that the terms that follow are illustrative and not definitional, may suggest that the Attorney General's report to Congress is not necessarily limited to explanations of the Special Counsel's prosecutorial decisions. None of the reporting requirements mandate public release of any information shared either between DOJ officials or between DOJ and congressional committees. Instead, the regulations provide the Attorney General with the discretion to "determine that public release of [his reports to Congress] would be in the public interest." Moreover, the report's contents need to be "consistent with applicable law," which may suggest that legal doctrines such as executive privilege and the rules governing the release of grand jury information could restrict what can be included in the report. Appointing and Removing a Special Counsel: Legal Considerations Designing a mechanism to provide for criminal inquiries of executive branch officials by officers independent from the executive branch has raised questions about whether this goal can be accomplished in harmony with the requirements of the Constitution. Under the doctrine of separation of powers, the Constitution assigns each branch of government particular functions that generally may not be delegated to, nor usurped by, another branch. In this vein, Congress is entrusted with the legislative power, and may establish executive branch agencies and conduct oversight of those entities. Congress may not, however, engage in criminal prosecutions on behalf of the United States—a function generally reserved for the executive branch. A crucial bulwark in preserving this separation of powers is the Appointments Clause of Article II. That provision requires "Officers of the United States" to be appointed by the President "with the Advice and Consent of the Senate," although Congress may vest the appointment of "inferior" officers "in the President alone, in the Courts of Law, or in the Heads of Departments." Crucially, Article II also empowers the President to hold executive branch officers accountable, through removal if necessary, which the Supreme Court in Myers v. United States explained was essential in order to "maintain administrative control of those executing the laws." The Court has, however, recognized that Congress may in certain situations restrict the President's power of removal over certain discrete offices. The powers of appointment and removal are key to understanding Congress's authority to create independent investigative offices and define their contours. Appointment of a Special Counsel While introduced legislation aimed to insulate a special counsel from executive control raises questions (addressed below) about the President's ability to oversee the executive branch, some have questioned whether the appointment of a special counsel under the current regulations violates the Constitution. Such challenges have been unsuccessful, however, as exemplified by the D.C. Circuit's recent ruling in In re: Grand Jury Investigation . In that case, the recipient of multiple grand jury subpoenas issued by Special Counsel Robert Mueller moved to quash those subpoenas on the grounds that the appointment of the special counsel was unlawful under the Appointments Clause. The D.C. Circuit's panel decision held that the Appointments Clause did not require Special Counsel to be nominated by the President and confirmed by the Senate because the special counsel is not a principal officer. Applying the Supreme Court's test in Edmond v. United States , the D.C. Circuit ruled that, because he is subject to the control of a superior who was nominated by the President and confirmed by the Senate (i.e., a principal officer), the special counsel is an inferior officer who may be appointed by a department head. While acknowledging that the special counsel regulations bestowed a measure of independence on the special counsel, the court reasoned that because the Attorney General could rescind these regulations at any time, the special counsel is an inferior officer who "effectively serves at the pleasure" of a principal officer. Additionally, the court rejected the argument that Congress had not "by law" granted the Attorney General the authority to appoint a special counsel as required by the Appointments Clause. In so doing, the panel relied on the Supreme Court's opinion in United States v. Nixon , in which the Court concluded that, because Congress had by statute vested general authority in the Attorney General to appoint subordinate officers, the Attorney General's delegation of power to a special prosecutor was valid. Finally, the D.C. Circuit panel concluded that a department head properly appointed Special Counsel Mueller in accordance with the Appointments Clause, notwithstanding his appointment by Rod Rosenstein, the Deputy and Acting Attorney General. The panel observed that the relevant statutory scheme provided that, in the case of a "disability" of the Attorney General, the Deputy Attorney General "may exercise all the duties of that office." The D.C. Circuit reasoned that when Attorney General Sessions recused himself from matters concerning presidential campaigns, he had a "disability" under the statute on that issue. Accordingly, Deputy Attorney General Rosenstein became the acting Attorney General—and was therefore the head of the Department of Justice—on such matters. Acting Attorney General Rosenstein's appointment of Special Counsel Mueller, therefore, was an appointment by the head of a department. Removing a Special Counsel While the legal questions surrounding the appointment of a special counsel under the regulations have largely been resolved, the circumstances in which a special counsel may be removed by a superior have not been settled by the courts. Consideration of the authority to remove a special counsel under current regulations poses several legal questions. As discussed above, Department of Justice regulations provide that a special counsel may be removed only (1) by the Attorney General; (2) "for misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies"; and (3) in writing provided to the special counsel specifying the reason(s) for removal. As a preliminary matter, the specific type of behavior that would constitute grounds for removal under the regulations is largely undetermined. For instance, terms such as "misconduct" and "good cause" are not defined in the regulations or by reference to an accompanying statute, and case law addressing the definition of similar statutory removal restrictions is sparse. More broadly, the manner in which a special counsel might be removed without new legislation itself poses difficult legal issues, including the ultimate efficacy of the regulations in constraining the discretion of the executive branch. Removing a Special Counsel Pursuant to the Regulations The Attorney General (or his surrogate if recused) may, consistent with the governing regulations, remove a special counsel "for misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies." Conceivably, the Attorney General's decision could be the result of an order from the President, as the Attorney General serves at the pleasure of the President and, as the Court has recognized, the President's power to appoint executive branch officials is tied to the power of removal. A decision to remove a special counsel under current regulations could be difficult to challenge in court. Importantly, the current regulations explicitly disclaim the creation of any legal rights. Even without that disclaimer, internal agency rules and guidelines, including those of the Justice Department, have generally not been recognized as creating judicially enforceable rights. Instead, an individual seeking judicial relief against the United States in federal court must usually rely on a cause of action that asserts violation of a recognized legal right or requirement. Consequently, at least under current DOJ regulations, obtaining judicial review of a special counsel's removal by a federal court may be difficult. Legal Effect of the Regulations More broadly, it is uncertain to what extent the regulations ultimately constrain the executive branch. Because no statute appears to require the Department to promulgate regulations concerning a special counsel, the Department likely enjoys discretion to rescind them. The special counsel regulations also were not promulgated according to the notice and comment procedures that are typically required by the Administrative Procedure Act (APA) when agencies issue legislative rules. Instead, the Department considered the regulations to be exempt from these requirements, as they concerned agency management or personnel. The Department could thus likely rescind the special counsel regulations without going through notice and comment procedures, meaning that the regulations could likely be repealed immediately. Once repealed, a special counsel would no longer be protected by a for-cause removal provision. While DOJ has noted its adherence to the current special counsel regulations, assuming for the sake of argument a situation where the regulations were left in place, a decision by the Attorney General or President to simply ignore the regulations raises unresolved legal questions. Generally, regulations in force typically bind the executive branch with the force of law. In fact, in Nixon v. United States , which concerned a claim of executive privilege by President Nixon against a subpoena issued by a special prosecutor, the Court opined on the regulation in force that insulated the special prosecutor from removal. The Court remarked in dicta that So long as this regulation is extant it has the force of law. . . . [I]t is theoretically possible for the Attorney General to amend or revoke the regulation defining the Special Prosecutor's authority. But he has not done so. So long as this regulation remains in force the Executive Branch is bound by it, and indeed the United States as the sovereign composed of the three branches is bound to respect and to enforce it. In other words, insofar as this reading continues to characterize the Court's approach to the matter, both the President and Attorney General must comply with the special counsel regulations until they are repealed. However, the concrete result of an order removing a special counsel in violation of applicable regulations is difficult to predict. For instance, there might not be a private right of action authorizing judicial review in this situation, leaving the legal remedy available for violation of the regulations in question. On the other hand, the matter raises open legal issues regarding the scope of the President's authority to supervise the executive branch. It is unclear to what extent agency regulations restricting the grounds for removal of a constitutional officer engaged in core executive functions can bind the President. One might argue that the special counsel regulations, while binding on the Department of Justice, do not ultimately restrict the President's powers. Article II vests the executive power of the United States in the President; and criminal investigations and prosecutions lie at the very core of this constitutional authority. An argument in favor of a more robust view of the President's authority might be that regulations issued by an executive branch agency nearly 20 years ago that restrict the President's power to remove a high-level officer of the United States who is charged with enforcing the law intrude on the President's authority under Article II. DOJ has in the past asserted authority to decline to follow statutes it deems unconstitutional intrusions on the executive branch's power, and this argument might be extended to the context of similarly viewed regulations, particularly those issued by a prior Administration. Proposed Legislation to Restrict the Ability to Remove a Special Counsel Given the questions regarding the scope and effect of the current DOJ special counsel regulations, a number of legislative proposals aim to impose statutory restrictions on the executive branch's ability to remove a special counsel. Consideration of these proposals requires examination of the Supreme Court's decisions regarding statutory restriction on the removal of certain officers. However, because Congress has not enacted any such bill, analysis of these efforts is necessarily preliminary. As discussed above, current Department of Justice regulations authorize the Attorney General to appoint a special counsel and determine the ultimate scope of his jurisdiction, but limit the Attorney General's discretion to remove a special counsel to certain specified reasons. A number of bills proposed during the 116 th and 115 th Congresses aim to codify aspects of these regulations. Notably, some would statutorily insulate a special counsel from removal and authorize a federal court to review the removal of a special counsel. For instance, S. 1735 , introduced in the 115 th Congress, would have provided that in order to remove a special counsel, the Attorney General must first file an action with a three-judge court; if that panel issues a finding of "misconduct, dereliction of duty, incapacity, conflict of interest, or other good cause, including violation of policies of the Department of Justice," then a special counsel may be removed. Similarly, S. 1741 , the Special Counsel Integrity Act, would have provided that any special counsel appointed on or after May 17, 2017, may only be removed by the Attorney General, or the highest ranking Justice Department official if the Attorney General is recused, for good cause. S. 1741 further provided that a special counsel who has been removed may challenge this action before a three-judge panel, which is authorized to immediately reinstate the individual if the court finds that the removal violated the legislation's terms. Both bills were introduced in the 115 th Congress. Finally, S. 71 and H.R. 197 , introduced in the 116 th Congress, merge aspects of both of these proposals. They would similarly require good cause in order for the Attorney General to remove a special counsel, but provide a 10-day window in which the special counsel can challenge a removal decision in federal court. If the court determines that the removal violates that good cause standard, then the removal shall not take effect. Understanding these proposals requires an examination of the significant—and oft-debated—constitutional questions concerning Congress's power to establish executive functions outside the direct control of the President. Presidential Authority to Oversee Executive Branch Officers Article II of the Constitution vests the executive power of the United States in the President. As mentioned above, the Supreme Court has made clear that this power includes authority to hold executive branch officers accountable, through removal if necessary. However, the Court has upheld statutory restrictions on the President's removal power for certain offices. In one such case, Morrison v. Olson , the Court upheld restrictions on the removal of an independent counsel, although, as discussed below, the Court has not always followed aspects of that decision in subsequent years. The constitutionality of legislative efforts to statutorily insulate a special counsel from removal will thus likely turn on the continuing vitality of the Court's opinion in Morrison and, more generally, whether a court would apply a more formalist or functionalist methodology in considering such legislation. Definitive conclusions about such efforts are thus difficult absent further guidance from the Court. Morrison v. Olson In the 1988 case of Morrison v. Olson , the Supreme Court addressed the issue of whether a federal prosecutor can be insulated from executive control in the context of the now-expired Independent Counsel Act. Morrison upheld the independent counsel statute, which, as discussed above, vested the appointment of an independent counsel outside of the executive branch and limited the removal authority of the President. Writing for the Court, Chief Justice Rehnquist concluded that the independent counsel was an inferior, rather than a principal, officer, whose appointment was not required to be made by the President subject to Senate confirmation. The appointment of such officers was permissible because they (1) were removable by the Attorney General for cause; (2) had a limited scope of duties; and (3) possessed limited jurisdiction. The Court also held that the Independent Counsel Act's provision limiting the authority of the Attorney General to remove the independent counsel for good cause did not impermissibly intrude on the President's power under Article II. The Court rejected a formalistic rule that would bar statutory for-cause removal protections for an individual tasked with "purely executive" functions; instead, it applied a functional test and asked whether Congress has "interfere[d] with the President's" executive power and his "duty to 'take care that the laws be faithfully executed.'" The Court recognized that the independent counsel operated with a measure of independence from the President, but concluded that the statute gave "the Executive Branch sufficient control over the independent counsel to ensure that the President is able to perform his constitutionally assigned duties." Morrison was decided 7-1, with Justice Scalia dissenting from the Court's opinion and Justice Kennedy not participating in the case. In dissent, Justice Scalia argued that the independent counsel statute violated the separation of powers because the Constitution vested authority for criminal investigations and prosecutions exclusively in the executive branch and the statute deprived the President of exclusive control of that power. Under this rationale, he warned that the Court must be very careful to guard against the "'gradual concentration of the several powers in the same department'" that can be likely to occur as one branch seeks to infringe upon another's distinct constitutional authorities. Justice Scalia emphasized the power and discretion typically vested in prosecutors and noted that the key check on prosecutorial abuse is political—prosecutors are accountable to, and can be removed by, the President, who is likewise accountable to the people. But operation of the independent counsel statute, for Justice Scalia, eliminated that constitutional feature by creating an unaccountable prosecutor outside of presidential control. In the years since Morrison , especially in the wake of the Whitewater investigation into President Clinton by an independent counsel that culminated in the President's impeachment on grounds that were tangential to the impetus for the investigation, a number of legal scholars criticized the independent counsel statute on both policy and constitutional grounds. Additionally, members of both political parties have since noted opposition to the law, resulting in relatively widespread agreement to let the Independent Counsel Act expire in 1999. Post-Morrison Case Law on Appointments and Removal The Supreme Court in the 1997 case of Edmond v. United States applied a different standard than that enunciated in Morrison in the context of a challenge to the appointment of certain "inferior" officers. The opinion, authored by Justice Scalia, adopted the reasoning he applied in dissent in Morrison for determining whether an individual is an inferior officer. In that case, the Court did not apply the functional test used in Morrison for determining whether an individual was an inferior officer. Instead, it adopted a formal rule—an inferior officer is one who is "directed and supervised" by a principal officer (officers appointed by the President and confirmed by the Senate). Applying this rule, the Court concluded that the appointment of members of the Coast Guard Court of Criminal Appeals by the Secretary of Transportation was consistent with Article II. Specifically, the Court reasoned that because Members of the Coast Guard Court of Criminal Appeals are removable at will and lack power to render a final decision of the United States unless permitted to do so by a superior in the executive branch they are directed and supervised by principal officers. The appointment of the members of the Coast Guard Court of Criminal Appeals by the Secretary of Transportation was thus constitutional because the members constituted inferior officers and the Secretary was a principal officer. More recently, in the 2010 case of Free Enterprise Fund v. P ublic Company Accounting Oversight Board , the Court invalidated statutory structural provisions providing that members of the Public Company Accounting Oversight Board could be removed only "for cause" by the Securities and Exchange Commission, whose members, in turn, appeared to also be protected from removal by for-cause removal protections. The Court again applied a rather formalist rule in analyzing Congress's attempt to shield executive branch officers from removal, rather than the functional approach followed in Morrison . The Court concluded that, while the early 20 th century case of Humphrey ' s Executor v. United States had approved such protections for the heads of independent agencies and Morrison did the same for certain inferior officers, the combination of dual "for cause" removal protections flatly contradicted the vestment of executive power in the President under Article II. Further, the Court then applied the test it used in Edmund , rather than the functional analysis of Morrison , in concluding that members of the regulatory board were now—after invalidation of statutory removal protections by the Court—inferior officers because the Securities and Exchange Commission, composed of principal officers, possessed oversight authority over the board and the power to remove its members at will. However, the Court has not gone so far as to overrule or even explicitly question Morrison . As a result, that opinion's holding regarding the constitutionality of for-cause restrictions for an independent counsel binds the lower courts. Moreover, while the Court's decisions in Edmund and Free Enterprise Fund have not applied the reasoning in Morrison concerning the test for who qualifies as an inferior officer, it is not necessarily clear what removal restrictions are appropriate for principal officers or how the determinations about the appointment power concern determinations about the scope of the removal power. Nonetheless, it appears that the Edmond test, rather than the Morrison analysis, for determining whether an individual is an inferior officer is what will guide the Court going forward. Furthermore, Free Enterprise Fund represents a movement toward a more formalist, and possibly more expansive, view of the Presidential power of removal than was expressed in Morrison . More fundamentally, no member of the Morrison Court sits on the Supreme Court today. Because of this apparent shift in the Court's general approach to separation-of-powers matters related to appointment and removal, and the current Court's relative silence on Morrison's import, whether today's Court would necessarily view a reauthorization of the independent counsel statute or a similar statute in the same manner as it did in Morrison is subject to debate . Legislation to Establish For-Cause Removal Protection for a Special Counsel Assuming that the Supreme Court were to follow the functional approach reflected in its Morrison decision, efforts to statutorily require good cause to remove a special counsel would likely pass constitutional muster. As noted above, in Morrison , the Court examined whether Congress had impermissibly interfered with the President's constitutional duties; it approved of the independent counsel statute's provisions that, among other things, (1) required good cause to remove the independent counsel; (2) largely restricted the Attorney General's discretion in deciding to request the appointment of an independent counsel; and (3) placed the actual power of appointment with a panel of Article III judges. Legislation that would statutorily insulate a future special counsel from removal except for good cause appears roughly analogous to the for-cause removal provisions upheld in Morrison . In fact, some proposals appear to be less restrictive of the President's power relative to the independent counsel statute. For instance, S. 1741 (115 th Congress) and S. 71 (116 th Congress) appear to contemplate the appointment of a special counsel at the discretion of the AG, and they provide that only the Attorney General—or the most senior Justice official who has been confirmed by the Senate if the Attorney General is recused—may remove a special counsel. Under both bills, an executive branch official would retain discretion to appoint and remove a special counsel for cause. Under Morrison ' s functional balancing approach, which examines whether Congress has unduly interfered with the President's executive power and duty to take care that the law is executed faithfully, this framework is less intrusive of executive branch power than was the independent counsel statute because the executive branch would retain control over a special counsel's appointment. Likewise, insulating a special counsel from removal by the Attorney General except for those reasons outlined in current Justice regulations—"for misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies" —would likely permit removal of a special counsel for a broader range of reasons than did the now-expired independent counsel statute, which limited the basis for removal to "good cause, physical disability, mental incapacity, or any other condition that substantially impairs the performance of such independent counsel's duties." Specifically, several bills would add misconduct, dereliction of duty, and conflict of interest as grounds for removal, and specifically define good cause to include violation of departmental policies. At least considered in isolation, such a provision would be less intrusive into the executive branch's authority under Article II than the statute at issue in Morrison , as the proposal would grant the Attorney General—a principal officer directly accountable to the President—greater control of the special counsel than he had under the independent counsel statute. Accordingly, if the Court were to embrace a functionalist balancing approach in a challenge to such a provision, it would likely affirm its constitutionality as the executive branch could remove a special counsel for a broader range of reasons than was permitted in the independent counsel statute. Nevertheless, bills that aim to insulate a special counsel from removal might be constitutionally suspect if the Court chose to overrule Morrison or limit the reach of that case to its facts. In particular, were the Court to face a challenge to a special counsel entrusted with wide-ranging investigative authority who statutorily could not be removed except for cause, application of the approach in Edm o nd , rather than Morrison , might result in the Court concluding that a special counsel is a principal officer. As noted above, Edmond 's test for inferior officer status is that the individual be directed and supervised by a principal officer. And that test was satisfied because Coast Guard Court of Appeals judges were removable at will and lacked power to render final decisions of the executive branch. A special counsel with statutory removal protection would obviously not be removable at will. As to whether a special counsel renders final decisions, any analysis would likely depend on the scope of authority granted to a special counsel. Were the Court to conclude that a special counsel does constitute a principal officer, his or her appointment must be made by the President with Senate confirmation, rather than by the Attorney General. Further, any removal restrictions might be questioned as well, as the Court has never approved such restrictions for a principal officer charged with core executive functions. Nonetheless, the Court has not reconciled its holding on the appointments question in Morrison with its holding in Edmond, meaning that the limits on Congress's power to insulate executive branch officials from removal are subject to debate. More broadly, a departure from Morrison and an application of the Court's more recent formalist approach to separation of powers disputes, as evidenced in Free Enterprise Fund , might cast for-cause removal protections for a special counsel in an unfavorable light. The Court's emphasis in that case on the importance of presidential control over executive branch officers and the ability to hold them accountable in order to preserve the constitutional structure envisioned by the Framers could be read to conflict with statutory removal restrictions for government officers carrying out core executive functions. That said, a middle road is possible. Were Congress to pass legislation insulating a special counsel from removal except for cause, one option might be for the Court to narrowly construe the scope of for-cause removal protections, interpreting them to permit removal for a broad range of reasons. This would avoid overruling Morrison , but arguably preserve substantial executive branch authority over the special counsel. Nonetheless, such a reading might authorize more significant control of a special counsel's decisions, ultimately restricting the independence of the office, at least compared to that envisioned by the independent counsel statute. Legislation to Establish Judicial Review of a Removal Decision Certain bills authorizing a judicial role in the removal of a special counsel may raise distinct constitutional questions. As an initial matter, proposals to authorize judicial review of a decision by the Attorney General to remove a special counsel, such as S. 1741 (115 th Congress), as well as S. 71 and H.R. 197 (116 th Congress), appear somewhat similar to provisions considered by the Court in Morrison . And the Supreme Court has otherwise adjudicated suits from government officers who have been removed from their position. It bears mention, however, that the traditional remedy in such situations has been for back pay, rather than reinstatement. Bills that limit available remedies to reinstatement, or require this result, depart from the independent counsel statute's provisions, which provided a reviewing court with the option to order reinstatement or issue "other appropriate relief." One might distinguish between, on the one hand, a court's undisputed power to determine compliance with the law and award damages for violations, and, on the other, a potential judicial order directing an executive branch official to reappoint an individual to an office. In this vein, injunctive relief of this type could be viewed as inserting the judiciary into a role assigned by Article II to the executive branch. In addition, at least one proposal, S. 1735 , might authorize the judiciary to play a more substantial role in the removal of a special counsel. That bill would bar the removal of a special counsel unless the Attorney General first files a petition with a three-judge court, and that court itself finds "misconduct, dereliction of duty, incapacity, conflict of interest, or other good cause, including violation of policies of the Department of Justice." Inserting the judiciary into a removal decision, by requiring a court to determine in the first instance the grounds for the dismissal of an executive branch official before he may be removed, appears to go beyond the restrictions on the President's removal power previously approved by the Supreme Court in Humphrey ' s Executor and Morrison . As the Free Enterprise Fund Court explained, even in the prior cases that "upheld limited restrictions on the President's removal power, it was the President—or a subordinate he could remove at will—who decided whether the officer's conduct merited removal under the good-cause standard." The body charged with determining whether good cause exists to remove a special counsel would not be one that is subordinate to or accountable to the President; indeed, that body is not located in the executive branch at all. Moreover, Free Enterprise Fund invalidated two layers of removal protection for executive branch officers as violating Article II. Here, a special counsel could not be removed unless permitted by Article III judges—judicial officers who may not be removed except through the impeachment process. As such, with regards to this proposal, not only would two layers of removal protection shield a special counsel from dismissal, but one layer would be significantly more stringent than the for-cause protection in Free Enterprise Fund . Further, while the Court in Morrison saw no issue with the independent counsel statute's provision authorizing ex post judicial review (i.e., after the fact) of a removal decision, that conclusion rested on the understanding that the executive branch retained discretion over the decision to remove an independent counsel. Judicial review in that situation was limited to ensuring compliance with the law. Indeed, the Morrison Court narrowly construed that statute to preclude any role for the judicial panel that was entrusted with appointing an independent counsel in removing him during an investigation or judicial proceeding. The Court explained that this move avoided an unconstitutional "intrusion into matters that are more properly within the Executive's authority." Proposals that require an initial judicial finding of good cause in order to authorize removal arguably insert the judiciary into an executive branch function in a manner the Morrison Court appeared to consider questionable. On the other hand, application of a functional approach akin to Morrison , which examined a variety of factors in adjudicating the separation of powers dispute, might nevertheless conclude that a requirement of an initial judicial finding of good cause in order to remove a special counsel does not impair the President's core Article II responsibilities. First, under S. 1735 , the Attorney General retains discretion to initiate a removal in the first place by petitioning the three-judge panel; that body would lack authority to remove a special counsel independently. Second, the previously upheld independent counsel statute authorized judicial review of a removal of the independent counsel and authorized reinstatement as a remedy. The bill's provision would shift the sequence of the judicial role from an ex post review to an ex ante (i.e., beforehand) authorization. Viewed in this light, it is unclear why that shift would necessarily make a substantive difference, because even if the executive branch ignored the provision allowing for ex ante review and removed a special counsel unilaterally, the special counsel could sue for reinstatement, which would leave the court in largely the same position. Finally, while requiring judicial authorization to remove a special counsel might intrude somewhat on the executive branch's Article II authority other aspects of the bill are less intrusive. For instance, the bill leaves discretion to appoint the special counsel with the Attorney General, and appears to permit removal for a wider range of conduct than did the independent counsel statute. Because the Morrison Court balanced a variety of factors and concluded that the independent counsel statute did not impermissibly interfere with the President's duty to execute the law, an application of Morrison might mean that these features ameliorate concerns about a judicial body first approving of a removal. Leaving aside issues arising under Article II of the Constitution, legislation requiring the Attorney General to first petition a federal court for a good cause finding before removing a special counsel might raise questions under Article III. The Constitution defines the proper scope of the federal courts' jurisdiction as limited to adjudicating "cases" and "controversies." The Supreme Court has articulated several legal doctrines emanating from Article III that limit the circumstances under which the federal courts will adjudicate disputes. The Court has interpreted Article III to require adversity between the parties, or a live dispute that is "definite and concrete, touching the legal relations of parties having adverse legal interests." Further, the Court has made clear that duties of an administrative or executive nature generally may not be vested in Article III judges. Article III courts are permitted to exercise certain non-adjudicatory functions, but these exceptions are generally limited to duties incident to the judicial function, such as supervising grand juries and participating in the issuance of search warrants. With respect to a suit by the Attorney General seeking ex ante judicial authorization to remove a special counsel, these requirements might not necessarily be met. For instance, given this procedural posture, it is not obvious who the adverse party would be as the legislation does not explicitly authorize the special counsel to participate in the proceedings. Likewise, the supervision of executive branch officers, including discretion to remove them, is traditionally an executive or administrative function, rather than a judicial one. Retroactive Application of Legislation to Insulate a Special Counsel Finally, certain bills that aim to insulate a special counsel from removal might raise unresolved questions concerning their retroactivity. For instance, S. 1741 (115 th Congress) would have provided that a special counsel may not be removed except for cause and that this provision retroactively applies to any special counsel appointed on or after May 17, 2017. Likewise, S. 71 and H.R. 197 (116 th Congress) contain a similar provision, although it applies to any special counsel appointed on or after January 1, 2017. One might argue that statutorily insulating a currently serving special counsel from removal improperly inserts Congress into the appointments process. The Supreme Court has invalidated legislation that explicitly authorized Members of Congress to appoint executive branch officers and has done the same to legislation authorizing Congress to remove an executive branch officer through a joint resolution. Insulating a currently serving executive branch officer from removal via statute might be seen as an attempt by Congress to subvert the purposes of the Appointments Clause, effectively transforming a particular prosecutor's office from one that is subject to executive branch control into one that is statutorily independent without allowing for a new appointment consistent with the Constitution. In particular, if such a bill were passed immediately, it might be seen to apply exclusively to a single individual in the executive branch, effectively appointing a particular executive branch officer for an indefinite time period. To the extent that this provision is viewed as a legislative aggrandizement of the executive's appointment power, it might raise separation-of-powers concerns. That said, it does not appear that a Supreme Court case has directly addressed such a statutory provision. In Myers v. United States , the Court invalidated a statutory restriction on the removal of an executive branch officer. The pertinent statute in that case bestowed removal protection retroactively on executive branch officers, but the Court's opinion did not hinge on this feature of the statute. Further, such a provision would only codify requirements that already exist in regulations, which might be seen as a relatively minor adjustment to a special counsel's office that does not require a new appointment. Given the lack of preexisting case law relevant to such a provision, firm conclusions about its merit are likely premature. Conclusion Both Congress and the executive branch have employed a variety of means to establish independence for certain criminal investigations and prosecutions. The use of special prosecutors, independent counsels, and special counsels all have allowed for the investigation of executive branch misconduct. Nonetheless, efforts to provide independence for prosecutors from executive branch control often raise constitutional questions. In turn, proposals to statutorily protect a special counsel from removal thus raise important, but unresolved, constitutional questions about the separation of powers. As a general matter, simply insulating a future special counsel from removal except for specified reasons appears consistent with the Court's opinion in Morrison . To the extent the current Court might depart from the functional reasoning of that case and apply a more formal approach to the question, however, such proposals might raise constitutional objections. Likewise, constitutional objections might arise against proposals aimed to insulate a special counsel in a manner beyond the framework approved in Morrison .

The Constitution vests Congress with the legislative power, which includes authority to establish federal agencies and conduct oversight of those entities. Criminal investigations and prosecutions, however, are generally regarded as core executive functions assigned to the executive branch. Because of the potential conflicts of interest that may arise when the executive branch investigates itself, there have often been calls for criminal investigations by prosecutors with independence from the executive branch. In response, Congress and the U.S. Department of Justice (DOJ) have used both statutory and regulatory mechanisms to establish a process for such inquiries. These frameworks have aimed to balance the competing goals of independence and accountability with respect to inquiries of executive branch officials. Under the Ethics in Government Act of 1978, for example, Congress authorized the appointment of "special prosecutors," who later were known as "independent counsels." Under this statutory scheme, the Attorney General could request that a specially appointed three-judge panel appoint an outside individual to investigate and prosecute alleged violations of criminal law. These individuals were vested with "full power and independent authority to exercise all investigative and prosecutorial functions and powers of the Department of Justice" with respect to matters within their jurisdiction. Ultimately, debate over the scope, cost, and effect of the investigations (perhaps most notably the Iran-Contra and the Whitewater investigations) resulted in the law's expiration and nonrenewal in 1999. Following the lapse of these statutory provisions, DOJ promulgated regulations authorizing the Attorney General (or, if the Attorney General is recused from a matter, the Acting Attorney General) to appoint a "special counsel" from outside the federal government to conduct specific investigations or prosecutions that may be deemed to present a conflict of interest if pursued under the normal procedures of the agency. Special counsels are not subject to "day-to-day supervision" by any official and are vested "within the scope of his or her jurisdiction, the full power and independent authority to exercise all investigative and prosecutorial functions of any United States Attorney." The independent nature of these investigations has raised constitutional questions about the propriety of the appointment and removal mechanisms provided for the officials leading the inquiries. These concerns were addressed by the Supreme Court in the 1988 case of Morrison v. Olson, which upheld the constitutionality of the independent counsel statute. The reasoning of that opinion has been challenged, however, and the Court's subsequent analysis of related issues in the 1997 case of Edmond v. United States and the 2010 case Free Enterprise Fund v. Public Accounting Oversight Board did not apply the standard enunciated in Morrison. The constitutional status of a statutory framework similar to the independent counsel statute is thus subject to debate. Several bills introduced in the 116th Congress (including S. 71 and H.R. 197, which merge aspects of two preceding bills introduced in the 115th Congress, S. 1735 and S. 1741) would statutorily insulate a special counsel from removal, echoing aspects of the independent counsel statute's provisions. Whether such proposals would withstand constitutional challenge today might ultimately turn on the continued vitality of the analysis applied in Morrison.

GAO_GAO-19-197

Background Patient Record Matching Patient record matching is the process of comparing patient information in different health records to determine if the records refer to the same patient. This matching generally relies on the use of demographic information such as a patient’s name, date of birth (DOB), sex, Social Security number (SSN), or address, among other information. Many types of stakeholders can be involved in patient record matching. Examples of stakeholders include the following: Health care providers, such as physicians, hospitals, and their staffs may receive records from another provider that need to be matched to existing patient records. When treating a new patient, for example, a provider might obtain records from other providers that previously cared for the patient. Similarly, a provider caring for a patient with multiple chronic conditions (e.g., heart disease, diabetes) might obtain information from other providers that are also caring for the patient. The providers must ensure that the records they obtain from other providers are matched to the correct patient and therefore properly linked with the patient’s existing records. HIE organizations match patient records as part of their role in facilitating the electronic exchange of health information among hospitals, physicians, and other organizations. They can offer a range of services, such as allowing providers to access the medical records for a patient who has received care from other providers in the HIE organization’s network. They may also obtain information from hospitals when a patient is admitted or discharged, and they then notify the patient’s other providers when those events occur. In these cases, HIE organizations must accurately match records from multiple organizations to the correct patient. HIE organizations generally serve a specific state or region and match records among a network of local or state-wide providers and other entities; some, however, operate nationally. Health IT vendors also play a role in matching patient records. Some IT vendors, for example, provide record matching tools as part of their EHR systems; these tools allow providers to electronically search for patient records that are available from other providers that use the same IT vendor. Other IT vendors offer tools that allow providers or HIE organizations to leverage third-party data, such as credit-bureau data, when matching patients’ medical records. Importance of Accurate Patient Record Matching ONC and others have reported that the ability to accurately match patient medical records across different providers is a critical part of effective health information exchange, which can benefit patient care. For example, accurate record matching can help ensure that providers have current information about patients’ laboratory or other diagnostic test results; their medications; their diagnosed medical conditions, such as allergies; and their family medical histories. In contrast, when a patient’s records are not accurately matched, it can adversely affect the patient’s care. There are two ways in which records can fail to be accurately matched. Records for different patients are mistakenly matched. When medical records for different patients are mistakenly matched (known as a “false positive”), it can present safety and privacy concerns for patients. For example, a provider may inadvertently use information about the wrong patient, such as diagnoses or medication lists, to make clinical decisions. In addition, if the wrong patient’s medical information is added to a patient’s record, it could result in disclosure of that information to a provider or patient who is not authorized to view it. Records for the same patient are not matched. When medical records for the same patient are not matched (known as a “false negative”), it can affect patient care. For example, providers may not have access to a relevant part of the patient’s medical history—such as current allergies or prior diagnostic test results—which could help them avoid adverse events and also provide more efficient care, such as by not repeating laboratory tests already conducted. ONC Responsibilities and Patient Record Matching ONC leads federal efforts to promote interoperability, including setting requirements for the information that EHRs and other health IT systems should collect. ONC developed certification criteria for EHRs and other health IT systems that include the ability for health IT systems to capture and exchange various types of information, including clinical data such as information on patients’ allergies, as well as the patient’s name, sex, and date of birth. ONC also compiles an Interoperability Standards Advisory, which suggests certain standards that developers should incorporate into their products. Stakeholders Described Patient Record Matching Approaches and Associated Challenges Providers and HIE Organizations Described Using Both Manual and Automated Approaches to Patient Record Matching All seven provider representatives we interviewed described manual matching as one of the ways that they match patient records when exchanging health information with other providers. With manual matching, an individual reviews a medical record in order to match it to the correct patient. For example, an outpatient practice representative said that to match records that the practice receives by fax, a staff member must manually review information such as name and DOB to identify the correct patient and add the new information to the correct patient’s electronic record. All of the provider representatives we interviewed told us that they receive health records from other providers by fax. Six provider representatives told us they also use health IT tools to help automatically identify and match patients’ records stored in other data systems. These tools generally use algorithms that compare demographic data in a patient’s separate electronic records. For example, representatives from four of the six providers told us they used a module offered by their EHR system vendor to match records and exchange information with other providers that use the same vendor’s EHR systems. The module includes an algorithm that compares patients’ demographic information and, if the information in two or more records is identical or very similar, can automatically link the records. Automated matching can also involve some degree of manual review, as algorithms can identify potential matches by providing information about the likelihood that two records with similar information refer to the same individual. Afterwards, provider staff manually review the demographic information in the records and assess whether these potentially matching records should be linked as belonging to the same patient. Representatives from the five HIE organizations we spoke with said they use a range of automated and manual approaches to match patients’ records when exchanging information. Representatives from all five of the HIE organizations said that they use software with algorithms to locate and match records using demographic information provided by the providers in their networks. Though these HIE organizations’ algorithms vary, they all use name, sex, DOB, and address to match patients’ records. Representatives said that when the patients’ records contain similar but not identical demographic information, the HIE organizations rely on staff or additional software to review potential matches and determine whether the records belong to the same patient. For example, one HIE organization representative said that his organization leverages third-party data, such as credit databases that store past names or addresses, to update demographic information for records that cannot be matched automatically. When describing their approaches to patient record matching when exchanging information, six of the seven provider representatives said that they sometimes used HIE organizations to exchange and match records. However, none of them relied on HIE organizations as their primary way to match records and exchange health information. Five of the provider representatives we spoke with, including one provider that does not participate in an HIE organization, noted that they only exchange health information with a few providers. They explained that they were able to connect to these providers in ways other than through an HIE organization. According to stakeholders we interviewed, it is difficult to determine the accuracy of the health IT tools used to match patients’ medical records automatically. While the algorithms typically match records belonging to a patient and identify potential matches that need to be manually reviewed, users of these algorithms do not know how many matches the algorithm may have failed to make. These stakeholders expressed concern that it is not possible to assess the accuracy of algorithms without independent testing to identify matches that the algorithm may have missed. HHS stated that the proprietary nature of many patient matching algorithms makes it difficult to assess their effectiveness. Stakeholders Said That Inaccurate, Incomplete, and Inconsistently Formatted Data Can Pose Challenges for Patient Record Matching Representatives from providers, HIE organizations, and the other stakeholders we interviewed emphasized the importance of using quality patient demographic data when matching patients’ medical records. These stakeholders noted that inaccurate, incomplete, or inconsistently formatted demographic information in patients’ medical records can make it challenging to identify and match all the records belonging to a single patient. Figure 1 illustrates how the demographic information for a hypothetical patient can be recorded inaccurately, incompletely, and inconsistently across the patient’s providers. Stakeholders described the ways in which providers or their staff can collect inaccurate demographic information from patients. According to stakeholders, provider staff sometimes make transcription errors when entering information into electronic records, patients do not always provide correct information (e.g., they register with a nickname rather than a legal name), and patient demographic information can change, such as when a patient moves to a new address or changes her last name, but this information is not consistently updated in all of the patient’s medical records. Provider representatives identified several reasons that patients’ demographic information can be incomplete or contain different data elements across the medical records maintained by multiple providers. In particular, provider representatives explained that providers collect different information from their patients, and health IT systems can collect demographic data differently. Examples include the following: Two provider representatives said that their organizations do not collect patients’ SSN because many patients choose not to provide that information or the information is not available. However, other provider representatives said they do collect SSNs. A health IT vendor said that the algorithms in its software do not rely on SSN as a key factor for matching records because SSN is not consistently available. One provider representative explained that the IT system used by the provider’s laboratory does not contain fields for the same demographic information that the provider’s EHR system contains. As a result, laboratory results often contain too little information to reliably match records, even if the tests were ordered using complete information. One provider representative explained that they do not collect patients’ mothers’ maiden names, though other organizations collect and use this information for patient matching. According to stakeholders, the inconsistencies in formatting across medical records can reflect differences in health IT systems or the policies of the health care organization creating the records: A 2014 ONC report noted that one health IT system may list addresses in a single field, while another may separate street names from the city and state. A 2018 report noted that providers use different standards for recording names with spaces, hyphens, or apostrophes, and that some health IT systems include special characters in phone numbers (i.e., (123) 456-7890), whereas others only allow for numbers (i.e., 1234567890). Representatives from one HIE organization explained that providers handle missing data for fields differently; for example, one provider may enter all 9s into an SSN field when it is not available for a patient and another will enter all 0s. Provider representatives and other stakeholders identified some patient populations for which matching is particularly challenging, due in part to data issues. Three provider representatives said that medical records for newborns often contain temporary names that are not updated with the child’s legal name after it is determined, which makes it difficult to locate these records. Further, provider representatives and other stakeholders said that multiple births (e.g., twins) result in record matching challenges, as these children can have the same DOB and address, and may be named similarly. A few provider representatives said that records can be inaccurate across providers for patients from certain nationalities. For example, according to stakeholders, some east-Asian cultures use the “family name” as the first name, and some Hispanic cultures use multiple last names. Another provider representative said that a few times a month, a transgender patient’s photo ID lists the wrong gender, yet the organizational policy is to record the gender exactly as it appears on a state-issued photo ID. Stakeholders Identified Efforts Underway to Improve Patient Record Matching as Well as Additional Efforts ONC and Others Could Undertake Stakeholders Have Undertaken Efforts to Improve the Demographic Data and Methods Used to Match Records Officials from ONC, selected provider representatives, and other stakeholders we interviewed described a variety of efforts they have undertaken or are currently undertaking to improve the ability to match patients’ medical records accurately. In general, these efforts focus on improving demographic data and improving the methods used for matching. These efforts are discussed in more detail below. Efforts to Improve Demographic Data Used for Matching ONC has reported that quality demographic data is important for effectively matching patients’ medical records, and in 2017 the agency published the Patient Demographic Data Quality Framework. The Framework is a tool to help providers and other organizations assess their processes for managing data quality and improve the quality of the demographic data they use in matching. It includes, for example, questions that providers can use to identify any gaps in how they manage their demographic data. In 2016, before ONC published the Framework, the agency began a pilot study to assess how the Framework could work in a clinical setting. As part of this pilot study, ONC provided training on demographic data quality to staff from two community health centers, during which it shared best practices for collecting these data. After the training, researchers who collaborated on the pilot with ONC found that there were improvements at the community health centers in indicators of how they managed data quality. According to ONC officials, this pilot highlighted the effect that data quality and training have on effective patient record matching. In addition, officials said it underscored difficulties in implementing data quality improvement efforts when health care organizations have limited resources and high staff turnover. ONC officials plan to issue a final report on the pilot study; however, they said ONC is not currently planning to assess the impact of the Framework or to conduct future studies on how it works in clinical settings. Several stakeholders told us they have worked to improve the consistency with which they record and format demographic data in their EHRs. According to ONC officials and hospital representatives, as well as other stakeholders with whom we spoke, implementing common standards for how certain demographic data should be formatted—such as names and addresses—could improve the consistency of data across providers and thus make it easier to match records. Representatives from four hospitals told us that they collaborated with other providers in their regions to implement common standards for recording patients’ demographic data. They told us the following: In 2017, 23 providers in Texas reached agreement on, and then implemented, standards for how staff should record patients’ names, addresses, and other data in order to improve record matching and facilitate health information exchange. We spoke with representatives from three hospitals that were part of this effort, who all told us that the effort resulted in an increased ability to accurately match patients’ medical records automatically without the need to manually review the records. (See text box.) For example, representatives from one hospital said that when patient records are not matched automatically or when there are questions about the accuracy of record matching, staff must then conduct a manual review to resolve the issue. They said that they have seen a significant decrease in the need for those manual reviews since implementing the data standards. Representatives from all three hospitals estimated that the amount of manual review to resolve matching issues and match incoming records to the right patient had decreased by about 90 percent. Representatives from one hospital added that they are now better able to prevent records from being matched to the wrong patient. One children’s hospital in California worked with other local hospitals in recent years to implement a standard for how staff should record a temporary name for newborns who do not have their own name at birth. According to representatives from this hospital, after implementing this standard, clinical staff are able to more easily match patients’ records and therefore have access to real-time information on the care newborns received in other hospitals. Lessons Learned from One Regional Effort to Standardize Patient Demographic Data across Multiple Providers In 2017, 23 providers in Texas implemented agreed-upon standards for capturing patient name, address, and other data. Representatives from three participating hospitals shared with us lessons for others interested in standardizing data, such as: Allow sufficient time to get buy-in from staff and test for any downstream effects on Communicate the benefits of standardizing data to clinical and administrative staff; and Train staff on how to enter data, and then assess compliance to identify any opportunities for improvement. In a related 2017 effort, Pew Charitable Trusts sponsored a study to measure how standardizing specific types of patient demographic data could improve patient record matching. As part of this study, researchers used four data sets to test the effect that standardizing patient names, addresses, DOBs, telephone numbers, and SSNs had on record matching accuracy. As of September 2018, the full findings from this study had not been published; however, according to Pew, the findings indicated that standardizing some demographic data, such as address, shows promise for increasing the likelihood that patients’ records will be matched. Two stakeholders we spoke with have examined ways to boost patients’ ability to electronically share data with their providers using smartphone applications or other tools. According to these stakeholders, these types of tools could improve the accuracy of the demographic data providers receive from patients, reduce manual data entry errors by providers’ staff, and allow patients to update their information as changes occur, such as if they move. In 2015, the Workgroup for Electronic Data Interchange (WEDI) initiated a “Virtual Clipboard” project to explore the development of a mobile tool to automate the transmission of demographic, insurance, and clinical information to providers. WEDI representatives told us that they had engaged with stakeholders such as providers, vendors, patient advocates, and health plans about the potential benefits of such a tool, but had not yet identified organizations prepared to move forward with developing specific applications. In 2017, Pew Charitable Trusts funded a RAND study on “patient- empowered” patient record matching approaches—specifically, to identify ways that patients could play an additional role in patient record matching and to select a promising solution for further development. In its August 2018 report, RAND proposed a solution in which patients could verify their mobile phone number and other identifying information with providers and then use a smartphone application to share this information with providers. Representatives from both WEDI and Pew told us that, when developing these types of tools, it is important to consider the practical implications for the providers that would need to be able to accept data in this way. For example, Pew representatives said that it would be important to understand whether these tools present any workflow challenges in provider settings, such as with any IT tools that providers would need to access the data stored via smartphone applications, or with the steps needed to incorporate that data into their EHR systems. Representatives from both organizations also noted that not all patients would be willing or able to use these types of tools to share data with providers. In addition, RAND reported on a range of security considerations for these types of tools. For example, RAND noted that a smartphone app that gathers health data—like its proposed patient matching solution—would introduce risk because it would contain private demographic and health information and would therefore be a target for individuals looking to steal data. Assessing and Improving Matching Methods Officials from ONC and other stakeholders described various efforts to assess and improve the effectiveness of the methods used in matching patients’ medical records. These efforts include hosting competitions, conducting studies, and issuing guidance. For example, ONC officials described the following two efforts to improve patient record matching methods: In 2017, ONC held a Patient Matching Algorithm Challenge in which participants competed to develop an algorithm that most accurately matched patient records in a test data set. According to ONC officials, the goals of the exercise were to bring about greater transparency on the performance of existing patient record matching algorithms, spur the adoption of performance metrics for algorithm developers, and improve other aspects of patient record matching, such as resolving duplicate patient records. Over 140 teams used varying methods to match patient records using an ONC-provided test data set, and ONC selected six winning submissions based on various measures of matching accuracy. As of July 2018, ONC was analyzing data from the challenge to learn more about algorithm performance. Officials told us that the challenge highlighted limitations of commonly used matching algorithms and demonstrated that extensive manual review is often needed to accurately match patients’ medical records. ONC officials told also us they plan to publish a report on their analysis of the challenge data. In 2017, ONC also conducted a patient record matching Gold Standard and Algorithm Testing pilot study. According to ONC officials, there is no widely used standard for assessing the accuracy of patient record matching algorithms, so the pilot was intended to create a data set with known duplicate records (that is, multiple records for the same individual) and then use it to evaluate how well a commonly-used algorithm matched those records. ONC officials told us that the pilot demonstrated how much effort is needed to evaluate the matching algorithms providers and others use, as well as the importance of using standard metrics to assess matching accuracy. ONC expects to issue a final report on the results of the study. Among the examples other stakeholders described were the following efforts to improve patient record matching methods: In 2018, the Sequoia Project published A Framework for Cross- Organizational Patient Identity Management to provide guidance to help providers and other types of health care entities improve patient record matching across organizations. The report, for example, suggests ways organizations can improve their matching algorithms, and it identifies practices that organizations can use to improve how they use patient demographic data and other information when matching records. Representatives from the Sequoia Project told us they plan to speak with organizations that have voluntarily adopted this guidance to learn how doing so affects record matching. These representatives also said they are looking into how ONC’s Patient Demographic Data Quality Framework relates to their own framework, as it may be beneficial if there were a way to link these two efforts. HHS’s Agency for Healthcare Research and Quality funded a study that began in 2017 to evaluate patient record matching approaches, with the goal of identifying different approaches to improving the accuracy of patient record matching algorithms. As part of this ongoing study, researchers are measuring how different changes to matching methods—including changes that have and have not been recommended or evaluated previously—improve matching accuracy. The study is expected to run through 2022. According to researchers, their initial work tested the use of different combinations of demographic data elements, among other things. They identified a modest improvement in the accuracy of matching algorithms, and determined that further research was needed. In 2016, CHIME sponsored a National Patient ID Challenge that offered a monetary award for the development of a tool that matched patients’ medical records with 100 percent accuracy. Although the challenge was not specific to matching patient records across providers, several CHIME members who were involved with the challenge told us that they hoped to identify a patient record matching approach that could be widely adopted and easily integrated into existing EHR and HIE platforms without significant cost. They noted the challenge also was an opportunity to encourage organizations to develop effective matching methods, and to identify a matching method that did not rely solely on demographic patient information. CHIME assessed submissions from a range of organizations, but suspended the challenge in November 2017, reporting that the effort did not achieve the results it had sought. CHIME members said that the challenge nonetheless helped draw attention to patient record matching issues. In addition, several stakeholders have worked to improve the matching of medical records specifically for newborns and multiple-birth siblings such as twins, for whom matching can be particularly challenging: Representatives we spoke with from one children’s hospital told us they have implemented indicators in their EHR to highlight when a child has a twin or other multiple-birth sibling, so that staff know that another child has similar demographic information. Representatives said that this helps prevent medical records from one child being incorrectly matched with the medical records of a sibling. In 2017, this hospital began working with its health IT vendor to explore the broader use of a multiple birth indicator to improve the probability of accurate matching for the multiple birth population between different vendors’ EHRs. The representatives said that while there is a standard indicator that can be used for multiple births, many organizations are not aware of it. In addition, one researcher we spoke with is studying how using information such as physicians’ names and parents’ demographic data could help address record matching challenges for newborns. As noted earlier, one children’s hospital worked with other local hospitals to implement a standard for how staff record a temporary name for newborns. Stakeholders Identified Additional Efforts That ONC or Others Could Undertake to Improve Patient Record Matching Stakeholders we spoke with said more could be done to improve the ability to accurately match patients’ medical records. The stakeholders identified several efforts that could improve matching, and had varying views on the roles ONC and others should play in these efforts. Among the examples of efforts stakeholders identified that could improve matching were implementing common standards for demographic data; developing a data set to test the accuracy of matching methods; sharing best practices and other resources; implementing a national unique patient identifier; and developing a public-private collaboration effort to improve patient record matching. Multiple stakeholders noted that no single effort would be sufficient to improve matching, given the factors that contribute to matching challenges. These potential additional efforts are described below. Implementing Common Standards for Recording Patients’ Demographic Data in Health IT Systems Several stakeholders told us that implementing common standards for recording patients’ demographic data in health IT systems could improve the ability of providers to match patients’ medical records. Stakeholders said that if providers implemented such standards, it could increase the extent to which they collect the same types of demographic data or use the same format for names and addresses as other providers, for example. However, stakeholders had differing views on how to reach agreement on and implement common standards among providers, as well as how feasible it would be to do so. Some said it would be helpful if ONC established requirements regarding demographic data—such as the types of data collected, and how it is formatted—potentially through the EHR certification process. In contrast, other stakeholders saw an opportunity for industry organizations to voluntarily agree to implement standards for demographic data. Some stakeholders advocated for EHR vendors to take steps to standardize the data their products allow providers to collect. A representative with one hospital said that having demographic data standards built into EHRs could minimize the amount of time needed to train staff on how to format the data they collect—and then to monitor whether they format the data correctly. A number of stakeholders said that ONC could play a role in getting industry groups to agree on and implement common data standards. ONC officials noted that as part of their role in coordinating health IT efforts, they have worked with industry groups in a number of ways and expect to continue their coordination efforts. Some stakeholders we spoke with told us that efforts to implement common demographic standards could face challenges, such as the following: Several said it could be difficult to reach consensus across various industry organizations on what standards to adopt and implement. Multiple stakeholders noted that patient preferences could affect the effectiveness of efforts to standardize data. Patients might not always be willing to provide some types of data even if providers wanted to collect it. For example, one provider noted that patients may want to use their middle name instead of their legal name. Some stakeholders said it could be time-intensive for providers to train their staff on how to collect data in accordance with standards, or that staff might not always follow the standards. For example, a representative from one hospital that implemented demographic standards told us that they continuously train staff and perform audits to ensure that staff follow those standards. Some said that EHR systems differ in how they allow staff to record demographic data, which can affect providers’ ability to implement standards. Some stakeholders said it can be costly for providers to update or upgrade their EHRs. Stakeholders cited other potential limitations of data standardization efforts. Several, for example, said that standardizing data would not prevent inaccurate or outdated data. In addition, some stakeholders did not think that data standardization would yield significant improvements. Developing a Data Set to Test the Accuracy of Methods Used to Match Patients’ Medical Records Several stakeholders told us that developing a standard data set that organizations could use to evaluate matching methods would be helpful. Stakeholders noted that such a data set would allow health IT vendors, providers, or others to assess matching methods independently (instead of relying on vendors’ reported accuracy rates, for example) and in a standardized way (by using the same data source). While stakeholders did not always specify who should develop such a data set, an official from one stakeholder involved with patient record matching and data sharing efforts said that the most useful thing ONC could do to address patient record matching would be to develop a master data set to allow testing in a uniform way. This official added that without a way to accurately and uniformly test patient record matching methods, efforts to improve patient record matching are hindered. A number of stakeholders did not specifically mention the utility of a data set, but nonetheless highlighted the importance of testing how well matching methods work. For its part, ONC officials said that the lack of a data set for evaluating matching methods is a challenge to efforts to improve matching, and that developing such a data set would be difficult. They noted that the agency’s 2017 Patient Matching Algorithm Challenge had highlighted the difficulties of creating a test data set that closely mimics real world patient data and that could be used to assess the accuracy of matching algorithms. ONC officials cited a number of challenges to developing one test data set for assessing a range of patient matching algorithms. For example, they said the data set would need to be very large; would require an extensive and expensive effort to develop; could be difficult to implement from a practical perspective; and that, because data varies widely across patient populations and organizations, might have limited application for assessing algorithms that are designed to match specific data sets. HHS also stated that the development of a data set would need to include a “key” of known duplicate patient records—that is, an indicator of which records in the data set should be matched to the same individual. Sharing Best Practices and Other Resources Used in Matching Patients’ Medical Records According to a number of stakeholders we spoke with, more could be done to encourage the sharing of best practices and other patient record matching resources. For example, representatives from some HIEs said it would be beneficial to bring organizations together to share lessons learned and collaborate on best practices for using patient data to match records. Representatives from one industry association noted that disseminating information on patient matching errors could help organizations better understand the extent of matching errors and what causes them; for example, if information were shared about whether certain data elements are more likely to cause matching errors or problems, then organizations could work to prevent the errors or problems related to those data elements. A few stakeholders said that efforts to identify and share effective matching algorithms could expand resources to a broader range of providers. While stakeholders did not always specify who they thought should identify and share matching resources, several stakeholders saw the potential for ONC to play a role in these types of efforts. For example, representatives from one industry association said that ONC could provide information about the types of identifiers that could be used to facilitate matching, such as cell phone numbers or driver’s license numbers. These representatives also said that ONC could provide information on how to address matching patient records for children and other individuals who might not have those types of identifiers. ONC officials noted that they have shared information and resources about patient matching in a number of ways, such as through the agency’s Patient Demographic Data Quality Framework. They added that other organizations, such as the Sequoia Project and Pew Charitable Trusts, have worked to communicate best practices in this area. Implementing a National Unique Patient Identifier A number of stakeholders noted that implementing a new national, unique patient identifier specifically for use in health care settings could improve the ability to match patients’ medical records. For example, having a new unique number assigned to an individual would reduce the reliance on demographic data for record matching, according to several stakeholders. However, stakeholders had differing views on the potential benefits and feasibility of implementing a new unique patient identifier for health care: Some stakeholders said that it is unlikely that any new identifier could be implemented nationwide; they cited reasons such as the prohibition on federal funds being used to develop a national unique health care identifier, as well as potential privacy concerns. Multiple stakeholders cited potential limitations to using a national patient identifier, noting for example that—as with SSNs—patients may not be willing to share their identifier, and identifiers could still be subject to manual data entry errors, data breaches, or fraud. Some stakeholders said that a unique identifier would be the most effective way to improve matching. However, others said they did not believe a new identifier was needed, or did not think a new identifier would significantly improve matching, given the potential limitations. HHS stated that health care systems currently rely on a number of identifiers to match patient records and that a new government- generated identifier would improve matching only if other technical and non-technical challenges were solved before it was implemented. The creation, transmission, and capture of a single national patient identifier across many systems could take decades and would encounter implementation difficulties, according to HHS. In addition, a few stakeholders said that patients might be willing to voluntarily obtain a unique identifier to use across health care settings if one were available. A representative from one provider association, for example, said that people with chronic conditions who obtain care from multiple providers might opt to obtain a unique identifier, if available, to help match their records. In its 2018 report on patient-empowered approaches to matching, RAND described various considerations for implementing a voluntary unique identifier issued by a non-federal entity. The report cited, for example, one organization’s work to develop a tool to allow health care providers to offer patients a unique identifier. RAND stated that although this solution would greatly improve matching if adopted, there is uncertainty that providers or patients would adopt it. Representatives from the organization that developed this tool told us that they had tested it in one location, but that it had not yet been adopted by providers. Developing a Public-Private Collaboration Effort to Improve Patient Record Matching Multiple stakeholders we spoke with saw a need for a collaborative public-private effort to help identify and implement efforts to improve patient record matching. For example, several stakeholders saw a specific need for a national strategy or approach for addressing patient record matching issues. Representatives from the Pew Charitable Trusts, for example, stated that a national strategy—led by the private sector, with the federal government providing support—could help reach consensus on ways to improve matching. In addition, one researcher said that ONC should help facilitate a strategy for addressing patient record matching at the provider, vendor, and national levels—and that it would be beneficial for ONC to foster collaboration among private sector organizations to address matching issues. More generally, representatives from several provider associations stated that ONC could play an important role by convening stakeholders to identify ways to improve patient record matching. As noted earlier, some stakeholders said that ONC could help industry groups agree on common data standards for EHRs. While some stakeholders we spoke with said that ONC should collaborate by supporting private-sector efforts to improve matching instead of directing those efforts, others said that ONC could potentially play more of a leadership role. Representatives from one HIE, for example, said that ONC could lead an overall effort to improve patient record matching and that private-sector organizations could lead specific actions within that larger effort. For their part, ONC officials said that public and private stakeholders should play a role in efforts to improve patient record matching. According to ONC officials, while the agency does not have sufficient resources to support broad implementation of efforts to improve patient record matching, ONC has collaborated with other stakeholders on various patient record matching issues. ONC’s August 2018 Interoperability Forum included a “patient matching track” where industry stakeholders, such as providers, health IT vendors, and researchers, discussed matching challenges and potential solutions. According to ONC officials, this track covered topics such as patient-empowered solutions to matching, including smartphone applications; issues when matching patient medical records across organizations; the development of consensus on patient matching definitions and metrics; and issues when matching records for pediatric patients. The outcomes of this track, according to ONC officials, were increased awareness of a range of patient matching issues; information sharing among speakers and participants; and an opportunity to network and potentially collaborate with individuals on patient matching issues. ONC officials told us that a takeaway for them was that while various approaches to patient matching—including technical approaches such as biometrics and referential matching; efforts regarding unique identifiers; and non- technical approaches such as data quality improvement efforts—may enhance the capacity for matching, additional research is needed. ONC participated in the Sequoia Project’s development of that organization’s Framework for Cross-Organizational Patient Identity Management. During the 2018 Interoperability Forum, ONC officials and Sequoia Project representatives presented together about developing consensus on patient record matching definitions and metrics. They discussed definitions outlined in the Framework and encouraged participants to work toward consensus and transparency when measuring and reporting matching metrics, such as by forming local and national workgroups, ONC officials said. Looking forward, ONC and some stakeholders said that the agency’s current effort to establish a national framework for exchanging health information electronically is an opportunity for the agency to address patient record matching challenges. As required by the 21st Century Cures Act, ONC is taking steps to develop or support a framework for ensuring the full exchange of health information among health information networks. ONC has referred to this effort as establishing a “network of networks,” and it includes the development of a common agreement among health information networks nationally, which providers and others can use to facilitate the exchange of electronic health information, including patients’ health records. As part of this effort, in January 2018, ONC issued a draft Trusted Exchange Framework that included principles for the trusted exchange of information, as well as minimum required terms and conditions for the Common Agreement. ONC plans to provide funding for an industry entity to incorporate these terms and conditions into a single Common Agreement that participating Qualified Health Information Networks (QHIN) and their participants voluntarily agree to adopt. While it is too soon to tell how this ONC effort will be implemented, several stakeholders said that it could potentially improve patient record matching if, for example, it results in new guidance or standards about demographic data elements. One HIE organization, for example, said that it would be beneficial if this effort leverages non-governmental work on matching and synthesizes this work into guidance for the industry. According to ONC officials, the framework is expected to affect patient record matching by requiring participating QHINs to use ONC’s Patient Demographic Data Quality Framework to evaluate their data practices. The agency plans to release a second draft Trusted Exchange Framework and then release a draft Common Agreement and an updated Trusted Exchange Framework for public comment. Agency Comments We provided a draft of this report to HHS for review and comment. HHS provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Health and Human Services, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Appendix I: GAO Contact and Staff Acknowledgments GAO Contact Jessica Farb, (202) 512-7114 or [email protected]. Staff Acknowledgments In addition to the contact named above, individuals making key contributions to this report include Thomas Conahan (Assistant Director), Robin Burke (Analyst-in-Charge), A. Elizabeth Dobrenz, Krister Friday, Monica Perez-Nelson, Vikki Porter, and Andrea Richardson.

Health care providers are increasingly sharing patients' health records electronically. When a patient's records are shared with another provider, it is important to accurately match them to the correct patient. GAO and others have reported that accurately matching patient health records is a barrier to health information exchange and that inaccurately matched records can adversely affect patient safety or privacy. At the federal level, ONC is charged with coordinating nationwide efforts to implement and use health IT. The 21st Century Cures Act included a provision for GAO to study patient record matching. In this report, GAO describes (1) stakeholders' patient record matching approaches and related challenges; and (2) efforts to improve patient record matching identified by stakeholders. To do its work, GAO reviewed reports by ONC and others about patient record matching. GAO also interviewed various stakeholders that play a role in exchanging health records, including representatives from physician practices, hospitals, health systems, health information exchange organizations, and health IT vendors. GAO also interviewed other stakeholders, such as ONC officials, provider and industry associations, and researchers. GAO selected stakeholders based on background research and input from other stakeholders, and interviewed 37 stakeholders in total. The information from stakeholders is not generalizable. HHS provided technical comments on a draft of this report, which GAO incorporated as appropriate. Stakeholders GAO interviewed, including representatives from physician practices and hospitals, described their approaches for matching patients' records—that is, comparing patient information in different health records to determine if the records refer to the same patient. Stakeholders explained that when exchanging health information with other providers, they match patients' medical records using demographic information, such as the patient's name, date of birth, or sex. This record matching can be done manually or automatically. For example, several provider representatives said that they rely on software that automatically matches records based on the records' demographic information when receiving medical records electronically. Stakeholders said that software can also identify potential matches, which staff then manually review to determine whether the records correspond to the same patient. Stakeholders also said that inaccurate, incomplete, or inconsistently formatted demographic information in patients' records can pose challenges to accurate matching. They noted, for example, that records don't always contain correct information (e.g., a patient may provide a nickname rather than a legal name) and that health information technology (IT) systems and providers use different formats for key information such as names that contain hyphens. Stakeholders GAO interviewed identified recent or ongoing efforts to improve the data and methods used in patient record matching, such as the following: Several stakeholders told GAO they worked to improve the consistency with which they format demographic data in their electronic health records (EHR). In 2017, 23 providers in Texas implemented standards for how staff record patients' names, addresses, and other data. Representatives from three hospitals said this increased their ability to match patients' medical records automatically. For example, one hospital's representatives said they had seen a significant decrease in the need to manually review records that do not match automatically. Stakeholders also described efforts to assess and improve the effectiveness of methods used to match patient records. For example, in 2017 the Office of the National Coordinator for Health Information Technology (ONC) hosted a competition for participants to create an algorithm that most accurately matched patient records. ONC selected six winning submissions and plans to report on their analysis of the competition's data. Stakeholders said more could be done to improve patient record matching, and identified several efforts that could improve matching. For example, some said that implementing common standards for recording demographic data; sharing best practices and other resources; and developing a public-private collaboration effort could each improve matching. Stakeholders' views varied on the roles ONC and others should play in these efforts and the extent to which the efforts would improve matching. For example, some said that ONC could require demographic data standards as part of its responsibility for certifying EHR systems, while other stakeholders said that ONC could facilitate the voluntary adoption of such standards. Multiple stakeholders emphasized that no single effort would solve the challenge of patient record matching.

GAO_GAO-19-120T

Background DOD has reported that more than a decade of conflict, budget uncertainty, and reductions in force structure have degraded military readiness; in response, the department has made rebuilding the readiness of the military forces a priority. The 2018 National Defense Strategy emphasizes that restoring and retaining readiness across the entire spectrum of conflict is critical to success in the emerging security environment. Nevertheless, DOD reported readiness of the total military force remains low and has remained so since 2013. Our work has shown that Air Force readiness, in particular, has steadily declined due to a persistent demand for forces, a decline in equipment availability and experienced maintenance personnel, the effect of high deployment rates on units’ ability to conduct needed training, and a smaller inventory of aircraft. DOD has made department-wide progress in developing a plan to rebuild readiness of the military force. In August 2018, we reported that the Office of the Secretary of Defense has developed a Readiness Recovery Framework that the Department is using to guide the military services’ efforts and plans to regularly assess, validate, and monitor readiness recovery. According to officials, the Office of the Secretary of Defense and the military services are currently revising readiness goals and accompanying recovery strategies, metrics, and milestones to align with the 2018 National Defense Strategy and Defense Planning Guidance. However, additional work remains to ensure that the actions DOD is taking will ultimately achieve overall readiness goals. DOD’s readiness rebuilding efforts are occurring in a challenging context that requires the department to make difficult decisions regarding how best to address continuing operational demands while preparing for future challenges. An important aspect of this, across all of the military services, is determining an appropriate balance between maintaining and upgrading legacy weapon system platforms currently in operational use and procuring platforms able to overcome rapidly advancing future threats. Air Force leaders have stated that striking such a balance is exceptionally difficult. While each of the military services, including the Air Force, must grapple with these choices, senior leaders have called for immediate readiness rebuilding with particular focus on aviation. In a memorandum on September 17, 2018, the Secretary of Defense noted that DOD faces shortfalls in aviation squadrons across the force with the aviation inventory and supporting infrastructure suffering from systemic underperformance and unrealized capacity. In order to focus on meeting DOD’s most critical priorities first, the Secretary of Defense emphasized the need to rebuild readiness. As such, the Secretary directed the Air Force to achieve a minimum of 80 percent mission capable rates for fiscal year 2019 for the F-35, F-22, and F-16, while simultaneously reducing these platforms’ operating and maintenance costs every year starting in fiscal year 2019. Air Force Faces Several Interrelated Management and Readiness Challenges Our prior work has identified management and readiness challenges in four interrelated areas—personnel, equipment, training, and organization and utilization, and we have made recommendations to help the Air Force address rebuilding the readiness of its existing fleet. Personnel: Pilot and Aircraft Maintainer Shortfalls Have Impeded Readiness Recovery The Air Force has reported that manpower shortfalls, particularly among skilled pilots and maintainers, are a primary challenge to rebuilding readiness. As we have previously reported, developing fighter pilots requires a significant investment of time and funding. According to Air Force officials, a fighter pilot requires approximately 5 years of training to be qualified to lead flights, at a cost of between about $3 million to $11 million depending on the specific type of aircraft. In April 2018, we reported that according to Air Force pilot staffing level and authorizations data for fiscal years 2006 through 2017, the Air Force had fewer fighter pilots than authorizations for 11 of those 12 years (see fig. 1). This gap grew from 192 fighter pilots (5 percent of authorizations) in fiscal year 2006, to 1,005 (27 percent) in fiscal year 2017. According to briefing documents prepared by the Air Force, this gap was concentrated among fighter pilots with fewer than 8 years of experience. The Air Force forecasted that the fighter pilot gap will persist over time, even as the Air Force takes steps to train more fighter pilots and improve retention. Air Force officials identified multiple factors that led to low numbers of fighter pilots. For example, the military services trained fewer fighter pilots than targeted over the last decade. In fiscal years 2007 through 2016, the Air Force trained 12 percent fewer new fighter pilots than the targeted amount. In our April 2018 report, we found that the military services had not reevaluated squadron requirements to reflect increased fighter pilot workload and the emergence of unmanned aerial systems. Fighter pilots and squadron leaders from each of the military services we interviewed at the time consistently told us that the fighter pilot occupation has significantly changed in recent years due to changes in fighter aircraft tactics and technology, additional training requirements, and the removal of administrative support positions from squadrons. Without updating squadron requirements to reflect this growing administrative burden on fighter pilots, the currently identified differences between fighter pilot numbers and authorizations may be understated. By contrast, without updating future fighter pilot requirements to take into account changing roles and missions—in particular the increasing role of unmanned aerial systems in combat operations—forecasted fighter pilot gaps may be overstated. In short, we concluded that reevaluating fighter pilot requirements is a key first step to help the military services, including the Air Force, clearly determine the magnitude of the gaps and target strategies to meet their personnel needs. In our April 2018 report, we recommended that the Air Force reevaluate fighter pilot squadron requirements to ensure it has the pilots necessary for all missions. DOD concurred with this recommendation. The Air Force is also trying to manage a shortage of aircraft maintainer personnel—both uniformed personnel and depot civilians. In September 2018, we found that the Air Force reported losing experienced maintainers, either to retirement or to other programs such as the F-35 Lightning II (F-35). For example, we reported that the Air Force’s C-17, which is a long-range, heavy logistics transport aircraft, requires depot modifications to keep it viable, but there was a shortage of depot maintainer personnel due to attrition, inability to retain skilled workers, and hiring freezes. The Air Force has several initiatives underway, including hiring additional maintainer personnel and temporarily transitioning active-duty maintenance units from some legacy aircraft. As of August 2018, the Air Force had requested an increased end strength of 8,000 personnel to fill critical personnel needs in maintenance and pilots. Officials stated that progress was being made in increasing end strength and hiring additional personnel, which should address these challenges. However, according to Air Force officials, it may take several years before newly hired maintainer personnel will have the training and experience they need to improve aircraft availability rates. We have work underway to examine the Air Force’s management of its aircraft maintainer workforce and DOD depot skill gaps and plan to report on these issues over the next 6 months. Equipment: Aircraft Availability Has Been Limited by Aging Aircraft, Costly Maintenance, and Diminished Supply Support Air Force aircraft availability has been limited by challenges associated with aging aircraft, maintenance, and supply support. According to the Air Force, the average age of the fleet is 28 years. The average ages of the B-52 strategic bomber and the KC-135 tanker each exceed 50 years, and the Air Force expects to continue to use these aircraft for decades. The Air Force spends billions of dollars each year to sustain its fixed-wing aircraft fleet—comprised of both legacy and new aircraft—which needs expensive logistics support, including maintenance and repair, to meet its availability goals. We reported in September 2018 that from fiscal year 2011 through 2016, the Air Force generally did not meet aircraft availability goals while it continued to accrue increased maintenance costs. Figure 2 summarizes the sustainment challenges we reported that face selected Air Force aircraft. Sustainment challenges are not just an issue for older aircraft, but represent an enduring challenge for the Air Force. The F-35—which is intended to replace a variety of legacy fighter aircraft in the Air Force and more broadly represents the future of tactical aviation for DOD—has projected sustainment costs of over $1 trillion over a 60-year life cycle. In October 2017, we reported that DOD’s projected operating and support costs estimate for the F-35 rose by 24 percent from fiscal year 2012 to fiscal year 2016 and are not fully transparent to the military services. In October 2017, we also reported that the F-35 fleet faced sustainment challenges that pose risks to its ability to meet current and future warfighter readiness requirements. The Air Force planned to procure more than 1,700 F-35 aircraft and, as the largest participant in the F-35 program, its readiness could be disproportionately affected by the sustainment challenges facing this program. In particular, DOD’s capabilities to repair F-35 parts at military depots were 6 years behind schedule, which resulted in average part repair times of 172 days—twice that of the program’s objective. These repair backlogs have contributed to significant F-35 spare parts shortages—from January to August 7, 2017, F-35 aircraft were unable to fly 22 percent of the time because of parts shortages. As a result, the Air Force had generally not met its aircraft availability goals for its fielded F-35 aircraft (See fig. 3 for Air Force personnel performing maintenance on the F-35). Our work has shown that these challenges are largely the result of sustainment plans that do not fully include key requirements or timely and sufficient funding. In our October 2017 report, we recommended, among other things, that DOD revise sustainment plans to ensure that they include the key requirements and decision points needed to fully implement the F-35 sustainment strategy and align funding plans to meet those requirements. DOD concurred with this recommendation and DOD officials report that they are focusing actions and resources toward achieving key production, development and sustainment objectives by 2025. In addition, the conference report accompanying a bill for fiscal year 2019 defense appropriations directed a higher appropriation amount for the Air Force’s aircraft procurement than DOD requested in its budget. This appropriation may create more demand on the already strained sustainment enterprise for which DOD has not always provided timely funding (for example, funding for spare parts). Training: Units Are Challenged To Achieve Full Spectrum Readiness The Air Force has identified the need to ensure a full-spectrum capable force that can successfully perform missions addressing a broad range of current and emerging threats; however, the Air Force has had difficulty training for full spectrum readiness. For more than a decade, the Air Force focused its training on supporting operations in the Middle East, including Iraq and Afghanistan. Commanders established training requirements that they deemed necessary to prepare aircrews to conduct missions in these locations—such as close air support-to-ground forces— limiting training for other missions. In September 2016, based on our analysis of data on the completion of annual training, we found that combat fighter squadrons were generally able to complete mission training requirements for ongoing contingency operations, but were unable to meet annual training requirements across the full range of missions. Wing and squadron commanders we interviewed at the time cited several common limitations related to the challenges discussed in this testimony that affected the ability of their squadrons to complete training across the full range of missions including the maintenance unit’s ability to provide adequate numbers of aircraft for training, adversary air tasking, and manpower shortfalls in the squadrons. We also reported in September 2016 that F-22 and F-35 squadrons faced training range limitations. F-22 squadron commanders told us that the airspace available limits their ability to train for their more complex missions, including offensive counter air and defensive counter air missions. Additionally, the commanders we interviewed at the time for squadrons flying F-22 and F-35 aircraft told us that limits in training range capabilities, such as threat replicators and targets, affected the training completed at smaller regional training ranges, as well as at larger training ranges such as the Utah Test and Training Range and the Nevada Test and Training Range. According to these officials, the training ranges lacked many of the more advanced threat replication systems that can challenge F-35 and F-22 capabilities and provide effective training across their full range of missions. The 2018 National Defense Strategy cites, as the department’s principal priority, the need to prepare for threats from advanced adversaries due to the magnitude of the threat they pose. Further, the Air Force reports that it will confront an increasingly complex security environment in the coming years that will demand a wider range of skill sets and different capabilities than are currently being employed. For example, aircrews may be called upon to conduct missions that require freedom of maneuver in highly-contested air spaces. However, in our September 2016 report, we found that the Air Force has used the same underlying assumptions to establish its annual training requirements from 2012 through 2016, which may not reflect current and emerging training needs. Specifically, the total annual live-fly training sorties by aircraft, the criteria for designating aircrews as experienced or inexperienced, and the mix between live and simulator training remained the same from 2012 through 2016. We concluded that without fully reassessing the assumptions underlying its training requirements, the Air Force could not be certain that its annual training plans are aligned with its stated goals to ensure a full-spectrum capable force that can successfully achieve missions across a broad range of current and emerging threats. We recommended that the Air Force reassess its annual training requirements and make any appropriate adjustments to its future training plans to ensure that its forces can accomplish a full range of missions. The Air Force has a number of efforts under way to study or address some of the factors that limit the ability of fighter squadrons to meet annual training requirements. Organization and Utilization: Air Force Management of Its Forces Can Diminish Existing Capability The Air Force’s management of its limited force structure can also exacerbate some of the problems discussed above, as we found for the F-22 fleet. The F-22, widely regarded as the best air superiority fighter aircraft in the world, is an integral part of the U.S. military’s ability to defeat high-end adversaries (See fig. 4 for an image of the F-22). To meet its assigned air superiority responsibility, the Air Force is to provide the combatant commanders with both mission capable aircraft and pilots who are trained to fly those aircraft in the expected threat environments. However, in July 2018, we found that Air Force organization and utilization of its small fleet of F-22s has reduced its ability to provide these two elements, thereby further limiting this important capability. Specifically, we found that the Air Force’s organization of its small F-22 fleet has not maximized the availability of these 186 aircraft. Availability was constrained by maintenance challenges and unit organization. For example, maintaining the stealth coating on the outside of the F-22 aircraft was time consuming and significantly reduced the aircraft’s availability for missions. Maintenance availability challenges were exacerbated by the Air Force’s decision to organize the F-22 fleet into small units of 18 or 21 aircraft per squadron and one or two squadrons per wing. Traditional fighter wings have three squadrons per wing, with 24 aircraft in each squadron, which creates maintenance efficiencies because people, equipment, and parts can be shared, according to Air Force officials. Further, the Air Force organized F-22 squadrons to operate from a single location. However, it generally deployed only a part of a squadron, and the remaining part struggled to keep aircraft available for missions at home. Larger, traditional Air Force squadrons and deployable units provide a better balance of equipment and personnel, according to service officials. The Air Force had not reassessed the structure of its F-22 fleet since 2010 and may be foregoing opportunities to improve the availability of its small yet critical F-22 fleet, and better support combatant commander air superiority needs in high threat environments. Further, we found that the Air Force’s utilization of its F-22 fleet limited pilot opportunities to train for air superiority missions in high threat environments. To complete the annual training requirements for air superiority missions, F-22 pilots must train almost the entire year. However, F-22 pilots were not meeting their minimum yearly training requirements for air superiority missions, according to Air Force training reports and service officials. Moreover, using F-22s for exercises and operational missions that do not require the F-22’s unique capabilities interrupted pilot training and led to reduced proficiency. For example, F- 22 units were often directed to participate in partnership building exercises. However, during these exercises, F-22 pilots may be restricted from flying the F-22 the way they would fly it in combat—due to security concerns about exposing the F-22’s unique capabilities. These restrictions not only limited the value of the exercises, but also could result in pilots developing bad habits, according to Air Force officials. The Air Force also uses F-22s to support alert missions—that is, a mission that requires certain bases to have jets ready at all times to respond to threats from civil or military aviation. The alert mission does not require the advanced capabilities of the F-22, but we reported that because there are no other operational Air Force fighter squadrons based at the F-22 locations in Alaska and Hawaii, the alert mission fell on the F-22 units. Pilots and aircraft assigned to the alert mission could not be used for any other purposes, limiting opportunities for pilots to enhance air superiority skills. Unless the Air Force takes steps to assess and make necessary adjustments to the current organization and use of its F-22s, F-22 units are likely to continue to experience aircraft availability and pilot training rates that are below what they could be. As a result, the Air Force may incur increased risks in future operations in high threat areas. In July 2018, we recommended that the Air Force reassess its F-22 organizational structure and identify ways to increase F-22 pilot training opportunities for high-end missions to reduce risk to future operations. DOD concurred with both recommendations. Air Force Will Need to Balance Near-term Readiness Recovery with Plans to Grow and Modernize the Force In September 2018, the Secretary of the Air Force described the need to grow the number of Air Force squadrons from 312 to 386—a 24 percent increase—between fiscal years 2025 and 2030 in order to meet persistent operational demands and address the challenges identified in the National Defense Strategy. However, the details and costs of such growth are as yet unknown and will have to compete with other military services looking to increase their force structure and major defense capabilities that require recapitalization. For example, over the next three decades, the Navy plans to grow its fleet by nearly 25 percent—at an estimated cost of about $800 billion—and modernizing and maintaining the nation’s nuclear arsenal could cost $1.2 trillion over the same timeframe. All of these investments would need to be made amid a deteriorating national fiscal picture. Even if it grows, the Air Force will be dependent on the force of today for decades to come and will need to stay focused on rebuilding its readiness. Many of the Air Force’s fourth generation fighters will be part of the force structure for the next decade or more, and the Air Force plans to retain the F-22 aircraft until 2060. In addition, the Air Force proposed divesting the A-10 to make budgetary room for more modern aircraft. However, as we reported in August 2016, the Air Force did not fully examine the implications of this course of action and could not demonstrate how it would meet the multiple missions being performed by the aging A-10. Therefore, focusing on rebuilding the existing force will be crucial to positioning the Air Force for the future. While these challenges are particularly acute in the Air Force, the Air Force is not alone among the military services. Given persistently low readiness levels across the military, we have called for a comprehensive readiness rebuilding plan for the entire Department of Defense to guide rebuilding efforts, including setting clear goals and identifying resources required to meet those goals for all services, including the Air Force. In sum, as it plans for the future, the Air Force will need to balance the rebuilding of its existing force with its desire to grow and modernize. We have made a number of recommendations—with which the Air Force have generally concurred with but most have not yet been implemented— that provide a partial roadmap to address important readiness challenges. Implementing our recommendations to reevaluate fighter pilot squadron requirements, revise F-35 sustainment plans, reassess annual training requirements, and examine how the Air Force organizes and utilizes its F- 22 organizational structure are necessary steps to meet current and future needs and can assist the Air Force moving forward. In addition, sustained management attention and continued congressional oversight will be needed to ensure that the Air Force demonstrates progress in addressing its personnel, equipment, training, and organization and utilization challenges. Chairman Sullivan, Ranking Member Kaine, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. GAO Contact and Staff Acknowledgments If you or your staff have questions about this testimony, please contact John Pendleton, Director, Defense Capabilities and Management at (202) 512-3489 or [email protected]. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Chris Watson, Assistant Director; Nick Cornelisse, Amie Lesser, Shari Nikoo, Michael Silver, Nicole Volchko, and Lillian Yob. Appendix I: Implementation Status of Key Prior GAO Recommendations Related to Air Force Readiness Over the past three years, we issued several reports related to Air Force readiness that are cited in this statement. Table 1 summarizes the status of our key recommendations related to Air Force readiness since 2016; a total of 14 recommendations. The Department of Defense (DOD) has implemented 1 of these recommendations. For each of the reports, the specific recommendations and their implementation status are summarized in tables 2 through 7. Related GAO Products Report numbers with a C or RC suffix are classified. Report numbers with a SU suffix are sensitive but unclassified. Classified and sensitive but unclassified reports are available to personnel with the proper clearances and need to know, upon request. Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need to Be Clarified. GAO-18-678. Washington, D.C.: September 10, 2018. Military Readiness: Air Force Plans to Replace Aging Personnel Recovery Helicopter Fleet. GAO-18-605. Washington, D.C.: August 16, 2018. Military Aviation Mishaps: DOD Needs to Improve Its Approach for Collecting and Analyzing Data to Manage Risks. GAO-18-586R. Washington, D.C.: August 15, 2018. Military Readiness: Update on DOD’s Progress in Developing a Readiness Rebuilding Plan. GAO-18-441RC. Washington, D.C.: August 10, 2018. (SECRET) Force Structure: F-22 Organization and Utilization Changes Could Improve Aircraft Availability and Pilot Training. GAO-18-190. Washington, D.C.: July 19, 2018. Military Personnel: Collecting Additional Data Could Enhance Pilot Retention Efforts. GAO-18-439. Washington, D.C.: June 21, 2018. Air Force Readiness: Changes to Readiness Reports Could Help Stakeholders Take More Informed Actions. GAO-18-65C. Washington, D.C.: June 18, 2018. (SECRET) Force Structure: Changes to F-22 Organization and Utilization Could Improve Aircraft Availability and Pilot Training. GAO-18-120C. Washington, D.C.: April 27, 2018. (SECRET//NOFORN) Military Readiness: Clear Policy and Reliable Data Would Help DOD Better Manage Service Members’ Time Away from Home. GAO-18-253. Washington, D.C.: April 25, 2018. Warfighter Support: DOD Needs to Share F-35 Operational Lessons Across the Military Services. GAO-18-464R. Washington, D.C.: April 25, 2018. Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need Clarification. GAO-18-146SU. Washington, D.C.: April 25, 2018. Military Personnel: DOD Needs to Reevaluate Fighter Pilot Workforce Requirements. GAO-18-113. Washington, D.C.: April 11, 2018. Military Aircraft: F-35 Brings Increased Capabilities, but the Marine Corps Needs to Assess Challenges Associated with Operating in the Pacific. GAO-18-79C. Washington, D.C.: March 28, 2018. (SECRET) F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. Department of Defense: Actions Needed to Address Five Key Mission Challenges. GAO-17-369. Washington, D.C.: June 13, 2017. Air Force Training: Further Analysis and Planning Needed to Improve Effectiveness. GAO-16-864. Washington, D.C.: September 19, 2016. Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan. GAO-16-841. Washington, D.C.: September 7, 2016. Force Structure: Better Information Needed to Support Air Force A-10 and Other Future Divestment Decisions. GAO-16-816. Washington, D.C.: August 24, 2016. Air Force Training: Further Analysis and Planning Needed to Improve Effectiveness. GAO-16-635SU. Washington, D.C.: August 16, 2016. Force Structure: Better Information Needed to Support Air Force A-10 and Other Future Divestment Decisions. GAO-16-525C. Washington, D.C.: July 12, 2016. (SECRET//NOFORN) Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan. GAO-16-534C. Washington, D.C.: June 30, 2016. (SECRET) Air Force: Service Faces Challenges to Rebuilding Readiness. GAO-16-482RC. Washington, D.C.: May 25, 2016. (SECRET) Force Structure: Performance Measures Needed to Better Implement the Recommendations of the National Commission on the Structure of the Air Force. GAO-16-405. Washington, D.C.: May 6, 2016. F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its Central Logistics System. GAO-16-439. Washington, D.C.: April 14, 2016. F-35 Sustainment: Need for Affordable Strategy, Greater Attention to Risks, and Improved Cost Estimates. GAO-14-778. Washington, D.C.: September 23, 2014. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The 2018 National Defense Strategy emphasizes that restoring and retaining readiness across the entire spectrum of conflict is critical to success in the emerging security environment. Air Force readiness has steadily declined primarily due to the persistent demand on a fleet that has aged and decreased in size since the 1990s. The Air Force is working to both rebuild the readiness of its forces and modernize its aging fleet to meet future threats. However, according to the Air Force, its readiness goals will take years to achieve as it continues to be challenged to rebuild readiness amid continued operational demands. This statement provides information on Air Force (1) readiness and management challenges including personnel, equipment, training, and organization and utilization, and (2) plans to grow and modernize its force in the context of readiness recovery across DOD. Also, GAO summarizes recommendations to address these challenges and actions taken by the Air Force. This statement is based on previously published work since 2016 related to Air Force readiness challenges, fighter pilot workforce requirements, weapon sustainment, aviation training, and force structure. GAO's prior work has highlighted that the Air Force faces management and readiness challenges in four interrelated areas: Personnel: The Air Force has reported that pilot and aircraft maintainer shortfalls are a key challenge to rebuilding readiness. GAO found in April 2018 that the Air Force had fewer fighter pilots than authorizations for 11 of 12 years, from fiscal years 2006 through 2017. Even as unmanned aerial systems had become more prevalent and fighter pilot workloads had increased, the Air Force had not reevaluated fighter squadron requirements. GAO recommended that the Air Force reevaluate fighter pilot squadron requirements to ensure it has the pilots necessary for all missions. Equipment: Air Force aircraft availability has been limited by challenges associated with aging aircraft, maintenance, and supply support. GAO reported in September 2018 that, from fiscal year 2011 through 2016, the Air Force generally did not meet availability goals for key aircraft. Further, in October 2017 GAO found F-35 availability was below service expectations and sustainment plans did not include key requirements. GAO recommended that DOD revise F-35 sustainment plans to include requirements and decision points needed to implement the F-35 sustainment strategy. Training: The Air Force has identified the need to ensure its forces can successfully achieve missions to address a broad range of current and emerging threats. However, GAO reported in September 2016 that Air Force combat fighter squadrons did not complete annual training requirements due to aircraft availability and training range limitations, and had used the same underlying assumptions for its annual training requirements from 2012 to 2016. GAO recommended that the Air Force reassess its annual training requirements to ensure its forces can accomplish a full range of missions. Organization and Utilization: Air Force management of its force structure can also exacerbate readiness challenges. GAO found in July 2018 that the Air Force's organization of its small F-22 fleet had not maximized aircraft availability, and that its utilization of F-22s reduced opportunities for pilots to train for missions in high-threat environments. GAO found that unless the Air Force assesses the organization and use of its F-22s, F-22 units are likely to continue to experience aircraft availability and pilot training rates that are below what they could be. GAO recommended that the Air Force reassess its F-22 organizational structure to reduce risk to future operations. Looking to the future, the Air Force will have to balance the rebuilding of its existing force with its desire to grow and modernize. To meet current and future demands, the Air Force has stated that it needs to have more squadrons. However, the costs of such growth are as yet unknown, and will have to compete with other military services looking to increase their force structure and recapitalize their forces. Even with growth, the Air Force would be dependent on the force of today for decades to come and will need to stay focused on rebuilding the readiness of existing forces. Addressing GAO's recommendations are necessary steps to meet current and future needs and can assist the Air Force moving forward.

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Recent Developments On January 21, 2019, Venezuela's government-aligned Supreme Court issued a ruling declaring the National Assembly illegitimate and its rulings unconstitutional. (See " Lead-Up to Maduro's January 2019 Inauguration and Aftermath ," below.) On January 21, 2019, Venezuelan military authorities announced the arrest of 27 members of the National Guard who allegedly stole weapons (since recovered) as they tried to incite an uprising against the government. (See " Lead-Up to Maduro's January 2019 Inauguration and Aftermath ," below.) On January 15, 2019, Venezuela's National Assembly declared that President Maduro had usurped the presidency. The legislature also established a framework for the formation of a transitional government led by Juan Guaidó of the Popular Will (VP) party, the president of the National Assembly who was elected on January 5, 2019, to serve until presidential elections can be held (per Article 233 of the constitution). In addition, the legislature approved amnesty from prosecution for public officials who facilitate the transition. (See " Lead-Up to Maduro's January 2019 Inauguration and Aftermath ," below.) On January 13, 2019, Venezuela's intelligence service detained, and then released, Juan Guaidó. Two days prior, Guaidó had said he would be willing to assume the presidency on an interim basis until new elections could be held; he also called for national protests to occur on January 23, 2019. (See " Lead-Up to Maduro's January 2019 Inauguration and Aftermath ," below.) On January 10, 2019, the U.S. Department of State issued a statement condemning Maduro's "illegitimate usurpation of power" and vowing to "work with the National Assembly ... in accordance with your constitution on a peaceful return to democracy." (See " U.S. Policy ," below.) On January 10, 2019, the Organization of American States (OAS) passed a resolution rejecting the legitimacy of Nicolas Maduro's new term. (See Appendix B , below.) On January 10, 2019, President Nicolas Maduro began a second term after a May 2018 election that has been deemed illegitimate by the democratically elected, opposition-controlled National Assembly and much of the international community. (See " Foreign Relations ," below.) On January 8, 2019, the U.S. Department of the Treasury imposed sanctions on seven individuals and 23 companies involved in a scheme that stole $2.4 billion through manipulation of Venezuela's currency exchange system under authority provided in Executive Order (E.O.) 13850 . (See " Targeted Sanctions Related to Antidemocratic Actions, Human Rights Violations, and Corruption ," below.) On December 17, 2018, a group of investors demanded the Venezuelan government pay off the interest and principal of a defaulted $1.5 billion bond, the first step in a potential legal process by creditors to recover their assets. (See " Prospects for 2019 ," below.) On December 14, 2018, El Nacional , Venezuela's last independent newspaper with national circulation, stopped publishing its print edition after 75 years. The move ame after numerous advertising restrictions, lawsuits, and threats from the Venezuelan government. (See " Human Rights," below.) On December 14, 2018, the United Nations launched an appeal for $738 million to support refugees and migrants from Venezuela in 2019. (See " Humanitarian Situation ," below.) Introduction Venezuela, long one of the most prosperous countries in South America with the world's largest proven oil reserves, continues to be in the throes of a deep political, economic, and humanitarian crisis. Whereas populist President Hugo Chávez (1998-2013) governed during a period of generally high oil prices, his successor, Nicolás Maduro of the United Socialist Party of Venezuela (PSUV), has exacerbated an economic downturn caused by low global oil prices through mismanagement and corruption. According to Freedom House, Venezuela has fallen from "partly free" under Chávez to "not free" under Maduro, an unpopular leader who has violently quashed dissent and illegally replaced the legislature with a National Constituent Assembly (ANC) elected under controversial circumstances in July 2017. President Maduro won reelection in early elections held in May 2018 that were dismissed as illegitimate by the United States, the European Union (EU), the G-7, and a majority of countries in the Western Hemisphere. U.S. relations with Venezuela, a major oil supplier, deteriorated during Chávez's rule, which undermined human rights, the separation of powers, and freedom of expression. U.S. and regional concerns have deepened as the Maduro government has manipulated democratic institutions; cracked down on the opposition, media, and civil society; engaged in drug trafficking and corruption; and refused most humanitarian aid. Efforts to hasten a return to democracy in Venezuela have failed thus far. President Maduro's convening of the ANC and early presidential elections have triggered international criticism and led to sanctions by Canada, the EU, Panama, Switzerland, the United States, and potentially others. This report provides an overview of the overlapping political, economic, and humanitarian crises in Venezuela, followed by an overview of U.S. policy toward Venezuela. Political Situation Legacy of Hugo Chávez (1999-2013)2 In December 1998, Hugo Chávez, a leftist populist representing a coalition of small parties, received 56% of the presidential vote (16% more than his closest rival). Chávez's commanding victory illustrated Venezuelans' rejection of the country's two traditional parties, Democratic Action (AD) and the Social Christian party (COPEI), which had dominated Venezuelan politics for the previous 40 years. Most observers attribute Chávez's rise to power to popular disillusionment with politicians whom they then judged to have squandered the country's oil wealth through poor management and corruption. Chavez's campaign promised constitutional reform; he asserted that the system in place allowed a small elite class to dominate Congress and waste revenues from the state oil company, Petróleos de Venezuela , S. A. (PdVSA). Venezuela had one of the most stable political systems in Latin America from 1958 until 1989. After that period, however, numerous economic and political challenges plagued the country. In 1989, then-President Carlos Andres Pérez (AD) initiated an austerity program that fueled riots in which several hundred people were killed. In 1992, two attempted military coups threatened the Pérez presidency, one led by Chávez, who at the time was a lieutenant colonel railing against corruption and poverty. Chávez served two years in prison for that failed coup attempt. In May 1993, the legislature dismissed Pérez from office for misusing public funds. The election of former President Rafael Caldera (1969-1974) as president in December 1993 brought a measure of political stability, but the government faced a severe banking crisis. A rapid decline in the price of oil caused a recession beginning in 1998, which contributed to Chávez's landslide election. Under Chávez, Venezuela adopted a new constitution (ratified by a plebiscite in 1999), a new unicameral legislature, and even a new name for the country—the Bolivarian Republic of Venezuela, named after the 19 th century South American liberator Simón Bolívar. Buoyed by windfall profits from increases in the price of oil, the Chávez government expanded the state's role in the economy by asserting majority state control over foreign investments in the oil sector and nationalizing numerous private enterprises. Chávez's charisma, use of oil revenue to fund domestic social programs and provide subsidized oil to Cuba and other Central American and Caribbean countries, and willingness to oppose the United States captured global attention. After Chávez's death, his legacy has been debated. President Chávez established an array of social programs and services known as missions that helped reduce poverty by some 20% and improve literacy and access to health care. Some maintain that Chávez also empowered the poor by involving them in community councils and workers' cooperatives. Nevertheless, his presidency was "characterized by a dramatic concentration of power and open disregard for basic human rights guarantees," especially after his brief ouster from power in 2002. Declining oil production, combined with massive debt and high inflation, have shown the costs involved in Chávez's failure to save or invest past oil profits, tendency to take on debt and print money, and decision to fire thousands of PdVSA technocrats after an oil workers' strike in 2002-2003. Venezuela's 1999 constitution, amended in 2009, centralized power in the presidency and established five branches of government rather than the traditional three branches. Those branches include the presidency, a unicameral National Assembly, a Supreme Court, a National Electoral Council (CNE), and a "Citizen Power" branch (three entities that ensure that government officials at all levels adhere to the rule of law and that can investigate administrative corruption). The president is elected for six-year terms and can be reelected indefinitely; however, he or she also may be made subject to a recall referendum (a process that Chávez submitted to in 2004 and survived but Maduro cancelled in 2016). Throughout his presidency, Chávez exerted influence over all the government branches, particularly after an outgoing legislature dominated by chavistas appointed pro-Chávez justices to dominate the Supreme Court in 2004 (a move that Maduro's allies would repeat in 2015). In addition to voters having the power to remove a president through a recall referendum process, the National Assembly has the constitutional authority to act as a check on presidential power, even when the courts fail to do so. The National Assembly consists of a unicameral Chamber of Deputies with 167 seats whose members serve for five years and may be reelected once. With a simple majority, the legislature can approve or reject the budget and the issuing of debt, remove ministers and the vice president from office, overturn enabling laws that give the president decree powers, and appoint the 5 members of the CNE (for 7-year terms) and the 32 members of the Supreme Court (for one 12-year term). With a two-thirds majority, the assembly can remove judges, submit laws directly to a popular referendum, and convene a constitutional assembly to revise the constitution. Maduro Government10 After the death of President Hugo Chávez in March 2013, Venezuela held presidential elections the following month in which acting President Nicolás Maduro defeated Henrique Capriles of the MUD by 1.5%. The opposition alleged significant irregularities and protested the outcome. Given his razor-thin victory and the rise of the opposition, Maduro sought to consolidate his authority. Security forces and allied civilian groups violently suppressed protests and restricted freedom of speech and assembly. In 2014, 43 people died and 800 were injured in clashes between pro-government forces and student-led protesters concerned about rising crime and violence. President Maduro imprisoned opposition figures, including Leopoldo López, head of the Popular Will (VP) party, who was sentenced to more than 13 years in prison for allegedly inciting violence. The Union of South American Nations (UNASUR) initiated a government-opposition dialogue in April 2014, but talks quickly broke down. In February 2015, the Maduro government again cracked down on the opposition. In the December 2015 legislative elections, the MUD captured a two-thirds majority in Venezuela's National Assembly—a major setback for Maduro. The Maduro government took actions to thwart the legislature's power. The PSUV-aligned Supreme Court blocked three MUD deputies from taking office, which deprived the opposition of the two-thirds majority needed to submit bills directly to referendum and remove Supreme Court justices. From January 2016 through August 2017 (when the National Constituent Assembly voted to give itself legislative powers), the Supreme Court blocked numerous laws and assumed many of the legislature's functions. In 2016, opposition efforts focused on attempts to recall President Maduro in a national referendum. The government used delaying tactics to slow the process considerably. On October 20, 2016, Venezuela's CNE suspended the recall effort after five state-level courts issued rulings alleging fraud in a signature collection drive that had amassed millions of signatures. In October 2016, after an appeal by Pope Francis, most of the opposition (with the exception of the Popular Will party) and the Venezuelan government agreed to talks mediated by the Vatican, along with the former leaders of the Dominican Republic, Spain, and Panama and the head of UNASUR. By December 2016, the opposition had left the talks due to what it viewed as a lack of progress on the part of the government in meeting its commitments. Repression of Dissent, Establishment of a Constituent Assembly in 2017 Far from meeting the commitments it made during the Vatican-led talks, the Maduro government continued to harass and arbitrarily detain opponents (see " Human Rights ," below). In addition, President Maduro appointed a hardline vice president, Tareck el Aissami, former governor of the state of Aragua and a sanctioned U.S. drug kingpin, in January 2017. Popular protests, which were frequent between 2014 and autumn 2016, had dissipated. In addition to restricting freedom of assembly, the government had cracked down on media outlets and journalists, including foreign media. Despite these obstacles, the MUD became reenergized in response to the Supreme Court's March 2017 rulings to dissolve the legislature and assume all legislative functions. After domestic protests, a rebuke by then-Attorney General Luisa Ortega (a Chávez appointee), and an outcry from the international community, President Maduro urged the court to revise those rulings, and it complied. In April 2017, the government banned opposition leader and two-time presidential candidate Henrique Capriles from seeking office for 15 years, which fueled more protests. From March to July 2017, the opposition conducted large, sustained protests against the government, calling for President Maduro to release political prisoners, respect the separation of powers, and hold an early presidential election. Clashes between security forces (backed by armed civilian militias) and protesters left more than 130 dead and hundreds injured. In May 2017, President Maduro announced that he would convene a constituent assembly to revise the constitution and scheduled July 30 elections to select delegates to that assembly. The Supreme Court ruled that Maduro could convoke the assembly without first holding a popular referendum (as the constitution required). The opposition boycotted, arguing that the elections were unconstitutional; a position shared by then-Attorney General Luisa Ortega and international observers (including the United States, Canada, the EU, and many Latin American countries). In an unofficial plebiscite convened on July 16 by the MUD, 98% of some 7.6 million Venezuelans cast votes rejecting the creation of a constituent assembly; the government ignored that vote. Despite an opposition boycott and protests, the government orchestrated the July 30, 2017, election of a 545-member National Constituent Assembly (ANC) to draft a new constitution. Venezuela's CNE reported that almost 8.1 million people voted, but a company involved in setting up the voting system alleged that the tally was inflated by at least 1 million votes. Many observers viewed the establishment of the ANC as an attempt by the ruling PSUV to ensure its continued control of the government even though many countries have refused to recognize its legitimacy. The ANC dismissed Attorney General Ortega, who had been critical of the government, voted to approve its own mandate for two years, and declared itself superior to other branches of government. Ortega fled Venezuela in August 2017 and has spoken out against the abuses of the Maduro government. The ANC also approved a decree allowing it to pass legislation, unconstitutionally assuming the powers of the National Assembly. Efforts to Consolidate Power Before the May 2018 Elections From mid-2017 to May 2018, President Maduro strengthened his control over the PSUV and gained the upper hand over the MUD despite international condemnation of his actions. In October 2017, the PSUV won 18 of 23 gubernatorial elections. Although fraud likely took place given the significant discrepancies between opinion polls and the election results, the opposition could not prove that fraud was widespread. There is evidence that the PSUV linked receipt of future government food assistance to votes for its candidates by placing food assistance card registration centers next to polling stations, a practice also used in subsequent elections. The MUD coalition initially rejected the election results, but four victorious MUD governors took their oaths of office in front of the ANC (rather than the National Assembly), a decision that fractured the coalition. With the opposition in disarray, President Maduro and the ANC moved to consolidate power and blamed U.S. sanctions for the country's economic problems. Maduro fired and arrested the head of PdVSA and the oil minister for corruption. He appointed a general with no experience in the energy sector as oil minister and head of the company, further consolidating military control over the economy. The ANC approved a law to further restrict freedom of expression and assembly. Although most opposition parties did not participate in municipal elections held in December 2017, a few, including A New Time (UNT), led by Manuel Rosales, and Progressive Advance (AP), led by Henri Falcón, fielded candidates. The PSUV won more than 300 of 335 mayoralties. The CNE required parties that did not participate in those elections to re-register in order to run in the 2018 presidential contest, a requirement that many of them subsequently rejected. May 2018 Elections The Venezuelan constitution established that the country's presidential elections were to be held by December 2018. Although many prominent opposition politicians had been imprisoned (Leopoldo López, under house arrest), barred from seeking office (Henrique Capriles), or in exile (Antonio Ledezma ) by late 2017, some MUD leaders sought to unseat Maduro through elections. Those leaders negotiated with the PSUV to try to obtain guarantees, such as a reconstituted CNE and international observers, to help ensure the elections would be as free and fair as possible. In January 2018, the ANC ignored those negotiations and called for elections to be moved up from December to May 2018, violating a constitutional requirement that elections be called with at least six months anticipation. The MUD declared an election boycott, but Henri Falcón (AP) broke with the coalition to run. Falcón, former governor of Lara, pledged to accept humanitarian assistance, dollarize the economy, and foster national reconciliation. Venezuela's presidential election proved to be minimally competitive and took place within a climate of state repression. President Maduro and the PSUV's control over the CNE, courts, and constituent assembly weakened Falcón's ability to campaign. State media promoted government propaganda. There were no internationally accredited election monitors. The government coerced its workers to vote and placed food assistance card distribution centers next to polling stations. The CNE reported that Maduro received 67.7% of the votes, followed by Falcón (21%) and Javier Bertucci, a little-known evangelical minister (10.8%). Voter turnout was much lower in 2018 (46%) than in 2013 (80%), perhaps due to the MUD's boycott. After independent monitors reported widespread fraud, Falcón and Bertucci called for new elections to be held. Lead-Up to Maduro's January 2019 Inauguration and Aftermath Since the May 2018 election, President Maduro has faced mounting economic problems (discussed below), coup attempts, and increasing international isolation (see " Foreign Relations ," below). His government has released some political prisoners, including U.S. citizen Joshua Holt, former Mayor Daniel Ceballos, opposition legislators (Gilber Caro and Renzo Prieto), and, in October 2018, former student leader Lorent Saleh. He reshuffled his Cabinet to establish Delcy Rodriguez, former head of the ANC and former foreign minister, as executive vice president in June 2018 and made additional changes in October 2018 within the judiciary and the intelligence services to strengthen his control. On December 9, 2018, Maduro's PSUV-dominated municipal council elections that most opposition parties boycotted, some 27% of eligible voters participated. During 2018, the opposition remained relatively weak and divided and Maduro focused on quashing coup plots and dissent within the military. His government arrested those perceived as threats, including military officers, an opposition legislator accused of involvement in an August 2018 alleged assassination attempt against Maduro, and a German journalist accused of being a spy. According to Foro Penal (a Venezuelan human rights group), the government held 278 political prisoners as of December 2018. Foro Penal and Human Rights Watch have documented several cases in which those accused of plotting coups were subjected to "beatings, asphyxiation and electric shocks" by the intelligence services The October 2018 death of Fernando Albán, an opposition politician who was also in custody for his reported involvement in the August 2018 alleged assassination attempt, has provoked domestic protests and international concern. Given that 70% of the population favored Maduro's resignation instead of his inauguration to a second term, observers predict he will face mounting protests and internal dissent. Maduro's regime also could see more defections. In early January, Christian Zerpa, a former ally of Maduro on the Supreme Court, fled the country to seek asylum in the United States; he maintains that the May election "was not free and competitive." Under the leadership of Juan Guaidó, a 35-year old industrial engineer from the VP party who was elected president of the National Assembly on January 5, 2019, the opposition has been reenergized. Guaidó, buoyed by widespread international condemnation of the May 2018 elections, has declared himself willing to serve as interim president of Venezuela until elections can be called as provided for in Article 233 of the 1999 constitution in the event that a president vacates power. Secret police detained and then subsequently released Guaidó on January 13, 2019; it is unclear whether they were acting under Maduro's authority. A government spokesman maintained that the detention "was an irregular and unilateral action" by officials who would be punished. While the Brazilian government and the Secretary General of the OAS have openly welcomed Guaidó as "interim president," the United States and others have expressed solidarity and urged Venezuelans to rally behind him but stopped short of recognizing him as the country's interim leader. The National Assembly has enacted resolutions to declare that President Maduro is no longer the legitimate president, establish a framework for the formation of a transition government, ask 48 countries to freeze Maduro government assets, and provide for amnesty for any public officials (including military members) that support a transition. The Maduro-aligned Supreme Court has ruled that the new leadership of the National Assembly has been acting outside of the law and invalidated its declarations. It remains to be seen how the security forces will respond to these developments, as well as to protests that have been called for January 23, 2019, and beyond. Human Rights Human rights organizations and U.S. officials have expressed concerns for more than a decade about the deterioration of democratic institutions and threats to freedom of speech and press in Venezuela. Human rights conditions in Venezuela have deteriorated even more under President Maduro than under former President Chávez. Abuses have increased, as security forces and allied armed civilian militias ( collectivos ) have been deployed to violently quash protests. In August 2017, the United Nations Office of the High Commissioner for Human Rights (UNOCHR) issued a report on human rights violations perpetrated by the Venezuelan security forces against the protestors. According to the report, credible and consistent accounts indicated that "security forces systematically used excessive force to deter demonstrations, crush dissent, and instill fear." The U.N. report maintained that many of those detained were subject to cruel, degrading treatment and that in several cases, the ill treatment amounted to torture. UNOCHR called for an international investigation of those abuses. In June 2018, UNOCHR issued another report documenting abuses committed by units involved in crime fighting, the scale of the health and food crisis, and the continued impunity in cases involving security officers who allegedly killed people during the protests. Other selected human rights reports from 2017-2018 include The Venezuelan human rights group Foro Penal and Human Rights Watch maintain that more than 5,300 Venezuelans were detained during the protests. Together, the organizations documented inhumane treatment of more than 300 detainees that occurred between April and September 2017. In February 2018, the Inter-American Commission on Human Rights (IACHR) released its third report on the situation of human rights in Venezuela. The report highlighted the violation of the separation of powers that occurred as President Maduro and the judiciary interfered in the work of the legislature and then replaced it with a constituent assembly. It then criticized state limits on social protests and freedom of expression and said that the government "must curtail the use of force against demonstrators." In March 2018, the State Department's Country Report on Human Rights Practices for 2017 found that "human rights deteriorated dramatically" in 2017 as the government tried hundreds of civilians in military courts and arrested 12 opposition mayors for their "alleged failure to control protests." In May 2018, an independent panel of human rights experts added a legal assessment to a report containing information and witness testimonies gathered by the OAS recommending that the International Criminal Court (ICC) should investigate credible reports that the Venezuelan government committed crimes against humanity. These reports published by international human rights organizations, the U.S. government, U.N. entities, and the OAS/IACHR reiterate the findings of PROVEA, one of Venezuela's leading human rights organizations. In its report covering 2017 (published in June 2018), PROVEA asserts that 2017 was the worst year for human rights in Venezuela since the report was first published in 1989. In addition to violating political and civil rights, PROVEA denounces the Maduro government's failure to address the country's humanitarian crisis, citing its "official indolence" as causing increasing deaths and massive emigration. For other sources on human rights in Venezuela, see Appendix C . In September 2017, several countries urged the U.N. Human Rights Council to support the High Commissioner's call for an international investigation into the abuses described in the U.N.'s August 2017 report on Venezuela. In June 2018, the High Commissioner for Human Rights urged the U.N. Human Rights Council to launch a commission of inquiry to investigate the abuses it documented in that and a follow-up report. It referred the report to the prosecutor of the ICC. On September 26, 2018, the U.N. Human Rights Council adopted a resolution on Venezuela expressing "its deepest concern" about the serious human rights violations described in the June 2018 report, calling upon the Venezuelan government to accept humanitarian assistance and requiring a UNOCHR investigation on the situation in Venezuela to be presented in 2019. In addition to the UNOCHR, former Venezuelan officials, the OAS, and neighboring countries have asked the ICC to investigate serious human rights violations committed by the Maduro government; the ICC prosecutor opened a preliminary investigation in February 2018. In November 2017, former Attorney General Luisa Ortega presented a dossier of evidence to the ICC that the police and military may have committed more than 1,800 extrajudicial killings as of June 2017. In the dossier, Ortega urged the ICC to charge Maduro and several officials in his Cabinet with serious human rights abuses. An exiled judge appointed by the National Assembly to serve on the "parallel" supreme court of justice also accused senior Maduro officials of systemic human rights abuses before the ICC. On September 26, 2018, the governments of Argentina, Canada, Chile, Colombia, Paraguay, and Peru requested an investigation of Venezuela's actions by the ICC—the first time fellow states party to the Rome Statute asked for an investigation into the situation of another treaty member. Economic Crisis48 For decades, Venezuela was one of South America's most prosperous countries. Venezuela has the world's largest proven reserves of oil, and its economy is built on oil. Oil traditionally has accounted for more than 90% of Venezuelan exports, and oil sales have funded the government budget. Venezuela benefited from the boom in oil prices during the 2000s. President Chávez used the oil windfall to spend heavily on social programs and expand subsidies for food and energy, and government debt more than doubled as a share of gross domestic product (GDP) between 2000 and 2012. Chávez also used oil to expand influence abroad through PetroC aribe , a program that allowed Caribbean Basin countries to purchase oil at below-market prices. Although substantial government outlays on social programs helped Chávez curry political favor and reduce poverty, economic mismanagement had long-term consequences. Chávez moved the economy in a less market-oriented direction, with widespread expropriations and nationalizations, as well as currency and price controls. These policies discouraged foreign investment and created market distortions. Government spending was not directed toward investment to increase economic productivity or diversify the economy from its reliance on oil. Corruption proliferated. When Nicolás Maduro took office in 2013, he inherited economic policies reliant on proceeds from oil exports. When oil prices crashed by nearly 50% in 2014, the Maduro government was ill-equipped to soften the blow. The fall in oil prices strained public finances. Instead of adjusting fiscal policies through tax increases and spending cuts, the Maduro government tried to address its growing budget deficit by printing money, which led to inflation. The government also tried to curb inflation through price controls, although these controls were largely ineffective in restricting prices, as supplies dried up and transactions moved to the black market. Meanwhile, the government continued to face a substantial debt burden, with debt owed to private bondholders, China, Russia, multilateral lenders, importers, and service companies in the oil industry. Initially, the government tried to service its debt, fearing legal challenges from bondholders. To service its debt, it cut imports, including of food and medicine, among other measures. In August 2018, the Trump Administration imposed sanctions restricting Venezuela's ability to access U.S. financial markets, which exacerbated the government's fiscal situation. By late 2017, the government had largely stopped paying its bondholders, and Maduro announced plans to restructure its debt with private creditors. It also restructured its debt with Russia. Developments in 2018 Economic output in Venezuela has collapsed. Venezuela's economy has contracted each year since 2014. As the economic crisis has continued and oil production has plummeted (see Figure 3 ), the pace of economic contraction has accelerated. In 2014, the economy contracted by 3.9%; in more recent years, the pace has increased to 16.5% in 2016, 14% in 2017, and 18% in 2018 (see Figure 2 ). In U.S. dollars, Venezuela's GDP has fallen from $331 billion in 2012 to $96 billion in 2018. Hyperinflation is rampant, creating shortages of critical supplies. The government has rapidly expanded the money supply to finance budget deficits, which has led to one of the worst cases of hyperinflation in history, comparable to Germany in 1923 or Zimbabwe in the late 2000s. In October 2018, the IMF forecast that inflation (as measured by average changes in consumer prices) increased from 254% in 2016 to 1,087% in 2017 to 1,370,000% in 2018 (see Figure 2 ). Hyperinflation, as well as low foreign exchange reserves, which make it difficult for Venezuela to import goods and services, has created shortages of critical supplies (including food and medicine), leading to a humanitarian disaster and fueling massive migration (see " Humanitarian Situation ," below). The government remains in default and continues to run unsustainable fiscal policies. Despite pledges to restructure the country's debt, the government has made no discernable progress in negotiations with private creditors and the country remains in default. According to one estimate, the government and state-owned companies owe nearly $8 billion in unpaid interest and principal. Meanwhile, the government continues to run large budget deficits, forecast at 30% of GDP in 2018, amid high debt levels (estimated to be 160% of GDP). By one measure, debt relative to exports, Venezuela is the world's most heavily indebted country. In general, the government has been slow to address the economic crisis or acknowledge the government role in creating it. Instead, the government has largely blamed the country's struggles on a foreign "economic war," a thinly veiled reference to U.S. sanctions. In February 2018, as a way to raise new funds, the cash-strapped government launched a new digital currency, the "petro," backed by oil and other commodities, which runs on blockchain technology. The government claims the petro raised $3.3 billion, but the amount raised has never been confirmed by an independent audit. Additionally, there are questions about the petro's operational viability: there are few signs of the petro being circulated within Venezuela or sold on any major cryptocurrency exchange. In August 2018, the government acknowledged, for the first time, its role in creating hyperinflation and announced a new set of policies for addressing the economic crisis. The new policies, reportedly developed in consultation with international advisers, included introducing a new "sovereign bolívar," which removed five zeros from the previous currency (the bolívar); cutting the government budget deficit from 30% in 2018 to zero, in part by raising value-added tax and increasing the price of petrol; speeding up tax collection; and increasing the minimum salary by more than 3,000%. Since the plan's rollout in August, there is little evidence that the government's policies have restored confidence in Venezuela's economy. In December 2018, Maduro visited Moscow seeking financial assistance. Although he announced investment deals with Russian partners—$5 billion for the oil industry and $1 billion for the gold industry—Russian officials cast doubt on these commitments. Prospects for 2019 The long-anticipated conflict between investors holding defaulted Venezuelan bonds and the government may be coming to a head. Venezuelan government and PdVSA dollar-denominated bonds were largely issued under New York law. It has been expected that bondholders would seek repayment through legal challenges against the Venezuelan government or PdVSA in the U.S. legal system. If successful in their legal challenges, creditors could receive compensation through 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. Even though the government started missing payments in late 2017, creditors refrained from mounting legal challenges, presumably hoping for higher recovery rates during a more favorable economic environment and/or negotiations with new government. U.S. sanctions also complicate the restructuring process. However, in mid-December 2018, a group of creditors took an initial step toward launching the legal process, by demanding payment on a defaulted $1.5 billion bond. It is expected that other creditors will organize and follow suit. Venezuela's economic crisis has been ongoing for a number of years, and the outlook is bleak. There is neither a clear nor a quick resolution on the horizon, particularly given the concurrent political crisis. The government's policy responses to the economic crisis—even with the new reforms in August—have been widely criticized as inadequate. The government appears loathe to adopt policies widely viewed by economists as necessary to restoring the economy: removing price controls, creating an independent central bank, engaging with an IMF program, and restructuring its debt with private bondholders. The role of the IMF in particular is problematic, with the government resisting outside support from "imperialist" powers. Venezuela has not allowed the IMF to conduct routine surveillance of its economy since 2004, and the IMF has found the government in violation of its commitments as an IMF member. However, in December 2018, the IMF acknowledged that the Venezuelan government provided it with some economic data as required by all IMF members. It remains to be seen whether this will be a turning point in the Maduro government's willingness to engage with the IMF. Some analysts believe a change in Venezuela's overall economic strategy will only come if and when there is a change in government. Energy Sector Challenges67 Oil revenues are an important element of Venezuela's economy and account for approximately 98% of the country's export earnings. Venezuela holds the largest amount of oil reserves in the world with more than 300 billion barrels of proven reserves at the end of 2017. However, oil production and export volumes have been trending downward over the last four years. In 2015, oil production in Venezuela averaged 2.37 million barrels per day (b/d). Oil production declined to average 1.9 million b/d in 2017. In March 2018, the International Energy Agency projected that Venezuela's crude oil production would continue declining to just over 1 million b/d and remain at that level until 2023 (see Figure 3 ). Actual oil production in Venezuela has generally followed the projected trend with production in November 2018 averaging approximately 1.13 million b/d. PdVSA's performance has been affected by a number of factors. Since August 2017, the Maduro government has arrested many executives for alleged corruption, which dissidents within the company assert has been a false pretense for replacing technocrats with military officers. Workers at all levels reportedly are abandoning the company by the thousands. Production has been challenged by aging infrastructure, bottlenecks created by PdVSA's inability to pay service companies and producers, and shortages of inputs (such as light crudes for blending) used to process its heavy crude oil. Massive debt (estimated at some $25 billion), combined with U.S. sanctions limiting the willingness of banks to issue credit to PdVSA and the fact that much of its production does not generate revenue, have added to the company's woes. When Conoco sought to seize PdVSA facilities in the Caribbean over nonpayment of past debts in mid-2018, tankers with crude oil began backing up and the company could not satisfy all of its deliveries. Corruption remains a major drain on the company's revenues and an impediment to performance. In 2016, a report by the National Assembly estimated that some $11 billion disappeared at PdVSA from 2004 to 2014. In February 2018, U.S. prosecutors unsealed an indictment accusing former executives in Venezuela's energy ministry and PdVSA of laundering more than $1 billion in oil income. Corruption, as well as looting and misuse of infrastructure, has continued since a military general with no experience in the sector took control of the company in late 2017 and replaced technocrats with military officers and other loyalists. Declining production by PdVSA-controlled assets, through 2015 contrasted with the performance of joint ventures that PdVSA has with Chevron, CNPC, Gazprom, Repsol, and others. From 2010 to 2015, production declined by 27.5% in fields solely operated by PdVSA, whereas production in fields operated by joint ventures increased by 42.3%. The future of these ventures is uncertain, however, as Maduro's government arrested executives from Chevron in April 2018 after they reportedly refused to sign an agreement under unfair terms. Although they were released in June, Chevron and other companies have scaled back their operations. Instead of relying on experienced partners, military officials with little expertise have signed contracts for basic functions, including drilling, with little-known companies that lack experience. PdVSA has also been under pressure to make payments to bondholders and to Canadian miner Crystallex in order to prevent the transfer of Citgo ownership control. Crystallex was awarded a $1.4 billion settlement in 2011 by the International Court for Settlement of Investment Disputes that was linked to Venezuela seizing the company's gold prospects in 2007. A Delaware court issued a decision that would have allowed Crystallex to seize PDV Holding, the PdVSA subsidiary that is Citgo's parent company. Venezuela reached an agreement with Crystallex to make a payment installment towards the $1.4 billion settlement in November 2018. In December 2018, it was reported that Venezuela had violated terms of the settlement agreement. This results in some uncertainty about the path forward for Crystallex to collect on its arbitration award and the potential future of Citgo ownership control. The Administration has imposed sanctions on Venezuela that are designed to affect PdVSA business operations. Sanctions that specifically affect PdVSA include those that limit access to debt finance for business activities. Generally, limiting PdVSA's access to debt potentially results in difficulties for the company financing business activities and also results in PdVSA having to access non-U.S. sources of capital. To date, the Administration has not imposed sanctions that might target petroleum trade between the United States and Venezuela, which is bilateral but heavily weighted towards U.S. refinery purchases of Venezuelan crude oil (see " Energy Sector Concerns and Potential U.S. Sanctions ," below). Humanitarian Situation87 Growing numbers of people continue to leave Venezuela for urgent reasons, including insecurity and violence; lack of food, medicine, or access to essential social services; and loss of income. As the pace of arrivals from Venezuela has quickened, neighboring countries, particularly Colombia, are straining to absorb a population that is often malnourished and in poor health. According to a 2017 national survey on living conditions, the percentage of Venezuelans living in poverty increased from 48.4% in 2014 to 87% in 2017. Poverty has been exacerbated by shortages in basic consumer goods, as well as by bottlenecks and corruption in the military-run food importation and distribution system. Basic food items that do exist are largely out of reach for the majority of the population due to rampant inflation. Between 2014 and 2016, Venezuela recorded the greatest increase in malnourishment in Latin America and the Caribbean, a region in which only eight countries recorded increases in hunger. According to Caritas Venezuela (an organization affiliated with the Catholic Church), 15% of children surveyed in August 2017 suffered from moderate to severe malnutrition and 30% showed stunted growth. Venezuela's health system has been affected severely by budget cuts, with shortages of medicines and basic supplies, as well as doctors, nurses, and lab technicians. Some hospitals face critical shortages of antibiotics, intravenous solutions, and even food, and 50% of operating rooms in public hospitals are not in use. According to the Venezuelan Program of Education-Action in Human Rights (PROVEA), a 2018 national hospital survey, 88% of hospitals lack basic medicines and 79% lack basic surgical supplies. In addition, a June 2018 Pan-American Health Organization (PAHO) report estimated that some 22,000 doctors (33% of the total doctors that were present in 2014) and at least 3,000 nurses had emigrated. In February 2017, Venezuela captured international attention following the unexpected publication of data from the country's Ministry of Health (the country had not been releasing such data since 2015). The report revealed significant spikes in infant and maternal mortality rates. By 2017, the infant mortality rate in Venezuela was reportedly 79% higher than it had been in 2011, according to World Bank data. PAHO's June 2018 report also documented the spread of previously eradicated infectious diseases like diphtheria (detected in July 2016) and measles (detected in July 2017). Malaria, once under control, is also spreading rapidly, with more than 400,000 cases recorded in 2017 (a 198% increase over 2015). Increasing numbers of people have also reportedly died from HIV/AIDS in Venezuela due to the collapse of the country's once well-regarded HIV treatment program and the scarcity of drugs needed to treat the disease. Observers are concerned that the lack of access to reliable contraception may hasten the spread of sexually transmitted diseases, unwanted pregnancies, and dangerous clandestine abortions. The World Health Organization (WHO) is reportedly helping the government purchase and deliver millions of vaccines against measles, mumps, and rubella. Nevertheless, doctors and health associations have urged the U.N. entity to provide more assistance and exert more pressure on the government to address the health crisis. Moreover, while President Maduro has publicly rejected offers of international humanitarian assistance, in November 2018, the U.N. Central Emergency Response Fund (CERF) allocated $9.2 million for Venezuela to be provided through U.N. entities, such as the U.N. Children's Fund (UNICEF), WHO, and UNHCR. This emergency humanitarian funding is to support projects providing nutritional support to children under five years old, pregnant women and lactating mothers at risk, and emergency health care and other aid for the vulnerable, including the displaced and host communities in Venezuela. Regional Migration Crisis Based on conservative figures from UNHCR and other experts, more than 3 million Venezuelan refugees and migrants had left the country by November 2018, with the vast majority remaining in the Latin America and Caribbean region. As of November 2018, the U.N. High Commissioner for Refugees (UNHCR) estimated that there were over 1 million Venezuelans living in Colombia, 500,000 in Peru, 220,000 in Ecuador 130,000 in Argentina, 100,000 in Chile, 94,000 in Panama, and 85,000 in Brazil. Taken as a percentage of their overall population, Venezuelan arrivals have also significantly impacted smaller countries and territories in the Caribbean. For example, Trinidad and Tobago, a twin-island country with 1.4 million people, estimated in late 2018 that it was hosting some 60,000 Venezuelans, which increased its overall population by more than 4%. By the end of 2019, UNHCR and the International Organization for Migration (IOM) estimate that the number of Venezuelan refugees and migrants could reach over 5.3 million. Although not all of the Venezuelans who have fled the country in recent years may be considered refugees, a significant number are in need of international protection. Responses to the Venezuelan arrivals vary by country and continue to evolve with events on the ground. ( See Figure 4 .) Between September 2014 and 2018, roughly 400,000 Venezuelans in the region and beyond (in the United States, Canada, Spain, and elsewhere) applied for political asylum (specific legal protection for which most migrants do not qualify.) As of October 2018, a further 960,000 Venezuelan arrivals in Latin America had been granted alternative legal forms of stay (which typically enables access to social services and the right to work.) Humanitarian experts are most concerned about the roughly 60% of Venezuelans in neighboring countries who lack identification documents. The Venezuelan government has made it increasingly difficult for Venezuelans to obtain a valid passport and therefore legal status outside the country. Those who lack status are vulnerable to arrest and deportation by governments and to abuse by criminal groups, including human trafficking. This is a significant displacement crisis for the Western Hemisphere, which has in place some of the highest international and regional protection standards for displaced and vulnerable persons. Neighboring countries are under pressure to examine their respective migration and asylum policies and to address, as a region, the legal status of Venezuelans who have fled their country. Humanitarian organizations and governments are responding to the needs of displaced Venezuelans in the region. Protection and assistance needs are significant for arrivals and host communities. Services provided vary by country but include support for reception centers and options for shelter; emergency relief items, such as emergency food assistance, safe drinking water, and hygiene supplies; legal assistance with asylum applications and other matters; protection from violence and exploitation; and the creation of temporary work programs and education opportunities. International Humanitarian Assistance. U.N. agencies and other international organizations have launched appeals for additional international assistance, and the U.S. government is providing humanitarian assistance and helping to coordinate regional response efforts (see " U.S. Humanitarian and Related Assistance ," below). The U.N. Secretary-General appointed UNHCR and IOM to coordinate the international response, which includes U.N. entities, nongovernmental organizations, the Red Cross Movement, faith-based organizations, and civil society. Former Guatemalan Vice President Eduardo Stein has been appointed the U.N. Joint Special Representative for Venezuelan Refugees and Migrants to promote dialogue and consensus in the region and beyond on the humanitarian response. In mid-December 2018, UNHCR and IOM launched the regional Refugee and Migrant Response Plan (RMRP), which is the first of its kind in the Americas: an operational and coordination strategy "responding to the needs of Venezuelans on the move and securing their social and economic inclusion in the communities receiving them." The RMRP was put together by 95 organizations covering 16 countries. The RMRP is also an appeal for $738 million in funding to support over 2 million Venezuelans and half a million people in host communities. It focuses on four key areas: direct emergency assistance, protection, socio-economic and cultural integration and strengthening capacities in the receiving countries. Foreign Relations The Maduro government has maintained Venezuela's foreign policy alliance with Cuba and a few other leftist governments in Latin America, but the country's ailing economy has diminished its formerly activist foreign policy, which depended on its ability to provide subsidized oil to 17 other Caribbean Basin countries. President Maduro has increasingly relied on financial backing from China and Russia. Unlike under Chávez, an increasing number of countries have criticized authoritarian actions taken by the Maduro government, brought concerns about Venezuela to regional and global organizations, and implemented targeted sanctions against its officials. Since more than 50 countries did not recognize the results of the May 2018 presidential elections and do not consider his current presidency legitimate, Maduro is likely to face increasing international isolation. The OAS has voted not to recognize the legitimacy of Maduro's current term, mirroring the U.S. and EU positions. Paraguay has broken diplomatic ties with the Maduro government and Peru has recalled its last diplomat from Caracas and pledged not to permit Venezuelan officials to travel through its territory. Other countries may follow suit. Venezuela's foreign relations have become more tenuous as additional countries have sanctioned its officials. In September 2017, Canada implemented targeted sanctions against 40 Venezuelan officials deemed to be corrupt; it added another 14 individuals, including President Maduro's wife, following the May elections. In November 2017, the EU established a legal framework for targeted sanctions and adopted an arms embargo against Venezuela to include related material that could be used for internal repression. These actions paved the way for targeted EU sanctions on seven Venezuelan officials in January 2018. On June 25, 2018, the Council of the EU sanctioned 11 additional individuals for human rights violations and undermining democracy and called for new presidential elections to be held. Those sanctions will remain in place through late 2019. In March 2018, Panama and Switzerland sanctioned Venezuelan officials. Additional sanctions by these countries are possible now that they consider Maduro's mandate illegitimate. Latin America and the Lima Group Ties between Venezuela and a majority of South American countries have frayed with the rise of conservative governments in Argentina, Brazil, Chile, Colombia, and Peru and with Maduro's increasingly authoritarian actions. In December 2016, the South American Common Market (Mercosur) trade bloc suspended Venezuela over concerns that its government had violated the requirement that Mercosur's members have "fully functioning democratic institutions." Six UNASUR members—Uruguay, Argentina, Brazil, Chile, Colombia, and Paraguay—issued a joint statement opposing the Venezuelan Supreme Court's attempted power grab in March 2017. According to the Colombian government, it is working with other South American countries to create a new regional entity to replace UNASUR and isolate Venezuela. Concerned about potential spillover effects from turmoil in Venezuela, Colombia has supported OAS actions, provided humanitarian assistance to Venezuelan economic migrants and asylum seekers, and closely monitored the situation on the Venezuelan-Colombian border. Colombian President Ivan Duque and Brazilian President Jair Bolsonaro have pledged to support efforts to hasten Maduro's exit from power. Tensions remain high along the border with Guyana after the U.N. proved unable to resolve a long-standing border-territory dispute between the countries and referred the case to the International Court of Justice in January 2018. Venezuela's navy stopped ExxonMobile ships doing seismic surveys for the Guyanese government in December 2018. On August 8, 2017, 12 Western Hemisphere countries signed the Lima Accord, a document rejecting the rupture of democracy and systemic human rights violations in Venezuela, refusing to recognize the ANC, and criticizing the government's refusal to accept humanitarian aid. The signatory countries are Mexico; Canada; four Central American countries (Costa Rica, Guatemala, Honduras, and Panama); and six South American countries (Argentina, Brazil, Chile, Colombia, Paraguay, and Peru). Although the Lima Group countries support targeted U.S. economic sanctions, most reject any discussion of military intervention and most are not in favor of restrictions on U.S. petroleum trade with Venezuela. On February 13, 2018, Guyana and St. Lucia joined the Lima Group as it issued a statement calling for the Maduro government to negotiate a new electoral calendar that is agreed upon with the opposition and to accept humanitarian aid. These nations also backed Peru's decision to disinvite President Maduro to the Summit of the Americas meeting of Western Hemisphere heads of state in April 2018. The Lima Group did not recognize the results of the May 20, 2018, Venezuelan elections. Its members were among the 19 countries that voted in favor of an OAS resolution on Venezuela approved on June 5, 2018. The resolution said that the electoral process in Venezuela "lacks legitimacy" and authorized countries to take "the measures deemed appropriate," including sanctions, to assist in hastening a return to democracy in Venezuela . On January 4, 2019, thirteen members of the Lima Group (excluding Mexico) signed a declaration that urged President Maduro not to assume power on January 10, 2019 and to cede control of the country to the National Assembly until elections can be held. The signatories resolved to reassess their level of diplomatic engagement with Venezuela, implement travel bans or sanctions (where possible) on high-level Maduro government officials, suspend military cooperation and arms transfers to Venezuela, and evaluate whether to give loans to the Maduro government at regional and international financial institutions, among other measures. While Mexico had previously been an active member of the Lima Group, the leftist government of Andrés Manuel López Obrador has adopted policy of nonintervention in foreign affairs and did not vote for the measure. While some have criticized this policy shift, others maintain that Mexico could perhaps arbitrate between the government and the opposition. Those same thirteen countries also joined with the United States and five others to support a January 10, 2019 OAS resolution on Venezuela not recognizing the legitimacy of Maduro's second term. (See Appendix B for OAS efforts on Venezuela.) The Maduro government has continued to count on political support from Cuba, Bolivia, and Nicaragua, which, together with Venezuela, were key members of the Bolivarian Alliance of the Americas (ALBA), a group launched by President Chávez in 2004. Caribbean members of ALBA—Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, and St. Vincent and the Grenadines—had, until recently, been reluctant to take action that could anger the Maduro government. Since Lenín Moreno took office in May 2017, the Ecuadorian government (another ALBA member) has been critical of the Maduro government. Most of these governments abstained from the June 5, 2018, OAS vote on the legitimacy of the election in Venezuela, with only Bolivia, Dominica, and St. Vincent and the Grenadines voting with Venezuela and against the measure. In January 2019, Ecuador and Haiti voted in favor of the OAS measure that deemed Maduro's second term illegitimate, only Bolivia, Dominica, Nicaragua, St. Vincent and the Grenadines, and Suriname voted with Venezuela and against the measure. Cuba's close relationship with Venezuela was solidified in 2000, when the countries signed an agreement for Venezuela to provide Cuba at least 90,000 barrels of oil per day (b/d) in exchange for technical assistance and other services. Estimates of the number of Cuban personnel in Venezuela vary, but a 2014 study estimated that there were 40,000, 75% of whom were health care workers. At that time, the report said that the number of Cuban military and intelligence advisors in Venezuela may have ranged from hundreds to thousands, coordinated by Cuba's military attaché in Venezuela. It is unclear how many of those professionals have stayed in the country, but Cuban intelligence officers have reportedly helped the Maduro government identify and disrupt coup plots. Although Cuba has imported more oil from Russia and Algeria to make up for dwindling Venezuelan supplies since 2017, the Maduro government remains committed to providing what it can, even if it has to be purchased from other sources. China and Russia As Venezuela's economic situation has deteriorated, maintaining close relations with China and Russia, the country's largest sources of financing and investment, has become a top priority. From 2007 through 2016, China provided some $62.2 billion in financing to Venezuela. The money typically has been for funding infrastructure and other economic development projects, but has also included some lending for military equipment. It is being repaid through oil deliveries. Although the Chinese government has been patient when Venezuela has fallen behind on its oil deliveries, it reportedly stopped providing new loans to Venezuela in fall 2016. Some observers have criticized China for its continued support to the Venezuelan government and questioned whether a new Venezuelan government might refuse to honor the obligations incurred under Maduro. China refrained from negative commentary after the Constituent Assembly elections and accepted the May 2018 election results. It has responded to U.S. sanctions by stating that "unilateral sanctions will make the situation even more complicated." Russia has remained a strong ally of the Maduro government. It has called for the political crisis in Venezuela to be resolved peacefully, with dialogue, and without outside interference. Russia's trade relations with Venezuela currently are not significant, with $336 million in total trade in 2016, with $334 million, consisting of Russian exports to Venezuela. However, Venezuela had been a major market for Russian arms sales between 2001 and 2013, with over $11 billion in sales. Press reports in May 2017 asserted that Venezuela had more than 5,000 Russian-made surface-to-air missiles, raising concern by some about the potential for them being stolen or sold to criminal or terrorist groups. Russia's 2017 decision to allow Venezuela to restructure $3.15 billion in debt provided much-needed financial relief to the Maduro government. Russian state oil companies Rosneft and Gazprom have large investments in Venezuela. Both are seeking to expand investments in Venezuela's oil and gas markets (see " Energy Sector Concerns ," below). Russia congratulated President Maduro on his reelection and inauguration. Maduro visited Russia to seek investment in early December 2018 after which news reports suggested that Rosneft has lent PdVSA $6.5 billion, partly as a prepayment for crude oil. Russia then sent two nuclear-capable jets to Venezuela to conduct joint exercises (which also occurred in 2008 and 2013) in mid-December in a show of support for the government. U.S. Policy The United States historically has had close relations with Venezuela, a major U.S. foreign oil supplier, but friction in relations increased under the Chávez government and has intensified under the Maduro regime. For more than a decade, U.S. policymakers have had concerns about the deterioration of human rights and democratic conditions in Venezuela and the lack of bilateral cooperation on counternarcotics and counterterrorism efforts. U.S. officials have expressed increasing concerns regarding Colombian criminal and terrorist groups in Venezuela. U.S. democracy and human rights funding, which totaled $15 million in FY2018, and political support have bolstered democratic civil society in Venezuela. U.S. humanitarian assistance is supporting Venezuelans who have fled to neighboring countries. The United States has employed various sanctions in response to concerns about the activities of the Venezuelan government or Venezuela-linked individuals and entities. Targeted sanctions escalated after President Maduro usurped the power of the National Assembly by holding constituent assembly elections on July 30, 2017. In the wake of the May 2018 elections that the United States and much of the international community deemed illegitimate, the Trump Administration has sought to increase pressure on the Maduro government in order to hasten a return to democracy in Venezuela. The Administration has ratcheted up targeted sanctions on Venezuelan officials accused of corruption, antidemocratic actions, or human rights abuses under Executive Order (E.O.) 13692 (issued by President Obama in 2015) and on Venezuela-linked individuals and entities for drug trafficking. President Trump issued three executive orders restricting the government and PdVSA's ability to access the U.S. financial system (E.O. 13808), barring U.S. purchases of Venezuela's new digital currency (E.O. 13827), and prohibiting U.S. purchases of Venezuelan debt (E.O. 13835). E.O. 13850, issued in November 2018, created a framework to sanction those who operate in Venezuela's gold sector or those deemed complicit in corrupt transactions involving the government. Following President Maduro's second inauguration, Secretary of State Michael Pompeo pledged to "use the full weight of U.S. economic and diplomatic power to press for the restoration of Venezuelan democracy." National Security Adviser John Bolton lent support to National Assembly leader Juan Guaidó's decision "to invoke protections under Venezuela's constitution and declare that Maduro does not legitimately hold the country's presidency." Vice President Pence has also lent his support to Guaidó. According to U.S. officials, forthcoming U.S. actions could limit or prohibit petroleum trade with Venezuela. Some analysts maintain that oil sanctions could hasten the regime's demise, whereas others caution that such sanctions could inflict further suffering on the Venezuelan people. U.S. Democracy Assistance For more than a decade, the United States has provided democracy-related assistance to Venezuelan civil society through the U.S. Agency for International Development (USAID) and the National Endowment for Democracy (NED). From 2002 through 2010, USAID supported small-grant and technical assistance activities through its Office of Transition Initiatives (OTI) to provide assistance monitoring democratic stability and strengthening the county's democratic institutions. At the end of 2010, USAID's support for such activities in Venezuela was transferred from OTI to USAID's Latin America and Caribbean Bureau. U.S. democracy and human rights assistance to Venezuela amounted to $4.3 million in each of FY2014 and FY2015 and $6.5 million in FY2016, provided through the Economic Support Fund (ESF) funding account. U.S. assistance totaled $7 million in FY2017, provided through the Development Assistance Account. The Trump Administration did not request any assistance for democracy and human rights programs in Venezuela for FY2018. Nevertheless, Congress provided $15 million in democracy and human rights assistance to civil society groups in Venezuela in P.L. 115-141 . For FY2019, the Trump Administration requested $9 million to support democracy and human rights programs in Venezuela that strengthen civil society, democratic institutions and processes, and independent media. Congress has yet to enact a full-year FY2019 appropriations measure, although a series of continuing resolutions provided FY2019 funding through December 21, 2018. Legislation to fund foreign aid programs for the remainder of FY2019 could incorporate provisions from the State, Foreign Operations, and Related Programs appropriations measures that the House and Senate Appropriations Committees approved during the 115 th Congress. The House Committee bill ( H.R. 6385 ) recommended providing $15 million for programs in Venezuela, while the Senate Committee bill ( S. 3108 ) recommended $20 million. As noted above, NED has funded democracy projects in Venezuela since 1992. U.S. funding for NED is provided in the annual State Department and Foreign Operations appropriations measure, but country allocations for NED are not specified in the legislation. In FY2017, NED funded 43 projects in Venezuela totaling $2.6 million (up from $1.6 million in FY2016). U.S. Humanitarian and Related Assistance150 The U.S. government is providing humanitarian and emergency food assistance and helping to coordinate and support regional response efforts. As of September 30, 2018 (latest data available), U.S. government humanitarian funding for the Venezuela regional response totaled approximately $96.5 million for both FY2017 and FY2018 combined, of which $54.8 million was for Colombia. (Humanitarian funding is drawn primarily from the global humanitarian accounts in annual Department of State/Foreign Operations appropriations acts.) From October through the end of December, the U.S. Navy hospital ship USNS Comfort was on an 11-week medical support deployment to work with government partners in Ecuador, Peru, Colombia, and Honduras, in part to assist with arrivals from Venezuela. In Colombia, the U.S. response aims to help the Venezuelan arrivals as well as the local Colombian communities that are hosting them. In addition to humanitarian assistance, the United States is also providing $37 million in bilateral assistance to support medium and longer-term efforts by Colombia to respond to the Venezuelan arrivals. Targeted Sanctions Related to Antidemocratic Actions, Human Rights Violations, and Corruption151 In Venezuela, as in other countries, the U.S. government has used targeted sanctions to signal disapproval of officials who have violated U.S. laws or international human rights norms and to attempt to deter others from doing so. Targeted sanctions can punish officials or their associates who travel internationally and hold some of their assets in the United States without causing harm to the population as a whole. Some argue that sanctioning additional Venezuelan officials might help to increase pressure on the Maduro government to cede power or at least stop violating human rights, whereas others argue that increased sanctions would only encourage Maduro and his allies to harden their positions. In December 2014, the 113 th Congress enacted the Venezuela Defense of Human Rights and Civil Society Act of 2014 ( P.L. 113-278 ). Among its provisions, the law required (until December 31, 2016) the President to impose sanctions (asset blocking and visa restrictions) against those whom the President determined were responsible for significant acts of violence or serious human rights abuses associated with the 2014 protests or, more broadly, against anyone who had directed or ordered the arrest or prosecution of a person primarily because of the person's legitimate exercise of freedom of expression or assembly. In July 2016, Congress enacted legislation ( P.L. 114-194 ) extending the termination date of the requirement to impose sanctions until December 31, 2019. In March 2015, President Obama issued Executive Order (E.O.) 13692 , which implemented P.L. 113-278 and went beyond the requirements of the law. The E.O. authorized targeted sanctions against (1) those involved in actions or policies that undermine democratic processes or institutions; (2) those involved in significant acts of violence or conduct constituting a serious abuse or violation of human rights; (3) those involved in actions that prohibit, limit, or penalize the exercise of freedom of expression or peaceful assembly; or (4) those senior Venezuelan officials involved in public corruption. The Department of the Treasury has imposed sanctions on 65 Venezuelans pursuant to E.O. 13692. In March 2015, the Department of the Treasury froze the assets of six members of Venezuela's security forces and a prosecutor involved in repressing antigovernment protesters. Under the Trump Administration, the Department of the Treasury has imposed sanctions against an additional 65 Venezuelans pursuant to E.O. 13692, including members of the Supreme Court, CNE, Cabinet, Constituent Assembly, and security forces (army, national guard, and police). On July 31, 2017, the Administration imposed sanctions on President Maduro, one of four heads of state subject to U.S. sanctions. On May 18, 2018, the U.S. Department of the Treasury imposed sanctions on four current or former Venezuelan officials, including Diosdado Cabello. In September 2018, Treasury sanctioned four members of President Maduro's inner political circle, including his wife Celia Flores and executive vice president Delcy Rodriguez. Other Targeted Sanctions. On November 1, 2018, President Trump signed E.O. 13850, creating a framework to sanction those who operate in Venezuela's gold sector (where much of the gold is produced illegally) or those deemed complicit in corrupt transactions involving the government (see " Illegal Mining ," below). In January 2019, sanctions were imposed under that Executive Order against seven individuals including a former Venezuelan treasurer and a television magnate, and 23 companies involved in a scheme to bribe the government and steal $2.4 billion in state funds. Trafficking in Persons Sanctions . Since 2014, Venezuela has received a Tier 3 ranking in the State Department's annual Trafficking in Persons (TIP) reports. U.S. assistance to Venezuela has not been subject to TIP-related sanctions, since the democracy and human rights aid provided goes to nongovernmental organizations and has been deemed to be in the U.S. national interest. According to the June 2018 TIP report, although the government arrested seven trafficking suspects, it did not provide any data on prosecutions or convictions, victims identified, or any other anti-trafficking efforts. Sanctions Restricting Venezuela's Access to U.S. Financial Markets President Trump signed E.O. 13808, effective August 25, 2017, imposing new sanctions that restrict the Venezuelan government's access to U.S. financial markets, which has been an important source of capital for the government and PdVSA. According to the White House, the measures "are carefully calibrated to deny the Maduro dictatorship a critical source of financing to maintain its illegitimate rule, protect the U.S. financial system from complicity in Venezuela's corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance." Sanctions targeting sovereign debt are unusual, but not unprecedented. The sanctions seek to cut off new funds flowing from U.S. investors or through the U.S. financial system to the Maduro government. To this end, sanctions restrict transactions by U.S. investors or within the United States related to new debt issued by the Venezuelan government and PdVSA. U.S. persons are also prohibited from purchasing securities from the Venezuelan government. Additionally, CITGO—whose parent company is PdVSA—is prohibited from distributing profits to the Venezuelan government, though it can continue its operations in the United States. Additionally, the sanctions target new short-term debt (less than 30 days for the Venezuelan government and less than 90 days for PdVSA). This ensures continued access to short-term financing that facilitates U.S. trade with Venezuela, including U.S. imports of oil from Venezuela. Concurrent with the release of the Executive Order in August, Treasury issued licenses to minimize the impact of sanctions on U.S. economic interests and on the Venezuelan people. When the sanctions were announced in August 2017, there was debate about whether they would push Venezuela to default, or whether the government would find alternative sources of financing through new oil-for-loan deals with Russia and China or taking cash from PdVSA. Most economists agree that the sanctions made the fiscal position of the government more difficult, as many international banks ceased all financial transactions with Venezuela, and as sanctions accelerated the decline in Venezuelan oil exports to the United States. In 2018, the Trump Administration issued two additional executive orders to further tighten Venezuela's access to U.S. financial markets. Executive Order 13827, issued in March 2018, prohibits U.S. investors from purchasing or transacting in Venezuela's new digital currency, the petro, designed to help the government raise funds and circumvent U.S. sanctions. Executive Order 13835, issued in May 2018, prohibits U.S. investors from buying debt or accounts receivable with the Venezuelan government, including PdVSA, measures devised to close off an "avenue for corruption" used by Venezuelan government officials to enrich themselves. Organized Crime-Related Issues Venezuela has among the highest crime victimization and homicide rates in Latin America and the Caribbean, the region with the highest homicide rates in the world. According to the Venezuelan Violence Observatory (OVV), the homicide rate in Venezuela declined in 2018 (81.4 homicides per 100,000 people) as compared to a rate of 89.1 per 100,000 people in 2017, with part of that decline attributed to migration that has reduced the population. The impunity rate for homicide in Venezuela is roughly 92%. Although many homicides have been committed by criminal groups, extrajudicial killings by security forces and allied armed civilian militias ( collectivos ) also have been rising. In September 2018, Amnesty International published a report describing how security forces have adopted militarized approaches to public security that have resulted in numerous human rights abuses, including extrajudicial killings. A May 2018 report by Insight Crime identified more than 120 high-level Venezuelan officials who have engaged in criminal activity, which has blurred the lines between crime groups and the state. Many of those officials allegedly have engaged in drug trafficking (discussed below), but others reportedly have deputized illegal groups in the neighborhoods and prisons, run smuggling operations in border areas, and extracted revenue from state industries. In 2016, a National Assembly committee estimated that kleptocracy had cost the country some $70 billion. Counternarcotics Venezuela's pervasive corruption and extensive 1,370-mile border with Colombia have made the country a major transit route for cocaine destined for the United States and an attractive environment for drug traffickers and other criminals to engage in money laundering. In 2005, Venezuela suspended its cooperation with the U.S. Drug Enforcement Administration (DEA) after alleging that DEA agents were spying on the government, charges U.S. officials dismissed as baseless. Prior to that time, the governments had negotiated an antidrug cooperation agreement (an addendum to a 1978 Bilateral Counternarcotics agreement) that would have enhanced information-sharing and antidrug cooperation. Venezuela has yet to approve that agreement. Since 2005, Venezuela has been designated annually as a country that has failed to adhere to its international antidrug obligations, pursuant to international drug-control certification procedures in the Foreign Relations Authorization Act, FY2003 ( P.L. 107-228 ). In September 2018, President Trump designated Venezuela as one of two countries not adhering to its antidrug obligations. At the same time, President Trump waived economic sanctions that would have curtailed U.S. assistance for democracy programs. The State Department reported in its 2018 International Narcotics Control Strategy Report (INCSR) that Venezuela was one of the preferred trafficking routes for the transit of illicit drugs out of South America, especially cocaine, because of the country's porous border with Colombia, economic crisis, weak judicial system, sporadic international counternarcotics cooperation, and permissive and corrupt environment. The report notes the following: Cocaine is trafficked via aerial, terrestrial, and maritime routes, with most drug flights departing from Venezuelan states bordering Colombia and maritime trafficking that includes the use of large cargo containers, fishing vessels, and "go-fast" boats. Maritime trafficking may have increased in 2017. The vast majority of drugs transiting Venezuela in 2017 were destined for the Caribbean, Central America, the United States, West Africa, and Europe. Colombian drug-trafficking organizations—including multiple criminal bands, the FARC, and the National Liberation Army (ELN)—facilitate drug transshipment through Venezuela. Mexican drug-trafficking organizations also operate in the country. Despite a nearly 134% increase in coca cultivation from 2013 to 2016 and a more than 200% increase in potential cocaine production in Colombia, the report states that Venezuelan antidrug forces seized only 32 metric tons (MT) of drugs in the first six months of 2016 (the most recent data available), compared to 66 MT in the first eight months of 2015. They also reported seizing two cocaine labs in the state of Zulia in August 2017. "Venezuelan authorities do not effectively prosecute drug traffickers, in part due to political corruption," but Venezuelan law enforcement officers also "lack the equipment, training, and resources required to impede the operations of major drug trafficking organizations." Venezuela and the United States continue to use a 1991 bilateral maritime agreement to cooperate on interdiction. In 2016, Venezuela worked with the U.S. Coast Guard in six maritime drug interdiction cases (down from 10 in 2015). In addition to State Department reports, a report by Insight Crime entitled Drug Trafficking Within the Venezuelan Regime: the Cartel of the Suns describes in detail how the Venezuelan military, particularly the National Guard, has been involved in the drug trade since 2002. It names officials who have been sanctioned or accused of drug trafficking-related crimes, as well as others for whom there is significant evidence of their involvement in the drug trade. Insight Crime also has documented how the Cartel of the Suns has interacted with illegally armed groups and drug traffickers in Colombia, trafficked cocaine through the Dominican Republic and Honduras, and engaged in corruption with politicians and businesses in El Salvador. Recent cases in the United States also demonstrate the involvement of high-level Venezuelan officials or their relatives in international drug trafficking. President Maduro either has dismissed those cases or appointed the accused to Cabinet positions, where they presumably will be protected from extradition. Some observers have maintained that it may therefore be difficult to persuade officials to leave office through democratic means if, once out of power, they likely would face extradition and prosecution in the United States. On August 1, 2016, the U.S. Federal Court for the Eastern District of New York unsealed an indictment from 2015 against two Venezuelans for cocaine trafficking to the United States. The indictment alleged that General Néstor Luis Reverol Torres, former general director of Venezuela's National Anti-Narcotics Office (ONA) and former commander of Venezuela's National Guard, and Edylberto José Molina, former subdirector of ONA, participated in drug-trafficking activities from 2008 through 2010. President Maduro responded by appointing General Reverol as Minister of Interior and Justice in charge of the country's police forces. In December 2017, two nephews of First Lady Cilia Flores—Franqui Francisco Flores de Freitas and Efraín Antonio Campo Flores—were sentenced to 18 years in a U.S. federal prison for conspiring to transport cocaine into the United States. The two nephews had been arrested in Haiti in November 2015 and convicted in the United States in November 2016. The Department of the Treasury has imposed sanctions on at least 22 individuals and 27 companies with connections to Venezuela for narcotics trafficking by designating them as Specially Designated Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act, P.L. 106-120 , Title VIII; 21 U.S.C. 1901 et seq.). On February 13, 2017, the Department of the Treasury imposed drug-trafficking sanctions against then-Vice President Tareck el Aissami and an associate. Money Laundering In addition to drug trafficking, the 2018 INCSR discusses Venezuela's high level of vulnerability to money laundering and other financial crimes. According to the report, money laundering is widespread in the country and is evident in industries ranging from government currency exchanges to banks to real estate to metal and oil. Venezuela's currency-control system requires individuals and firms to purchase hard currency from the government's currency commission at a fixed exchange rate, which has created incentives for trade-based money laundering. Venezuela revised its laws against organized crime and terrorist financing in 2014 but excluded the government and state-owned industries from the scope of any investigations. The unit charged with investigating financial crimes has "limited operational capabilities," and there is a lack of political will in the judicial system to combat money laundering and corruption. The 2018 INCSR concludes that Venezuela's "status as a drug transit country, combined with weak AML supervision and enforcement, lack of political will, limited bilateral cooperation, an unstable economy, and endemic corruption" make the country vulnerable to money laundering. As an example, in mid-June 2018, a U.S. district judge sentenced the Florida owners of a construction equipment export company who had been found guilty of laundering and transferring $100 million from Venezuela to bank accounts in the United States and other countries. On September 20, 2017, the Department of the Treasury's Financial Crimes Enforcement Network advised U.S. financial institutions to report any suspicious financial transactions that could have a nexus with Venezuela. The advisory urges U.S. institutions to exercise increased scrutiny over transactions that may involve lesser-known state-owned enterprises connected to the government. It also warns that recent sanctions against Venezuelan officials could "increase the likelihood that other non-designated Venezuelan senior political figures may seek to protect their assets." Illegal Mining Although more than 95% of Venezuela's export revenue comes from oil and gas exports, gold mining, both licit and illicit, has accelerated as the country's economy has collapsed in the face of low global oil prices and an ongoing political crisis. According to the Global Initiative against Transnational Organized Crime, 91% of gold produced in Venezuela was mined illegally—the highest rate in Latin America, even prior to the current crisis. Over the past three years, a boom in illegal mining in Venezuela reportedly has contributed to deforestation and environmental degradation in indigenous areas, clashes between rival criminal gangs and violence committed by those gangs against miners whom they extort, and an outbreak of malaria (a disease that had been eradicated). According to numerous reports, the illegal mining industry also commits various human rights violations, reportedly including the forcible recruitment of child labor from the indigenous Yanomami tribe. Colombian Illegally Armed Groups Operating in Venezuela Illegally armed groups are active on both sides of the Colombia-Venezuelan border. Former Colombian paramilitaries (the Rastrojos), reportedly control important gasoline smuggling routes between Venezuela and Colombia. National Liberation Army (ELN) guerrillas from Colombia have sought to control illicit gold mining areas near the Colombia-Guyana border. Both the ELN, which is still engaged in armed conflict with the Colombian government, and its rival, the Popular Liberation Army (EPL) reportedly recruit Venezuelans to cultivate coca. Human trafficking and sexual exploitation of Venezuelan migrants is prevalent in Colombia and border regions straddling the countries. Finally, experts assert that dissident FARC guerrillas are using border areas to regroup; they may also be coordinating efforts with the ELN. Violence among these groups and between the groups and the Venezuelan government has escalated, threatening security on both sides of the border. Conflict between the ELN and the EPL over control of the cocaine trade led to an August 2018 daytime shootout in a town on the Colombian side of the border in which eight people died. Since early 2018, Freddy Bernal, an official on the U.S. Kingpin List who allegedly supplied arms to the FARC, has served as head of security in Táchira state bordering Colombia. After Bernal ordered an elite police unit to arrest members of the Rastrojos, the group attacked a Venezuelan military base in October 2018, killing three soldiers. The ELN reportedly killed three Venezuelan national guardsmen in Amazonas state in November 2018. As this violence has occurred, Colombia has also protested periodic crossings into its territory by Venezuelan troops. Terrorism The Secretary of State has determined annually, since 2006, that Venezuela has not been "cooperating fully with United States antiterrorism efforts" pursuant to Section 40A of the Arms Export Control Act (AECA). Per the AECA, such a designation subjects Venezuela to a U.S. arms embargo, which prohibits all U.S. commercial arms sales and retransfers to Venezuela. The most recent determination was made in May 2018. In 2008, the Department of the Treasury imposed sanctions (asset freezing and prohibitions on transactions) on two individuals and two travel agencies in Venezuela for providing financial support to Hezbollah, which the Department of State has designated a Foreign Terrorist Organization. The action was taken pursuant to E.O. 13224, aimed at impeding terrorist funding. The State Department's most recent annual terrorism report, issued in September 2018, stated that "country's porous borders offered a permissive environment to known terrorist groups." Unlike in years past, the report did not identify any specific terrorist groups or sympathizers present in the country. This designation would trigger an array of sanctions, including aid restrictions, requirement for validated export licenses for dual-use items, and other financial restrictions. Critics caution there is a lack of evidence to conclude that the Venezuelan government has "repeatedly provided support for acts of international terrorism," as required by law. Energy Sector Concerns and Potential U.S. Sanctions194 Petroleum trade between the United States and Venezuela is bilateral, although heavily weighted toward Venezuelan crude oil exports to U.S. refiners. Traditionally, Venezuela has been a major supplier of crude oil imports into the United States, but the amount, value, and relative share of U.S. oil imports from Venezuela declined in recent years. In 2017, Venezuela was the fourth-largest foreign supplier of crude oil to the United States (behind Canada, Saudi Arabia, and Mexico), providing an average of 618,000 b/d, down from 1.5 million b/d in 2015 (see Figure 5 ). U.S. oil imports from Venezuela have continued to decline in 2018 to a reported annual average of roughly 500,000 b/d, the lowest since 1989. Oil is by far Venezuela's major export to the United States. According to U.S. trade statistics, Venezuela's oil exports to the United States were valued at $11.7 billion in 2017, accounting for 95% of Venezuela's exports to the United States. This figure is down from $29 billion in 2014, reflecting the steep decline in the price of oil. In addition to importing crude oil from Venezuela, the United States also exports light crude oil and other product inputs to Venezuela needed to blend with and refine Venezuelan heavy crude oil. About half of U.S. exports to Venezuela consist of light crude oil and other oil product inputs. The decline in U.S. imports of oil from Venezuela is driven by a number of factors, including Venezuela's decreased production and increased U.S. oil imports from Canada. U.S. sanctions also are making oil imports from Venezuela more difficult. Under the sanctions, U.S. partners can extend new credit to PdVSA for up to 90 days only. PdVSA has dealt with its fiscal problems by delaying payments and paying service providers with promissory notes in lieu of payments. There are concerns that delayed payments and promissory notes would count as new credit and, if their maturity exceeds 90 days, would violate sanctions. These payment issues have contributed to the slowdown in oil production, although they have not halted it. Various sanction options on Venezuela's petroleum sector reportedly have been considered by the Trump Administration as a potential means of applying economic pressure on the Maduro government. Generally, the economic impact of sanctions will depend on the timing (e.g., immediate versus phased) of each option as well as whether or not such sanctions are unilateral (i.e., U.S. only) or multilateral (i.e., U.S. cooperation with other countries). The greatest impact could come from prohibiting Venezuelan petroleum exports to the United States, the largest element of petroleum trade between the countries. From Venezuela's perspective, the country would lose access to a close-proximity market that provides much-needed cash flow to the government. Venezuela would need to find alternative markets for these crude volumes, with India and China being likely destinations. Initially, in order to sell crude to alternative markets, Venezuelan oil may need to be price discounted. The magnitude of this discount is uncertain, and the financial impact would depend on the prevailing market price of crude oil at the time such a prohibition might be introduced. U.S. oil refiners also would be affected by a prohibition on Venezuelan oil imports. Initially, prices for substitute crude oils likely would rise to attract alternative sources of supply (e.g., Canada and Iraq). Although a limited number of U.S. refiners acquire crude oil from Venezuela, any crude oil price increase likely would impact all refiners. U.S. oil producers, however, would benefit financially from an increase in oil prices. U.S. Support for Organization of American States Efforts on Venezuela Over the past three years, the U.S. government has supported the organization's efforts under Secretary General Luis Almagro to address the situation in Venezuela. Although the United States' ability to advance its policy initiatives within the OAS generally has declined as Latin American governments have adopted more independent foreign policy positions, OAS efforts on Venezuela have complemented U.S. objectives. (See Appendix B for details on OAS efforts.) OAS Secretary General Almagro (who assumed his position in May 2015) has spoken out strongly about the situation in Venezuela. On May 31, 2016, the Secretary General invoked the Inter-American Democratic Charter, Article 20—a collective commitment to promote and defend democracy—when he called on the OAS Permanent Council to convene an urgent session on Venezuela to decide whether "to undertake the necessary diplomatic efforts to promote the normalization of the situation and restore democratic institutions." He issued a report on the political and economic situation in Venezuela, concluding that there were "serious disruptions of the democratic order" in the country. The Permanent Council received the report, but struggled until mid-2018 to achieve consensus on how to respond to the evolving crises. In March 2017, OAS Secretary General Almagro issued a new report to the Permanent Council, which called on the Venezuelan government to undertake a series of measures to resume the constitutional order, or face a suspension from the OAS. It called on OAS member states to apply Article 21 of the Inter-American Democratic Charter to suspend Venezuela from the organization if the Venezuelan government failed to address the report recommendations positively within 30 days. An affirmative vote of two-thirds of the member states (23) in a special session of the General Assembly would be necessary to suspend Venezuela from the organization. Although a suspension would demonstrate Venezuela's diplomatic isolation, it is unclear whether it would affect the Maduro government's policies. In May 2017, President Maduro instructed his foreign minister to begin the process for Venezuela to withdraw from the OAS in protest of its recent actions, the first time in OAS history that a country has sought to quit. The withdrawal process, which takes two years, would require Venezuela to pay $8.8 million in back dues. Despite the deteriorating situation in Venezuela, some countries were reluctant in 2017 to follow Almagro's lead in responding to the situation in Venezuela. During the OAS General Assembly meeting in June 2017, 20 countries voted in favor of adopting a resolution to press the Venezuelan government to take concrete actions, but it failed because it needed 23 votes. In the absence of consensus within the General Assembly, Secretary General Almagro continued to speak out against actions taken by the Maduro government. He issued a report in July 2017 describing abuses committed by the government against protesters and another in September 2017 denouncing the consolidation of Venezuela's "dictatorial regime" with the formation of the Constituent Assembly. The Secretary General initiated a process to analyze whether the Maduro government's abuses against its citizens constitute crimes against humanity meriting a referral to the ICC. The process culminated in the May 29, 2018 publication of a report with information gathered by the General Secretariat backed by a legal assessment by independent jurists that the Maduro government's actions merit a referral to the ICC. Although some observers have praised Secretary-General Almagro's outspoken activism on Venezuela, others have asserted that he and the OAS are unlikely to be trusted by anyone in the Maduro government as a mediator that could help resolve the current crisis. Since the May 2018 election, a majority of countries within the OAS Permanent Secretariat have voted against the Maduro government. On June 5, 2018, it approved a resolution declaring that the May 20, 2018, electoral process in Venezuela "lacks legitimacy" and authorizing countries to take "measures deemed appropriate," including financial sanctions, to assist in hastening a return to democracy in Venezuela. On January 10, 2019, the Permanent Council approved a resolution agreeing "to not recognize the legitimacy of Nicolas Maduro's new term." Secretary-General Almagro has gone further, announcing over social media that he "welcomes the assumption of Juan Guaidó as interim President of Venezuela in accordance with Article 233 of the Venezuelan constitution" on January 11, 2019. Outlook For some time, analysts have debated how long President Maduro can retain his grip on power amid a deepening economic and humanitarian crisis and how best to help hasten a return to electoral democracy in Venezuela. Despite his reelection and inauguration to a second term, President Maduro faces increasing threats to his control over the country. Under the leadership of a little-known figure, Juan Guaidó of the VP party, the National Assembly has issued a direct challenge to the legitimacy of Maduro's presidency. Maduro still controls the military, but recent arrests of high-level military officials have signaled dissent within the forces. It remains to be seen how they will respond to the National Assembly's approval of a framework for the formation of a transition government and an amnesty law for any military members who support that transition. It is yet unclear whether and under what circumstances Juan Guaidó would accept calls for him to declare himself interim president and how Maduro and the international community would respond to such a development. The Trump Administration has worked bilaterally and multilaterally to increase pressure on the Maduro government while also providing assistance to neighboring countries hosting more than 3 million Venezuelans who have fled the country. In addition to ratcheting up targeted sanctions, the Administration has implemented broader sanctions limiting Venezuela and PdVSA's access to the U.S. financial market. Until now, the Administration had stopped short of implementing even stronger measures, such a ban on petroleum trade with Venezuela, partially out of concern that this could worsen the country's humanitarian crisis. Vice President Pence and Secretary of State Pompeo have condemned Maduro's term as illegitimate, recognized the National Assembly as the only legitimate institution in the country, and lent support to Juan Guaidó and the National Assembly. While some have urged the Administration to take more aggressive measures even though they could contribute to unrest in the country, others have maintained that support for a negotiated solution is the best course of action. The 116 th Congress may consider a number of measures to address the deteriorating situation in Venezuela and its impact on the broader Latin American region. Congress is likely to continue to fund and oversee foreign assistance for democracy and human rights programs to bolster civil society in Venezuela as well as humanitarian assistance to Venezuelans in neighboring countries. Congress could consider a measure to authorize U.S. humanitarian assistance as well. Other measures may be introduced to adjust the immigration status of Venezuelans living in the United States or to provide certain Venezuelans temporary protected immigration status. Congress may consider taking additional steps to try to influence the Venezuelan government's behavior in promoting a return to democracy through additional sanctions or other policies. Oversight issues may examine the role of external actors operating in Venezuela (such as Russia and China) and the impact of the crisis in Venezuela on the broader region. Should a change in government occur, Congress may authorize additional support for reconstruction of the country. Appendix A. Legislative Initiatives in the 115 th Congress Enacted Legislation and Approved Resolutions P.L. 115-31 ( H.R. 244 ). Consolidated Appropriations Act, 2017. Introduced January 4, 2017, as the Honoring Investments in Recruiting and Employing American Military Veterans Act of 2017; subsequently, the bill became the vehicle for the FY2017 appropriations measure known as the Consolidated Appropriations Act, 2017. House agreed to Senate amendments (309-118) May 3, 2017; Senate agreed to House amendment to Senate amendments (79-18) May 4, 2017. President signed into law May 5, 2017. The explanatory statement accompanying the law recommends providing $7 million in democracy and human rights assistance to Venezuelan civil society. P.L. 115-141 ( H.R. 1625 ). Consolidated Appropriations Act, 2018 . Originally introduced March 20, 2017, as the Targeted Rewards for the Global Eradication of Human Trafficking Act, in March 2018, the bill became the vehicle for the FY2018 omnibus appropriations measure known as the Consolidated Appropriations Act, 2018. House agreed (256-167) to an amendment to the Senate amendment March 22, 2018; Senate agreed (65-32) to the House amendment to the Senate amendment March 23, 2018. President signed into law March 23, 2018. The law requires not less than $15 million in democracy and rule of law assistance to Venezuelan civil society. P.L. 115-232 ( H.R. 5515 ). John S. McCain National Defense Authorization Act for Fiscal Year 2019 . Introduced April 13, 2018. House passed (351-66) May 24, 2018. Senate passed (85-10) June 18, 2018, substituting the language of S. 2987 , the John S. McCain National Defense Authorization Act for Fiscal Year 2019. Conference report ( H.Rept. 115-874 ) filed July 25, 2018; House agreed (359-54) to the conference July 26 and Senate agreed (86-10) August 1, 2018. Signed into law August 13, 2018. In the conference report, the conferees directed the Director of the Defense Intelligence Agency to submit a report to several key committees on security cooperation between the Russian Federation and Cuba, Nicaragua, and Venezuela. H.Res. 259 (DeSantis) . Introduced April 6, 2017; reported out of the House Foreign Affairs Committee July 27, 2017, approved by the House December 5, 2017. The resolution expressed concern about the multiple crises that Venezuela is facing; urged the Venezuelan government to hold elections, release political prisoners, and accept humanitarian aid; supported OAS efforts, including a potential temporary suspension of Venezuela from the organization if the government does not convene elections and release political prisoners in a timely manner; and encouraged President Trump to prioritize resolving the crisis in Venezuela, including through the use of targeted sanctions. S.Res. 35 (Cardin) . The resolution expresses support for a dialogue that leads to respect for Venezuela's constitutional mechanisms and a resolution to the multiple crises the country faces, as well as for OAS efforts to invoke the Inter-American Democratic Charter. The resolution urges full U.S. support for OAS efforts and calls for U.S. agencies to hold Venezuelan officials accountable for violations of U.S. law and international human rights standards. Introduced February 1, 2017. Agreed to in the Senate February 28, 2017. Select Additional Legislative Initiatives H.R. 2658 (Engel) . Venezuela Humanitarian Assistance and Defense of Democratic Governance Act of 2017. Introduced May 25, 2017; amended and reported out of the House Foreign Affairs Committee September 28, 2017; approved by the House on December 5, 2017. The bill would have directed the State Department and USAID to deliver a strategy within 90 days of the enactment of the act on how they will work through NGOs in Venezuela or in neighboring countries to channel basic medical supplies and services, food and nutritional supplements, and related technical assistance needed to assist the Venezuelan people; supported OAS efforts to invoke the Inter-American Democratic Charter; secured a Presidential Statement from the United Nations urging the Government of Venezuela to allow the delivery of humanitarian relief; required a report by the Secretary of State, acting through the Bureau of Intelligence and Research, on Venezuelan officials involved in grand corruption, and encourage the imposition of sanctions on those individuals; amended P.L. 113-278 to broaden the activities for which Venezuelans can be sanctioned to include engaging in undemocratic practices or public corruption, extend the date for imposing sanctions through 2022, and urge the Administration to encourage other countries to sanction those individuals; expressed the sense of the House that the President should take all necessary steps to prevent Rosneft from gaining control of U.S. energy infrastructure. required a strategy within 90 days on how U.S. assistance would be coordinated with those of other donors; called on the United States to advocate and, if possible, support an OAS election observation mission to Venezuela when it is appropriate; and required a report on other countries' activities in Venezuela (Russia, China, Iran, and Cuba) within 180 days of enactment. S. 1018 (Cardin) Venezuela Humanitarian Assistance and Defense of Democratic Governance Act of 2017. S. 1018 was introduced May 3, 2017; referred to the Committee on Foreign Relations. This bill would have included many of same provisions as H.R. 2658 . In addition to requiring a strategy on how U.S. humanitarian assistance would be coordinated, S. 1018 would have authorized $10 million in humanitarian assistance for Venezuela and would require the Secretary of State to provide a strategy on how that assistance would be provided; authorized $9.5 million for coordinated democracy and human rights assistance after the Secretary of State submits a strategy on how the funds would be implemented and would make $500,000 available to support any future OAS electoral missions to the country; and prioritized continued U.S. support to Caribbean countries that have been dependent on Venezuela for energy. S. 3486 (Menendez) Venezuela Humanitarian Relief, Reconstruction, and Rule of Law Act of 2018. S. 3486 contains many of the same provisions of H.R. 2658 . Introduced December 12, 2018, referred to the Committee on Foreign Relations. In addition to requiring a strategy on how U.S. humanitarian assistance would be coordinated, the bill would have authorized $40 million in additional humanitarian assistance and required the State Department to convene a donor's conference on Venezuela; provided support for international efforts to hold Venezuelan officials accountable for crimes against humanity; authorized $15 million for democratic actors and civil society; required the Departments of State, Treasury, and Justice to lead international efforts to recover assets stolen by corrupt Venezuelan officials; advanced planning for the economic reconstruction of Venezuela, contingent upon a change in governance in the country; required more intelligence reporting on Venezuelan officials' roles in drug trafficking and corruption, as well as the role of foreign actors in Venezuela; expanded U.S. sanctions on government officials, drug trafficking, and money laundering; required the State Department to work with other Latin American governments to develop their own sanctions regimes; and, codified existing crypto currency sanctions. Appendix B. Organization of American States Action on Venezuela On May 31, 2016, Organization of American States (OAS) Secretary-General Luis Almagro invoked the Inter-American Democratic Charter—a collective commitment to promote and defend democracy—when he called (pursuant to Article 20) on the OAS Permanent Council to convene an urgent session on Venezuela to decide whether "to undertake the necessary diplomatic efforts to promote the normalization of the situation and restore democratic institutions." Secretary-General Almagro issued a report concluding that there were "serious disruptions of the democratic order" in the country. The Permanent Council met on June 23, 2016, to receive the report, but did not take any further action. A group of 15 OAS member states issued two statements (in June and August 2016) supporting dialogue efforts but also urging the Venezuelan government to allow the recall referendum process to proceed. On November 16, 2016, the OAS Permanent Council adopted a declaration that encouraged the Maduro government and the MUD "to achieve concrete results within a reasonable timeframe" and to "avoid any action of violence" that could threaten the process. As dialogue efforts failed to advance, many observers contended that the Maduro government had used such efforts as a delaying tactic. Secretary-General Almagro published a second report to the Permanent Council in March 2017 calling on the Venezuelan government to undertake measures to resume the constitutional order, including holding general elections without delay, or face a possible suspension from the OAS. It concluded by calling on OAS member states to apply Article 21 of the Inter-American Democratic Charter to suspend Venezuela from the organization if the Venezuelan government fails to address the report recommendations positively. An affirmative vote of two-thirds of the member states (23) in a special session of the General Assembly would be necessary to suspend Venezuela from the organization. In the aftermath of the Supreme Court's March 2017 action, the Permanent Council met in a special meeting called by 20 OAS members on April 3, 2017, and approved a resolution by consensus expressing "grave concern regarding the unconstitutional alteration of the democratic order" in Venezuela. The body also resolved to undertake additional diplomatic initiatives as needed "to foster the restoration of the democratic institutional system." On April 26, 2017, the OAS Permanent Council voted to convene a meeting of the region's ministers of foreign affairs to discuss the situation in Venezuela. Nineteen countries voted in favor of convening the meeting. However, some countries objected to potential statements or actions (such as a temporary suspension from the OAS) opposed by the Venezuelan government based on the organization's principles of nonintervention and respect for national sovereignty. On May 31, 2017, the OAS convened a meeting of consultation of ministers of foreign affairs to discuss the situation in Venezuela. After much debate, the foreign ministers failed to approve a resolution to address the crisis. Some countries supported a draft resolution put forth by Canada, Panama, Peru, Mexico, and the United States, which called upon the Venezuelan government and the opposition to take a series of steps but also offered humanitarian assistance and willingness to create a "group or other mechanism of facilitation to support a new process of dialogue and negotiation." Other countries supported a resolution offered by the Caribbean Community (CARICOM) calling for dialogue and the creation of an external group to support dialogue between the government and the opposition without the specific preconditions on the government included in the other draft resolution. OAS member states were unable to reach consensus. Foreign ministers reconvened during the OAS General Assembly in Mexico in June 2017. At those meetings, 20 countries voted in favor of adopting the aforementioned resolution put forth by Peru (and backed by the United States) on Venezuela, six countries voted no, and eight abstained. The foreign ministers could reconvene to continue that meeting at any time. In September and November 2017, the OAS General Secretariat facilitated public hearings chaired by an International Panel of Experts it invited to analyze whether the Maduro government had committed crimes against humanity. Victims, legislators, mayors, judges, members of the armed forces, civil servants, human rights defenders and others participated. On February 23, 2018, 19 of 34 member states voted in favor of a resolution by the Permanent Council calling on the Venezuelan government to reconsider convening early presidential elections and to accept humanitarian assistance. While the resolution received more than the simple majority of votes (18) needed to be approved, 15 countries voted against the resolution, abstained, or were not present. On May 29, 2018, the Panel of Experts convened by the OAS published its findings that "reasonable grounds exist to believe that crimes committed against humanity have been committed in Venezuela" in a report that has been submitted to the ICC. On June 5, 2018, 19 of 34 member states voted in favor of a resolution stating that the electoral process in Venezuela "lacks legitimacy" and authorizing countries to take "the measures deemed appropriate," including sanctions, to assist in hastening a return to democracy in Venezuela. In September 2018, the OAS Secretary-General announced the creation of a new working group to analyze Venezuelan migration issues. From November 19-21, 2018 17 OAS member states sent representatives to examine humanitarian conditions along the Colombia-Venezuela border, including Ambassador Carlos Trujillo of the United States. On January 10, 2019, 19 of 34 member states voted "to not recognize the legitimacy of Nicolas Maduro's new term as of the 10 th of January of 2019." The resolution also urged all Member States to adopt any measures they can to hasten a return to democracy in Venezuela, call for new presidential elections in Venezuela with international observers, respond to the humanitarian needs of Venezuelan migrants, and demand the release of political prisoners. Appendix C. Online Human Rights Reporting on Venezuela

Venezuela remains in a deep political crisis under the authoritarian rule of President Nicolás Maduro of the United Socialist Party of Venezuela (PSUV). Maduro, narrowly elected in 2013 after the death of Hugo Chávez (1999-2013), is unpopular. Nevertheless, he has used the courts, security forces, and electoral council to repress the opposition. On January 10, 2019, Maduro began a second term after winning reelection on May 20, 2018, in an unfair contest deemed illegitimate by the opposition-controlled National Assembly and most of the international community. The United States, the European Union, the Group of Seven, and most Western Hemisphere countries do not recognize the legitimacy of his mandate. They view the National Assembly as Venezuela's only democratic institution. Maduro's inauguration capped his efforts to consolidate power. In 2017, protesters called for Maduro to release political prisoners and respect the opposition-led National Assembly. Security forces quashed protests, with more than 130 killed and thousands injured. Maduro then orchestrated the controversial July 2017 election of a National Constituent Assembly; this assembly has usurped most legislative functions. During 2018, Maduro's government arrested dissident military officers and others suspected of plotting against him. Efforts to silence dissent may increase, as the National Assembly (under its new president, Juan Guaidó), the United States, and the international community push for a transition to a new government. Venezuela also is experiencing a serious economic crisis, and rapid contraction of the economy, hyperinflation, and severe shortages of food and medicine have created a humanitarian crisis. President Maduro has blamed U.S. sanctions for these problems, while conditioning receipt of food assistance on support for his government and increasing military control over the economy. He maintains that Venezuela will seek to restructure its debts, although that appears unlikely. The government and state oil company Petróleos de Venezuela, S. A. (PdVSA) defaulted on bond payments in 2017. Lawsuits over nonpayment and seizures of PdVSA assets are likely. U.S. Policy The United States historically had close relations with Venezuela, a major U.S. oil supplier, but relations have deteriorated under the Chávez and Maduro governments. U.S. policymakers have expressed concerns about the deterioration of human rights and democracy in Venezuela and the country's lack of cooperation on counternarcotics and counterterrorism efforts. U.S. democracy and human rights funding, totaling $15 million in FY2018 (P.L. 115-141), has aimed to support civil society. The Trump Administration has employed targeted sanctions against Venezuelan officials responsible for human rights violations, undermining democracy, and corruption, as well as on individuals and entities engaged in drug trafficking. Since 2017, the Administration has imposed a series of broader sanctions restricting Venezuelan government access to U.S. financial markets and prohibiting transactions involving the Venezuelan government's issuance of digital currency and Venezuelan debt. The Administration provided almost $97 million in humanitarian assistance to neighboring countries sheltering more than 3 million Venezuelans. Congressional Action The 115th Congress took several actions in response to the situation in Venezuela. In February 2017, the Senate agreed to S.Res. 35 (Cardin), which supported targeted sanctions. In December 2017, the House passed H.R. 2658 (Engel), which would have authorized humanitarian assistance for Venezuela, and H.Res. 259 (DeSantis), which urged the Venezuelan government to accept humanitarian aid. For FY2019, the Administration requested $9 million in democracy and human rights funds for Venezuela. The 115th Congress did not complete action on the FY2019 foreign assistance appropriations measure. The House version of the FY2019 foreign aid appropriations bill, H.R. 6385, would have provided $15 million for programs in Venezuela; the Senate version, S. 3108, would have provided $20 million. The 116th Congress likely will fund foreign assistance to Venezuela and neighboring countries sheltering Venezuelans. Congress may consider additional steps to influence the Venezuelan government's behavior in promoting a return to democracy and to relieve the humanitarian crisis. Also see CRS In Focus IF10230, Venezuela: Political and Economic Crisis and U.S. Policy; CRS In Focus IF10715, Venezuela: Overview of U.S. Sanctions; and CRS In Focus IF11029, The Venezuela Regional Migration Crisis.

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Introduction Streamgages measure water level and related streamflow at streams, rivers, lakes, and reservoirs across the country. Streamgages provide foundational information for diverse applications that affect a variety of constituents. Congress has supported a national streamgage program for 130 years. These streamgages operate in every state, the District of Columbia, and the territories of Puerto Rico and Guam; therefore, national streamgage operations garner interest from many Members of Congress. Data fro m streamgages informs real-time decisionmaking and long-term planning on issues such as hazard preparations and response, infrastructure design, water use allocations, ecosystem management, and recreation. Direct users of streamgage data include a variety of agencies from all levels of government, utility companies, consulting firms, scientific institutions, and recreationists. Streamgages are operated across the globe with national programs in North America, Europe, Australia, and Brazil, among others. In the United States, the U.S. Geological Survey (USGS), the Department of the Interior's (DOI's) lead scientific agency, manages the USGS Streamgaging Network ( Figure 1 ). The network encompasses 10,300 streamgages that record water height or streamflow for at least a portion of the year. Approximately 8,200 of these streamgages measure streamflow year-round and are part of the National Streamflow Network. This subnetwork includes 3,640 Federal Priority Streamgages (FPSs), which Congress and the USGS designated as national priorities (see section on " Federal Priority Streamgages "). Some entities, such as state governments, operate their own streamgages separate from the USGS Streamgaging Network. Congressional appropriations and agreements with approximately 1,400 nonfederal partners funded the USGS Streamgaging Network at $189.5 million in FY2018. Some streamgages are funded solely through congressional appropriations for the USGS and other federal agencies, such as the U.S. Army Corps of Engineers (USACE), Bureau of Reclamation (Reclamation), and Department of Defense (DOD). Much of the USGS Streamgaging Network is funded cooperatively. Interested parties sign funding agreements with the USGS to share the cost of streamgages and data collection. The USGS Cooperative Matching Funds Program (CMF) provides up to a 50% match with tribal, regional, state, and local partners (see section on " Cooperative Matching Funds Program "). Other federal agencies, nonfederal governments, and nongovernmental entities may provide reimbursable funding for streamgages in the USGS Streamgaging Network without contributed funds from the USGS. Evolving federal policies and user needs from diverse stakeholders have shaped the size, organization, and function of the USGS streamgage program. This report provides an overview of federal streamgages by describing the function of a streamgage, the data available from streamgage measurements, and the uses of streamgage information. The report also outlines the structure and funding of the USGS Streamgaging Network and discusses potential issues for Congress, such as funding priorities and the future structure of the nation's streamgage network. What Is a Streamgage? A streamgage's primary purpose is to collect data on water levels and streamflow (the amount of water flowing through a river or stream over time). Streamgages estimate streamflow based on (1) continuous measurements of stage height (the height of the water surface) and (2) periodic measurements of streamflow, or discharge, in the channel and floodplains. USGS measurements are used to create rating curves, in order to convert continuously measured stage heights into estimates of streamflow. Selected streamgages may provide additional measurements, such as measurements of water quality (see box on "Supergages"). Streamgages house instruments to measure, store, and transmit stream stage height ( Figure 2 ). Stage height is usually transmitted every hour, or more frequently at 5 to 15 minute intervals for emergency or priority streamgages. Most streamgages transmit data by satellite to USGS computers; the data then are provided online to the public. Numerous streamgages also have cameras that capture and transmit photos of streamflow conditions. Periodic streamflow measurements require USGS personnel to measure discharge at various sections across the stream. Streamflow measurements are made every six to eight weeks to capture a range of stage heights and streamflows, especially at high and low stage heights. Repeated measurements allow scientists to capture changes to the channel from vegetation growth, sedimentation, or erosion, which can affect the relationship between stage height and streamflow. The USGS National Water Information System (NWIS) receives and converts all stream height data from USGS streamgages into streamflow estimates. An example of streamgage data from NWIS is shown in Figure 3 for a site capturing peak streamflow during a hurricane event. The free and publicly accessible data are frequently accessed online or by request to users. For example, the agency responded to over 670 million requests for streamflow and water level information in 2018. The NWIS website is the main repository for current and historical streamflow data, in addition to other water information. Tools such as WaterWatch summarize the current conditions of the nation's streams and watersheds through maps, graphs, and tables by comparing real-time streamflow conditions to historic streamflow from streamgages with records of 30 years or more. Streamgage Uses The USGS Streamgaging Network provides streamflow information to assist during natural and man-made disasters, such as flooding and drought, and to inform economic and statutory water management decisions, such as the allocation of water supplies for irrigation. Individual streamgages in the network also can serve multiple uses. For example, a streamgage intentionally established for the purpose of reservoir management may provide data to inform water quality standards, habitat assessments, and recreational activities. Additionally, the value of a single streamgage is enhanced by the operation of the entire network, particularly for research, modeling, and forecasting. Streamgages were first established in the United States to inform water use and infrastructure planning—applications that benefit from continuous, long-term hydrologic records (see box on "Evolution of Streamgage Uses"). Long and continuous periods of data are used to construct baselines for water conditions and to identify deviations in the amount and timing of streamflow caused by changes in land use, water use, and climate. Some stakeholders contend that the value of streamflow records increases over time, with at least 20 years of continuous coverage needed for many applications. Technological advances allowing access to streamflow information in real time have expanded the uses of streamgages. Real-time forecasting and operational decisionmaking are used in many applications of streamflow data. Web and phone applications also have facilitated increased public use of water information. Examples of Streamgage Uses Streamgage data is used for a wide range of applications, including supporting activities of federal agencies. There are also a variety of streamgages tailored for specific purposes. The following is a noncomprehensive selection of streamgage uses to illustrate the scope of applications. W ater M anagement and Energy D evelopment . USACE, Reclamation, and various state and local water management agencies use streamgages to inform the design and operation of thousands of water management projects across the nation. Timely streamflow information helps water managers make daily operational decisions as they balance water requirements for municipal, industrial, and agricultural uses. Energy production and mineral extraction operations also rely on continuous streamflow measurements to comply with environmental, water quality, or temperature requirements. For example, the Federal Energy Regulatory Commission (FERC) requires hydropower companies to support USGS streamflow and water-level monitoring as part of their FERC licensing process. Infrastructure Design . Transportation agencies use streamflow data to develop regional flow frequency curves for the design of bridges and culverts, stream stability measures, and analysis of bridge scour—the leading cause of bridge failure. Without adequate information, some observers contend that engineers may overdesign structures, resulting in greater costs, or may not make proper allowances for floods, compromising public safety. Interstate and International Water Rights . Federal streamgages are used to collect streamflow information at U.S. borders and between states. Streamgage data informs interstate compacts, Supreme Court decrees, and international treaties (e.g., under the purview of the International Boundary and Water Commission and the International Joint Commission). Water Science Research . Many federal agencies depend on consistent, long-term data from streamgages to conduct water research and modeling (e.g., USACE, National Oceanic and Atmospheric Administration [NOAA], Environmental Protection Agency [EPA], DOI, U.S. Department of Agriculture [USDA], and National Aeronautic and Space Administration [NASA]). To monitor climate trends and ecological patterns, the USGS distinguishes a subset of streamgages that are largely unaffected by development to serve as benchmarks for natural conditions. Flood Mapping . The Federal Emergency Management Agency (FEMA) uses floodplain maps to establish flood risk zones and requires flood insurance through the National Flood Insurance Program (NFIP) for properties with a 1% annual chance of flooding. Long-term streamflow records are used to determine 1% annual chance flood flows and to develop water surface profiles to map areas at risk of flooding. The USGS often works with FEMA to produce new inundation maps after streamgages record new streamflow peaks from weather events such as hurricanes. Emergency F orecasting and Response. Streamgages inform flood forecasting and emergency response to protect lives and property. Real-time data from more than 3,600 streamgages allow NOAA's National Weather Service (NWS) river forecasters to model watershed response, project future streamflows, forecast monthly to seasonal water availability, and issue appropriate flood watches and warnings (see box on "National Water Model"). Flood warnings provide lead time for emergency response agencies, such as FEMA, to take effective action in advance of rising waters. In addition, the USDA National Resource Conservation Service (NRCS) uses streamgages to forecast flows for water supply, drought management and response, hydroelectric production, irrigation, and navigation in western states. Water Q uality . Streamflow data is important for measuring water quality and developing water quality standards for sediments, pathogens, metals, nutrients (e.g., nitrogen and phosphorus), and organic compounds (e.g., pesticides). At select streamgages, the USGS also operates instruments recording water quality data (see box on "Supergages"). Section 303(d) of the Clean Water Act requires states to develop total maximum daily load (TMDL) management plans for water bodies determined to be water quality impaired by one or more pollutants. When determining TMDL levels for specific pollutants, agencies may consider historic streamflow data, along with other factors, in their evaluations. Agencies may use current flow conditions when determining the proper release of wastewater to ensure compliance with TMDL standards and National Discharge Elimination System permitting. Ecosystem Management and Species . Some water users and resource agencies use streamflow data to meet the flow requirements needed to protect endangered or threatened fish and wildlife under the Endangered Species Act (16 U.S.C. §1531 et seq.). Natural resource agencies, such as the U.S. Fish and Wildlife Service (FWS), collect streamflow data to understand how threatened and endangered species respond to flow variations. The USGS operates streamgages to monitor ecosystem restoration progress, such as restoration of the Chesapeake Bay watershed. Recreation . Real-time streamgage data can help individuals and tourism businesses assess stream conditions for recreational outings. USGS data can be used to decide if conditions are suitable for recreational activities such as fishing, boating, and rafting. The USGS also partners with the National Park Service (NPS) to provide water science and data to help manage parks and to enhance interpretive programs. Network Structure The USGS Streamgaging Network is part of the Groundwater and Streamflow Information Program under the USGS Water Resources mission area. The President's budget request for FY2020 proposes a restructuring of the mission area to create a Water Observing Systems Program that would combine the USGS Streamgaging Network and other water observation programs. The primary operators of streamgages are the regional and state USGS Water Science Centers, which maintain hydrologic data collection and conduct water research in the region. Approximately 8,200 of the 10,300 USGS streamgages measure year-round streamflow (National Streamflow Network; see Figure 4 ), with the rest only measuring stage height or measuring streamflow on a seasonal basis. USGS streamgages are also differentiated based on cooperative funding (CMF) and federal interest (FPSs). Cooperative Matching Funds Program Much of the streamgaging program has been cooperative in nature as interested parties sign funding agreements to share the cost of streamgages and data collection. Through CMF, the USGS funds up to a 50% match with tribal, regional, state, and local partners. In 2018, CMF supported 5,345 streamgages (52% of the USGS Streamgaging Network). The first cooperative agreement began in 1895 with the Kansas Board of Irrigation Survey and Experiment (now known as the Division of Water Resources of the Kansas Department of Agriculture). Funds from cooperative entities steadily increased in the early 20 th century. Congress passed legislation in 1928 stipulating that the USGS can share up to 50% of the costs for water resources investigations carried out in cooperation with tribes, states, and municipalities (see Figure 5 ). In 2016, this Federal-State Cooperative Water Program was renamed the Cooperative Matching Funds Program (CMF), which provides cooperative funding for programs across the USGS Water Mission Area. To participate in the CMF, potential partners approach the USGS to discuss the need for a specific streamgage. The USGS determines its feasibility based on available funds and program priorities. If the USGS deems establishing the streamgage is feasible, the USGS and cooperator sign a joint funding agreement (JFA), which is a standard agreement that specifies how much each party will contribute to funding the streamgage and the payment schedule for the cooperator. These agreements span five years or less. During the agreement, the cost-share generally remains the same, but there is flexibility to alter the cost-share on an annual basis for multi-year agreements. Once a streamgage is operating, if a partner can no longer contribute funds, the USGS seeks to work with other partners that use the streamgage to augment funding. The USGS provides a website identifying streamgages that are in danger of being discontinued or converted to a reduced level of service due to lack of funding. The website also identifies streamgages that have been discontinued or are being supported by a new funding source. Approximately 3,700 of the 10,300 USGS streamgages (36%) are funded by nonfederal and federal partners without matching funds from the USGS (i.e., not with CMF). Nonfederal partners sign JFAs, and federal partners share interagency agreements with the USGS (except USACE which uses a military interdepartmental purchase request). These gages are part of the USGS Streamgaging Network and are operated in accordance with the quality control and public access standards created by the USGS, with the agency assuming liability responsibility for the streamgages. Public and private entities may also elect to own and operate streamgages tailored to their specific needs and not affiliated with the USGS. These independent streamgages may differ in various ways compared to streamgages in the USGS Streamgaging Network (e.g., capital and operating costs, operating periods, measurement capabilities, and data standards and platforms). Federal Priority Streamgages The SECURE Water Act of 2009 (Title IX, Subtitle F of P.L. 111-11 ) directs the USGS to operate a reliable set of federally funded streamgages. The law requires the USGS to fund no fewer than 4,700 sites complete with flood-hardened infrastructure, water quality sensors, and modernized telemetry by FY2019. Originally titled the National Streamflow Information Program (NSIP), the USGS now designates these streamgages as FPSs. Out of the 4,760 FPS locations identified by the USGS, 3,640 sites were operational in 2018. In FY2018, the USGS share of funding was $24.7 million for FPSs. The idea of a federally sustained set of streamgages arose in the late 20 th century when audits revealed the number of streamgages declining after peaking in the 1970s (see decrease in Figure 5 ). In a 1998 report to Congress, the USGS stated that the streamgage program was in decline because of an absolute loss of streamgages, especially those with a long record, and asserted that the loss was due to partners discontinuing funding. Partners also had developed different needs for streamflow information. The USGS proposed the creation of an entirely federally funded NSIP to ensure a stable "backbone" network of streamgages to meet national needs. The USGS used five national needs to determine the number and location of these streamgage sites: 1. Meeting legal and treaty obligations on interstate and international waters. 2. Forecasting flow for NWS and NRCS. 3. Measuring river basin outflows to calculate regional water balances. 4. Monitoring benchmark watersheds for long-term trends in natural flows. 5. Measuring flow for water quality needs. The original design included 4,300 active, previously discontinued, or proposed streamgage locations. The proposed program was to be fully federally funded, conduct intense data collection during floods and droughts, provide regional and national assessments of streamflow characteristics, enhance information delivery, and conduct methods development and research. The SECURE Water Act of 2009 authorized the NSIP to conform to the USGS plan as reviewed by the National Research Council. The law required the program to fund no fewer than 4,700 sites by FY2019. The law also directed the program to determine the relationship between long-term streamflow dynamics and climate change, to incorporate principals of adaptive management to assess program objectives, and to integrate data collection activities of other federal agencies (i.e., NOAA's National Drought Information System) and appropriate state water resource agencies. Network Funding In FY2018, congressional appropriations and nonfederal partners provided $189.5 million for the USGS Streamgaging Network ( Figure 6 ). The USGS share included $24.7 million for FPSs and $29.8 million for CMF. Other federal agencies provided $40.7 million ( Table 1 ). Nonfederal partners, mostly affiliated with the CMF program, provided $94.3 million. The appropriations bill for the Interior, Environment, and Related Agencies funds the USGS share of the USGS Streamgaging Network. Funding for streamgages is included in the Groundwater and Streamflow Information Program under the USGS Water Resources Mission Area. The line item includes funding for the streamgage network and groundwater monitoring activities, as well as other activities. Congress provided $74.2 million in FY2018 and $82.7 million in FY2019 for the Groundwater and Streamflow Information Program. While maintaining level funding for FPS and CMF streamgages in FY2019, Congress directed increased funding of $8.5 million for the deployment and operation of NextGen water observing equipment. The President's budget request for FY2020 proposes creating a new Water Observing Systems Program combining the Groundwater and Streamflow Information Program and elements of the National Water Quality program focused on observations of surface water and groundwater. The President's FY2020 budget requests $105.1 million for the proposed program, a decrease of $7.5 million compared to $112.5 million of FY2018 funding for a similar structure. The budget request would maintain funding for active FPS locations and provide no funding for the NextGen system. For CMF, the request proposes a decrease of $500,000 for Tribal Water, which would result in a loss of $250,000 for CMF streamgages, and a decrease of $717,000 for Urban Waters Federal Partnership, which would reduce water quality monitoring at select streamgages. Other federal agencies contribute to whole or partial funding of streamgages for agency purposes ( Table 1 ). Since FY2012, funding from other federal agencies has doubled from $19.9 million to $40.7 million in nominal dollars. This increase may be due to meeting inflation and other streamgage cost increases; to new needs for monitoring data with existing cooperators (e.g., USACE in the Savannah and Jacksonville Harbor expansion projects); and to the introduction of additional funding partners (e.g., the EPA) that are supporting new streamgages. Nonfederal partners funded approximately half the costs of the USGS Streamgaging Network from FY2012 to FY2018. Cooperative partners include tribal, regional, state, and local agencies related to natural resources, water management, environmental quality, transportation, and regional and city planning. Irrigation districts, riverkeeper partnerships, and utility agencies and companies also fund the program. Contributions by nongovernmental partners to streamgages are very limited (1% in FY2018) and are not eligible for cost-sharing through the USGS CMF program. USGS Funding Trends From FY2003 to FY2019, USGS funding for FPS streamgages increased from $11.7 million to $24.7 million (in 2018 dollars; Figure 7 ). However, USGS funding has not met the SECURE Water Act of 2009 mandate for an entirely federally funded suite of not fewer than 4,700 streamgage sites. In FY2018, 35% of FPSs were funded solely by the USGS FPS program funds. The USGS must rely on other federal agencies or nonfederal partners to fund the rest of the FPSs: 27% were funded by a combination of USGS CMF and partner funds, 24% were funded by a combination of other federal agencies and nonfederal partners, and 14% were funded solely by other federal agencies (not the USGS). USGS funding for CMF has remained relatively level, ranging from $27.5 million to $30.7 million (in 2018 dollars) over 15 years, aside from a drop in FY2007 ( Figure 7 ). For the entire USGS Streamgaging Network, the nonfederal cost-share contribution has increased from near 50% in the early 1990s to an average of about 63% in FY2018. With CMF appropriations remaining level, and demand for streamgages from stakeholders rising, the USGS cost-share available has declined. Cost-share commitments for long-term streamgages are generally renewed at consistent percentages, but JFAs for newer streamgages may include less contribution from the USGS. Increasingly, the USGS may opt to only provide matching funds for installation and operation in the first year, with the agreement that the partner provides full funding in subsequent years. Issues for Congress Congress may consider funding levels and policy priorities for the USGS Streamgaging Network. Congressional appropriations may affect the size of the network and the design of streamgages. Congress may provide direction regarding the policy priorities when considering the mandates of the SECURE Water Act of 2009 and initiating the NextGen system. Funding Considerations Congress determines the amount of federal funding for the USGS Streamgaging Network and may direct its allocation to FPS, CMF, and other initiatives. The USGS and numerous stakeholders have raised funding considerations including user needs, priorities of partners, federal coverage, infrastructure repair, disaster response, inflation, and technological advances. Congress may consider whether to maintain, decrease, or expand the network, and whether to invest in streamgage restoration and modernization. Addressing the Size of the Network The USGS uses appropriated funding to develop and maintain the USGS Streamgaging Network. While some stakeholders advocate for maintaining or expanding the network, others may argue that Congress should consider reducing the network in order to prioritize other activities. Maintaining the Network Congress may provide funding to maintain existing streamgages. The Administration continues to request funding for the Groundwater and Streamflow Information Program, which funds the USGS Streamgaging Network. The FY2020 budget request states that "one of the highest goals of the USGS is to maintain long-term stability of a 'Federal needs backbone network' for long-term tracking and forecasting/modeling of streamflow conditions." Some stakeholders may advocate to maintain the current network as it provides hydrologic information for diverse applications (see section on " Streamgage Uses "). The FY2020 budget requests FPS funding at FY2019 enacted levels. If inflation increases costs, level funding may not fully maintain the current operations of FPSs. In addition, 71% of the network, including some FPSs, are funded by other federal and nonfederal partners, which makes those streamgages potentially vulnerable for discontinuation. According to the Government Accountability Office, maintaining streamgages through partners can be a challenge due to both the changing priorities and financial limitations of the partners. Reducing the Network Size Congress may consider reducing the network, either for FPSs, cooperative streamgages, or both. The USGS has discontinued some streamgages because of other funding priorities or because cooperators decided to no longer fund them and alternative funding was not available for the operating costs. Closures may affect individual streamgages or a collection of streamgages. The Administration requested reductions for the Groundwater and Streamflow Information Program in FY2018, FY2019, and FY2020 compared to previous congressional appropriations. For FY2018, the Administration requested a decrease of $742,000 for the Groundwater and Streamflow Information Program, which the budget justification said would diminish the USGS's ability to execute its core activities including strengthening the national streamgaging and groundwater monitoring networks. For FY2019, the proposed reduction included a decrease of $160,000 for U.S.-Canada Transboundary Streamgages. The FY2019 and FY2020 requests proposed a decrease for Tribal Water CMF, which would result in a loss of CMF funding for select streamgages. Congress did not make these cuts in FY2018 and FY2019, and is considering appropriations for FY2020. Reducing the USGS Streamgaging Network could alleviate federal spending on streamgages and allow other entities to operate streamgages tailored to their needs. On the other hand, discontinuing currently operational streamgages may result loss of data acquisition, discontinuation of long-term datasets, and decreased coverage in some basins. Some stakeholders have proposed that entities with specific needs build and operate their own streamgages separate from the USGS network. Some states, such as California and Oregon, already operate their own streamgaging networks. This approach may contain some challenges (e.g., the data may be of higher or lower quality, the data be restricted for public use, or the host may use different standards). However, if individual streamgages were operated at the same level of quality as USGS streamgages, the USGS could incorporate such data into the NWIS network. Some also argue that disparate data sets could be available on a shared platform with USGS streamgages; such a platform could include information on methods of collection, quality, and accuracy. Network Expansion Congress may increase funding to expand the network, which could include establishing the remaining locations for FPS, providing more funds for cooperative streamgages, or pursuing new initiatives like the NextGen system. Congress mandated completion of a national network of no less than 4,700 streamgages in the SECURE Water Act of 2009. At the close of FY2018, 3,640 of the 4,760 FPSs designated by the USGS were operational, with 52% of their funding coming from the USGS. The USGS estimates that $125 million in additional funding each year would be needed to complete the network; however, an average of only about $25 million (in 2018 dollars) was appropriated annually for FPSs between FY2014 and FY2019. While some stakeholders have advocated for Congress to provide full appropriations for FPSs to meet the mandate based on network needs, Congress may consider other funding priorities (e.g., the NextGen system). Congress may also consider if other federal agencies and nonfederal cooperative partners could provide more funding for FPSs. These entities may not be interested in financing some of the designated streamgages in the FPS network, particularly those in isolated river basins with little anthropogenic activity. Some stakeholders advocate for more federal funding to expand the cooperative part of the network, which addresses more localized needs. Some may argue against more federal funding for cooperative streamgages as it lacks a direct statutory mandate (unlike FPSs). Others have proposed increasing nontraditional funding sources for streamgages. They suggest that businesses, homeowner associations, non-for-profit organizations, academic institutions, and other nontraditional entities could provide funding for streamgaging; therefore, increasing the amount of nonfederal investment. Contributions by nongovernmental partners to streamgages are currently relatively limited (1% in FY2018) and are not eligible for federal matching funds. Congress could potentially encourage wider participation by nontraditional partners through such means as authorizing cooperative matching opportunities for public-private partnerships. Traditional stakeholders may oppose making matching funds available to entities not currently eligible, which could result in more competition for limited funds. Congress increased the Groundwater and Streamflow Information Program appropriations by $1.5 million in FY2018 and $8.5 million in FY2019. These increases were directed to streamgages for the NextGen system (see section on " NextGen System "). Congress may consider expanding the network through the NextGen system based on results from the pilot project. Increases solely directed to the NextGen system may intensify funding constraints for FPSs and CMF streamgages. Restoration of Streamgages Streamgages are vulnerable to hazards if not properly hardened. The SECURE Water Act directed the USGS to ensure all FPSs were flood hardened by FY2019. According to the USGS, structural restoration is usually funded because of emergencies; for example, disaster supplemental appropriations may provide funds for hardening streamgages, or funds are diverted from operational budgets to repair affected streamgages. The 2017 hurricane season resulted in damage to more than 100 streamgages. In response, Congress provided $4.6 million in the Bipartisan Budget Act of 2018 to repair, replace, and restore these streamgages and recover their data, and for hydrologists to reconstruct stream channel measurements. When the USGS does not receive disaster supplemental funding from Congress, the agency is not reimbursed for funding it redirects in order to provide around-the-clock monitoring during the events and equipment repair during and after the events. Some stakeholders have advocated for Congress to provide funds specifically for strengthening and restoring infrastructure, especially to withstand natural disasters. These stakeholders estimate that $238 million is needed to update half of the streamgages in the network to enable them to withstand major flood events and to meet new data transmitting requirements. Under budget constraints, increases in congressional appropriations are often prioritized to maintain or expand the network instead of restoration. Modernizing the USGS Streamgaging Network Congress might consider investments in new technologies for the USGS Streamgaging Network. While regarded as reliable, many of the current streamgage operations are based on labor-intensive and more expensive techniques. Some stakeholders suggest that investing in modern technological and computational capabilities could provide enhanced streamflow information with reduced costs. Others raise that these approaches may not provide the quality and consistency of data expected of USGS streamgages and may reduce funds available for existing operations. Telemetry and Information Infrastructure The SECURE Water Act of 2009 directed the USGS to equip all FPSs with modernized telemetry systems by FY2019. According to stakeholders, the current U.S. streamgage telemetry and information infrastructure may be vulnerable to failure, and the existing data collection platforms and computer networks might eventually be inefficient for real-time and detailed data. In September 2018, an error in telemetry equipment resulted in an outage of 11% of the network. The USGS stated that redundancy in telemetry using cellular signals or camera streaming could have alleviated the problem, which affected the network for weeks. The IMAGES Act of 2018 ( H.R. 4905 ) introduced in the 115 th Congress would have directed FEMA to work with USGS to modernize hardware and increase the speed of data transmittal, but the legislation did not specify funding amounts. Some stakeholders have suggested a figure of $112 million as the amount needed to upgrade the enterprise data management systems, information technology infrastructure, and real-time data delivery capabilities. Past increases of appropriations for streamgages have prioritized continued operation and network expansion over technological improvements. To mitigate costs for such upgrades, federal science agencies are considering cloud computing that could also benefit cloud providers if other users develop applications on the cloud network using the data already hosted there. The FY2020 budget request for the USGS outlines enhancement and modernization of NWIS with a centralized platform meeting the Federal Cloud First Computing Strategy. Some argue that Congress should fund alternative data infrastructure to ensure capacity and reliability of increased data while reducing the cost, though others may argue these strategies are not ready for full implementation. NextGen System The USGS suggests that modern models and computational methods to estimate streamflow in ungaged or sparsely gaged basins may provide an alternative approach to conventional streamgaging. These methods require more observational data, particularly for reference river basins, than that provided by the current streamgage network. In an effort to assess this approach, the USGS initiated a NextGen system pilot project in the Delaware River Basin with $1.5 million in FY2018 ( Figure 8 ), and the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ) provided $8.5 million for the NextGen system. Reports accompanying FY2019 Interior appropriations bills by the House and Senate in the 115 th Congress addressed the NextGen system. The Senate committee report encouraged the USGS to have a cost-effective strategy for the NextGen system ( S.Rept. 115-276 ), and the House committee report directed the USGS to provide the committee with a report on the NextGen system, explaining the limitations of the current water monitoring system, the enhancements and modernization needed, and costs to implement the system over a 10-year period and operate and maintain the system ( H.Rept. 115-765 ). The USGS says the funding will allow further the NextGen system implementation in the Delaware River Basin; continued progress in modernizing USGS data infrastructure; and the selection of the next basin. Advances by the NextGen system to estimate streamflow at ungagged locations based on modeling of highly measured reference basins could also result in reduced need for streamgages, lower costs, and expansion of coverage of streamflow data. Others may suggest that modeling streamflow may not provide adequate data as physical measurements, and initiating the NextGen system may result in decreased funding available for traditional operations. Innovation Congress may also consider directing the USGS to pursue innovative observation technologies: satellite-based or airborne platforms, ultrasound sensors for river stage-height measurement, radar technology for stream velocity, and autonomous vehicles for Light Detection and Ranging (LIDAR) and other types of remote sensing. The USGS is currently evaluating combining cameras and radars with advanced imagery analysis and installing these combined technologies on drone platforms to collect streamflow in difficult or inaccessible areas. Data coverage could also potentially increase with high-density sensing and sensor networks that use miniaturization, artificial intelligence, and economy of scale. Statistical advances to estimate streamflow at locations without streamgages could also result in reduced need for streamgages. Some suggest that such technologies may eventually satisfy streamflow information needs at lower cost, while others caution that advanced technologies may not provide as robust and reliable data as traditional methods. Balancing Policy Options Congress may consider outlining the future direction for the USGS Streamgaging Network through oversight or legislation. At the close of FY2018, 3,640 of the 4,760 FPS locations designated by the USGS were operational, with 52% of their funding coming from the USGS. As the USGS faces a deadline by the SECURE Water Act of 2009 to operate no less than 4,700 FPSs by FY2019, Congress directed the USGS through appropriations legislation to invest in the NextGen system. Congress may consider pursuing both the FPS mandate and the NextGen system, amending the SECURE Water Act of 2009 to facilitate completion of FPSs, or replacing the FPS mandate with the Next Gen system. Pursuing Both the FPS Mandate and the NextGen System Congress may consider pursuing both FPS coverage and the NextGen system. This approach could allow the USGS to meet the SECURE Water Act mandate while fully exploring new methods to obtain streamflow information. Financial constraints may limit this approach and pursuing both initiatives simultaneously may result in duplication of resources and coverage. Amending the SECURE Water Act of 2009 Congress may consider revising the SECURE Water Act of 2009 to facilitate completion of FPSs (i.e., extending the deadline for FPSs, reassessing the program goals, and changing the number of FPSs). Extending the mandate may provide more time to complete the FPS network. Some suggest that the national interests have evolved and the national goals and FPS locations should be reassessed. For example, monitoring streamflow for ecological purposes was not considered in the original design but has become an increased priority. The SECURE Water Act of 2009 directed the USGS to incorporate principles of adaptive management by conducting period reviews of the FPSs to assess whether the law's objectives were being adequately addressed. An analysis of the network could reveal whether some currently funded FPS sites are no longer in the national interest and funding could be reallocated to complete other sites. Changes in the national goals may also result in the discontinuation of long-term streamgages or the need for new streamgages, and coverage may increase or decrease in various river basins. Replacing the FPS Network with NextGen System Congress may consider replacing FPSs with the NextGen system by authorizing the NextGen system as a pilot program or broader program. For example, the Weather Research and Forecasting Innovation Act of 2017 ( P.L. 115-25 ) required NOAA to conduct a pilot program for commercial weather data. The act stipulated program criteria, authorization of appropriations, reporting requirements, and future directs for NOAA based on the success of the pilot program. Congress could provide similar mandates in legislation including which basins are chosen for NextGen system improvements and whether the basins are determined by an external study, the Administration, or Congress. While some acknowledge new streamgaging approaches are forthcoming, others may suggest that modeling streamflow may not provide as adequate data compared to traditional streamgages and altering the network design may result in loss of coverage at specific sites or across basins.

Streamgages are fixed structures at streams, rivers, lakes, and reservoirs that measure water level and related streamflow—the amount of water flowing through a water body over time. The U.S. Geological Survey (USGS) in the Department of the Interior operates streamgages in every state, the District of Columbia, and the territories of Puerto Rico and Guam. The USGS Streamgaging Network encompasses 10,300 streamgages, which record water levels or streamflow for at least a portion of the year. Approximately 8,200 of these streamgages measure streamflow year round as part of the National Streamflow Network. The USGS also deploys temporary rapid deployment gages to measure water levels during storm events, and select streamgages measure water quality. Streamgages provide foundational information for diverse applications that affect a variety of constituents. The USGS disseminates streamgage data free to the public and responds to over 670 million requests annually. Direct users of streamgage data include a variety of agencies at all levels of government, private companies, scientific institutions, and recreationists. Data from streamgages inform real-time decisionmaking and long-term planning on issues such as water management and energy development, infrastructure design, water compacts, water science research, flood mapping and forecasting, water quality, ecosystem management, and recreational safety. Congress has provided the USGS with authority and appropriations to conduct surveys of streamflow since establishing the first hydrological survey in 1889. Many streamgages are operated cooperatively with nonfederal partners, who approach the USGS and sign joint-funding agreements to share the cost of streamgages and data collection. The USGS Cooperative Matching Funds (CMF) Program provides up to a 50% match with tribal, regional, state, and local partners, as authorized by 43 U.S.C. §50. The average nonfederal cost-share contribution has increased from 50% in the early 1990s to 63% in FY2018. In the early 2000s, the USGS designated federal priority streamgage (FPS) locations based on five identified national needs. The SECURE Water Act of 2009 (Title IX, Subtitle F, of P.L. 111-11) directed the USGS to operate by FY2019 no less than 4,700 federally funded streamgages. In FY2018, 3,640 of the 4,760 FPSs designated by the USGS were operational, with 52% of their funding from the USGS. Congressional appropriations and agreements with 1,400 nonfederal partners funded USGS streamgages at $189.5 million in FY2018. The USGS share included $24.7 million for FPSs and $29.8 million for cooperative streamgages through CMF. A dozen other federal agencies provided $40.7 million. Nonfederal partners, mostly affiliated with CMF, provided $94.3 million. In FY2019, Congress appropriated level funding for FPS and CMF streamgages. Congress directed an additional $8.5 million to pilot a Next Generation Integrated Water Observing System (NextGen), establishing dense networks of streamgages in representative watersheds in order to model streamflow in analogous watersheds. The President's budget request for FY2020 does not include NextGen system funding and would reduce CMF for streamgages by $250,000. The USGS uses appropriated funding to develop and maintain the USGS Streamgaging Network. The USGS and numerous stakeholders have raised funding considerations including user needs, priorities of partners, federal coverage, infrastructure repair, disaster response, inflation, and technological advances. Some stakeholders advocate for maintaining or expanding the network. Others may argue that Congress should consider reducing the network in order to prioritize other activities and that other entities operate streamgages tailored to localized needs. Congress might also consider whether to invest in streamgage restoration and new technologies. Congress may consider outlining the future direction for the USGS Streamgaging Network through oversight or legislation. As the USGS faces a deadline by the SECURE Water Act of 2009 to operate no less than 4,700 FPSs by FY2019, Congress directed the USGS through appropriations legislation to invest in the NextGen system. Congress may consider such policy options as pursuing both the FPS mandate and the NextGen system simultaneously, amending the SECURE Water Act of 2009, and the relative emphasis of the NextGen system.

GAO_GAO-18-692T

Background PTC systems are required by law to prevent certain types of accidents or incidents. In particular, a PTC system must be designed to prevent train- to-train collisions, derailments due to excessive speed, incursions into work zone limits, and the movement of a train through a switch left in the wrong position. While railroads may implement any PTC system that meets these requirements, the majority of the railroads are implementing one of four types of systems. PTC’s intended safety benefits can be fully achieved nationwide when all required railroads have successfully installed PTC components, tested that these components work together and the systems function as designed, and are interoperable with other host and tenant railroads’ PTC systems that share track. Interoperability means the locomotives of any host railroad and tenant railroad operating over the same track segment will communicate with and respond to the PTC system, allowing uninterrupted movements over property boundaries. Interoperability is critical to PTC functioning properly given the complexity of the rail network in the United States. In much of the country, Class I railroads function as hosts for Amtrak and commuter railroads. For example, one of the seven major Class I railroads reports that 24 tenant railroads operate over its PTC-equipped tracks, including freight, Amtrak, and commuter railroads. A notable exception to this is the Northeast Corridor, which runs from Washington, D.C., to Boston, Massachusetts, which Amtrak predominantly owns and over which 6 freight and 7 commuter railroads operate as tenants. PTC implementation involves multiple stages to achieve full implementation, including planning and system development, equipment installation and testing, system certification, and full deployment, including interoperability. Each railroad must develop an FRA-approved PTC implementation plan that includes project schedules and milestones for certain activities, such as equipment installation. The equipment installation stage involves many components, including communication systems; hardware on locomotives and along the side of the track (called “wayside equipment”); and software in centralized office locations as well as onboard the train and along the track. Railroads are required to report quarterly and annually to FRA on the railroad’s PTC implementation status relative to the implementation plan. A railroad can also revise its implementation plan to reflect changes to the project, which then must be reviewed and approved by FRA. In addition, railroads must demonstrate that the PTC system is deployed safely and meets functional requirements through multiple stages of testing. Before initiating testing on the general rail system, railroads must submit a formal test request for FRA approval that includes, among other things, the specific test procedures, dates and locations for testing, and the effect the tests will have on current operations. The multiple stages of PTC testing include: Laboratory testing: locomotive and wayside equipment testing in a lab environment to verify that individual components function as designed. Field testing: includes several different tests of individual components and the overall system, such as testing of each locomotive to verify that it meets functional requirements and field integration testing—a key implementation milestone to verify that each PTC component is integrated and functioning safely as designed. Revenue service demonstration (RSD): an advanced form of field testing in which the railroad operates PTC-equipped trains in regular service under specific conditions. RSD is intended to validate the performance of the PTC system as a whole and to test the system under normal, real-world operations. Interoperability testing: host and tenant railroads that operate on the same track must work together to test interoperability to ensure each railroad can operate seamlessly across property boundaries. Almost all of the 40 railroads currently required to implement PTC must demonstrate interoperability with at least one other railroad’s PTC system. Using results from field and RSD testing, combined with other information, host railroads must then submit a safety plan to FRA for approval. We have previously reported that these safety plans are about 5,000 pages in length. Once FRA approves a safety plan, the railroad receives PTC system certification, which is required for full implementation, and is then authorized to operate the PTC system in revenue service. According to FRA officials, the FRA may impose conditions to the PTC safety plan approval as necessary to ensure safety, resulting in a conditional certification. Railroads may receive a maximum 2-year extension from FRA past the December 31, 2018, deadline if they meet six criteria set forth in statute. Specifically, railroads must demonstrate, to the satisfaction of FRA, that they have: (1) installed all PTC system hardware consistent with the total amounts identified in the railroad’s implementation plan; (2) acquired all necessary spectrum consistent with the implementation plan; (3) completed required employee training; (4) included in a revised implementation plan an alternative schedule and sequence for implementing the PTC system as soon as practicable but no later than December 31, 2020; (5) certified to FRA that they will be in full compliance with PTC statutory requirements by the date provided in the alternative schedule and sequence; and (6) for Class I railroads and Amtrak, initiated RSD or implemented a PTC system on more than 50 percent of the track they own or control that is required to have PTC. For commuter and Class II and III railroads, the sixth statutory criterion is to have either initiated RSD on at least one territory required to have operations governed by a PTC system or “met any other criteria established by the Secretary,” which FRA refers to as “substitute” criteria. FRA is responsible for overseeing railroads’ implementation of PTC, and the agency monitors progress and provides direct assistance to railroads implementing PTC. For example, FRA officials provide technical assistance to railroads, address questions, and review railroad-submitted documentation. FRA has a national PTC director, designated PTC specialists in the eight FRA regions, and a few additional engineers and test monitors responsible for overseeing technical and engineering aspects of implementation and reviewing railroad submissions and requests. In anticipation of the upcoming implementation deadline, in May 2017, FRA began to send notification letters to railroads it determined were at risk of both not meeting the December 31, 2018, implementation deadline and not completing the requirements necessary to qualify for an extension. FRA identified “at-risk” railroads by comparing a railroad’s hardware installation status to the total hardware required for PTC implementation, according to the railroad’s implementation plan. FRA has increased the “at-risk” threshold percentage over time as the deadline approaches. See table 1. FRA has additional oversight tools, which include use of its general civil penalty enforcement authority for failure to meet certain statutory PTC requirements. FRA has used this authority in 2017 and 2018 to assess civil penalties against railroads that failed to comply with the equipment installation milestones, the spectrum acquisition milestones, or both, that the railroads had established in their implementation plans for the end of 2016 and 2017. As part of our body of work on PTC, we found that railroads face numerous PTC implementation challenges and made recommendations to FRA to improve its oversight of implementation. Specifically, in 2013 and 2015 we found that many railroads were struggling to make progress due to a number of complex and interrelated challenges, such as developing system components and identifying and correcting issues discovered during testing. Most recently, we found in March 2018 that FRA had not systematically communicated information or used a risk- based approach to help railroads prepare for the 2018 deadline or to qualify for an extension. We also found that many railroads were concerned about FRA’s ability to review submitted documentation in a timely manner, particularly given the length of some required documentation such as safety plans and FRA’s limited resources for document review. In March 2018, we recommended FRA identify and adopt a method for systematically communicating information to railroads and use a risk-based approach to prioritize its resources and workload. FRA agreed with our recommendations. Many Railroads Remain in Early Stages of PTC Implementation and FRA Has Clarified Extension Requirements Railroads Continue to Install and to Test PTC Systems, and Report Previously Identified Implementation Challenges As of June 30, 2018, many railroads reported that they remain in the equipment installation and field-testing stages, which are early stages of PTC implementation. However, since we last testified in March 2018, railroads have made progress on equipment installation. Based on our analysis of the 40 railroads’ reported status as of June 30, 2018, about half of the railroads have completed equipment installation, and many others are nearing completion of this stage. Specifically, three-quarters of the 40 railroads reported being more than 90 percent complete with locomotive equipment installation. Similarly, nearly three-quarters of railroads that must install wayside equipment reported being more than 90 percent complete. The remaining one-quarter of railroads are among those designated by FRA as at-risk of both not meeting the end of 2018 implementation deadline and not completing the requirements necessary to qualify for an extension. Specifically, in August 2018, FRA identified 9 railroads—all commuter railroads—as at-risk, fewer than the 12 railroads FRA had previously designated as at risk in its June 2018 letters to railroads. Since we last testified, most commuter railroads reported slow progress with testing, especially with RSD, while Class I railroads and Amtrak have reached later stages of testing. Notably, all 7 Class I freight railroads and Amtrak reported having initiated field testing and entering RSD as of June 30, 2018. We reported in 2013 and 2015 that Class I railroads and Amtrak have been conducting PTC implementation activities for longer than commuter railroads, which has likely factored into their advanced progress. However, commuter railroads and Class II/III railroads have progressed more slowly. For example: Laboratory and initial field testing: 19 of 28 commuter railroads reported having initiated this testing as of June 30, 2018, 6 more commuter railroads than the 13 we previously reported as having initiated field testing as of September 30, 2017. Additionally, 2 of 4 Class II/III railroads reported having initiated testing as of June 30, 2018. RSD testing: 8 of 28 commuter railroads reported initiating RSD testing as of June 30, 2018, 2 more commuter railroads than the 6 we previously reported as having entered RSD testing as of September 30, 2017. No Class II/III railroads reported having initiated RSD. As noted earlier, unless a commuter or Class II/III railroad receives approval for using substitute criteria, the railroad must initiate RSD, a final stage of PTC testing, on at least one territory by December 31, 2018, to qualify for an extension. Railroad representatives reported that they continue to face many of the same challenges we have previously identified. For example, in response to our questionnaire to all 40 railroads implementing PTC, 14 reported challenges with PTC vendors and contractors, which we originally reported on in 2015. One railroad noted that, because its contractor manages PTC projects across the country with the same deadline and requirements, it can be difficult for all railroads to get the resources they need from their contractor. We previously reported that there are a limited number of vendors available to design PTC systems, provide software and hardware, and conduct testing. For example, we reported in 2015 that, according to railroad industry representatives, there were two vendors for the onboard train management computer and three vendors for the wayside equipment. Likewise, we previously reported that railroads face software challenges, and noted that railroads had concerns with the number of defects identified during software testing, since these take time to address. In response to our questionnaire, 11 railroads reported encountering challenges related to maturity of the PTC software systems, such as working through software bugs or defects during testing. FRA Has Recently Clarified Extension Requirements In June, July, and August 2018, FRA held three PTC symposiums that were attended by representatives from all 40 railroads and that focused on the extension process and substitute criteria, PTC testing, and safety plans, respectively. FRA’s June 2018 symposium covered information consistent with our March 2018 recommendation that the agency adopt a method for systematically communicating information related to the requirements and process for an extension to railroads. Specifically, FRA presented information on the procedures for requesting and obtaining FRA’s approval for an extension to implement PTC beyond the December 2018 deadline including FRA’s review process. FRA also clarified that for railroads eligible to use substitute criteria, initiating field testing was one approach that could potentially qualify as substitute criteria, rather than initiating RSD. Representatives we interviewed from the railroads that participated in the symposiums found them to be helpful and some railroads reported that the information presented led them to adjust their approach to meeting the December 2018 deadline. For example, one railroad representative we spoke to said that until the symposium, he was unaware that using field testing as substitute criteria was a potential option. Some railroads we met with also told us they are re-evaluating what activities and documentation need to be revised and submitted to FRA before the December 2018 deadline based on the information presented at the symposiums. For example, representatives from one railroad we met with said that FRA officials encouraged them to update their PTC implementation plan right away with current equipment installation totals, to ensure consistency across all required documentation by the end of 2018. A couple of railroads noted that the information presented at the symposiums clarified many questions and would have been beneficial to know a year or two earlier in the implementation process. In addition, in recent months FRA has continued to provide assistance to railroads and has taken a series of steps to better prepare railroads for the 2018 deadline. These steps include meeting regularly with individual railroads and developing approaches intended to help many railroads meet the requirements necessary for a deadline extension. For example, representatives from one commuter railroad said agency officials have been willing to share lessons learned, clarify requirements, and review draft documentation to provide informal feedback. Railroads and FRA Are Working toward Extensions, Leaving Substantial Work to Be Completed Beyond 2018 Most Railroads Anticipate Needing an Extension, and Many Plan to Start RSD Testing Beyond 2018 More than three-quarters of railroads (32 of 40) reported to us that they plan to apply for an extension. However, FRA officials noted that with the exception of possibly one or two railroads, they anticipate that all railroads will likely need an extension. As of September 2018, most railroads have not submitted their request for an extension. A railroad must demonstrate that it has met all of the criteria to qualify before it may formally request an extension, and as previously discussed, many railroads remain in the early stages of PTC implementation. Of the eight railroads that anticipate reaching full implementation by December 31, 2018, five have conditionally certified safety plans; one has submitted its safety plan for review; one plans to submit its safety plan to FRA in fall 2018 for certification; and one did not specify when it would submit its safety plan for certification. Of the 32 railroads that intend to apply for an extension, half reported that they plan to use substitute criteria to qualify, including 12 commuter and 4 Class II and III railroads. Moreover, three-quarters of the commuter and Class II and III railroads that plan to use substitute criteria (12 of 16) intend to apply to use their initiation of field testing or lab testing as substitute criteria. Figure 1 depicts the stage of PTC implementation railroads at least expect to reach by December 31, 2018, to be in compliance, based on railroads’ responses to our July-August 2018 questionnaire. Although FRA has recently made clear that it is authorized to grant extensions based on initiating field testing or other FRA-approved substitute criteria, this approach defers time-intensive RSD testing into 2019 and beyond. In March 2018, we testified FRA officials told us that moving from the start of field testing to the start of RSD can take between 1 and 3 years, and has averaged about 2 years for those railroads that have completed that stage. We also testified that FRA officials believe that most railroads underestimate the amount of time needed for testing. FRA officials told us that they do not consider railroads that are approved for an extension under substitute criteria to be necessarily at a higher-risk of not completing PTC implementation by 2020. However, in light of these time estimates and the unknown challenges that railroads may face during testing, railroads that are in the early field-testing stage moving into 2019 could face challenges completing PTC implementation by the extended December 2020 deadline. Railroads further behind in PTC implementation may need to apply for an extension due to factors such as compressed implementation schedules, as well as the time needed for FRA approvals. For example, representatives from one commuter railroad said they hope to reach RSD before the December 31, 2018, deadline, but that it would be difficult to meet the extension requirements, apply for, and receive an extension given the volume of paperwork FRA will be receiving at the end of the year. Instead, the railroad plans to submit an extension request using substitute criteria consisting of field testing in order to be in compliance at the end of the year. Such an approach involves first applying for and receiving approval for substitute criteria and then formally requesting an extension and submitting supporting documentation to FRA before the end of the year. Entering RSD prior to the deadline could be difficult given that FRA officials told us they have advised railroads to allow at least a month for FRA’s review of test requests, which must be approved prior to initiating field testing and RSD. Additionally, for some railroads further along in PTC implementation, particularly Class I freight railroads, interoperability is a key remaining hurdle for full implementation by the end of 2018, and railroads expect this challenge to persist in the future. The two Class I railroads we interviewed noted that ensuring all tenant railroads are PTC-equipped, tested, and interoperable is a primary reason the railroads plan to request an extension. One of these host railroads also reported that it has little ability to influence its tenants’ progress with PTC implementation. Across all 40 railroads, 8 reported current or anticipated challenges working with tenant or host railroads, or both, to plan and conduct testing to ensure interoperability. Moreover, given that few railroads have reached the interoperability testing stage, the challenges railroads may face in this stage remain unclear. For example, some railroads we interviewed noted it is unknown how much time and effort will be required to work through interoperability issues during testing to ensure the system’s reliability. One railroad association stated that interoperability is, and will continue to be, a substantial challenge for metropolitan areas with dense and complex rail networks with several host-tenant relationships. For example, according to one commuter railroad, 14 different freight and commuter railroads will need to interoperate in the Chicago area. FRA’s Substantial Workload Remains a Concern FRA’s already substantial workload is expected to increase as railroads continue to submit documentation necessary for extensions and continue PTC implementation activities. FRA is focused on ensuring railroads are in compliance through the December 2018 deadline—whether via an extension or by completing implementation. While FRA officials report that they anticipate almost all railroads will likely request an extension, only one—a Class I railroad—had submitted an application for an extension as of early September 2018. FRA will need to review and approve all related documentation associated with each extension request and make a determination within 90 days, meaning if a railroad were to submit its extension request on December 31, 2018, FRA would have until the end of March 2019 to approve or deny the railroad’s extension request. In addition to extension requests and supporting documentation, many railroads will also be submitting to FRA: requests for substitute criteria, test requests to initiate field testing or RSD, revisions to PTC implementation plans, and PTC safety plans. To help manage the forthcoming influx of documentation, FRA officials have offered to review draft documentation, such as substitute criteria requests and test requests, and have advised railroads to take FRA’s review times into account prior to submitting required documentation. FRA officials told us that in trying to manage their workload, they initially told railroads they did not have time to review draft submittals. However, they found that taking the time to conduct draft reviews ultimately led to higher quality formal submittals and accelerated the overall review process. In addition, FRA officials said that their goal is to not delay any railroad that is ready to move into testing, and that they advised railroads to build 30–45 days for test request reviews into their project schedules. Despite these efforts, railroads remain concerned about the agency’s ability to manage the PTC workload in the coming months and beyond 2018. For example, 9 of the 40 railroads identified FRA’s resources and review times as a challenge leading up to the December 2018 deadline. Based on similar concerns, in March 2018, we recommended FRA develop an approach to prioritize the allocation of resources to address areas of greatest risk as railroads work to complete PTC implementation. FRA has acknowledged the railroads’ concern given the surge of submissions requiring FRA approval in 2018 and has reported the agency is reallocating existing expertise and expanding the PTC workforce through training, expanding contracts with existing support contractors, and initiating one additional contract to provide technical support. For example, FRA officials told us that they reallocated resources to shift PTC Specialists’ responsibilities to focus exclusively on testing-related activities because their involvement is critical for the testing stage. Although FRA has taken steps to provide key extension information to railroads and help ensure railroads’ compliance with PTC deadlines, uncertainty remains, particularly in regard to FRA’s enforcement strategy if railroads are noncompliant with the statute, such as if railroads were to fail to apply for an extension by the deadline. Representatives from all railroads implementing PTC we met with told us that FRA’s planned enforcement approach for any railroad that fails to meet the requirements for an extension beyond 2018 is unclear. FRA officials told us they have shared the range of applicable civil penalties with railroads for years, but that any policy decisions about how potential fines will be levied for non- compliant railroads is a policy decision that has not yet been made. In addition, it is also unclear how the agency would approach enforcement for railroads that have a host or tenant operating on their tracks that has not completed implementation or met the requirements necessary for an extension. FRA officials said that the goal of enforcement is to help bring all railroads into compliance and that they would have to look at the specific circumstances for any host-tenant issues before assessing a fine. In conclusion, almost all railroads will likely request an extension beyond 2018, which will require FRA approval and, for many railroads, substitute criteria requests that may result in approximately a third of railroads remaining in the early stages of PTC implementation at the start of 2019. However, given that almost no railroads have submitted extension requests, it is unlikely we will know how many railroads will be granted an extension by the December 31, 2018 deadline. Although FRA has reported taking some actions in response to our March 2018 recommendation that they better prioritize resources, FRA resources and review times remain a significant concern. These issues, combined with the ongoing implementation, testing, and interoperability challenges that a number of railroads reported to us, raise questions as to the extent FRA and the railroad industry are poised for full PTC implementation by December 31, 2020. Chairman Denham, Ranking Member Capuano, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Susan Fleming, Director, Physical Infrastructure at (202) 512- 2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Susan Zimmerman (Assistant Director); Katherine Blair; Greg Hanna; Delwen Jones; Emily Larson; Joanie Lofgren; SaraAnn Moessbauer; Maria Wallace; and Crystal Wesco. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Forty railroads including Amtrak, commuter, and freight railroads are currently required by statute to implement PTC, a communications-based system designed to slow or stop a train that is not being operated safely. PTC must be interoperable, meaning trains can operate seamlessly on the same PTC-equipped track, including “tenants” that operate on track owned by another “host” railroad. Although the deadline for PTC implementation is December 31, 2018, railroads may receive a maximum 2-year extension to December 31, 2020, if they meet certain statutory criteria. GAO was asked to review railroads' PTC implementation progress. This statement discusses (1) railroads' implementation progress and FRA's steps to assist them and (2) how railroads and FRA plan to approach the 2018 and 2020 deadlines. GAO analyzed railroads' most recent quarterly reports covering activities through June 30, 2018; sent a brief questionnaire to all 40 railroads; and interviewed officials from FRA and 16 railroads, selected in part based on those identified as at-risk by FRA. As of June 30, 2018, many railroads remained in the early stages of positive train control (PTC) implementation—including equipment installation and early field testing. About half of the 40 railroads implementing PTC reported that they are still installing equipment, though many are nearing completion. However, with the exception of the largest freight railroads—known as Class I—and Amtrak, most railroads reported less progress in later implementation stages, especially revenue service demonstration (RSD), an advanced form of field testing that is required to fully implement PTC. Of the 28 commuter railroads required to implement PTC, 19 reported initiating field testing, but only 8 reported initiating RSD. The Federal Railroad Administration (FRA) recently clarified the criteria railroads must meet to qualify for a 2-year extension past the December 31, 2018, PTC implementation deadline. To receive an extension, railroads must meet 6 statutory criteria. For the sixth criterion, commuter and smaller freight railroads are authorized to either initiate RSD on at least one track segment or use FRA-approved substitute criteria. FRA clarified these and other requirements at three PTC symposiums hosted for railroads in summer 2018. For example, FRA officials said that for railroads eligible to use substitute criteria, initiating field testing instead of RSD was one approach that could potentially receive FRA's approval. FRA's actions are consistent with GAO's March 2018 recommendation that the agency communicate to the railroads the requirements and process for an extension. Most railroads anticipate needing an extension, leaving substantial work for both railroads and FRA to complete before the end of 2020. Thirty-two of 40 railroads reported to GAO that they, or the railroad which owns the track on which they operate, will apply for an extension. Sixteen commuter and smaller freight railroads reported planning to apply for an extension using substitute criteria, and of these, 12 intend to apply for substitute criteria based on early testing such as field testing. Though substitute criteria are authorized in law, this approach defers time-intensive RSD testing into 2019 and beyond. In addition, railroads expressed concerns with the time and effort involved with interoperability testing—a key remaining hurdle for railroads such as Class I railroads that are further along with implementation. Further, railroads expressed concern that FRA's workload will markedly increase as railroads submit requests for extension approvals. FRA has acknowledged concerns about the pending surge of submissions and has taken recent steps to help manage the forthcoming influx of documentation, such as reallocating resources. Nonetheless, given that as of early September 2018, only 1 railroad—a Class I railroad—had applied for an extension, it remains unclear how many extension requests FRA will receive or what FRA's enforcement strategy will be for noncompliance with the statute, such as for railroads that fail to apply for an extension by the deadline. In addition, challenges related to PTC implementation and FRA's resources raise questions as to the extent FRA and the railroad industry are poised for full PTC implementation by December 31, 2020.

GAO_GAO-19-207

Background EM oversees a nationwide complex of 16 sites. A majority of the sites were created during World War II and the Cold War to research, produce, and test nuclear weapons (see figure 1). Much of the complex is no longer in productive use but still contains vast quantities of radioactive and hazardous materials related to the production of nuclear weapons. In 1989, EM began carrying out activities around the complex to clean up, contain, safely store, and dispose of these materials. Starting at about the same time, DOE documents indicate that EM and state and federal regulators entered into numerous cleanup agreements that defined the scope of cleanup work and established dates for coming into compliance with applicable environmental laws. EM has spent more than $170 billion since it began its cleanup program, but its most challenging and costly cleanup work remains, according to EM documents. The processes that govern the cleanup at EM’s nuclear waste sites are complicated, involving multiple laws, agencies, and administrative steps. EM’s cleanup responsibilities derive from different laws, including CERCLA, RCRA, the Atomic Energy Act, and state hazardous waste laws. Federal facility agreements, compliance orders, and other compliance agreements also govern this cleanup. Federal facility agreements are generally enforceable agreements that DOE enters into with EPA and affected states under CERCLA and applicable state laws. For each federal facility listed on the National Priorities List, EPA’s list of seriously contaminated sites, section 120 of CERCLA requires the relevant federal agency to enter into an interagency agreement with EPA for the completion of all necessary cleanup actions at the facility. The interagency agreement must include, among other things, the selection of the cleanup action and schedule for its completion. Interagency agreement provisions can be renegotiated, as necessary, to incorporate new information, adjust schedules, and address changing conditions. States generally issue federal facility compliance orders to DOE under RCRA and the Federal Facilities Compliance Act. RCRA prohibits the treatment, storage or disposal of hazardous waste without a permit from EPA or a state that EPA has authorized to implement and enforce a hazardous waste management program. Under the Federal Facilities Compliance Act, federal agencies are subject to state hazardous waste laws and state enforcement actions, including compliance orders. RCRA regulations establish detailed and often waste-specific requirements for the management and disposal of hazardous wastes, including the hazardous waste component of mixed waste. Tri-party agreements among DOE, EPA, and the relevant state often serve as both a federal facility agreement and a compliance order. In addition to federal facility agreements, other types of agreements governing cleanup at specific sites may also be in place, including administrative compliance orders, court-ordered agreements, and settlement agreements. Administrative compliance orders are orders from state agencies enforcing state hazardous waste management laws. Court-ordered agreements result from lawsuits initiated primarily by states. Settlement agreements are agreements between parties that end a legal dispute. These agreements may include milestones—dates by which DOE commits to plan and carry out its cleanup work at the sites. DOE has identified two different types of milestones: enforceable and planning milestones. Generally, an enforceable milestone has a fixed, mandatory due date, subject to the availability of appropriated funds, whereas a planning milestone is not enforceable and usually represents a placeholder or shorter term of work. In this report, we are examining any enforceable milestone that derives from either federal facility agreements or other compliance agreements. EM manages its cleanup program based on internal guidance, on milestone commitments to regulators, and in consultation with a variety of stakeholders. First, according to EM officials, EM manages cleanup activities based on requirements listed in a cleanup policy that it issued in July 2017 along with guidance listed in standard operating policies and procedures associated with this policy. The 2017 cleanup policy states that EM will apply DOE’s project management principles described in Order 413.3B to its operations activities in a tailored way. Second, EM’s budget requests are explicit regarding the role the milestones play in the cleanup effort. For example, in its fiscal year 2019 request to Congress, EM stated that the request addresses cleanup “governed through enforceable regulatory milestones.” Third, in addition to the milestone commitments to EPA and state environmental agencies, other stakeholders involved include county and local governmental agencies, citizen groups, and other organizations. These stakeholders advocate their views through various public involvement processes, including site- specific advisory boards. At EM’s 16 Cleanup Sites, Cleanup Is Governed by 72 Agreements, but EM Headquarters and Sites Do Not Consistently Define or Track Milestones At EM’s 16 cleanup sites, cleanup is governed by 72 agreements and hundreds of cleanup milestones. These agreements include federal facility agreements generally negotiated between DOE, the state, and EPA, and compliance orders from state regulators. These agreements may impose penalties for missing milestones and may amend or modify earlier agreements, including extending or eliminating milestone dates. Within the agreements, hundreds of milestones outline deadlines for specific actions to be taken by EM as it carries out its cleanup work. However, because EM lacks a standard definition of milestones, some sites track milestones differently than EM headquarters, limiting EM’s ability to monitor performance. At EM’s 16 Cleanup Sites, Cleanup Is Governed by 72 Agreements, Most of Which Include Cleanup Milestones In total, DOE has entered into 72 cleanup agreements at EM’s 16 cleanup sites. The agreements were initially signed between 1985 and 2009 (see table 1). With the exception of the Moab Uranium Mill Tailings Remedial Action Project in Utah and the Waste Isolation Pilot Plant in New Mexico, each site is governed by at least one cleanup agreement. Twelve are governed by multiple agreements (up to as many as 17 at the Savannah River Site, for example). Twelve sites are governed by federal facility agreements, generally with the relevant state and EPA. These agreements generally set out a sequence for accomplishing the work, tend to cover a relatively large number of cleanup activities, and include milestones that DOE must meet. All of the 12 sites with federal facility agreements are also governed by additional compliance agreements that have been negotiated at each site subsequent to the initial federal facility agreement or other agreement with the state. These agreements may impose penalties for missing milestones and may amend or modify earlier agreements, including extending or eliminating milestone dates. For example, the Hanford Site is subject to three consent decrees that resulted from litigation in which the state of Washington sued DOE for failing to meet certain cleanup milestones. EM Headquarters and Selected Cleanup Sites Do Not Consistently Define or Track Milestones EM headquarters and cleanup site officials provided us with different totals on the number of milestones in place at the four sites we selected for further review. Both federal facility agreements and other compliance agreements contain milestones with which EM must comply and, according to EM officials and our review of the agreements, these agreements collectively contain hundreds of milestones. However, milestone information that EM headquarters and site officials shared with us was not consistent. For example, for milestones due in fiscal years 2018 through 2020, officials at EM headquarters identified 135 enforceable cleanup milestones at the four selected sites, which was less than half of the number of such milestones officials at those sites reported to us (see table 2). These discrepancies result from how headquarters and selected sites define and track milestones. Milestone definitions. EM headquarters officials said that they are primarily concerned with milestones related to on-the-ground cleanup; that is, cleanup activities that actually result in waste being removed, treated, or disposed of. EM officials said they consider these to be major milestones. However, not all sites make the same distinction between major and non-major milestones and, as a result, are not consistently reporting the same types of milestones to EM headquarters. For example, officials at the Savannah River Site track milestones in a federal facility agreement that lists 79 milestones due in fiscal years 2018 through 2020. This agreement makes no distinction between major and non-major milestones and includes administrative activities, such as revisions to cleanup reports, in its milestone totals. EM headquarters officials, on the other hand, do not include these activities as major milestones and list only 43 milestones due in the same time frame. Similarly, Hanford officials do not distinguish between major or other milestones in their internal tracking. As a result, Hanford officials are tracking 178 milestones due in fiscal years 2018 through 2020, whereas EM headquarters officials are tracking 57 for the same time frame at Hanford. Requirements for updating milestones. Sites do not consistently provide EM headquarters with the most up-to-date information on the status of milestones at each site. This is because EM requirements governing the submission of milestone information do not specify when or how often sites are to update this information, so sites have the discretion to choose when to send updated milestone data to headquarters. As a result, the information on the list of milestones used to track cleanup performance by EM headquarters may differ from the more up-to-date information kept by the sites. For example, officials at each of the four sites we examined stated that they try to send updated information on the status of milestones to headquarters on an annual basis, though they sometimes send it less frequently. Officials at EM headquarters acknowledged that their list of milestones is not always up-to-date because of the lag between when a milestone changes at the site and when sites update that information in the EM headquarters’ database. In addition to inconsistencies in tracking and defining milestones, lists of milestones maintained by EM headquarters and the four selected sites may not include all cleanup milestones governing the cleanup work at the site. We found two cases in which permits at two sites included milestones that neither EM headquarters nor site officials included in their list of sites’ cleanup milestones. For example, milestones related to a major construction project at one of the selected sites we reviewed— Savannah River—are not listed in either EM headquarters’ or the Savannah River Site’s list of enforceable milestones. According to South Carolina state environmental officials, milestones associated with this project are part of a separate permit and dispute resolution agreement not connected to the federal facility agreement or one of the sites’ compliance agreements. Recently, DOE acknowledged in its fiscal year 2019 budget request that this project has faced technical challenges, and officials noted that the previously agreed-upon start date for operating this project would be delayed. However, this milestone and its delay are not included in either EM headquarters’ or Savannah River’s list of milestones. Similarly, officials at the Hanford Site said that some milestones governing Hanford’s cleanup are part of the site wide RCRA permit issued by the state, which is separate from its federal facility agreement, and, as a result, officials do not track this information in the same Hanford milestone tracking system and do not report it to EM headquarters. EM does not have a standard definition of milestones for either sites or headquarters to use for reporting and monitoring cleanup milestones or guidance on how often sites should update the status of milestones. EM headquarters officials cited guidance that sites can refer to when entering their milestone data into the headquarters-managed database. This guidance addresses how to submit milestone data but does not include a definition of milestones or specify how often sites should update the information. EM headquarters officials noted that sites have the discretion to input milestones as they choose. EM’s lack of a standard definition of milestones limits management’s ability to use milestones to manage EM’s cleanup mission and monitor its progress. We have previously found that poorly defined, incomplete, or missing requirements make it difficult to hold projects accountable, result in programs or projects that do not meet user needs, and can result in cost and schedule growth. In addition, according to Standards for Internal Control in the Federal Government, information and communication are vital for an entity to achieve its objectives. According to these standards, the first principle of information and communication is that management should define the information requirements at the relevant level and the requisite specificity for appropriate personnel. Without this, EM’s ability to use milestones for managing and measuring the performance of its cleanup program is limited. EM Does Not Track Sites’ Renegotiated Milestone Dates and Has Not Consistently Reported Milestone Information to Congress as Required EM relies on cleanup milestones, among other metrics, to measure the overall performance of its operations activities. However, sites regularly renegotiate milestones they are at risk of missing, and EM does not track data on the history of postponed milestones. As a result, EM cannot accurately track the progress of cleanup activities to meet these milestones. Additionally, EM has not consistently reported required information to Congress, and the information it has reported is incomplete. For example, in its report to Congress on the status of the enforceable milestones, EM includes the latest (meaning the most recently renegotiated) milestone dates with no indication of whether or how often those milestones have been missed or postponed. Sites Renegotiate Milestone Dates Before They Are Missed, and EM Does Not Track How Often This Occurs Site officials typically renegotiate enforceable milestones they are at risk of missing with their regulators, in accordance with the modification procedures established in federal facility agreements. EM officials said that sites have the ability to renegotiate milestones before they are missed. For example, the Hanford Site Federal Facility Agreement allows DOE to request an extension of any milestone; the request must include, among other things, DOE’s explanation of the good cause for the extension. As long as there is consensus among EM and its regulators, the milestone is changed. Similarly, the Los Alamos Federal Facility Agreement requires site officials to negotiate cleanup milestones each fiscal year. Because renegotiated milestones are not technically missed, EM avoids any fines or penalties associated with missed milestones. Site officials we interviewed at the four selected sites stated that it is common for regulators and sites to renegotiate milestones before sites miss them. For example, at the Savannah River Site, both DOE and South Carolina officials said they could not recall any missed milestones among the thousands of milestones completed since the cleanup began. Similarly, Hanford officials told us that since the beginning of the cleanup effort in 1989, more than 1,300 milestones had been completed and only 62 had actually been missed because, in most cases, whenever milestones were at risk of being missed, they were renegotiated. However, officials at these sites could not provide us with the exact number of times milestones had been renegotiated. This is because once milestones are changed, sites are not required to maintain or track the original milestones. As a result, the new milestones become the new agreed-upon time frame, essentially resetting the deadline. Because EM does not track the original baseline schedule for renegotiated milestone dates, milestones do not provide a reliable measure of program performance. According to best practices identified in GAO’s schedule assessment guide, agencies should formally establish a baseline schedule against which performance can be measured. In particular, we have previously found that management does not have the ability to identify and mitigate the effects of unfavorable performance without a formally established baseline schedule against which it can measure performance. We have also found that, without a documented and consistently-applied schedule change control process, program staff may continually revise the schedule to match performance, hindering management’s insight into the true performance of the project. In addition, DOE’s internal project management policies call for steps to maintain a change control process, including setting a baseline schedule for completing certain activities and maintaining a record of any subsequent deviations from that baseline. EM uses milestones as one of its metrics for measuring the performance of its cleanup efforts, since the milestones are effectively schedule targets. However, since neither EM headquarters nor the sites track renegotiated milestones and their baseline dates at the sites, EM cannot accurately use milestones for managing and measuring the performance of its cleanup program. EM Has Not Consistently Reported Required Information to Congress, and the Information It Has Reported Is Incomplete EM has not consistently reported required information to Congress on the status of its milestones. The National Defense Authorization Act for Fiscal Year 2011 established a requirement for EM to annually provide Congress with a future-years defense environmental cleanup plan. This plan is to contain, among other things, information on the current dates for enforceable milestones at specified cleanup sites, including whether each milestone will be met and, if not, an explanation as to why and when it will be met. However, since 2011, EM has only provided Congress with the required annual plan in 2 years—2012 and 2017—and EM officials told us in September 2018 that they were unsure when EM would release the next future-years plan. EM officials said that, instead of the annual plan, they have provided oral briefings to Congressional staff during the 4 years when a formal report was not produced. In addition, our analysis of the 2012 and 2017 plans EM submitted to Congress identified three ways in which the plans provide inaccurate or incomplete information on EM’s enforceable milestones. No historical record. First, the plans contain no indication of whether each milestone date reported is the original date for that milestone or whether or how many times the milestones listed have been missed or postponed. Instead, the plans report the latest (and most recently renegotiated) dates for the milestones without listing the original dates or acknowledging that some of the milestones have been delayed, in some cases by several years, beyond their original agreed-upon completion dates. For example, we found that at least 14 milestones from the 2012 plan were repeated in the 2017 plan with new forecasted completion dates, but the 2017 plan gave no indication that these milestones had been postponed (see table 3). The milestones’ due dates had been pushed back by as many as 6 years without any indication in the 2017 report that they were delayed. As noted above, EM headquarters does not track changes to milestones and EM officials at both headquarters and the sites said that they have not historically kept a record of the original baseline dates for renegotiated milestones they change. As a result, EM officials could not readily provide information on whether the other milestones listed in the 2012 report met their listed due date or whether they were postponed. Headquarters officials stated that to gather this information they would need to survey officials at each site. Inaccurate forecast. Second, the forecast completion dates for milestones listed in the 2012 and 2017 plans may not present an accurate picture of the status of the milestones and EM’s cleanup efforts. For example, in the 2012 plan, DOE reported that four out of 218 milestones were at risk of missing their planned completion date, while the rest were on schedule. As discussed above, we found 14 of the milestones in the 2012 plan had been postponed and listed again in the 2017 plan. Similarly, the 2017 plan listed only one milestone out of 154 as forecasted to miss its due date. However, because EM does not have a historical record of the changes made to the milestones, it is unclear how many of these milestones represented their original due dates. Incomplete list. Third, the plans did not include milestones from all of the 10 DOE cleanup sites that EM is required to report on. In 2012, EM did not report milestone information for two of the 10 sites that were required to be included in the plan. In the 2017 plan, information was missing for one of the 10 required sites. EM headquarters officials said that this could be because some sites did not update their milestone information or some sites may still be renegotiating new milestones. However, neither report indicated that data were missing for these sites. As a result of these issues, DOE’s future-years defense environmental cleanup plans provide only a partial picture of the milestones and overall cleanup progress made across the cleanup complex, and actual progress made in cleanup is not transparent to Congress. The absence of reliable and complete information on the progress of EM’s cleanup mission limits EM’s ability to manage its mission and complicates Congress’s ability to oversee the cleanup work. EM Does Not Analyze the Root Causes of Missed or Postponed Milestones and Does Not Have Guidelines for Considering Root Causes When Renegotiating New Milestones Best practices and DOE requirements for project management call for a root cause analysis when problems lead to schedule delays, but EM officials at both headquarters and selected sites have not analyzed reasons why milestones are missed or postponed. According to best practices identified in GAO’s cost estimating guide, agencies should identify root causes of problems that lead to schedule delays and renegotiated milestones. Specifically, when risks materialize (i.e., when milestones are missed or delayed), risk management should provide a structure for identifying and analyzing root causes. The benefits of doing so include developing a better understanding of the factors that caused milestones to be missed and providing agencies with information to more effectively address those factors in the future. In addition, DOE has recently emphasized the importance of doing this kind of analysis. In 2015, DOE issued a directive requiring sites to do a root cause analysis when the project team, program office, or independent oversight offices determine that a project has breached its cost or schedule thresholds. This directive, which applies to all programs and projects within DOE, calls for “an independent and objective root cause analysis to determine the underlying contributing causes of cost overruns, schedule delays, and performance shortcomings,” such as missed or postponed milestones. However, EM has not done a complex-wide analysis of the reasons for missed or postponed milestones. Similarly, officials we interviewed at the four selected sites said that they were not aware of any site-wide review of why milestones were missed or postponed. According to headquarters officials, this analysis has not been done because EM has determined that DOE requirements governing this type of analysis apply only to contract schedules, not regulatory milestones, and that missed or postponed milestones are not necessarily an indication of cleanup performance shortcomings. However, as previously noted in this report, missing or postponing milestones is a systemic problem across the cleanup complex that makes it difficult for DOE to accurately identify cleanup performance shortcomings. Because EM has not analyzed why it has missed or postponed milestones, EM cannot address these systemic problems and consider those problems when renegotiating milestones with regulators. Without such analysis, EM and its cleanup regulators lack information to set more realistic and achievable milestones and, as a result, future milestones are likely to continue to be pushed back, further delaying the cleanup work. As we have reported previously, these delays lead to increases in the overall cost of the cleanup. Conclusions The federal government faces a large and growing future environmental liability, the vast majority of which is related to the cleanup of radioactive and hazardous waste at DOE’s 16 sites around the country. EM has responsibility for addressing the human health and environmental risks presented by this contamination in the most cost-effective way. However, most of EM’s largest projects are significantly delayed and over budget, and state regulators for nearly all of EM’s cleanup sites have responded by initiating enforcement actions, often leading to additional agreements, including administrative orders and court settlements, in addition to initial federal facility agreements to ensure those risks are addressed. EM relies on cleanup milestones, among other metrics, to measure the overall performance of its operations activities, and EM reports that very few of its cleanup milestones over the past 2 decades have been missed. However, EM’s self-reported performance in achieving milestones does not provide an accurate view of actual progress in cleaning up sites. EM has not established clear definitions for tracking and reporting milestones and does not have any requirements governing the way sites are to update milestone information. As a result, EM’s internal tracking of these milestones has inconsistencies. Additionally, since the requirement to annually report on the status of milestones was set in 2011, EM has produced only two reports to Congress, and these were inaccurate and incomplete. Without a clear and consistent approach to collecting and reporting this data, including the history of milestone changes, EM cannot accurately use milestones for managing and measuring the performance of its cleanup program. The absence of reliable and complete information on the progress of EM’s cleanup mission also limits EM’s and Congress’s ability to oversee the cleanup work. In addition, without a root cause analysis of why milestones are missed or postponed, EM and its cleanup regulators lack information to set more realistic and achievable milestones. As a result, future milestones are likely to continue to be pushed back, further delaying the cleanup work, which will likely increase cleanup costs and risks to human health and the environment. Recommendations for Executive Action We are making the following four recommendations to DOE: The Assistant Secretary of DOE’s Office of Environmental Management should update EM’s policies and procedures to establish a standard definition of milestones and specify requirements for both including and updating information on milestones across the complex. (Recommendation 1) The Assistant Secretary of DOE’s Office of Environmental Management should track original milestone dates as well as changes to its cleanup milestones. (Recommendation 2) The Assistant Secretary of DOE’s Office of Environmental Management should comply with the requirements in the National Defense Authorization Act by reporting annually to Congress on the status of its cleanup milestones and including a complete list of cleanup milestones for all sites required by the act. The annual reports should also include, for each milestone, the original date along with the currently negotiated date. (Recommendation 3) The Assistant Secretary of DOE’s Office of Environmental Management should conduct root cause analyses of missed or postponed milestones. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to DOE for review and comment. DOE provided written comments, which are reproduced in appendix II; the agency also provided technical comments that we incorporated in the report as appropriate. Of the four recommendations in the report, DOE agreed with three, and partially agreed with one. Regarding the recommendation that DOE update EM’s policies and procedures to establish a standard definition of milestones and specify requirements for both including and updating information on milestones across the complex, the agency agreed with the recommendation. DOE stated that these policy-driven reforms can improve the efficiency of milestone tracking. Regarding the recommendation that DOE track changes to cleanup milestones, the agency agreed with the recommendation. DOE stated that EM currently monitors milestone status, including changes as the need for changes are identified and as part of its ongoing communication with field offices, and therefore DOE considers the recommendation to be closed. However, as we noted in the report, neither EM headquarters nor the sites track the original baseline schedule for renegotiated milestone dates. We adjusted the language of the recommendation to make clear that the EM Assistant Secretary should track original milestone dates as well as changes to cleanup milestones. DOE stated in its written comments that EM does not believe that tracking original and changed milestones will strengthen EM's ability to use milestones to manage and measure the performance of its cleanup program. However, as we noted in this report, according to best practices identified in GAO's schedule assessment guide, agencies should formally establish a baseline schedule against which performance can be measured. We have found that, without a documented and consistently-applied schedule change control process, program staff may continually revise the schedule to match performance, hindering management's insight into the true performance of the project. In addition, DOE's internal project management policies call for steps to maintain a change control process, including setting a baseline schedule for completing certain activities and maintaining a record of any subsequent deviations from that baseline. Regarding our recommendation that DOE comply with the requirements in the National Defense Authorization Act by reporting annually to Congress on the status of its cleanup milestones and including a complete list of cleanup milestones for all sites required by the act, the agency partially agreed with the recommendation. DOE stated that additional budget and clarification of purpose and scope would be required to fulfill this recommendation. As we point out in our report, DOE has not fully complied with requirements established by the act, including not submitting all required annual reports and, even when DOE did submit these reports, its reporting omitted information about some sites. DOE stated that EM is reviewing options to address this recommendation. Regarding our recommendation that DOE conduct root cause analyses of performance shortcomings that lead to missed or postponed milestones, the agency agreed with the recommendation and stated that EM is evaluating options to implement it. However, DOE stated that there may be multiple reasons why milestones are changed, and not all of the changes are due to DOE performance. To acknowledge the uncertainty in the causes of missed or postponed milestones, we adjusted the language of the recommendation to clarify that the EM Assistant Secretary should conduct root cause analyses of missed or postponed milestones. In addition, in its written comments, DOE disagreed with the draft report's description of the process and authorities related to renegotiating compliance milestones, stating that EM cannot and does not unilaterally delay/postpone milestones and that EPA and state regulator approval of milestone changes is required. We agree, and the report states that it is common for regulators and sites to renegotiate milestones before sites miss them. DOE also disagreed with the draft report’s characterization of the coordination between EM sites and headquarters in tracking milestones. In particular, DOE’s written comments state that site-specific databases include all regulatory compliance milestones drawn from applicable agreements, while the headquarters database tracks major enforceable milestones. However, as our report notes, because not all sites make the same distinction between major and non-major milestones, sites are not consistently reporting the same types of milestones to EM headquarters. In addition, DOE’s written comments state that EM sites and headquarters routinely collaborate and discuss the status of milestones via meetings and EM periodically requests that sites verify the data in the EM headquarters database. Nevertheless, as our report notes, EM requirements governing the submission of milestone information do not specify when or how often sites are to update this information. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix III. Appendix I: Department of Energy (DOE) Cleanup Sites Brookhaven National Laboratory The Brookhaven National Laboratory was established in 1947 by the Atomic Energy Commission. Formerly Camp Upton, a U.S. Army installation site, Brookhaven is located on a 5,263-acre site on Long Island in Upton, NY, approximately 60 miles east of New York City. Historically, Brookhaven was involved in the construction of accelerators and research reactors such as the Cosmotron, the High Flux Beam Reactor, and the Brookhaven Graphite Research Reactor. These accelerators and reactors led the way in high-energy physics experiments and subsequent discoveries but also resulted in radioactive waste. To complete the cleanup mission, DOE is working to build and operate groundwater treatment plants, decontaminate and decommission the High Flux Beam Reactor and the Brookhaven Graphite Research Reactor, and dispose of some wastes off-site. Energy Technology Engineering Center The Energy Technology Engineering Center occupies 90 acres within the 290 acre Santa Susana Field Laboratory 30 miles north of Los Angeles, California. The area was primarily used for DOE research and development activities. In the mid-1950s, part of the area was set aside for nuclear reactor development and testing, primarily related to the development of nuclear power plants and space power systems, using sodium and potassium as coolants. In the mid-1960s, the Energy Technology Engineering Center was established as a DOE laboratory for the development of liquid metal heat transfer systems to support the Office of Nuclear Energy Liquid Metal Fast Breeder Reactor program. DOE is now involved in the deactivation, decommissioning, and dismantlement of contaminated facilities on the site. Hanford Site DOE is responsible for one of the world’s largest environmental cleanup projects: the treatment and disposal of millions of gallons of radioactive and hazardous waste at its 586 square mile Hanford Site in southeastern Washington State. Hanford facilities produced more than 20 million pieces of uranium metal fuel for nine nuclear reactors along the Columbia River. Five plants in the center of the Hanford Site processed 110,000 tons of fuel from the reactors, discharging an estimated 450 billion gallons of liquids to soil disposal sites and 53 million gallons of radioactive waste to 177 large underground tanks. Plutonium production ended in the late 1980s. Hanford cleanup began in 1989 and now involves (1) groundwater monitoring and treatment, (2) deactivation and decommissioning of contaminated facilities, and (3) the construction of the waste treatment and immobilization plant intended, when complete, to treat the waste in the underground tanks. Idaho National Laboratory DOE’s Idaho Site is an 890-square-mile federal reserve, situated in the Arco Desert over the Snake River Plain Aquifer in central Idaho. The Idaho Cleanup Project involves the environmental cleanup of the Idaho Site, contaminated with legacy wastes generated from World War II-era conventional weapons testing, government-owned research and defense reactors, spent nuclear fuel reprocessing, laboratory research, and defense missions at other DOE sites. Lawrence Livermore National Laboratory The 1-square-mile Lawrence Livermore National Laboratory site is an active, multi-program DOE research laboratory about 45 miles east of San Francisco. A number of research and support operations at Lawrence Livermore handle, generate, or manage hazardous materials that include radioactive wastes. The site first was used as a Naval Air Station in the 1940s. In 1951, it was transferred to the U.S. Atomic Energy Commission and was established as a nuclear weapons and magnetic fusion energy research facility. Over the past several years, Lawrence Livermore constructed several treatment plants for groundwater pumping and treatment and for soil vapor extraction. These systems will continue to operate until cleanup standards are achieved. Los Alamos National Laboratory Los Alamos National Laboratory is located in Los Alamos County in north central New Mexico. The laboratory, founded in 1943 during World War II, served as a secret facility for research and development of the first nuclear weapon. The site was chosen because the area provided controlled access, steep canyons for testing high explosives, and existing infrastructure. The Manhattan Project’s research and development efforts that were previously spread throughout the nation became centralized at Los Alamos and left a legacy of contamination. Today, the Los Alamos National Laboratory Cleanup Project is responsible for the treatment, storage, and disposition of a variety of radioactive and hazardous waste streams; removal and disposition of buried waste; protection of the regional aquifer; and removal or deactivation of unneeded facilities. Moab Uranium Mill Tailings Project The Moab Site is located about 3 miles northwest of the city of Moab in Grand County, Utah. The former mill site encompasses approximately 435 acres, of which about 130 acres is covered by the uranium mill tailings pile. Uranium concentrate (called yellowcake), the milling product, was sold to the U.S. Atomic Energy Commission through December 1970 for use in national defense programs. After 1970, production was primarily for commercial sales to nuclear power plants. During its years of operation, the mill processed an average of about 1,400 tons of ore a day. The milling operations created process-related wastes and tailings, a radioactive sand-like material. The tailings were pumped to an unlined impoundment in the western portion of the Moab Site property that accumulated over time, forming a pile more than 80 feet thick. The tailings, particularly in the center of the pile, have a high water content. Excess water in the pile drains into underlying soils, contaminating the ground water. Nevada National Security Site In 1950, President Truman established what is now known as the Nevada National Security Site in Mercury, Nevada, to perform nuclear weapons testing activities. In support of national defense initiatives, a total of 928 atmospheric and underground nuclear weapons tests were conducted at the site between 1951 and 1992, when a moratorium on nuclear testing went into effect. Today, the site is a large, geographically-diverse research, evaluation, and development complex that supports homeland security, national defense, and nuclear nonproliferation. In Nevada, DOE activities focus on groundwater, soil, and on-site facilities; radioactive, hazardous, and sanitary waste management and disposal; and environmental planning. Oak Ridge Reservation DOE’s Oak Ridge Reservation is located on approximately 33,500 acres in eastern Tennessee. The reservation was established in the early 1940s by the Manhattan Engineer District of the U. S. Army Corps of Engineers and played a role in the production of enriched uranium during the Manhattan Project and the Cold War. DOE is now working to address excess and contaminated facilities, remove soil and groundwater contamination, and enable modernization that allows the National Nuclear Security Administration to continue its national security and nuclear nonproliferation responsibilities and the Oak Ridge National Laboratory to continue its mission for advancing technology and science. Paducah Gaseous Diffusion Plant The Paducah Gaseous Diffusion Plant, located within an approximately 650-acre fenced security area in in McCracken County in western Kentucky, opened in 1952 and played a role in the production of enriched uranium during and after the Cold War until ceasing production for commercial reactor fuel purposes in 2013. Decades of uranium enrichment and support activities required the use of a number of typical and special industrial chemicals and materials. Plant operations generated hazardous, radioactive, mixed (both hazardous and radioactive), and nonchemical (sanitary) wastes. Past operations also resulted in soil, groundwater, and surface water contamination at several sites located within plant boundaries. Portsmouth Gaseous Diffusion Plant The Portsmouth Gaseous Diffusion Plant is located in Pike County, Ohio, in southern central Ohio, approximately 20 miles north of the city of Portsmouth, Ohio. Like the Paducah Plant, this facility was also initially constructed to produce enriched uranium to support the nation’s nuclear weapons program and was later used by commercial nuclear reactors. Cleanup activities here are similar to those at the Paducah Plant. Sandia National Laboratories The Sandia National Laboratories comprises 2,820 acres within the boundaries of the 118 square miles of Kirtland Air Force Base and is located about 6 miles east of downtown Albuquerque, New Mexico. It is managed by the National Nuclear Security Administration. Sandia National Laboratories was established in 1945 for nuclear weapons development, testing, and assembly for the Manhattan Engineering District. Beginning in 1980, the mission shifted toward research and development for nonnuclear components of nuclear weapons. Subsequently, the mission was expanded to research and development on nuclear safeguards and security and multiple areas in science and technology. Savannah River Site The Savannah River Site complex covers 198,344 acres, or 310 square miles, encompassing parts of Aiken, Barnwell, and Allendale counties in South Carolina, bordering the Savannah River. The site is a key DOE industrial complex responsible for environmental stewardship, environmental cleanup, waste management, and disposition of nuclear materials. During the early 1950s, the site began to produce materials used in nuclear weapons, primarily tritium and plutonium-239. Five reactors were built to produce nuclear materials and resulted in unusable by-products, such as radioactive waste. About 35 million gallons of radioactive liquid waste are stored in 43 underground tanks. The Defense Waste Processing Facility is processing the high-activity waste, encapsulating radioactive elements in borosilicate glass, a stable storage form. Since the facility began operations in March 1996, it has produced more than 4,000 canisters (more than 16 million pounds) of radioactive glass. Separations Process Research Unit The Separations Process Research Unit is an inactive facility located at the Knolls Atomic Power Laboratory in Niskayuna, New York, near Schenectady. The Mohawk River forms the northern boundary of this site. Built in the late 1940s, its mission was to research the chemical process to extract plutonium from irradiated materials. Equipment was flushed and drained, and bulk waste was removed following the shutdown of the facilities in 1953. Today, process vessels and piping have been removed from all the research unit’s facilities. In 2010, cleanup of radioactivity and chemical contamination in the Lower Level Railroad Staging Area, Lower Level Parking Lot, and North Field areas was completed. Waste Isolation Pilot Plant The Waste Isolation Pilot Plant is an underground repository located near Carlsbad, New Mexico, that is used for disposing of defense transuranic waste. The plant is managed by DOE’s Office of Environmental Management and is the only deep geological repository for the permanent disposal of defense generated transuranic waste. West Valley Demonstration Project The West Valley Demonstration Project occupies approximately 200 acres within the 3,345 acres of land called the Western New York Nuclear Service Center. The project is located approximately 40 miles south of Buffalo, New York. The West Valley Demonstration Project Act of 1980 established the project. The act directed DOE to solidify and dispose of the high-level waste and decontaminate and decommission the facilities used in the process. The land and facilities are not owned by DOE. Rather, the project premises are the property of the New York State Energy Research and Development Authority. DOE does not have access to the entire 3,345 acres of property. Appendix II: Comments from the Department of Energy Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Nico Sloss (Assistant Director), Jeffrey T. Larson (Analyst in Charge), Natalie M. Block, Antoinette C. Capaccio, R. Scott Fletcher, Cindy K. Gilbert, Richard P. Johnson, Jeffrey R. Rueckhaus, Ilga Semeiks, Sheryl E. Stein, and Joshua G. Wiener made key contributions to this report.

EM manages DOE's radioactive and hazardous waste cleanup program using compliance agreements negotiated between DOE and other federal and state agencies. Within the agreements, milestones outline cleanup work to be accomplished by specific deadlines. EM's cleanup program faces nearly $500 billion in future environmental liability, which has grown substantially. GAO was asked to review DOE's cleanup agreements. This report examines the extent to which EM (1) tracks the milestones in cleanup agreements for EM's cleanup sites; (2) has met, missed, or postponed cleanup-related milestones at selected sites and how EM reports information; and (3) has analyzed why milestones are missed or postponed and how EM considers those reasons when renegotiating milestones. GAO reviewed agreements and milestones at EM's 16 cleanup sites and compared information tracked by EM headquarters and these sites; interviewed officials from four selected sites (chosen for variation in location and scope of cleanup, among other factors); and reviewed EM guidance related to milestone negotiations. The cleanup process at the 16 sites overseen by the Department of Energy's (DOE) Office of Environmental Management (EM) is governed by 72 agreements and hundreds of milestones specifying actions EM is to take as it carries out its cleanup work. However, EM headquarters and site officials do not consistently track data on the milestones. EM headquarters and site officials provided GAO with different totals on the number of milestones in place at the four sites GAO selected for review. These discrepancies result from how headquarters and selected sites define and track milestones. First, not all sites make the same distinction between major (i.e., related to on-the-ground cleanup) and non-major milestones and, as a result, are not consistently reporting the same milestones to EM headquarters. Second, sites do not consistently provide EM headquarters with the most up-to-date information on the status of milestones at each site. These inconsistencies limit EM's ability to use milestones to manage the cleanup mission and monitor its progress. EM does not accurately track met, missed, or postponed cleanup-related milestones at the four selected sites, and EM's milestone reporting to Congress is incomplete. EM sites renegotiate milestone dates before they are missed, and EM does not track the history of these changes. This is because once milestones change, sites are not required to maintain or track the original milestone dates. GAO has previously found that without a documented and consistently-applied schedule change control process, program staff may continually revise the schedule to match performance, hindering management's insight into the true performance of the project. Further, since 2011, EM has not consistently reported to Congress on the status of the milestones each year, as required, and the information it has reported is incomplete. EM reports the most recently renegotiated milestone dates with no indication of whether or how often those milestones have been missed or postponed. Since neither EM headquarters nor the sites track renegotiated milestones and their baseline dates at the sites, milestones do not provide a reliable measure of program performance. EM officials at headquarters and selected sites have not conducted root cause analyses on missed or postponed milestones; thus, such analyses are not part of milestone negotiations. Specifically, EM has not done a complex-wide analysis of the reasons for missed or postponed milestones. Similarly, officials GAO interviewed at the four selected sites said that they were not aware of any site-wide review of why milestones were missed or postponed. Best practices for project and program management outlined in GAO's Cost Estimating and Assessment Guide note the importance of identifying root causes of problems that lead to schedule delays. Additionally, in a 2015 directive, DOE emphasized the importance of conducting such analysis. Analyzing the root causes of missed or postponed milestones would better position EM to address systemic problems and consider those problems when renegotiating milestones with regulators. Without such analysis, EM and its cleanup regulators lack information to set more realistic and achievable milestones and, as a result, future milestones are likely to continue to be pushed back, further delaying the cleanup work. As GAO has reported previously, these delays lead to increases in the overall cost of the cleanup.

GAO_GAO-18-440

Background Roles and Responsibilities Under the Brady Handgun Violence Prevention Act of 1993 (referred to hereafter as the “Brady Act”) and implementing regulations, the FBI and designated state and local criminal justice agencies use NICS to conduct background checks on individuals seeking to purchase firearms from an FFL or obtain permits to possess, acquire, or carry firearms. The mission of the FBI’s NICS Section is to enhance national security and public safety by providing the timely and accurate determination of a person’s eligibility to possess firearms in accordance with federal law. Figure 1 shows the states where the FBI performs background checks for all transactions, as well as POC and partial POC states. ATF—one of several Department of Justice law enforcement components—is responsible for investigating criminals and criminal organizations that use firearms, arson, or explosives in violent criminal activity, among other things. ATF is also responsible for investigating criminal and regulatory violations of federal firearms, explosives, arson, and alcohol and tobacco-smuggling laws subject to the direction of the Attorney General, as well as any other function related to the investigation of violent crime or domestic terrorism that is delegated to ATF by the Attorney General. U.S. Attorneys prosecute criminal cases brought forward by the federal government, prosecute and defend civil cases in which the United States is a party, and collect debts owed to the federal government that are administratively uncollectible. U.S. Attorneys investigate and prosecute a wide range of criminal activities—including, but not limited to, international and domestic terrorism, corporate fraud, public corruption, violent crime, and drug trafficking. Each U.S. Attorney exercises wide discretion in the use of his or her resources to further the priorities of the local jurisdictions and needs of their communities. The Executive Office for United States Attorneys (EOUSA) represents the 93 U.S. Attorneys that prosecute federal cases. Among other things, EOUSA provides guidance, management direction, and oversight to USAOs. Firearms Purchase Background Check Process During a NICS check, the FBI and POC states use descriptive data provided by an individual—such as name and date of birth—to search various databases containing criminal history and other relevant records. These databases include the Interstate Identification Index, the National Crime Information Center, and the NICS Indices. The Interstate Identification Index includes, among other things, information on persons who are indicted for, or have been convicted of, a crime punishable by imprisonment for a term exceeding 1 year or have been convicted of a misdemeanor crime of domestic violence. The National Crime Information Center includes criminal justice- related records pertaining to wanted persons (fugitives) and persons subject to protection orders, among other things. The NICS Indices were created for use in connection with NICS background checks and contain information on persons determined to be prohibited from possessing or receiving a firearm. NICS checks determine whether or not an individual is disqualified by federal or state law from possessing firearms. As shown in figure 2: Federal NICS transactions increased from about 6.5 million in fiscal year 2011 to about 8.6 million in fiscal year 2017. Federal NICS denials increased from about 77,000 in fiscal year 2011 to about 112,000 in fiscal year 2017. POC state transactions—which include both full and partial POC states—increased from about 9.3 million in fiscal year 2011 to about 17 million in fiscal year 2017. POC state denials increased from about 45,000 in fiscal year 2011 to about 69,000 in fiscal year 2017. If the FBI or state agency completes a background check within 3 business days and determines that a person should be denied, such denials are referred to as “standard denials” and do not involve the potential transfer of a firearm. If the FBI or state agency cannot complete a background check within 3 business days, the FFL may transfer the firearm pursuant to federal law, unless state law provides otherwise. When the FBI makes a denial determination after 3 business days— called a “delayed denial”—the FBI determines if the FFL transferred the firearm to the individual, and if so, refers these cases to ATF for retrieval of the firearm if the individual is confirmed to be prohibited from possessing a firearm. States may establish requirements regarding background check processing times, including waiting periods, beyond the federal requirement. States also may include state databases in addition to NICS indices when conducting background checks. In POC states, FFLs initiate a NICS check by contacting one or more state organizations, such as a state or local law enforcement agency, to query NICS databases and related state files. If necessary, the state organization then conducts any required follow-up research. States may use different methods to conduct background checks. Examples of these varying methods include the following: Instant Check: Requires an FFL to transmit a buyer’s application to a checking agency by telephone or computer. The agency is required to respond immediately or as soon as possible. Purchase Permit: Requires a buyer to obtain, after a background check, a government-issued document (such as a permit, license, or identification card) that must be presented to an FFL before the buyer can receive a firearm. Exempt Carry Permit: State concealed weapons permits, issued after a background check, exempt the holder from a new check at the time of purchase under an ATF ruling or state law. Other: Requires an FFL to transmit an application to a checking agency, which delays transfer until a waiting period expires or the agency completes a check. Federal Process After a Firearm Denial After a federal NICS denial, ATF can take enforcement actions through criminal investigation and referral for prosecution to a USAO, as making false written statements on the ATF Form 4473 is a crime punishable as a felony under federal law by up to 10 years in prison and up to a $250,000 fine. Any fines that result from a firearm denial are criminal fines assessed through prosecution as part of a plea agreement or sentencing. ATF does not have the statutory authority to issue fines or take any civil action against individuals whose firearm applications are denied and are suspected of providing false information during the attempted purchase. Investigations For federal denied transactions, the FBI’s NICS Section sends information about each denial to ATF’s DENI Branch. The DENI Branch is responsible for researching each transaction to determine whether the case should be referred to one of ATF’s 25 field divisions for possible investigation. The DENI Branch is to refer all delayed denial cases— which may require recovery of a firearm—and standard denial cases that meet USAO investigative referral criteria for each corresponding judicial district. An ATF NICS coordinator in each field division is to distribute the referred denial cases to the appropriate field office within each field division. In addition to recovery of a firearm for delayed denial cases, all firearms denial investigations may involve verifying the purchaser’s prohibited status, gathering relevant supporting documentation such as mental health or court files, and communicating with prosecutors regarding the prosecutorial merit of the case, according to ATF officials. Figure 3 shows the general NICS background check process when purchasing a firearm from an FFL in either a NICS or POC state. Among the denials that ATF investigates (delayed and standard), each field office also determines which cases should be referred to a USAO for possible prosecution. If the ATF field office determines that the subject is a prohibited person and local prosecutorial guidelines are met, the field office may refer the case for prosecution. ATF agents may discuss potential referrals with prosecutors to try to obtain USAO acceptance before ATF formally refers a case for possible prosecution. A case that is not deemed appropriate for federal prosecution may be referred to a state prosecutor. If the U.S. Attorney decides to prosecute, an arrest is made or a warrant is issued. Figure 4 shows the general process for the investigation and prosecution of standard firearms denials. State Processes After a Firearm Denial POC states vary in their procedures and standards for investigating and prosecuting persons denied firearms transactions. For example, these states may or may not investigate and prosecute prohibited persons who violate state gun control laws. In some states, the agency conducting background checks notifies the state or local police, depending on which has jurisdiction, where the transaction occurred. The local agency is then responsible for investigating and assisting in the prosecution of the case by state or local prosecutors. Other states have units with statewide jurisdiction that screen cases before deciding whether a referral should be made to a state police trooper or local law enforcement agency for investigation. A POC state may also refer denials for further investigation to the nearest ATF field office. In POC states, a firearm retrieval associated with a delayed denial may be handled by local law enforcement, a statewide firearms unit, or ATF. State and local prosecutors, whether the district attorney, county or city prosecutor, or the state Attorney General’s office, represent the state for cases arising under state law. Occasionally, federal and state law may prohibit similar types of criminal conduct, allowing both federal and state prosecutors to pursue the case. Federal and Selected State Law Enforcement Agencies Collectively Investigate and Prosecute a Small Percentage of Firearms Denials In fiscal year 2017, ATF referred about 13,000 firearms denials to its field divisions for investigation, of which USAOs had prosecuted 12 cases as of June 2018. In March 2018, the Attorney General issued a memo that directed all United States Attorneys to enhance prosecution of cases involving individuals who make false statements on the ATF Form 4473. Officials from 10 of our 13 selected POC states said that they do not investigate or prosecute NICS denials. ATF Referred about 13,000 Firearms Denials to Its Field Divisions for Investigation in Fiscal Year 2017, of Which USAOs Have Prosecuted 12 Cases At the federal level, the FBI’s NICS Section referred 112,090 denied transactions to ATF’s DENI Branch in fiscal year 2017, of which ATF referred 12,710 (about 11 percent) to its field divisions for further investigation. The 12,710 referred cases consisted of 3,993 delayed denials and 8,717 standard denials. According to ATF headquarters officials, the DENI Branch refers all delayed denials to ATF field divisions for additional investigation because these cases could potentially require the recovery of a firearm that was transferred to a prohibited person. The DENI Branch uses investigative guidelines established by USAOs that cover 94 judicial districts to determine if standard denials should be referred to the respective ATF field division for investigation. USAO criteria may include individuals who are violent felons, have an active protection order, or have made multiple attempts to purchase a firearm in the past after being denied, among other offenses. Based on our analysis of ATF data, the number of firearms denials the DENI Branch referred to ATF field divisions for investigation increased from 5,208 in fiscal year 2011 to 12,710 in fiscal year 2017—an increase of 141 percent. We discuss the reported impact of this increase in referrals on ATF staff later in the report. Of the 12,710 referrals ATF sent to its field divisions in fiscal year 2017 for investigation, USAOs considered 50 cases for prosecution, and prosecuted a total of 12 cases (9 delayed denial and 3 standard denial) as of June 2018, according to ATF data (see table 1). An additional 10 cases were pending or awaiting prosecution as of June 2018. Overall, USAOs filed about 54,000 criminal cases in fiscal year 2016, of which about 9,200 involved firearm-related matters. According to Department of Justice officials, in fiscal year 2017, USAOs also filed about 54,000 criminal cases, of which about 10,400 involved firearm-related matters. We also asked state officials from states within our six selected ATF field divisions whether they investigated and prosecuted these denials. Officials from four of these six states said that ATF has not been referring firearms denials to them, so investigation and prosecution of firearms denials was not being done in their state. State officials from two of the six states said that they either occasionally receive referrals from ATF, which are investigated and submitted for local prosecution or they are not aware whether they receive referrals from ATF because they do have a dedicated team to investigate these cases. Officials from all 6 states said they have laws that prohibit persons from purchasing and/or possessing firearms based on prohibitions, such as a prior felony or misdemeanor convictions, but do not have laws that prohibit persons from falsifying information on ATF’s form 4473 during the NICS background check. These states also cited some limitations for investigating these referrals such as lack of statutory authority within their state agency and resource constraints. Attorney General Memo to Enhance Prosecution of Persons Denied Firearms Purchases On March 12, 2018, the Attorney General issued a memo that directed all United States Attorneys to enhance prosecution of cases involving false statements on the ATF Form 4473, which the memo refers to as “lie-and- try” cases. The memo specifically stated that every United States Attorney must coordinate with the ATF Special Agent-in-Charge in the local district to review and revise, as necessary, local prosecution and referral guidelines to ensure vigorous and appropriate prosecution of these cases. The memo also stated that these guidelines should place particular emphasis on cases against violent persons, including—but not limited to—denials involving individuals convicted of violent felonies, misdemeanor crimes of domestic violence, or subject to protective orders, and denials involving fugitives where the underlying offense is a violent felony or misdemeanor crime of domestic violence. Further, the memo stated that the review and any resulting revisions should ensure that district-specific prosecution and referral guidelines reflect the Department of Justice’s renewed commitment to reducing violent crime. The memo required that all United States Attorneys certify that the review has been completed and all necessary adjustments made within 45 days. According to EOUSA officials, as of early May 2018, about 90 percent of USAOs had coordinated with their respective ATF field divisions to discuss revisions in USAO referral guidelines for standard denial cases. The officials added that in response to the Attorney General’s memo, some USAOs narrowed criteria to focus resources on particular denials, such as those involving an attempted purchaser with a history of violent crime, or prioritized denials with recent prohibitions, such as a domestic violence conviction in the past year. In other cases, ATF officials said that USAOs broadened criteria, which may result in more potential cases from which to select for investigation and referral for prosecution. ATF officials also said that some USAOs added investigation referral criteria (for individuals prohibited from possessing firearms) to include elements outside the list of federal prohibitors, such as denied individuals with ties to gang activity or terrorism. These attributes outside of NICS prohibiting categories would require further investigation at the local level by ATF, according to officials. While ATF officials have the expectation that the revised criteria would increase the overall workload on ATF field divisions, ATF officials said that it is too early to discern how these changes will impact ATF and the number of denial cases prosecuted by USAOs. EOUSA officials suggested that firearm-related prosecutions may well increase in the future, but added that any increase that results does not necessarily mean that firearms denial prosecutions would increase. Ten of 13 POC States Do Not Investigate Firearms Denials, But the Remaining 3 Investigate a High Percentage of Denials Officials from 10 of our 13 selected POC states said that they do not investigate or prosecute any NICS denials, sometimes citing resource availability or the lack of state statutes as the reason. Officials from these 10 states said that while their state does not investigate or prosecute firearms denials, their state may take other actions following a denial. These possible actions may include informing local jurisdictions of the denial for possible investigation, and possible arrest if the denied individual has an active warrant. Other actions cited include revoking a state firearms owner identification card and possibly seizing any firearms; informing ATF of a delayed denial so ATF can retrieve the firearm; and providing the information on each denial to the FBI for input into FBI databases used to perform NICS checks. Officials and data from the remaining three POC states—Oregon, Pennsylvania, and Virginia—indicate that these states investigate a high proportion of firearms denials. These states have statutes that prohibit providing falsified information on a state or federal firearms form as well as statutes that penalize the attempt to purchase firearms by individuals prohibited from such purchases. Oregon: Prior to 2014, the state generally did not investigate firearms denials, according to state officials. In 2014, the state changed its policy based on concerns about firearm-related crimes. Specifically, beginning in late 2014, Oregon began investigating all firearms denials, which resulted in more than 2,500 firearms denial investigations in both 2016 and 2017. According to state data, there were between 2,000 and 2,400 firearms denials annually from 2011 to 2013. According to the two Oregon county prosecutors we interviewed, from late 2014 through 2017, their offices accepted about 141 of the more than 700 firearms denial investigations referred to their offices, with most prosecuted successfully. Pennsylvania: Prior to 2014, the state investigated a relatively small percentage of firearms denials per year using risk-based criteria, according to state police officials. In 2014, the state changed its policy to investigate all firearms denials. According to state police reports, in 2016, approximately 6,500 denial cases were referred for investigation, of which about 1,600 were referred for prosecution and 356 resulted in convictions. For 2017, the state reported that approximately 5,500 denial cases were referred for investigations, of which 1,907 investigations were referred for prosecution, resulting in 472 convictions. Virginia: Virginia has investigated firearms denials since 1989, according to state officials. Virginia does not refer all firearms denials for investigation, but instead uses risk-based criteria to refer a subset of prohibited categories for investigation, according to these officials. The number of referrals for investigation in Virginia has increased from about 770 in 2011 to around 1,700 in 2016 and 2017. Virginia prosecutors we interviewed in three jurisdictions from localities where a high volume of firearms denial referrals occur said they tend to work with Virginia state troopers who specialize in denial investigations and reported high prosecution rates for the cases they accept. The prosecutors noted that most convictions do not go to trial and are reduced to less severe violations and most of the penalties imposed tend to be probation, but there is the occasional jail term. For example, one Virginia prosecutor said that jail sentences are rare, but for a felon with a record of violence, sentences of 7 to more than 24 months in jail have been imposed. Unlike federal denial investigation referrals where about 30 percent of the total is for delayed denials, the vast majority of investigations and prosecutions within these three states are related to standard denials. Officials within these states explained that background checks that result in delayed denials are fairly uncommon. According to Pennsylvania officials, in Pennsylvania this is because of state background check policies that provide additional time, 15 days, to complete background checks if a denial is possible, but not clear initially. If the 15-day period expires without an approved transfer, the transaction is not denied, but the firearm is not transferred. According to officials in all three states, FFLs generally will not transfer a firearm until the background checks are completed. ATF and Selected States Cited Challenges Investigating and Prosecuting Firearms Denials; ATF Has Not Assessed Field Divisions’ Use of Warning Notices ATF officials from our six selected field divisions said that investigating firearms denials can be challenging because of the high volume and require use of their limited resources. ATF has not assessed field divisions’ use of warning notices in lieu of prosecution, which could provide greater awareness of their deterrence value. EOUSA officials said that denial cases are difficult to prosecute and offer less value for public safety than other prosecutions. State officials said that denial investigations compete with other investigations and can be difficult to successfully prosecute. ATF and EOUSA Officials Described Denial Investigations and Prosecutions as High Volume and Require Use of Their Limited Resources Federal Denial Investigations ATF officials from our six selected field divisions—which combined received approximately 60 percent of the total standard denials that ATF referred to field divisions from fiscal years 2011 through 2017—said that investigating firearms denials can be challenging for various reasons. ATF field divisions have taken some steps to help mitigate these challenges, but ATF headquarters could benefit from enhancing its oversight of some aspects of the investigations process. According to officials from our six selected field divisions, one challenge to investigating and prosecuting firearms denials is the high volume of firearms denial referrals for investigation that ATF sends to field divisions. According to ATF headquarters officials, the DENI Branch has agreed to send these referrals to field divisions based on criteria each ATF field division has established with USAOs within their division. In fiscal year 2017, ATF’s DENI Branch referred 1,889 delayed denial cases to our six selected field divisions—which field divisions are required to investigate— and 5,435 standard denials cases, which they are to consider for further investigation. In the six field divisions, the number of standard denial referrals more than tripled from fiscal years 2011 to 2017, and in two field divisions, the number of standard referrals in 2017 was more than five times the number in 2011. For example, in one field division, the number of standard referrals was 166 in 2011 and increased to 1,064 in 2017. ATF officials did not know why the number of standard and delayed denials had increased during this period. Officials from all six of our selected ATF field divisions also said that investigating denial cases can be time-intensive and require use of their limited resources. The officials said that delayed denials can be particularly time-intensive because they are required to be investigated and the investigation involves a defined set of actions, including the possible retrieval of the firearm. For example, these investigations typically involve steps to verify the prohibition of the individual, including obtaining court records; contacting the individual and FFL that sold the firearm; and arranging to retrieve the firearm for those individuals found to be prohibited. A fiscal year 2016 ATF funding request through the annual congressional budget justification submission noted the drain on investigative resources because of the requirement for ATF to follow-up on delayed denials. While the investigation of standard denials also can take time, officials from our six selected field divisions said they have greater discretion over whether or not to investigate these denials. For example, each field division has discretion to screen all or some of the standard denials, which can include confirming the person was correctly denied and contacting the denied individual and the firearms dealer. Officials from all of the six selected field divisions said that, in light of the high volume and time-intensiveness of denial cases, they have taken various steps to prioritize the types of cases to investigate. For example, per ATF policy, field divisions prioritize delayed denials over standard denials because a prohibited person may be in possession of a firearm. Officials from three of the six field divisions said that after verifying that the applicant is prohibited by reviewing the criminal history attached to the case file, they generally close standard denials without further investigation. The officials added that while these cases may meet USAO criteria and be referred to a field division for investigation, they ultimately do not have prosecutive merit based on coordination with prosecutors who have experience in prosecuting these cases. Officials from one field division said that they typically do not devote resources to verifying the prohibited status, and instead triage standard denials based on certain criteria, such as a recent violent felony or domestic violence conviction. Accordingly, officials in that field division only refer to a criminal investigator for further review what they consider the greatest threats to public safety. Federal Prosecutions of Firearms Denials EOUSA officials said that USAOs generally do not accept and prosecute denial cases that do not involve aggravating circumstances, as these cases can require significant effort for prosecutors relative to the short length of punishment and may offer little value to public safety because the offender does not obtain the firearm, compared to other cases involving gun violence. The officials added that USAOs filed about 9,200 firearm-related cases in fiscal year 2016 and about 10,400 in fiscal year 2017, but that cases involving falsifying information when attempting to purchase a firearm generally are only a small fraction of USAO efforts. Instead, USAOs primarily focus on cases where persons obtain firearms and are prohibited persons or use the firearms in connection with a criminal offense. According to ATF DENI Branch data, the majority of the 25 cases that USAOs prosecuted in fiscal years 2016 and 2017 that involved firearms denials (standard and delayed) resulted in reaching plea agreements with the defendants. Federal law provides that it is unlawful “for any person in connection with the acquisition or attempted acquisition of any firearm or ammunition from a licensed importer, licensed manufacturer, licensed dealer, or licensed collector, knowingly to make any false or fictitious oral or written statement or to furnish or exhibit any false, fictitious, or misrepresented identification, intended or likely to deceive such importer, manufacturer, dealer, or collector with respect to any fact material to the lawfulness of the sale or other disposition of such firearm or ammunition ….” Generally, to convict someone for making a false statement on the ATF Form 4473, the prosecutor must establish beyond a reasonable doubt that the seller was a FFL; the defendant made a false statement or used a false identification while acquiring or attempting to acquire a firearm; the defendant knew the statement or identification was false; and the false statement or identification was intended to, or likely to, deceive a FFL about the lawfulness of the firearm sale. EOUSA officials said that prosecutions for falsifying information are very challenging because of the requirement to prove intent, and can become further complicated because the purchaser may not know that he or she is prohibited and was not intentionally trying to deceive an FFL. The officials added that these cases are not appealing to judges and juries from a public safety standpoint. They also said that they find juries questioning why the case is being prosecuted in instances when the individual did not get the gun, resulting in juries refusing to convict these individuals or jury nullification. EOUSA officials said that the number of prosecutions of firearms denials can be low, particularly in standard denial cases where the system worked and the subject did not obtain a firearm, and because of the priority often given to other cases involving gun violence. EOUSA officials said that delayed denial cases can require less effort to prosecute than standard denials, since USAOs do not need to prove an individual’s intent in making a false statement in purchasing the firearm, only that the prohibited individual is intentionally in possession of a firearm. For instance, generally, to obtain a conviction for a felon in possession of a firearm, the prosecution must establish beyond a reasonable doubt that the defendant had previously been convicted of a crime punishable by imprisonment for a term of more than 1 year; the defendant knowingly possessed a firearm; and the firearm previously passed in interstate commerce. However, officials from our six selected field divisions said that as long as a firearm is recovered from the prohibited person and the person is cooperative, ATF is unlikely to refer delayed denial investigations to USAOs for prosecution. ATF Has Not Assessed Field Divisions’ Use of Warning Notices in Lieu of Prosecution While officials from all six selected ATF field divisions said that investigating the increasing number of denial cases can be time-intensive and require use of their limited resources, ATF headquarters has not assessed the extent to which field divisions’ use warning notices in lieu of prosecutions or whether any policy changes could enhance their use as a deterrence tool. Increase in Denial Investigations Standard denial cases ATF referred to field divisions for investigation grew by more than 200 percent ATF-wide from fiscal years 2011 through 2017, and by more than 300 percent within our six selected field divisions. Moreover, delayed denial referrals grew by about 70 percent ATF-wide and by 70 percent within our six selected field divisions during this period. Figure 5 shows the increase in standard and delayed denial cases ATF referred to its field divisions for investigation from fiscal years 2011 through 2017. At the same time, ATF data show that special agent staffing across our six selected field divisions collectively only increased by one special agent from fiscal years 2011 through 2017. Officials from five of our six selected field divisions said that the increasing number of NICS denial cases received from ATF headquarters for investigation has posed a burden on staff resources. Field divisions are required to investigate all delayed denial referrals, but have discretion as to how thoroughly they investigate standard denial referrals. Officials from all six selected field divisions said that, to date, one of the ways they have been able to adjust to the increasing volume of standard denial referrals has been by closing them with limited investigation or sending warning notices to the prohibited individuals. However, based on trends over the last 7 years, the number of standard and delayed denial referrals for investigation could continue to increase. In addition, the Attorney General’s March 2018 memo to USAOs directing that the prosecution of false statements on the ATF Form 4473 be enhanced may impact how, and how many, denial investigations ATF performs. Use of Warning Notices For all delayed denials, ATF policy requires field divisions to contact prohibited persons within three days of being assigned the case to advise the person of their prohibition. According to ATF headquarters officials, warning notices are intended to inform the individual that he or she is prohibited from purchasing a firearm, should not attempt to purchase a firearm again, and may be subject to prosecution. For delayed denials, ATF policy also requires field divisions to send a written warning notice in all instances where the special agent is unable to make contact with the prohibited person within 3 business days, or when other circumstances exist, such as extraordinary distance or inclement weather. Officials from our six selected field divisions said that while warning notices for delayed denials are not always delivered in writing, all individuals involved in delayed denials receive a warning in some form—e.g., written, oral, or via text message—from the ATF special agent investigating the denial. Officials from one field division said that they send text messages to denied purchasers in lieu of warning letters because they are less intimidating to prohibited persons, the texts save time and money, and are more effective in helping retrieve firearms. For standard denials, warning notifications are not required. Specifically, ATF policy provides that field divisions may send warning notices to denied persons “where appropriate and in lieu of prosecution.” However, in instances where aggravating circumstances exist, such as if the prohibited person committed a violent felony or made multiple attempts to purchase firearms, ATF policy provides that consideration should be given to hand-deliver the notice to the prohibited person. The 6 selected field divisions varied in the extent to which they sent warning notices related to standard denials. Specifically, three of the six divisions had established a practice to send notices to all prohibited persons. Officials from these three divisions said that such letters are intended to (1) educate the denied person that he or she is prohibited from purchasing firearms, (2) deter the individual from attempting future purchases, and (3) serve as evidence during any subsequent investigation or prosecution that the individual knew that he or she was prohibited from purchasing a firearm. Officials from one of these field divisions also said that the practice of addressing standard denials by sending warning notices is a good use of limited resources while addressing a public safety concern. Of the three field divisions that routinely send warning notices for all standard denials, two send them via certified mail, while the other sends letters via standard mail due to limited resources. According to officials from these three field divisions, the costs associated with mailing warning notices also includes staff time to locate recipient information and mail the letters, in addition to supervisory review, as is done in at least one field division. A group supervisor in one of these field division’s sub-offices said that while their field division primarily uses certified mail, the sub- office hand delivers these notices for all standard and delayed denials. Officials from one of these three field divisions said that they confirm the prohibited status of individuals before sending the warning notices, while officials at another field division said they do not confirm the prohibited status prior to mailing but that the notice includes information on how to appeal the denial. These three divisions received an average of about 800 standard denials in fiscal year 2017. Officials from the three divisions that do not routinely send warning notices for standard denials said that notices are only sent for standard denials in rare cases. Such cases can include when there are aggravating circumstances. Criminal activity or not cooperating with the ATF—after the attempted purchase are examples of aggravating circumstances. Officials from one field division stated that warning notices were used for standard denials by individual agents in the past, but there was no field division policy to do so routinely. Officials from another field division said that due to limited resources, the decision was made to not send these notices, though they said the notices could be an effective deterrent for prohibited individuals from trying to possess a firearm or attempting to purchase from an FFL. ATF headquarters officials said that under ATF policy, the decision whether to send warning notices for all standard denials is made by individual field divisions. Therefore, they did not know the extent to which each of the 25 divisions used this practice. Standards for Internal Control in the Federal Government call on federal managers to design control activities to achieve an agency’s objectives. These controls can include using quality information to make informed decisions, such as how best to achieve ATF’s objectives given limited resources; evaluating ATF’s performance in achieving key objectives; and addressing risks, including its limited resources to investigate or prosecute denial cases. While ATF policy provides that individual field divisions determine their use of warning notices, ATF headquarters is uniquely positioned to assess use of the notices across all field divisions. Assessing the extent to which ATF field divisions use warning notices for standard denials would provide ATF headquarters with greater awareness regarding agency-wide efforts to use the notices as a deterrence tool in lieu of prosecution. As assessment could also better inform ATF as to whether the application of certain practices to all field divisions could be a feasible and effective use of limited investigative resources, given the small number of standard denial cases prosecuted each year, and revise related policies if appropriate. Selected States Reported That Denial Investigations Compete with Other Investigations and Cases Can Be Difficult to Successfully Prosecute State Denial Investigations State police supervisors in all three states (Oregon, Pennsylvania, and Virginia) that investigate denials said investigators are generally assigned to denial investigations as their time permits. Supervisors also said these investigations are generally considered time consuming and can sometimes impact other duties. State police supervisors said that these investigations can be disruptive to operations by taking troopers away from their core duties, such as traffic enforcement and response, except where troopers are dedicated to conducting these investigations. State troopers echoed this point, adding that denial investigations are difficult to conduct given the amount of documentation needed for prosecution when they have other duties. Local law enforcement officials in Oregon and Pennsylvania also said that denial investigations are disruptive, as they are usually forwarded to officers when they are on patrol, sometimes many weeks or months after the firearms background check was initiated. Investigators in all three states also said they face challenges assisting with prosecutions of denied persons, including gathering the necessary documentation to prove the individual knew they were prohibited. For example, Virginia troopers said that obtaining records on out-of-state convictions and mental health prohibitions, and locating documentation on older convictions, can be especially difficult. Troopers in Oregon and Virginia commented that in their experience, there can be some degree of inaccuracy in the criminal records in their state. For example, they said that arrests and prosecution results may not be accurately reflected in the criminal history of the denied person. When the trooper checks the actual record, it is sometimes discovered that the person is not prohibited. A Virginia trooper said this is especially common for juvenile convictions. Oregon and Virginia officials said they have been able to mitigate these challenges by utilizing specialized troopers to conduct denial investigations. These troopers are taken off line and generally perform denial investigations almost exclusively. In both states, these specialized troopers conduct a large portion of the denial investigations in these states or in designated locations within the state. Virginia State Police officials told us that some areas within police divisions that receive a high volume of denials for investigation use specialized troopers that spend all or most of their time investigating firearms denials. These Virginia troopers reported that they have become more efficient than troopers that do not specialize because the repetition of performing multiple investigations improves the learning curve and the quality of their investigations. Virginia State Police officials said that while any area may assign troopers to work exclusively on denial investigations, most areas either cannot afford to remove a trooper from road coverage or do not investigate enough cases involving persons denied firearms to make it an effective use of resources. According to Oregon officials, five specialized troopers in the state investigated more than 1,100 of the almost 2,600 firearms denials referred for investigation in 2016. These troopers covered the denials for several metropolitan areas in Oregon and cited efficiencies in conducting and referring investigations for prosecution. State Denial Prosecutions State prosecutors we interviewed in the three states that conducted denial investigations said the primary challenge in prosecuting denial cases is in gathering the evidence needed to prove that the individuals knew they were prohibited. They added that the difficulty in gathering evidence for certain prohibited categories also make those prosecutions more difficult. For example, obtaining records related to old convictions, out of state convictions, and mental health prohibitions are common challenges. There are also challenges due to record retention policies for specific prohibitions. For example, a Virginia prosecutor said that prosecuting denials for misdemeanor crimes of domestic violence convictions in Virginia that are more than 10 years old is difficult because these records may be destroyed under state law after 10 years. Oregon state investigators we interviewed said that, under state statutes, successfully prosecuting someone for falsifying information on firearms purchase forms requires proving that the person “knowingly and willingly” falsified information on the form, which can be difficult to prove. One Pennsylvania investigator also said that denied individuals may not understand the questions on the forms and genuinely believe they are not prohibited. Prosecutors we interviewed who worked with specialized investigators reported that they have worked closely with these troopers to facilitate successful prosecutions. For example, an Oregon prosecutor we spoke to utilizes a case reporting process where the trooper advises the prosecutor of the strong cases to be considered for prosecution. This allows prosecutors to focus their attention on the cases more likely to be successfully prosecuted. In one Virginia county, the prosecutor’s office provides troopers a checklist of important points the trooper should address to make a strong case for prosecution. Virginia prosecutors in jurisdictions served by a specialized trooper said that they confer with the troopers regularly and are able to successfully prosecute a high percentage of the denial investigations these troopers conduct. Firearms Denial Investigations and Prosecutions Are Generally Based on Aggravating Circumstances in Addition to Criminal Records While individuals are denied firearms purchases because they are prohibited from possessing firearms under federal or state law, federal denial investigations and prosecutions are generally based on additional aggravating circumstances. The three states that investigate denial cases have established priorities for investigating and prosecuting such cases. ATF Investigations Most Frequently Involve Convicted Felons, but Aggravating Circumstances Are Generally Needed for Prosecution Referrals The types of standard and delayed denial cases investigated by ATF field divisions and referred to USAOs for prosecution are determined by multiple factors, including the prohibiting category (e.g., felony conviction), criminal history of the denied individual, USAO investigative referral criteria, and the nature of the ATF investigation itself. Of the almost 21,000 delayed denials the ATF DENI Branch referred to ATF field divisions for investigation from fiscal years 2011 through 2017, 32 percent were denied for being convicted felons, 23 percent for a qualifying misdemeanor crime of domestic violence, and 19 percent for being an unlawful user of, or addicted to, a controlled substance. As discussed earlier, all delayed denials are referred to the appropriate field division for investigation. Of the almost 36,000 standard denials the ATF DENI Branch referred to field divisions for investigation during this time period, 36 percent were denied for being convicted felons, 30 percent for a qualifying protective order, and 16 percent for a conviction for a qualifying misdemeanor crime of domestic violence. For standard denials, USAO investigative referral criteria, not the prohibiting category itself, determines which cases are referred for investigation. From fiscal years 2015 through 2017, the number of delayed denials referred to ATF field divisions for investigation increased by 46 percent (from 2,742 to 3,993). This increase was driven by cases in which the prohibiting category was drug-related, which increased by about 300 referrals (60 percent increase); involved misdemeanor crimes of domestic violence, which increased by about 250 referrals (34 percent increase); and involved felony convictions, which increased by about 280 referrals (34 percent increase). Also during this period, the number of standard denials referred to ATF field divisions for investigation increased by 30 percent (from 6,715 to 8,717). This increase was driven by misdemeanor crimes of domestic violence, which increased by about 626 referrals (62 percent increase), and felony convictions, which increased by about 659 referrals (25 percent increase). Cases in which the prohibiting category was related to mental health or protection orders also increased by 42 percent (about 200 referrals) and 21 percent (about 300 referrals), respectively. Figure 6 shows the breakdown of investigation referrals by prohibiting category from fiscal years 2011 through 2017. The types of denial cases that ATF’s DENI Branch refers to field divisions for investigation are determined by the USAO referral criteria established in the district in which the purchase took place. Based on our analysis of the standard denial referral criteria for the 34 USAO districts that cover the six selected ATF field divisions as of February 2017, there are similarities in the criteria used across these USAO districts. For example, most of the 34 districts direct ATF to refer standard denials for investigation if the cases involved recent convictions for violent crimes or convictions for misdemeanor crimes of domestic violence. Also, about two-thirds of the 34 USAO districts direct ATF to refer cases in which prohibited persons have made two or more attempts to buy firearms while prohibited. In addition to the 10 prohibitions listed under federal law, other referral criteria used by USAO districts include prohibited individuals who are also suspected terrorists or associates of suspected terrorists; known gang members or members of criminal organizations; or suspected of gun trafficking. Aggravating Circumstances Resulting in a Prosecuted Firearms Denial Case An individual attempted to purchase a firearm while under indictment for first degree robbery, in which the subject used a woman to set up an exchange of sex for marijuana. During the exchange, the subject robbed and shot the victim. The subject was charged with two felonies—falsifying information on the background check form and illegal possession of a firearm while under indictment. The subject pled guilty to both charges and was sentenced to 24 months in prison and 3 years supervisory release. The denial cases ATF field divisions refer to USAOs for prosecution generally include aggravating circumstances in addition to the factors discussed above related to an individual’s criminal history. According to ATF officials in one field division, these aggravating circumstances could include violent felonies or multiple serious offenses in a short period of time, especially if these occurred in close proximity to the timing of the attempted firearms purchase. For example, a prohibited person with multiple armed robberies or actively involved in gang activity could be considered to have aggravating circumstances. The officials described a recent incident where an individual was found in possession of PCP three times in a span of a couple months, then bought a firearm and fired it at an occupied dwelling. This was considered a clear example, and the individual was prosecuted for making a false statement as well as illegal possession of a firearm stemming from the delayed denial. Additional examples provided by ATF officials from our 6 selected field divisions of recent cases ATF referred for prosecution include: An individual purchased a firearm from an FFL and sold that firearm to a prohibited person. The original purchaser was later denied (delayed denial) due to a prior drug conviction. The purchaser was charged with illegally possessing a firearm, making a false statement in the purchase of a firearm, and making a “straw purchase,” which is when an individual illegally purchases a firearm on behalf of another person. According to ATF, this individual was sentenced to 1 year in federal custody and 3 years of supervisory release. An individual was charged with making false statements in the attempted purchase of a firearm. The individual did not receive the firearm as a result of a standard denial. During the investigation, the subject was not cooperative, and had an extensive criminal history in multiple states dating back 35 years, including several contacts with law enforcement on domestic violence and protective orders. The subject was charged with falsifying a background check form, to which he pled guilty and was sentenced to 12 months in prison. An individual under indictment for armed criminal action committed first-degree robbery in which he used a woman to set up an exchange of sex for marijuana. During the exchange, the subject robbed and shot the victim. The subject later attempted to purchase a firearm and was able to obtain the firearm as a result of a delayed denial. Later, a completed NICS check revealed that he was a prohibited person for being under indictment, and was subsequently arrested later that week. The subject was perceived as a threat to the community and charged with two felonies, falsifying the background check form, and illegal possession of a firearm while under indictment. He pled guilty to both charges and was sentenced to 24 months in prison and 3 years supervisory release. Of the 12 examples from our six selected field divisions provided, 9 involved delayed denials and 3 involved standard denials. Eleven of the 12 cases have been completed as of May 2018. Of the 9 cases charged in federal court, 1 case was declined by prosecutors, and the other 8 resulted in guilty pleas. These guilty pleas resulted in penalties ranging from time served to 33 months in prison, along with additional punishments such as probation, fines, and mandated treatment programs. Of the 3 cases charged in state court, 2 resulted in guilty pleas and 1 had not been resolved as of May 2018. Of the 10 cases pursued by federal and state prosecutors that resulted in guilty pleas, 7 cases involved a subject with a history of drug crimes, 6 involved violent crimes, and 4 involved domestic violence. Additional information on these case examples can be found in appendix VI. According to officials from our six selected ATF field divisions, standard denial referrals may meet USAOs criteria and be referred to a field division for investigation, but almost always do not have prosecutive merit based on coordination with prosecutors. The officials noted that USAOs generally do not accept standard denials that only involve a violation related to falsified information. The officials also said that minor crimes, such as burglary, from decades ago would likely not be a high enough threat for prosecution. For delayed denial cases, officials from the 6 field divisions said that if a firearm is retrieved or otherwise recovered from the prohibited person—and the person is cooperative—ATF is unlikely to refer these investigations to USAOs for prosecution unless there are aggravating circumstances. Oregon, Pennsylvania, and Virginia Investigate a Large Proportion of Firearms Denials and Prioritize Certain Prohibitions, but a Small Number are Prosecuted State Investigations The types of denial cases that are referred for investigation in Oregon, Pennsylvania, and Virginia are determined in part by the priorities the states have set for such referrals. For Oregon and Pennsylvania, which investigate all firearms denials, these priorities include cases involving stolen guns, purchasers with active warrants, active protection orders, and prior felony convictions. In these states, convictions of a crime punishable by more than one year (i.e. felony convictions) are the most common reasons for denial. Virginia investigates a subset of all denials based on risk, and has a policy to prioritize denials that is similar to Oregon and Pennsylvania—active warrants, active protection orders, as well as mental health issues. According to Virginia state police officials, denials can be referred for investigation if they involve one or more of a set of prohibiting categories. In 2017, these amounted to about 50 percent of the almost 3,600 denials recorded. Virginia state police officials said that investigations tend to be handled in the order they arrive, regardless of prohibited category. Two troopers said that Virginia residents with exclusive Virginia criminal histories jump to the top of their lists because the records for these individuals will be easiest to obtain. The investigators in these Virginia jurisdictions said they tend to refer most of their investigations for prosecution, regardless of the prohibited category, if there is evidence to support the falsified information charge. Pennsylvania investigators and supervisors generally said that no priority is given to the denial investigation referrals they receive. They said investigations tend to be handled on a first in first out basis, regardless of the prohibiting category of the denied person. One supervisory trooper said that since these investigations are usually sent to the field 2 to 3 months after the transaction has occurred, they are generally considered low priority when compared to assaults, robberies, and other crimes a trooper investigates. Oregon state police management and troopers told us they prioritize cases involving stolen guns, purchasers with active warrants, active protection orders, and prior felony convictions. Local law enforcement agencies that investigate denial cases in Oregon told us they do not prioritize any cases—except for active warrants—handling them in order as they are received. Investigators in all three states said that the criminal histories of those investigated tend to be minor. For example, outside of the prohibiting offenses that led to persons being denied, most of these individuals’ criminal histories tend to consist of old prohibiting offenses like non- violent felonies, or drug possession, with few gun violations noted. Investigators in these three states said that this may be because individuals with the most severe criminal histories do not attempt to purchase firearms through FFLs. However, one investigator said that individuals who were denied based on misdemeanor crimes of domestic violence tend to have multiple charges in their background. State Prosecutions State investigators said prosecutors’ interest or willingness to prosecute is a key determinant for whether a case is referred for prosecution. One investigator also said he may check with prosecutors early in an investigation to determine the likelihood of prosecution. According to Oregon troopers, denial investigations that are recommended for prosecution often involve convictions for felonies, misdemeanor crimes of domestic violence, and restraining orders. The troopers said that the strength of the case—including the adequacy and availability of proof the individual knew he or she was prohibited and falsified information— determines which cases are referred to prosecutors. Prosecutors from all three states said that they generally pursue cases against individuals who have indications of violence, including protection orders, domestic violence, and felony convictions. Individual prosecutors also identified specific prohibiting categories, based on public safety concerns, as their priorities for prosecution. An Oregon prosecutor said there is a good public safety argument for prosecuting denials based on domestic violence, mental health, and felony prohibitions when there is probable cause. However, for other prohibiting categories, such as being on probation or being a drug user, the officials said that prosecuting these denial cases is not very useful based on the amount of effort required to prosecute. A Virginia prosecutor cited domestic violence and protection orders as being prosecuted most often. A Pennsylvania prosecutor said that his county prosecutes most of the referrals it receives, with denials for multiple instances of driving under the influence, mental health, and domestic violence being the most common. State prosecutors we interviewed also said the cases they accept for prosecution may be influenced by the fact that certain types of cases are harder to prove. For example, they said that denials involving mental health, drug users, and misdemeanor crimes of domestic violence are often harder to prove, due in part to the difficulty in obtaining related records. The officials added that cases involving out-of-state and older convictions are also not prosecuted as often as other cases due to the difficulty in obtaining records. State prosecutors also said that there are certain circumstances where prosecutors are reluctant to pursue prosecution—such as cases where prohibitions occurred as a juvenile— where a firearms denial conviction would establish an adult criminal record where no criminal record had previously existed. According to the prosecutors we contacted, the criminal histories of denied individuals generally involved minor violations other than the prohibiting offense. Prosecutors said the criminal history of the individual can play a role in whether felony charges are filed, as opposed to misdemeanor charges, and for sentencing. For example, one Virginia prosecutor said that he will file felony charges for a denial case only for cases in which an individual was denied based on an active protection order or serious felony in his county. Another Virginia prosecutor said that there is consideration of both criminal history—convictions for violent felonies or misdemeanors, especially—as well as multiple arrests where no conviction resulted, when deciding whether to charge the denied person with a felony or misdemeanor. The prosecutor noted, however, that denial cases tend not to be violent felons or hardened criminals. According to a Pennsylvania prosecutor, almost all cases are ultimately charged with misdemeanors. The prosecutor noted, however, that the state recently brought multiple felony charges against a person who was denied a firearms purchase based on a murder conviction in 1973. These prosecutors also stated that they often try to plead denial cases whenever possible, as these cases often do not result in convictions when they go to trial. For example, a prosecutor in Pennsylvania told us about one denial case that went to trial where the jury found the denied person not guilty. The defendant was prohibited from purchasing a firearm based on convictions for repeatedly driving while under the influence, a misdemeanor with a potential prison term of 5 years in that state. The attorney said the jury believed that it was a pointless prosecution for a firearm’s denial offense. In Virginia, one prosecutor also described a case where a person was denied because of a mental health prohibition, and the person was found not guilty of the charges of falsifying information when attempting to purchase the firearm. He attributed this to a sympathetic defendant and jury reluctance to impose a criminal conviction on an individual without a criminal record. Further, state officials said that the penalties handed down when denied individuals are convicted tended to be minor. The Oregon prosecutors said that common penalties are fines (usually in the hundreds of dollars) and probation ranging up to 1 year depending on the criminal background of the denied person. According to a Pennsylvania state police official, in some instances the charges are pled down to a lesser violation, such as disorderly conduct, which result in an approximately $300 fine. The two Pennsylvania prosecutors we interviewed said that most denial prosecutions in their jurisdictions are pled down to misdemeanors, eliminating the need for a trial. According to the prosecutors, common penalties for misdemeanor convictions include probation and the requirement to pay court costs (upwards of $1,000 in one county). The prosecutors added that there is an occasional jail sentence for denied felons with substantial criminal records that can result in about 1 to almost 2 years in jail. Prosecutors across the states said that they try to plead cases—thus avoiding trial—whenever possible. One Pennsylvania prosecutor said that cases without strong evidence that cannot be pled are sometimes dropped because conviction would be difficult. Another Pennsylvania prosecutor said jury apathy in one strong case led to fewer denial cases. Virginia prosecutors said that most convictions are for misdemeanor charges and result in probation, fines, and court costs. They did say, however, that jail time has resulted for denied individuals with violent felony convictions. Conclusions At the federal level, the number of firearms denial cases ATF has referred to its field divisions for investigation has increased substantially over recent years, which has placed a burden on field division resources. At the same time, field division resources have not increased, and the number of USAO prosecutions remains low—totaling 12 in fiscal year 2017. Assessing the extent to which ATF field divisions use warning notices for standard denials in lieu of prosecution would provide ATF headquarters greater awareness of agency-wide deterrence efforts, and better inform the agency as to whether any policy changes are needed. Recommendation for Executive Action We recommend that the Deputy Director, Head of the Bureau of Alcohol, Tobacco, Firearms and Explosives assess the extent to which ATF field divisions use warning notices for standard denials in lieu of prosecution and determine whether any policy changes are needed. (Recommendation 1) Agency Comments We provided a draft of this report to DOJ for review and comment. DOJ concurred with our recommendation to ATF and provided technical comments, which we incorporated in this report where appropriate. We are sending copies of this report to the appropriate congressional committees, the Attorney General, the Deputy Director, Head of the Bureau of Alcohol, Tobacco, Firearms and Explosives, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512- 8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions are listed in appendix VII. Appendix I: Objectives, Scope and Methodology Our objectives in this report were to (1) describe the extent to which federal and selected state law enforcement agencies investigate and prosecute firearms denial cases; (2) examine the challenges, if any, that federal and selected federal and selected state law enforcement agencies face in investigating and prosecuting firearms denial cases; and (3) describe the circumstances that lead to the investigation and prosecution of persons denied firearms. To describe the extent that federal and selected state law enforcement agencies investigate and prosecute firearms denials, we reviewed published reports regarding federal and state law enforcement efforts to investigate and prosecute firearms denials. For federal efforts, we requested data from the Federal Bureau of Investigation’s (FBI) National Instant Criminal Background Check System (NICS) regarding firearms denials provided to the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) by state and prohibiting category for fiscal years 2011 through 2017. We reviewed the internal controls in place for these data and determined that the data were reliable for our purposes. We requested and received data from the ATF Automated National Instant Criminal Background Check System Referral Application and the NForce Case Management System that showed how many of these denials, both standard and delayed, were forwarded from ATF’s Denial Enforcement NICS Intelligence (DENI) Branch to ATF field divisions, broken out by the prohibiting category of the denials. This provided us the total count of denials that ATF may investigate nationwide. To assess the reliability of these data we reviewed internal controls and the data quality assurance program of ATF. We determined that these data were reliable for the purpose of our reporting objectives. To examine federal prosecutions of denied persons, we requested information from ATF’s case management system that identified the NICS cases that were prosecuted, including those instances where a conviction was recorded. For state investigations and prosecutions, we selected the 13 states that perform their own background checks for all firearms transactions and searched their state police and state agency websites to identify the state’s background check units, or staff associated with this function and inquired about their policy regarding the investigation of persons denied firearms purchase. From these contacts we determined that 10 of these selected states did not perform investigations, while 3 point-of-contact (POC) states did investigate these denials. We analyzed data from the state police in Oregon, Pennsylvania and Virginia that identified the number of firearms denials recorded, the prohibiting category of the denials, and the number of these denials referred to state or local law enforcement for investigation. To assess the reliability of these data we interviewed knowledgeable individuals about the procedures for creating these data, and reviewed the internal controls in place within these systems. We determined that this data was reliable for the purpose of our reporting objectives. We spoke to state and local investigators and prosecutors in these states to discuss the investigative processes followed and the frequency of prosecution. Though these prosecutors tended to lack hard data on the number of these cases prosecuted and the outcome of these prosecutions, they were able to share their experiences prosecuting these cases, and to estimate the approximate quantity of these cases that have been addressed by their offices. We believe their experiences provide an understanding of the demands these prosecutions place on prosecutors’ offices and the value these prosecutions have for the jurisdiction in question. To describe the challenges, if any, federal and selected state law enforcement agencies face in investigating and prosecuting firearms denials, for federal denial investigations, we used the denial referral data provided by ATF to identify the field divisions that received the most denial referrals for investigation. We found that 6 field divisions received about 60 percent of the total ATF standard denial referrals over the 2011 through 2017 fiscal year period. These six field divisions also received more than half of the delayed denial referrals distributed to the 25 ATF field divisions over that time period. To assess the reliability of the referral data and the case data, we discussed the internal controls in place with knowledgeable officials and received a copy of the ATF quality assurance plan for review. We determined that the data was reliable for the purposes of our reporting objectives. We contacted officials in these six field divisions and discussed the investigative process for standard and delayed denial investigations as well as the challenges these investigations posed to the ATF staff in these field divisions. We also evaluated ATF’s investigative procedures and internal controls in place against the Standards for Internal Control in the Federal Government. We also discussed the types of cases that each field division referred to the appropriate USAO for prosecution, and were provided detailed examples from ATF headquarters of these denial cases for each of the six field divisions. We spoke to EOUSA officials to discuss the circumstances that would lead a USAO to prosecute a firearms denial and the challenges faced in these prosecutions. For state denial investigation challenges we spoke to state troopers and local law enforcement to learn about the procedures for conducting these investigations, the challenges that investigators face, and how and when these firearms denial investigations are referred to prosecutors. We also spoke with multiple prosecutors from each of these states and discussed their offices’ policies for accepting these denial cases, how often these cases were prosecuted in these localities and the general outcome of the cases. Though we did not speak to a representative sample of prosecutors across our selected states, we believe their views provide insights into the types of challenges faced by prosecutors in those states. To identify the circumstances that lead to investigations and prosecutions of firearms denials, we reviewed federal denial investigations by visiting the ATF DENI Branch, the office that uses USAO criteria to screen federal NICS denials for referral to ATF field divisions. There, we observed how denials are screened and discussed internal controls. We also requested USAO referral criteria from the 34 USAO districts that comprise the six ATF field divisions that received the most denial referrals from 2011 to 2017. We also analyzed standard and delayed denial referral data that captured the prohibited categories of the referrals to those field divisions. Further, we analyzed standard and delayed denial case data for the investigations that were referred for prosecution for fiscal years 2015 through 2017, and those that were ultimately prosecuted. To assess the reliability of the data we discussed the internal controls in place for entering the data and the quality assurance plan in place after data was entered. We determined that the data was reliable for the purposes of our reporting objectives. Officials from our 6 selected ATF field divisions also provided examples of denial cases investigated and referred for prosecution. These case examples included the specific circumstances that convinced the field division to investigate and refer the case for prosecution. For these federal denial prosecutions, we identified firearms denial cases in PACER and LEXIS for the years 2015, 2016 and 2017 to identify the specific circumstances of the cases prosecuted, the statutes used to charge the defendants, and the outcome of the cases. We also spoke to EOUSA officials and discussed the reasons that certain denial cases were prosecuted while thousands of others are not. For state denial investigation circumstances, we spoke with state and local investigators from the three selected states that investigate and prosecute denials and discussed the circumstances—to include state priorities, the prohibiting category and criminal history of those investigated—that resulted in state firearms denial to be referred for prosecution. We also spoke with multiple prosecutors from the same states and asked them to describe the characteristics of cases they are more likely to prosecute, as well as those they are less likely to prosecute. While we did not speak to a representative sample of investigators and prosecutors from these states, we believe their experiences and viewpoints provide insights into how these investigations and prosecutions are conducted and prioritized in these states. We conducted this performance audit from March 2017 through September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Bureau of Alcohol, Tobacco, Firearms and Explosives Form 4473 Appendix III: Investigation and Prosecution of Firearms Denials in Oregon This appendix includes information on the investigation and prosecution of individuals denied firearms purchases in the state of Oregon. Firearms Background Checks In the state of Oregon, the Oregon State Police (OSP) Firearms Unit serves as the point of contact responsible for conducting background checks for firearms transactions. OSP’s Firearms Instant Check System (FICS) unit conducts criminal background checks to determine the eligibility of individuals attempting to transfer or purchase a firearm. Oregon law requires that gun dealers request that the OSP conduct a criminal history record check on the purchaser before a firearm is delivered to a purchaser. Dealers may submit these requests either by telephone or online. The FICS unit determines from criminal records and other available information whether the purchaser is disqualified under state or federal law from completing the transfer or is otherwise prohibited by state or federal law from possessing a firearm. Generally, for gun shows, Oregon law prohibits a transferor who is not a gun dealer from transferring a firearm unless the transferor requests a criminal background check prior to completing the transfer, receives a unique approval number from OSP indicating that the recipient is qualified to complete the transfer, and has the recipient complete the form for transfer of a firearm at a gun show, or completes the transfer through a gun dealer. Generally, for private firearms sales, Oregon law requires a transferor to complete the transfer of a firearm to a transferee through a gun dealer. Prior to the transfer of the firearm, both the transferor and the transferee must appear in person before a gun dealer, with certain exceptions, with the firearm and request that the gun dealer perform a criminal background check on the transferee. Process for Conducting a Background Check When a FICS background check is requested, Oregon law requires the seller to provide information about the firearm—so OSP can ensure it has not been reported stolen—and the purchaser in order to conduct a criminal history check. If the purchaser is qualified, a unique approval number is provided to complete the transaction. The dealer then enters this number on the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) background check form (Form 4473), and a thumbprint form, which is attached to the Form 4473 and retained for 5 years. By statute, if OSP is unable to determine if the purchaser is approved or denied within 30 minutes, OSP is required to notify the dealer and provide an estimate of when the check will be completed. These checks are placed in a pended/delayed status until sufficient record information can be obtained to complete the request. Federal law provides that if the FBI or state agency cannot complete a background check within 3 business days and make a final determination (i.e., proceed or denied), the Federal Firearms Licensee (FFL) may transfer the firearm pursuant to federal law, unless state law provides otherwise. Regardless of the FFL’s decision to transfer or not transfer the firearm, OSP will continue to research missing information in order to complete the background check request and provide either an approval number or notice that the person is denied for the FFL’s records. Typically, a case is placed in “pend” status because the record is missing information necessary to make a final determination. For example, domestic violence charges may not include details about the relationship needed to make a determination; state, local, or federal agencies may not have the resources to respond in a timely manner to requests for missing information; or it may be unclear whether prior charges were a felony or misdemeanor. When a transaction is denied, it is either labeled a Priority FICS Call, and is dispatched to the first available trooper or local law enforcement officer, or it is labeled a Cold FICS Call, and dispatched to the appropriate OSP office and next available trooper or local law enforcement officer. Priority calls are those that involve a convicted felon, a serviceable warrant, a stolen gun, or a restraining/stalking order. Oregon Executive Order 16-12 requires notification of certain officials after a transaction is denied if the prohibited person is on probation, on parole or post-prison supervision, subject to a court-issued release agreement or protective order, or subject to supervision by a Psychiatric Security Review Board. Figure 7 shows the process for purchasing a firearm from a dealer in Oregon. According to OSP officials, 95 to 97 percent of background checks are approved and less than 1 percent are denied within minutes of initiation, while roughly 3 to 5 percent are placed in pend/delay status. According to FICS officials, about 95 percent of pend/delay transactions are ultimately approved. A challenge phone line is available for individuals who have been denied or pended and wish to find out the reason, or to challenge a denial determination. The gun dealer may be asked to fax the ATF form 4473 and thumbprint form to the FICS Unit to assist in the challenge process. The purchaser is provided a reference number upon request to be used to appeal the determination through the Federal Bureau of Investigation’s (FBI) National Instant Criminal Background Check System (NICS) program. Denials and Prohibited Categories Oregon law prohibits individuals that have been convicted of certain offenses from possessing firearms. For example, Oregon prohibits the possession of a firearm by any person found to have mental illness and subject to a court order for treatment or commitment that prohibits them from purchasing or possessing a firearm as a result of mental illness. Finally, an individual is prohibited if while a minor, was found to be within the jurisdiction of the juvenile court for having committed an act which, if committed by an adult, would constitute a felony or misdemeanor involving violence and was discharged from the jurisdiction of the juvenile court within the last 4 years. Table 2 shows Oregon firearms denials by prohibiting categories. From 2011 through 2017, prohibited persons convicted of a felony was the most common category among firearm denials, followed by individuals on probation, individuals convicted of a violent misdemeanor in the previous 4 years, and wanted persons. The two largest prohibiting categories, convicted felons and individuals on probation, made up 32 percent and 24 percent, respectively, of all denials in 2016. In 2017, convicted felons fell to 29 percent and individuals on probation increased to 28 percent. Wanted persons, the fourth largest group in 2016, made up 10 percent of all denials that year, but fell to less than 5 percent of all denials in 2017. Total firearms denials fluctuated during that span from more than 2,400 denials in 2012, to 1,050 in 2017. From 2015 to 2017, denials declined each year. Total firearm transactions fluctuated as well, but generally increased during that span, increasing from less than 200,000 in 2011 to over 287,000 in 2017. From 2015 to 2017, denials fell by 45 percent while total transactions increased by 9 percent. Investigations of Denials Oregon has had the policy of investigating all persons denied a firearms purchase since 2014. Prior to 2014, OSP only investigated a small percentage of persons denied firearms purchases, with a priority placed on denied persons with an active warrant. According to OSP, the FICS unit provides the initial source of information in a denial investigation packet, which generally includes but is not limited to: FICS Transaction Report, which includes information regarding the denied transfer, the subject firearm, the point of sale location, the denied transferee, and the specific reason for denial; Oregon Criminal History data; Interstate Identification Index information; FBI’s NICS information; and Court records, police reports, or other records specific to the individual transferee and the denial in question. Before an investigation is started, OSP must determine whether the investigation should be conducted by OSP or local law enforcement. If the jurisdiction where the transaction took place has an agreement with OSP to receive training on firearms investigations, then the local law enforcement agency will conduct the investigation. Otherwise, OSP will conduct the investigation. In 2016, 26 percent of denial investigations were conducted by local law enforcement, up from 22 percent in 2015. The percentage covered by local law enforcement rose to 28 percent in 2017. In September 2017, three large local jurisdictions agreed to receive firearms denial referrals from OSP. For the last three months of 2017 the proportion of denials referred to local law enforcement was about 33 percent. OSP has five troopers dedicated full-time to FICS denial investigations in specific locations across the state. These troopers have essentially been pulled off of regular patrol duties and dedicated full-time to firearms denial investigations, according to OSP officials. These troopers cover the denials for most of the major metropolitan areas in Oregon. Except for the highest priority cases, the denial cases are tasked to the dedicated FICS troopers if the case falls within their geographical area of responsibility. According to Oregon officials, the five specialized troopers in the state investigated more than 1,100 of the almost 2,600 firearms denials referred for investigation in 2016. OSP troopers are required through OSP executive leadership directives to investigate each FICS case and submit the case, with all available facts and evidence, to the appropriate District Attorney’s Office for review, regardless of findings. With this information, the prosecutor makes an independent charging decision. When there is a recommendation included with the investigator’s report, it is most often to not file charges, either because the evidence indicates no crime was committed, or because there are specific mitigating circumstances involved in the case. Finally, OSP generates a report tracking denial investigations and the dispositions of any new criminal cases initiated after the investigation is completed. There is no current mechanism for reporting actions taken following an investigation and therefore OSP has no data regarding the total number of prosecutions accepted and convictions obtained. Statutes Used According to OSP officials, potential state level criminal conduct associated with denied firearm transfers are established in Oregon Revised Statutes Chapters 162 and 166. These crimes include but are not limited to: Or. Rev. Stat. § 162.075 False swearing. Or. Rev. Stat. § 166.250 Unlawful possession of firearms. Or. Rev. Stat. § 166.270 Possession of weapons by certain felons. Or. Rev. Stat. § 166.416 Providing false information in connection with a firearm transfer. Or. Rev. Stat. § 166.418 Improperly transferring a firearm. Or. Rev. Stat. § 166.425 Unlawfully purchasing a firearm. Or. Rev. Stat. § 166.435 Firearm transfers by unlicensed persons; requirements; exceptions; penalties. Or. Rev. Stat. § 166.470 Limitations and conditions for sales of firearms. Prosecution of Firearm Denials Generally, Oregon’s Constitution requires the election by districts of a sufficient number of prosecuting attorneys (District Attorneys), who are the law officers of the state, and of the counties within their respective districts, and are to perform duties pertaining to the administration of law. District Attorney responsibilities may include, but are not limited to, representing the district in felony prosecutions, misdemeanor prosecutions, grand jury proceedings, mental commitment hearings, family abuse prevention hearings, and juvenile delinquency hearings. After a trooper completes an investigation, they submit a report to the District Attorney’s office. A prosecuting attorney then reviews the case and decides whether to charge an individual or individuals with a crime. When a case is not prosecuted, a rejection memo is provided to the trooper that submitted the report. According to two Oregon county prosecutors we interviewed, from late 2014 through 2017, their offices accepted about 140 of the more than 700 firearms denial investigations referred to their offices, with most prosecuted successfully. According to OSP officials, the most common types of cases resulting in convictions are related to misdemeanor domestic violence convictions, followed closely by prior felony convictions. The officials said that a new working group was created in 2016 to review gun relinquishment protocols in domestic violence cases, review outcomes and make recommendations to improve the safety of domestic violence survivors. With regard to sentencing, these prosecutors said common penalties in firearms denial cases include fines (usually in the hundreds of dollars), and probation ranging up to 1 year, depending on the criminal background of the denied individual. According to OSP, data is not collected on what prosecutions and convictions result from investigations by prohibited category. However, anecdotally, investigators and prosecutors said the prohibiting category of convicted felons is the most common among persons prosecuted for FICS denials. Prosecution outcomes are not automatically reported back to OSP; each county’s District Attorney must be contacted to obtain their agency’s respective case outcome data. Reporting disposition of firearms denial cases back to FICS is voluntary and can be done via an online form. The participating local agencies are requested to report back to OSP on the findings of their investigations; however, this reporting is voluntary and according to FICS officials, many agencies do not consistently submit this information. Appendix IV: Investigation and Prosecution of Firearms Denials in Pennsylvania This appendix includes information on the investigation and prosecution of individuals denied firearms purchases in the state of Pennsylvania. State Firearms Background Checks Since 1998, Pennsylvania has served as a Point-of-Contact (POC) state for the National Instant Criminal Background Check System (NICS) operated by the Federal Bureau of Investigation (FBI). The Pennsylvania State Police (PSP) acts as the state point of contact for NICS for determining an individual’s eligibility to acquire, possess, transfer, and carry firearms. PSP conducts instant records checks using the Pennsylvania Instant Check System (PICS). PICS uses a voice response component and a web-based application that allows users to initiate firearm and license to carry (also known as concealed carry) background check requests. In Pennsylvania, a licensed importer, manufacturer or dealer is required to request by means of a telephone call that the PSP conduct a criminal history, juvenile delinquency history and a mental health check prior to selling or delivering any firearm to another unlicensed person. In addition, the firearm may not be transferred until the licensed importer, manufacturer or dealer has received a unique approval number for that inquiry from the PSP and recorded the date and number on the application or record of sale form. Generally, for any person that is not a licensed importer, manufacturer or dealer who wants to sell or transfer a firearm to an unlicensed person, the person must do so at the place of business of a licensed importer, manufacturer, dealer or county sheriff’s office and follow the procedures related to the transfer of a firearm for a licensed importer, manufacturer or dealer. Process for Conducting a Background Check At the point of purchase, once the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) Form 4473 background check form is submitted, a PICS automated firearms check is initiated. The licensed firearms dealer contacts the PICS unit to determine if the applicant is eligible to purchase a firearm. The initial PICS check, which takes about 10 to15 minutes, searches the state’s repositories and NICS to identify any criminal history records or prohibitions. State databases searched as part of the check includes but are not limited to: Pennsylvania criminal history records; Juvenile records, contained within the criminal history record file; Mental Health File, containing involuntary commitment information and adjudication of incompetence; Pennsylvania Protection From Abuse File; Pennsylvania Wanted/Missing Persons File; and Bureau of Motor Vehicle records. If there is no record in the system for the applicant, the transaction can be approved automatically without any manual evaluation. The gun dealer is provided a unique approval number, which is required to authorize the transfer of the firearm. Any firearm purchase check that hits on a record is transferred to a PICS operator. According to PSP officials, if a PICS operator cannot immediately approve or deny a firearm purchase on the phone, the firearm purchase application is put in “research” status, and the PICS unit has 15 days to determine if the firearm purchase can proceed. During this period, the PICS staff attempts to obtain clarifying information from the state’s repositories. In many of these instances, the PICS staff needs to obtain the final disposition to an arrest, according to PICS officials. If after 15 days, PICS staff cannot make a determination, the applicant’s status becomes “undetermined” and the applicant is not allowed to purchase the firearm. If the automated check comes back with a red flag, the applicant is denied the purchase, and the information is sent to the PICS Challenge Unit, according to PSP officials. Generally, any person who is denied the right to receive, sell, transfer, possess or carry a firearm as a result of the procedures may challenge the accuracy of that person’s criminal history, juvenile delinquency history or mental health record pursuant to a denial by the instant records check by submitting a challenge to PSP within 30 days from the date of the denial. If challenged, PSP is required to conduct a review of the accuracy of the information forming the basis for the denial and has the burden of proving the accuracy of the record. Within 20 days after receiving the challenge, PSP is required to notify the challenger of the basis for the denial and provide the challenger an opportunity to provide additional information for the purposes of the review. PSP is to communicate its final decision to the challenger within 60 days of the receipt of the challenge with the decision containing all of the information which formed a basis for the decision. If after the challenge period the denial is upheld, the PICS Section sends the denied firearm application to the local police department or state police field station to investigate for falsification of the background check form and potentially refer the case for prosecution, according to PSP officials. In addition to handling firearms denial appeals, the Challenge Unit prepares case files for appeals through the Office of the Attorney General, testifies at appeal hearings when required, and attends and testifies at relief hearings for restoration of firearms rights, which are conducted in the various county courts of common pleas throughout the state. Finally, the Challenge Unit handles enforcement investigations involving individuals who knowingly and intentionally provide false information in the attempt to acquire a firearm in violation of Pennsylvania law. Figure 8 shows the process for purchasing a firearm from a dealer in Pennsylvania. According to PSP officials, in 2017, the PICS conducted about 1.1 million background checks for licensed firearm dealers, sheriffs and law enforcement throughout the state. Of these requests, 56 percent were approved within minutes by the system, while an additional 41 percent were approved during the initial check with operator assistance. The remaining 3 percent were placed in research status to obtain additional information. The Challenge Unit reversed 32 percent of all state background check denial challenges, which include licenses to carry, in 2017. According to Pennsylvania officials, the state of Pennsylvania does not have delayed denials, in which a firearm is transferred to an individual before determining whether the individual is prohibited from purchasing or possessing a firearm under state or federal law, and the purchase is subsequently denied. Generally, under Pennsylvania law, a licensed importer, manufacturer or dealer may not sell or deliver any firearm to an unlicensed person until having received a unique approval number from PSP. State History of Denials and Prohibited Categories Pennsylvania law prohibits individuals that have been convicted of certain offenses from possessing firearms. For example, under Pennsylvania law, an individual who has been convicted of driving under the influence of alcohol or controlled substance on three or more separate occasions within a 5-year period is prohibited from possessing a firearm. One prosecutor told us that most of the denials in his county stemmed from second and third offense DUI convictions. Table 3 shows Pennsylvania firearms denials by prohibiting category. According to PSP officials, from 2014—when Pennsylvania began investigating denials—through 2017, the most common category was “persons convicted of a crime punishable by more than one year or a misdemeanor punishable by more than two years,” which comprised 42 percent of all denials. The second most common prohibiting category was mental health-related denials, at 16 percent. During this span, the number of denials increased from 2014 to 2016, only to decline in 2017. State Investigation of Denials Since 2014, PICS policy has been to investigate all firearm denials, according to PSP officials. Prior to 2013, Pennsylvania used risk-based criteria to investigate a much smaller percentage of denials. Criteria used included violent felonies, drug trafficking, domestic violence, involuntary mental health commitment, active warrants, and straw purchases, among others. After PSP began investigating all firearms denials in 2014, according to PSP officials, the number of denials remained largely the same, but the number of investigations rose from 620 to 4,154. PSP officials told us they believe that the policy to investigate all denials acts as a deterrent, and that as prohibited individuals learn that investigations follow a denial these individuals will not attempt to purchase a firearm. According to PSP officials, as PICS refers all confirmed firearms denials for investigation, PICS does not use screening criteria to make determinations about whether firearms denials should be referred for investigation, or which denials are more likely to be accepted for prosecution. However, PICS does prioritize and determine which denials involve more serious criminal violations. According to PSP’s Firearms Unit staff, many referrals are not pursued based on the investigator’s assessment of the case or a prosecutor’s declination of the case when the referral was received. The PSP partners with local law enforcement to investigate firearms denials. Investigations are split up between the PSP and municipal police departments based on the jurisdiction of where the applicant submitted the firearms purchase. In 2016, 68 percent of cases referred for investigation were referred to state police, while 32 percent were referred to local law enforcement. In 2017, cases referred to local law enforcement increased to 62 percent, while 38 percent were referred to state police. If the subject is federally prohibited, a case may be referred to ATF for investigation, though based on our analysis this is relatively uncommon. In 2015 and 2016, 16 and 5 cases, respectively, were referred to ATF for investigation, while in 2017 one case was referred to ATF. Firearms denials are automatically funneled into a state investigative database where an investigation file is created according to PSP officials. When a denial is referred to a PSP troop for investigation, it is assigned to a state investigator if the state police has jurisdiction. If local law enforcement has jurisdiction, the PSP troop or PSP investigation staff will pass the referral to local law enforcement, according to PSP officials. Though some PSP units have investigators that specialize in firearm denials cases, generally denial investigations are assigned to the next available investigator, according to PSP officials. After an investigation is assigned, the investigator will review all provided documentation and verify that the subject is actually prohibited, according to PSP officials. The investigator will then pull an incident number and take steps to obtain necessary documentation. The investigator will then respond to the location of the violation, review the ATF Form 4473, and attempt to interview the employee who handled the attempted transaction. Finally, the investigator will locate and interview the subject of the denial. Cases are not prioritized for investigation because all firearms denials are investigated and are immediately assigned to an investigator upon receipt from PICS, according to PSP officials. While no denial categories are designated as priority, protective orders may be investigated more vigorously when there is an indication of violence, according to PSP officials. PSP does not track the length of time or resources required for conducting investigations of firearms purchase denials, according to PSP officials. Some jurisdictions may send the subject a letter to notify them that they are prohibited and under investigation, according to PSP officials. Other jurisdictions may send a letter only when prosecutors decide not to press charges, explaining to the recipient why they were denied, that they are not eligible to purchase a firearm, and that they could have been prosecuted for that reason. If the case is considered for prosecution, the investigator may meet with the District Attorney’s office and review the case for prosecutorial merit, according to PSP officials. If prosecution is sought, the investigator will type up the charges, process the subject, and arraign. If prosecution is approved, the investigator will notify the Firearms Unit and attend all court proceedings. The investigating unit is to inform PSP’s Firearms Unit of the outcome of the prosecution. Statutes Used According to prosecutors and PSP officials, denials are primarily referred for prosecution on the basis of the violations under: 18 Pa. Cons. Stat. § 4904 - Unsworn falsification to authorities 18 Pa. Cons. Stat. § 6111(g)(4) - Sale or transfer of firearms. 18 Pa. Cons. Stat. § 6105 - Persons not to possess, use, manufacture, control, sell or transfer firearms. Prosecution of Firearms Denials According to PSP officials, in Pennsylvania, the District Attorney is the chief law enforcement officer for each county, and in most instances, cases are accepted for prosecution based on their discretion. As such, discretionary decisions vary by county, and there are no internal criteria. District Attorneys may also refer cases for prosecution to the State Attorney General due to lack of resources or a conflict of interest. Trials for firearms denials are extremely rare in Pennsylvania, according to prosecutors that we spoke with. Only a small percentage of referred denials are ultimately prosecuted, mostly due to the difficulty proving the suspect “knowingly and willingly” provided false information on the background check application, according to PSP officials. According to PSP officials, the conviction rate for firearms denial cases is about 10 percent of all denials referred for investigation. Based on our discussions with Pennsylvania prosecutors and PSP Firearms Division staff, most cases that are prosecuted result in misdemeanor pleas, rather than felony convictions, and common penalties are probation and fines. One county prosecutor told us that most convictions reduced to a misdemeanor are for “statement under penalty,” a third degree misdemeanor. Other cases might be pled down to misdemeanor disorderly conduct, which carries a $300 fine, according to PSP officials. According to county prosecutors that we spoke with, there is an occasional prison sentence for denied felons which can result in about 12 months in prison, and have resulted in sentences of almost 2 years in prison. One prosecutor told us the most frequent firearms prohibitor among convictions is a crime punishable by greater than 1 year in prison, such as a second or subsequent DUI conviction within 10 years, as many of those are graded as misdemeanors of the first degree, punishable by up to 5 years in prison. Typically, when asked, these individuals are unaware of the maximum penalty. Another state prosecutor we spoke with stated that the most prosecuted prohibiting categories also involved felony DUIs, as well as matters related to mental health and domestic violence. He added that, typically, more recent crimes are treated with more severity. One county prosecutor told us they prioritize prosecution of persons with a history of violent behavior. According to state police officials, upon conclusion of a prosecuted case, the investigator will document the disposition of the court. The entire investigative process is documented in a PSP incident report, which includes all interviews, queries made, investigative steps taken, and consultation with the District Attorney. The result of the investigation is then forwarded to the PSP investigation staff. Finally, an email summarizing the entire investigative process is sent to the Troop Crime Commander, Troop Administrative Manager, and the PSP Firearms Unit. Table 4 shows the disposition of firearms denial cases in Pennsylvania. While no annual statistics are recorded at the unit level, according to PSP officials, the state of Pennsylvania does track prosecutions resulting from firearms denials. In 2016, there were convictions in about half of the approximately 730 arrests made and about 6,500 denials referred for investigation. This represents a 39 percent increase in referrals over 2015, but a 67 percent decline in convictions and 68 percent decline in arrests. In 2017, the number of cases referred for investigation declined by 16 percent to about 5,500. Numbers for 2016 and 2017, including arrests, convictions, and prosecutions returned to numbers more representative of a typical year, according to PSP officials. Neither PSP nor the municipal departments track enforcement actions associated with investigations, or the specific sentencing results of investigations referred for prosecution beyond whether the investigation resulted in a conviction or declination. Appendix V: Investigation and Prosecution of Firearms Denials in Virginia This appendix includes information on the investigation and prosecution of individuals denied firearms purchases in the state of Virginia. State Firearms Background Checks The Virginia Firearms Transaction Center (FTC), established in 1989, performs background checks at the point of sale by accessing state and federal databases. The FTC is the federally designated point of contact for the National Instant Criminal Background Check System (NICS), and is responsible for any investigations of firearms denials. The Virginia State Police (VSP) is responsible for conducting background checks using VCheck, Virginia’s Internet-based instant background check program, and for enforcing state and federal laws related to firearms purchases in Virginia. Under Virginia law, generally, a licensed dealer is required to obtain written consent and other identifying information— including but not limited to the name, date of birth, gender, race, citizenship, and Social Security number of a potential unlicensed purchaser—and provide the Department of State Police with this information and request criminal history record information by a telephone call to or other communication authorized by the State Police prior to selling, renting, trading, or transferring any firearm from the dealer’s inventory. The FTC provides personnel to conduct transactions onsite at anticipated high volume gun shows. Pursuant to Virginia law, the Department of State Police are to be available at every firearms show held in Virginia to make determinations, in accordance with the procedures set out for background checks required for the transfer of certain firearms, of whether a prospective purchaser or transferee is prohibited under state or federal law from possessing a firearm. One prosecutor we spoke with estimated that 25 percent of his illegal possession cases are from private sales at gun shows. At a gun show, when an individual attempts to purchase a firearm from a licensed dealer, the individual has to complete the state background check form (SP-65B) and the federal form (ATF 4473) and the FTC will conduct a full NICS check. Should the transaction be denied, the trooper may arrest the applicant depending on the reason for the denial. A Virginia prosecutor explained that in his jurisdiction when two private parties, neither of whom is a FFL, initiate a sale outside of the state transaction system, troopers may approach the purchaser and ask questions related to his or her eligibility to purchase a firearm. If the purchaser appears to be prohibited based on their testimony they may be subject to arrest as well. Process for Conducting a Background Check For transactions conducted through an FFL, the gun dealer submits a background check request to VSP via a toll free number or through an online application. Upon receipt of the request, VSP reviews the applicant’s criminal record information to determine if the applicant is prohibited from possessing or transporting a firearm by state or federal law. This check includes a review of an applicant’s entire criminal history, with no exclusion based on when the prohibiting offense occurred, according to FTC officials. For example, a recent prohibiting felony conviction is treated the same as the same conviction from decades ago. The applicant’s information is submitted to the FTC, where it is checked against databases at the federal and state level. Information is screened through NICS, National Crime Information Center, and the Virginia Criminal Information Network. The FTC provides an instant response to approve the transaction or place it in delayed, research status. Databases maintained by VSP and accessible by the Virginia Criminal Information Network include: Virginia’s wanted and missing persons files and protective orders; Virginia’s criminal history record files; and Virginia’s database of adjudications of legal incompetence and incapacity, and involuntary commitments to mental institutions. If the instant VCheck search indicates that the purchaser is approved, a unique computer-generated approval number that is required to transfer the firearm is provided to the dealer to complete the transaction. If a possible identification is made in the state or federal databases, the instant check produces a “delayed” status and a review is conducted to determine identification and eligibility of the purchaser. If a background check enters delayed status, the dealer will be requested to provide additional information about the purchaser. The dealer is to be notified immediately upon a final determination of eligibility. Pursuant to federal law, if the dealer has not been notified of a final determination by the end of the third business day, the dealer may complete the sale and transfer of the firearm. If a firearm is transferred prior to a final determination of eligibility, the dealer is requested to notify VSP immediately. When a delayed transaction is ultimately approved or denied, the FTC updates the dealer on the status of the transaction by telephone or online depending on how it was entered. When research efforts have been exhausted, if no clear reason to deny is identified, the transaction is approved. More than 99 percent of delayed applications are resolved before 30 days, according to FTC officials. All transactions that are not immediately approved and enter delayed status are assigned a priority level, based on the possible prohibiting category. Virginia investigates a subset of all denials based on risk, but prioritizes denials with active warrants, active protection orders, mental health issues, and certain felony convictions. According to VSP officials, a “priority 1” transaction is a possible hit for mental health reasons, a protective order, or a possible wanted subject. A “priority 2” transaction is any possible hit in NICS, such as convicted felons and out-of-state mental health cases. A “priority 3” transaction is any hit in the Interstate Identification Index, or Virginia’s Computerized Criminal History. According to VSP officials, convicted felons are normally a priority 3 unless they appear in the NICS database. A “priority 4” transaction is a hit from U.S. Immigration and Customs Enforcement, namely an alien or immigrant attempting to purchase a firearm, or a possible request for information, such as a Be On The Lookout or Alert notice, from a police agency or the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). According to VSP officials, while a transaction may be given an initial priority level, VSP moves some priority 3 and 4 hits to the front of the list, such as those involving recent felony indictments or a misdemeanor crime of domestic violence. Denial decisions undergo supervisory review to verify that the denial is correct and accurate, including a review of the police report to document findings, and to ensure that the prohibited person’s rights have not been restored, according to VSP officials. According to a VSP official, in practice, there are rarely any transactions in Virginia in which a firearm is transferred before the purchaser is determined to be ineligible, known as a delayed denial. According to an FTC official, there were no delayed denials in the previous 2 years. After 3 business days of conducting a background check, at which time firearms dealers may transfer a firearm, firearms dealers typically contact the FTC to notify them of the possible transfer, and ask whether to hold the gun for a few more days, according to VSP officials. If the FTC believes the purchaser will ultimately be denied, they will suggest the firearm be held, but it is up to the dealer to decide whether to do so. The FTC will also ask to speak with the purchaser to explain that if they accept the firearm and are later denied, VSP would have to send an officer to retrieve the firearm and charges may be filed against the purchaser for illegal possession of the firearm. VSP will then advise that if unsure of his or her prohibited status, the applicant should wait until the background check is complete. According to a VSP official, there are advantages to being a point-of- contact state, such as the ability to provide better service to citizens and to build relationships with FFLs that would not be possible as a NICS state. For example, VSP conducts training sessions and regular outreach to firearms dealers. VSP officials estimate that in 80 percent of cases involving firearms purchases on behalf of a prohibited person, sometimes referred to as “straw purchases,” leads come from dealers notifying VSP of something suspicious. According to VSP officials, straw purchases are treated very seriously, and can result in prison sentences of 5 to 10 years. Figure 9 shows the process for purchasing a firearm from a dealer in Virginia. Individuals denied the right to purchase a firearm may exercise a right of access, review, and correction of criminal history record information or institute a civil action within 30 days of the denial. Typically, after a denial, individuals are provided a Virginia Firearms Transaction Program brochure or referred to the VSP website for appeal procedures if they believe that they are not prohibited by state or federal law from purchasing or possessing a firearm. These individuals may contact the FTC via phone or e-mail to discuss the determination and provide additional information, provide fingerprinting to facilitate future transactions, request a correction of record, or institute a civil action. Denied persons may also challenge the accuracy of the record in writing to the FBI. State History of Denials and Prohibited Categories Generally, individuals prohibited from either purchasing or possessing a firearm under Virginia law include, but are not limited to: any person who has been convicted of a felony, or adjudicated delinquent as a juvenile 14 years of age or older at the time of certain offenses (including murder, kidnapping, robbery by threat or presentation of firearms, or rape), or under the age of 29 who was adjudicated delinquent as a juvenile14 years of age or older at the time of the offense of a delinquent act which would be a felony if committed by an adult; any person who has been acquitted by reason of insanity and committed to the custody of the Commissioner of Behavioral Health and Developmental Services on a charge of treason, any felony or certain offenses punishable as a misdemeanor or certain ordinances of any county, city, or town similar to other outlined offenses; any person who is subject to certain protective orders; or any person who, within a 36 consecutive month period, has been convicted under Virginia law of two misdemeanor offenses for possession of controlled substance or marijuana without a valid prescription or order of a practitioner while acting in the course of his professional practice within 5 years from the date of the second conviction. The top prohibiting categories for individuals denied firearms purchases are felony convictions, which comprise 21 percent of all denials from 2011 through 2017, followed by drug-related prohibitions (19 percent), and mental health-related prohibitions (13 percent). One prosecutor we spoke with said that denials tend to not involve violent career criminals, and typically involve non-violent felonies, such as grand larceny, or involve drugs, and most occurred 20 years ago or more. From 2011 to 2017, the total number of denials increased from about 2,000 to about 3,600, an increase of almost 80 percent, while the total number of transactions increased from about 320,000 to about 500,000, an increase of more than 50 percent. Table 5 shows Virginia firearms denials by prohibiting category. State Investigation of Denials Virginia has investigated firearms denials since its instant check system was introduced in 1989. Virginia does not refer all firearms denials for investigation, instead using risk-based criteria to refer a sub-set of prohibited categories for investigation. The following conditions trigger an automatic investigation for a firearms denial: felony conviction, including juvenile felony conviction, or felony indictment; misdemeanor crime of domestic violence; involuntary mental health treatment; nonimmigrant or illegal alien; and dishonorable discharge from the military. All Virginia denial investigations are handled by VSP with the exception of some fugitive and warrant-related, protective order, and mental health cases, as well as purchases at gun shows, which may involve municipal or local police, according to VSP officials. When FTC’s background check unit refers a case for investigation involving mental health or protective orders (both which are priority 1), the package is sent to both the VSP division and the local police department. According to VSP officials, to initiate a denial investigation, FTC sends requests for investigation to the VSP division headquarters, where it is referred to the appropriate section where the gun transaction took place, then to a state trooper to conduct the investigation. A file with a copy of both the federal background form, ATF Form 4473, and the state background check form, SP-65, is sent to the investigating trooper. The trooper then collects necessary information, such as information about the denial from VCheck, the criminal history of the purchaser, and court records. As necessary, the investigator verifies the information in the FTC file at the FFL, and interviews the subject. Part of the investigation involves trying to prove the purchaser “willingly and knowingly” answered falsely on the state and federal forms. Some VSP sections, typically those in more densely populated areas, have troopers dedicated exclusively to firearms denial investigations due to the higher volume of denials in those areas. According to VSP officials, every area may assign troopers to work exclusively on firearms denial investigations. However, most areas either cannot afford to remove a trooper from road coverage availability, or don’t investigate enough firearms denial cases to make it an effective use of resources. These sections assign denial investigations to troopers on a case by case basis. Prosecutors are often consulted as to whether a case will be prosecuted, where the prosecutor comments on the strength of the case based on the evidence available, according to investigators and prosecutors we spoke with. Investigators told us that prosecutors are generally more agreeable to taking on firearms denial cases involving recent felony convictions. They also said that if the case is accepted for prosecution, the trooper will obtain warrants to make an arrest. If the Commonwealth Attorney finds that the case does not have prosecutorial merit, the case is closed and the name of the Commonwealth Attorney consulted is put in the case management system report, according to a VSP official. Table 6 shows Virginia denial investigations from fiscal years 2011 through 2017. According to VSP officials, the time spent on denial investigations depends on the type of denial, location, and the information needed to bring charges or close the case. However, on average a case may involve about 4 hours of investigation. Officials in another division stated that in-state convictions can range from 4 to 6 hours of investigative work, while out-of-state convictions can take significantly more time, from 4 to 15 hours. Obtaining records from out of state can be difficult, and can take weeks or months. For example, one state requires a fee per conviction copy, which requires a check to be mailed, processed, and then for the files to be mailed back to the investigator. VSP officials told us that cases involving straw purchases can take 50 hours or more, however, these cases can result in longer prison sentences of 5 to 10 years. They added that additional time may be spent on search warrants, examining video from firearms stores, reviewing phone records, and conducting interviews. Further, denial investigations involving dishonorable discharges and mental health denials from out of state typically take the longest to investigate, in part because some states won’t release these records for the purpose of prosecution. Locating old felony documentation is also a challenge for investigators, according to VSP officials. Statutes Used According to investigators and prosecutors, the most common state statutes used for attempted firearm purchases include: Va. Code Ann. § 18.2-308.2:2(K) Willfully and intentionally making a materially false statement on the consent form; Va. Code Ann. § 18.2-308.1:3 (Usually prosecuted as an attempt) Prohibition against purchase or possession of a firearm by someone involuntarily admitted or ordered to outpatient mental health treatment; and Va. Code Ann. § 18.2-308.1:4 (Usually prosecuted as an attempt) Prohibition against purchase or transport of a firearm by someone subject to a protective order. State Prosecution of Firearms Denials Virginia’s chief prosecutors, the Commonwealth’s Attorneys, are elected at-large for a 4-year term. They are responsible for prosecuting all felonies and some misdemeanors, in addition to handling certain civil matters. According to a prosecutor we spoke with, Commonwealth’s Attorneys offices receive referrals for prosecution directly from state troopers. We interviewed Virginia investigators and prosecutors from four counties, including from localities where a high volume of firearms denial referrals occur. These prosecutors said they tend to work with Virginia troopers who specialize in denial investigations and report high prosecution rates for the cases they accept. One investigator with a high referral rate to prosecutors told us he benefits from operating in a high-volume, relatively compact jurisdiction, while in other parts of the state, investigators may have to cross several counties to gather the paperwork needed to establish a denial case, interview the purchaser, and make an arrest. According to a county prosecutor, a key component of successful prosecutions is a willing Commonwealth Attorney because charging decisions are at their discretion. An investigator and prosecutor that work together stated that in some jurisdictions, attorneys may not welcome firearms denial cases, while in other jurisdictions specialized investigators working with an attorney willing to prosecute these cases for public safety and deterrence value can yield a high prosecution rate. Two county prosecutors we spoke with said approximately 90 percent of firearms denial convictions are pled down to misdemeanors, and the penalties imposed tend to include probation or community service, but there is an occasional prison sentence. According to investigators and prosecutors we spoke with, some prosecutors prefer to avoid the use of fines while others may use them occasionally. Of the few cases that go to trial, according to prosecutors, most go before a judge rather than a jury, and typically involve a felon in possession of a firearm, resulting in a felony conviction and likely probation. Judges have discretion to reduce sentences, while juries are constrained to issuing more severe sentences if they find the defendant guilty, and typically hand down more prison time, according to prosecutors we spoke with. The severity of penalties handed down for firearms denials depends on the prohibited category, according to one county prosecutor. Another prosecutor said protective order violations tend to be easier to prosecute because the records are available and indicate a clear violation. Other cases where accurate records are difficult to obtain, such as juvenile denials, mental health denials, and out of state cases, prosecutions are difficult to prosecute, according to investigators and prosecutors. One prosecutor told us that a subject’s criminal history also makes a big difference as to whether they might receive a harsher or more lenient sentence. Several prosecutors we spoke with said that while prison sentences are rare, for a felon with a history of violence, sentences of 7 months to more than 24 months in prison have been imposed. One prosecutor told us they typically agree to no prison time on a felony conviction unless there are indicators of violence on the record, such as destruction of property or assault and battery. If a person has no record, the prosecutor would be far more willing to forego a felony and sometimes even a misdemeanor, and propose community service instead. One prosecutor questioned whether it makes sense to make a person a felon over a firearms denial; however, if a person has a consistent misdemeanor history of getting into trouble then they would be less convinced that this particular offense is out of character and may not make any non-felony offers. Prosecutors also may reduce the charges to disorderly conduct or providing false information to police during a plea in these cases to try to get a conviction, according to one prosecutor. Data on prosecutions, dismissals, and convictions resulting from investigations, are not collected at the state level, and are only accessible at the VSP divisions that conduct investigations and the courts where they are prosecuted, according to Virginia officials. Appendix VI: Examples of Firearms Denial Cases Referred for Prosecution Table 7 shows examples of firearms denial cases that our six selected ATF field divisions referred to U.S. Attorney’s Offices for prosecution during fiscal years 2014 through 2017, including the types of circumstances that could lead to referral for prosecution, the range of charges filed, and the severity of sentences that resulted. All the cases involved 18 U.S.C. § 922(a)(6), falsifying a background check form. While all were not ultimately charged under that statute, they were selected for investigation by ATF for that reason. Occasionally, federal and state law may prohibit similar types of criminal conduct, allowing both federal and state prosecutors to pursue the case. U.S. Attorney’s Offices may also refer a case to a state prosecutor that is not deemed appropriate for federal prosecution. Appendix VII: GAO Contacts and Staff Acknowledgements GAO Contact Staff Acknowledgements In addition to the contact named above Eric Erdman (Assistant Director) and Anthony DeFrank (Analyst-in-Charge) managed this assignment. Daniel Kuhn, James Lawson, Billy Commons, Susan Hsu, Michele C. Fejfar, and Eric D. Hauswirth made significant contributions to the work.

In 2017, approximately 25.6 million firearm-related background checks were processed through NICS, and about 181,000 of the attempted purchases at the federal and state levels combined were denied because the individual was prohibited from possessing a firearm under federal or state law. Individuals who certify that they are not prohibited from purchasing or receiving a firearm and are subsequently determined to be prohibited could be subject to investigation, and if prosecuted, a fine, imprisonment, or both. GAO was asked to examine firearms denials. This report (1) describes the extent to which federal and selected state law enforcement agencies investigate and prosecute firearms denial cases; (2) examines related challenges faced by these agencies; and (3) describes the circumstances that lead to investigations and prosecutions. GAO reviewed laws and regulations; analyzed federal and state data from 2011 through 2017; and interviewed officials from ATF headquarters, 6 of 25 ATF field divisions (the 6 that investigated the most cases), and the 13 states that process all NICS checks within their state. Results from state interviews are not generalizable but provide insights on state practices. Investigations and prosecutions. Federal and selected state law enforcement agencies that process firearm-related background checks through the National Instant Criminal Background Check System (NICS) collectively investigate and prosecute a small percentage of individuals who falsify information on a firearms form (e.g., do not disclose a felony conviction) and are denied a purchase. Federal NICS checks resulted in about 112,000 denied transactions in fiscal year 2017, of which the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) referred about 12,700 to its field divisions for further investigation. U.S. Attorney's Offices (USAO) had prosecuted 12 of these cases as of June 2018. At the state level, officials from 10 of 13 selected states said they did not investigate or prosecute firearm denials, some citing competing resource demands and the lack of statutes with which states prosecute as reasons. The remaining 3 states investigated a high proportion of firearms denials. One of the 3 states reported about 1,900 referrals for prosecution in 2017 and about 470 convictions. Challenges. ATF and selected states reported challenges in investigating and prosecuting firearms denials. Officials from six selected ATF field divisions said that investigating the increasing number of denial cases referred to field divisions—which increased from about 5,200 in fiscal year 2011 to about 12,700 in fiscal year 2017—has been time intensive and required use of their limited resources. ATF policy provides that field divisions may send “warning notices” to denied persons in lieu of prosecution, but ATF has not assessed field divisions' use of these notices, which could provide greater awareness of their deterrence value and inform whether any policy changes are needed. Officials from the Executive Office for United States Attorneys said that prosecuting denial cases can require significant effort and may offer little value to public safety compared to other cases involving gun violence. Selected state officials said that denial investigations can take law enforcement officials away from their core duties. State prosecutors said gathering evidence to prove individuals knew they were prohibited was a challenge. Types of cases. ATF field divisions investigate denial cases based on USAO criteria and generally only refer cases to USAOs for prosecution when aggravating circumstances exist, such as violent felonies or multiple serious offenses over a short period of time. Officials from two of three selected states refer all denial cases for investigation, while one state uses risk-based criteria for selecting cases that include conditions such as felony convictions and misdemeanor crimes of domestic violence. Prosecutors from these three states said they generally pursue cases that involve indications of violence, though individual prosecutors had differing priorities based on public safety concerns.

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Background Coast Guard Organizational Structure for TAP Coast Guard staffing for the TAP program reflects the organizational structure of its Health, Safety, and Work-Life Directorate, which oversees TAP policy. The Coast Guard’s TAP managers are assigned to 13 installations where Health, Safety, and Work-Life offices are located. One or two TAP managers are assigned to each of the Coast Guard’s nine districts, which often span multiple states and territories, and these TAP managers oversee operations both for the installation where they work and for units stationed throughout the region (see fig. 1). For example, the TAP manager assigned to Coast Guard Base Cleveland oversees TAP implementation both for that installation and for Coast Guard units serving in Coast Guard District 9—a region that encompasses portions of eight states and the Great Lakes area. The program manager in Coast Guard Headquarters manages Coast Guard’s Transition Assistance Program. The Coast Guard protects and defends over 100,000 miles of U.S. coastline and inland waterways, and consequently, TAP-eligible Coast Guard servicemembers sometimes work in small, widely dispersed units assigned to remote locations, including on Coast Guard vessels. One aspect of the Coast Guard’s mission—a first responder for maritime search and rescue in United States waters—can require Coast Guard servicemembers to respond to emergency situations at a moment’s notice. TAP Process and Timing The Coast Guard, which is overseen by DHS, not DOD, generally oversees TAP implementation for its servicemembers. Federal law requires DOD and DHS to require eligible servicemembers under their respective command to participate in TAP, with some exceptions. In response to this statutory requirement, DOD has promulgated regulations and developed issuances which require that servicemembers complete the component parts of the TAP program, and that commanding officers ensure that servicemembers under their command complete these parts, with some exceptions. In contrast, according to Coast Guard officials, Coast Guard has not promulgated any regulations to implement TAP. Further, Coast Guard issued its most recent Commandant Instruction in 2003, approximately 8 years prior to TAP redesign in 2011. However, Coast Guard issued policy guidance in 2014 that made some limited updates to the Commandant Instruction. Coast Guard officials also said the Coast Guard plans to issue a new TAP Commandant Instruction in May 2018. Under the redesigned TAP, Coast Guard servicemembers—like their DOD counterparts—begin TAP by attending pre-separation or transition counseling where they are briefed on TAP requirements and available transition resources. Pre-separation or transition counseling can be delivered by TAP managers, uniformed career counselors, or online (see fig. 2). Coast Guard servicemembers are able to participate in TAP either through the Coast Guard or at a DOD installation, if space is available. During or at the end of pre-separation or transition counseling, participants register for and attend TAP courses. The core curriculum includes three required courses—the Department of Labor (DOL) Employment Workshop, unless exempt, and Department of Veterans Affairs (VA) Benefits Briefings I and II—and other courses that focus on aspects such as translating military skills and experiences into credentialing for civilian jobs and preparing a financial plan. Participants may also elect to attend additional 2-day classes either at a Coast Guard or DOD installation or online through the Joint Knowledge Online platform, according to agency officials. These additional 2-day classes include Accessing Higher Education, Career Technical Training, and Entrepreneurship. Federal law requires the Coast Guard to permit servicemembers who elect to take these additional 2-day classes to receive them. Federal law establishes a time frame within which servicemembers with anticipated separation or retirement dates should begin the program. According to federal law, retirees with anticipated separation dates are expected to begin TAP as soon as possible during the 24-month period preceding that date, but not later than 90 days before separation. Similarly, servicemembers with anticipated separation dates who are not retiring are expected to begin as soon as possible during the 12-month period preceding that date, but not later than 90 days before separation. Servicemembers who learn that they will separate or retire from the military fewer than 90 days before their anticipated separation or retirement date are expected to begin TAP as soon as possible within their remaining period of service. Interagency Collaboration As we previously reported, officials from multiple federal agencies collaborate to deliver and assess TAP. The TAP interagency governance structure includes senior officials from DOD, VA, DOL, DHS, the Department of Education, the U.S. Office of Personnel Management, and the Small Business Administration (SBA), who participate in TAP Senior Steering Group meetings at least every month and TAP Executive Council meetings each quarter. Further, officials tasked to particular interagency working groups focus on specific elements of TAP (e.g., curriculum or performance measures), meet more frequently (typically at least once a month), and generally communicate weekly, according to agency officials. The TAP program manager for the Coast Guard told us that he participates in several of the working groups. One such working group is the performance management working group that oversees the interagency TAP evaluation plan, which includes monitoring performance measures related to TAP requirements, indicators of post-program outcomes, and formal evaluations sponsored by interagency partners. While DOD tracks TAP-specific performance measures, other interagency partners track indicators of how well veterans fare after leaving military service. For example, DOD tracks performance measures prior to servicemembers’ separation, such as TAP participation and credential attainment rates, while other agencies track post-separation indicators, such as unemployment rates among veterans ages 18 to 24. The performance management working group also reviews the formal evaluation efforts led by individual agencies and provides feedback to help shape their efforts in accordance with the TAP Evaluation Plan. Coast Guard Lacks Reliable Data and Cites Several Factors that Affect Participation Coast Guard Lacks Reliable Data on Servicemembers’ Participation in TAP The Coast Guard does not have complete or reliable data on participation levels in TAP. According to Coast Guard officials, a major reason why the data are not reliable is that the Coast Guard lacks an up-to-date Commandant Instruction that specifies when to record TAP participation data. Consequently, the data are updated on an ad-hoc basis, according to agency officials, and may not be timely or complete. For example, one TAP manager said she updates the list of TAP participants for her installation only once every few months because of her other duties. According to federal internal control standards, management should use quality information—including current and timely information— to achieve the entity’s objectives and to communicate quality information to external parties. Given the lack of timely and complete data, we determined the Coast Guard’s TAP data were not sufficiently reliable for an analysis of participation in TAP classes. Because it lacks policies and procedures governing reliable data collection, including when data should be entered and by whom, the Coast Guard cannot determine to what extent its servicemembers attend TAP, although federal law mandates that DHS ensure all TAP-eligible servicemembers participate in the program. In addition, the data collection system currently used to track TAP participation is not sufficient to ensure reliable data. For example, according to Coast Guard staff, TAP staff enter TAP participation data into a shared spreadsheet that all TAP managers can edit. Specifically, staff record the names of servicemembers they identify as TAP-eligible and whether these individuals completed required portions of TAP. Coast Guard officials said they are in the process of adopting a new data system, in October 2018, to more reliably track TAP participation and that they expect to fully adopt this system–DOD’s TAP-IT Enterprise System—after a new Commandant Instruction is finalized, in May 2018. In November 2016, DOD launched the new system to collect TAP-related data for servicemembers in the Army, Navy, Air Force, and Marine Corps. In addition to standardizing data collection and improving data completeness and accuracy, the TAP-IT Enterprise System is expected to track information related to the time frames of servicemembers’ participation. According to a senior DOD official, the military services will not be able to use the system to generate unit-level or installation-level reports until October 2018. Serving at a Remote Installation and Rapid Separations Hindered TAP Participation, As Did Limited Staff Capacity and Competing Priorities According to our survey, the most common factor affecting TAP participation, cited at 11 of the 12 Coast Guard installations we surveyed, pertained to servicemembers assigned to geographically remote locations. The next three most commonly cited factors–each cited by 7 of the 12 installations surveyed—relate to the timing of TAP participation: rapid separation from the military, not being sufficiently aware of the need to attend TAP, and starting the transition process too late to attend. (See fig. 3.) Headquarters-based TAP officials identified additional factors that may affect servicemember participation, such as separating from the Coast Guard Reserves or retiring with no plans to work after leaving the military. However, the Coast Guard lacks participation data to verify whether participation rates for these groups are in fact lower than for other Coast Guard servicemembers. Coast Guard installations we surveyed did not indicate that unit commanders or direct supervisors affected participation in TAP’s required courses or additional 2-day classes. However, Coast Guard servicemembers and TAP officials we spoke with said unit commanders or direct supervisors sometimes prevented participation. All three TAP managers we spoke with (of 12 nationwide) told us that while commanders generally allowed servicemembers to register for TAP courses, they occasionally required them to return to their duties before completing the courses. We observed this during a TAP class at a Coast Guard installation we visited when a servicemember’s commander ordered her to return to the unit during TAP training and she missed a briefing she wanted to attend. Two of three TAP managers we interviewed also said commanders sometimes required servicemembers under their command to wait to take TAP classes until close to their separation date because of mission priorities. Two of three TAP managers interviewed said that commanders in the Coast Guard face unique challenges in ensuring TAP participation. They said commanders in all branches of the military must balance competing demands, including their primary mission and the training needs of the personnel they oversee. They said it can be particularly difficult for Coast Guard commanders to juggle these priorities because Coast Guard servicemembers are sometimes assigned to very small units or called to return to duty for emergency situations during scheduled TAP classes. One TAP manager said that a commander in a remote location had collaborated with her to provide a classroom-based TAP class for transitioning Coast Guard servicemembers within the commander’s unit, but rescue efforts occurred during the class which resulted in most of those servicemembers returning to their vessel to respond to the emergency. In addition, all three TAP managers we spoke with said there are limited resources for holding TAP in a classroom setting. Consequently, classroom-based TAP may not be offered frequently in remote locations, making rescheduling difficult. One TAP manager said that her installation typically offers three or four TAP classes a year and because classes are so infrequent, servicemembers are encouraged to start TAP as soon as possible prior to separation. Coast Guard staff we interviewed said that juggling competing priorities affected the Coast Guard’s ability to implement TAP. Both the frontline and headquarters staff who oversee TAP implementation said they oversee at least three other programs in addition to TAP at their installation and throughout their regions, including the Coast Guard’s relocation and spousal employment programs. Coast Guard Relies on Online Delivery of TAP for Several Categories of Servicemembers The Coast Guard relies on online delivery of TAP information and classes for servicemembers who are rapidly separating and assigned to remote and geographically dispersed units, according to our survey results and several Coast Guard staff we interviewed. For example, all 12 installations we surveyed cited servicemembers facing rapid separations as a reason for accessing TAP training online, and 11 cited servicemembers being remotely stationed as a reason. Coast Guard staff also said online TAP was used for servicemembers interested in attending additional 2-day classes. The three TAP managers we interviewed also identified several reasons why installations had to rely on online TAP classes. For example, one manager corroborated our survey results, saying that many Coast Guard servicemembers worked in small units assigned to remote and geographically dispersed locations, making it difficult to convene a sufficient number of transitioning Coast Guard servicemembers to meet minimum class size requirements. In addition, all three managers said they used the online version of TAP for remotely stationed Coast Guard servicemembers because the Coast Guard lacked the resources for them to attend classes in person. Although they preferred that servicemembers participate in live, classroom-based TAP classes, all of the managers acknowledged that the online version of TAP played an integral role in ensuring that more servicemembers could participate in the program. However, two of them noted that while classroom delivery of TAP classes provided an interactive learning environment that allowed participants to ask questions and learn from their peers, online participants generally clicked quickly through the slides and had difficulty understanding the information being presented. Two managers told us that they regularly used the online version to deliver parts of the TAP curriculum. For example, one TAP manager said she required participants to complete the crosswalk of military and civilian occupations class online before attending required classes in person. Two managers noted that additional 2-day classes were available online, and one noted that some servicemembers attended these classes in a classroom setting either on a Coast Guard base or a DOD installation. Finally, all three TAP managers said that many participants in online TAP classes would benefit from participating in a real-time virtual version of TAP led by live facilitators. Two managers told us that having a remote facilitator delivering TAP in real time would give participants more opportunity to ask questions and better understand and absorb class content. Feedback About TAP Was Generally Positive Despite these challenges, TAP managers and separating Coast Guard servicemembers we interviewed provided generally positive feedback about the TAP program. All of the 25 Coast Guard servicemembers we spoke with said that the information they received during the courses was useful and they liked the instructors. One Coast Guard servicemember praised the classroom courses for being interactive, and several Coast Guard servicemembers said they wanted the opportunity to retake TAP before or shortly after they separated from the Coast Guard. However, many said the volume of information presented in a short period of time could be overwhelming and was like “trying to drink from a firehose.” Coast Guard Cannot Effectively Measure Performance or Monitor Implementation to Ensure Key TAP Requirements Are Met Coast Guard Has Not Set a Formal Performance Goal for TAP Participation and Cannot Effectively Measure Program Performance Because it Lacks Reliable Data The Coast Guard has not set a formal performance goal for TAP participation, according to a Coast Guard official, and as previously discussed, does not have complete, reliable data. Without reliable information, the Coast Guard cannot effectively monitor TAP implementation or measure program performance. DHS is mandated to ensure that all TAP- eligible servicemembers of the Coast Guard participate in TAP before leaving military service. However, without effective monitoring of program participation, the Coast Guard cannot know to what extent its servicemembers receive the required training they need to prepare for civilian life. According to federal internal control standards, management should consider external requirements—such as the laws with which the entity is required to comply—to clearly define objectives in specific and measurable terms. In addition, establishing goals can help agencies define expected performance and articulate results. A Coast Guard official said the Coast Guard’s long-term goal is for full compliance with TAP requirements, but in the interim, the Coast Guard uses DOD’s 85 percent VOW compliance goal as an informal benchmark against which to gauge the Coast Guard’s TAP performance. However, the Coast Guard has not communicated a specific, measurable goal to TAP staff implementing the program, or to Coast Guard commanders who oversee separating and retiring Coast Guard servicemembers, according to a Coast Guard official. Establishing and communicating a formal goal could help the Coast Guard define expected performance. The official also told us that, like DOD, the Coast Guard tracks the elements of TAP mandated under the VOW Act— transition or pre-separation counseling, VA Benefits I and II, and the DOL Employment Workshop. Coast Guard Does Not Monitor Compliance with Additional TAP Requirements The Coast Guard does not monitor the (1) timeliness of participation in TAP, and (2) access to additional 2-day classes. A Coast Guard official said the Coast Guard does not currently monitor TAP beyond tracking whether separating servicemembers participate in the required courses, and currently lacks the capacity to undertake additional monitoring efforts. However, he said additional monitoring would be possible once the Coast Guard completed the move to the DOD TAP-IT Enterprise data system. Timeliness of TAP Participation According to a Coast Guard official, the Coast Guard does not currently monitor the timeliness of TAP participation although federal law prescribes time frames for servicemembers to begin TAP participation. Generally, separating servicemembers who are not retiring are to begin TAP participation no later than 90 days before their separation date. Without a systematic method for monitoring timeliness, the Coast Guard cannot know whether its servicemembers begin the program on time or account for the timeliness of TAP participation. As a result, the Coast Guard cannot know whether its servicemembers are starting TAP early enough to complete the training they need to adequately prepare for their transition to civilian life. Access to Additional 2-Day Classes The Coast Guard does not track which of its servicemembers participate in the additional 2-day classes, according to a Coast Guard official we interviewed, even though federal law requires that DHS ensure those who elect to participate are able to receive the training. By not tracking which Coast Guard servicemembers participate in 2-day classes or requiring transition staff to document when servicemembers ask to attend, the Coast Guard cannot determine the extent to which servicemembers who wished to attend these courses were able to do so, as required by law. Roles and Responsibilities Are Not Clearly Defined Coast Guard commanders and TAP managers do not have clearly defined roles and responsibilities in implementing TAP because of the lack of an up-to-date Commandant Instruction, according to TAP staff we interviewed. As previously discussed, the Coast Guard’s last Commandant Instruction on TAP was issued in 2003, approximately 8 years prior to TAP’s redesign. According to federal internal control standards, to achieve the entity’s objectives, management should assign responsibility and delegate authority to key roles throughout the entity. Without an up-to-date Commandant Instruction, TAP managers and commanders may be unclear on who is ultimately responsible for ensuring servicemembers attend TAP. Moreover, two TAP managers also told us that an up-to-date Commandant Instruction might lead some commanders to place higher priority on ensuring TAP participation. Coast Guard officials said the Coast Guard was in the process of revising the TAP Commandant Instruction and anticipated issuing the new instruction in May 2018. Coast Guard Does Not Share Participation or Performance Data with Commanders or TAP Interagency Partners, Limiting Monitoring and Evaluation The Coast Guard lacks the ability to share data with commanders, limiting its ability to monitor TAP participation and ensure servicemembers attend the program. According to a Coast Guard official, the Coast Guard’s current data collection system also cannot generate installation or unit- level participation rates to share with commanders who oversee transitioning and retiring servicemembers. Federal internal control standards state that management should share quality information throughout an organization to enable personnel to perform key roles, and we have previously reported that by regularly sharing useful performance information with leaders at multiple levels of an organization, agencies can help leaders make informed decisions. Without this information, individual unit commanders or the commanders’ supervisors cannot determine whether Coast Guard servicemembers under their command completed TAP or identify whether there is a need for corrective actions to ensure they do so. As we mention earlier in this report, the Coast Guard plans to adopt DOD’s TAP-IT Enterprise System, which according to officials, could help the Coast Guard ensure eligible servicemembers participate in the program. According to a Coast Guard official, once the system is fully implemented by the Coast Guard, commanders will be required to verify and document whether Coast Guard servicemembers under their command completed TAP, potentially making commanders more vested in the process. We previously reported that a senior DOD official said that the TAP-IT Enterprise System may be able to generate unit- and installation-level reports for the four DOD-led military services by October 2018, and a Coast Guard official said he would work with DOD to identify whether this capability could also extend to the Coast Guard. Once data reliability improves, sharing installation and unit-level TAP performance information with Coast Guard commanders could support monitoring efforts. The performance measures tracked by the TAP interagency working group do not reflect TAP implementation broadly across all five military services, according to a Coast Guard official we interviewed. The Coast Guard does not currently share TAP data it collects with DOD or other members of the interagency performance working group. While the benefits of interagency data sharing cannot be realized without the Coast Guard first improving the quality and completeness of its TAP data, we have identified leading practices for interagency collaboration, including that members of interagency working groups identify and share relevant agency performance data. Moreover, federal internal control standards call for management to communicate quality information to external parties. Because the Coast Guard does not share TAP data, the performance measures tracked by the interagency group do not reflect Coast Guard servicemembers’ experiences and thus do not provide a complete picture of TAP implementation across the five military services. More specifically for the Coast Guard, without such data sharing, future TAP evaluations may not be able to assess the effectiveness of TAP delivery, hindering the Coast Guard’s ability to make program adjustments to better prepare its servicemembers to successfully transition to life after military service. Coast Guard officials said migrating to DOD’s TAP-IT Enterprise System will facilitate information sharing with interagency partners and that improving data completeness and reliability is a top priority for 2018. Conclusions Given the sacrifices servicemembers have made to serve their country, it is imperative they are afforded every chance to adequately prepare for civilian life before leaving military service. In order to make a successful transition, servicemembers need to be well-positioned to get a job or make an informed decision about whether to pursue additional education or start a small business. As such, the Transition Assistance Program (TAP) serves a critically important function—to give servicemembers the tools and information they need to successfully transition to life outside the military. Federal law requires that the Coast Guard ensure all eligible servicemembers participate in the program, but thousands of Coast Guard servicemembers may have transitioned without the support provided by TAP. Reliably tracking participation has proven to be a challenge for the Coast Guard, in part because it lacks a current Commandant Instruction that defines the roles and responsibilities of staff responsible for implementing TAP and ensuring complete and reliable data are collected. In preparing to issue an updated Commandant Instruction, the Coast Guard has taken a positive step toward addressing the limitations of its current TAP data, and will be better positioned to ensure compliance with VOW Act requirements using reliable data. In addition to collecting reliable data, the Coast Guard could further demonstrate its commitment to meeting TAP requirements by establishing formal performance goals that measure the extent to which Coast Guard servicemembers participate in TAP. By establishing interim performance goals, the agency would be able to show its progress towards achieving full compliance. Moreover, communicating performance goals to unit and installation commanders could enhance accountability and might spur progress toward meeting federal program requirements. By expanding its monitoring efforts beyond tracking participation in TAP’s required classes, the Coast Guard could enhance its ability to ensure other TAP requirements are met and that its servicemembers are able to access additional transition resources. Monitoring the timeliness of participation would help ensure Coast Guard servicemembers have adequate time to complete TAP before leaving the military. Further, by monitoring requests to participate in additional 2-day classes and 2-day class attendance, the Coast Guard would be in a better position to identify whether servicemembers who wish to attend the classes are able to do so, to determine whether more classes are needed, and to communicate this information to the interagency partners responsible for delivering these classes. Commanders can also play a key role in bolstering TAP participation. Having an up-to-date written Commandant Instruction that explicitly describes commanders’ roles and responsibilities could enhance commanders’ ability to ensure TAP’s proper implementation and compliance with VOW Act requirements. Moreover, once data quality improves, providing commanders a mechanism to readily determine whether servicemembers under their command have completed TAP could help them monitor the program to ensure that all TAP-eligible servicemembers receive the resources they need to successfully transition to civilian life. Finally, once more reliable data on Coast Guard servicemember participation are available, sharing this information with interagency partners could improve TAP implementation on a broader scale. Sharing reliable data, such as participation figures for the Coast Guard, would give TAP interagency partners a more complete picture of implementation across all five military services. Sharing such information would also enhance the interagency group’s ability to evaluate how well TAP serves the entire population of servicemembers. Improving the reliability of the Coast Guard’s TAP data will be essential for the benefits of data sharing to be realized. Recommendations for Executive Action To ensure that all eligible Coast Guard servicemembers are provided the opportunity to complete the Transition Assistance Program (TAP), we recommend the Commandant of the Coast Guard take the following seven actions: Issue an updated Commandant Instruction that establishes policies and procedures to improve the reliability and completeness of TAP data by including when and by whom data should be recorded and updated. (Recommendation 1) Establish a formal performance goal with a measurable target for participation rates in VOW Act-mandated portions of TAP. (Recommendation 2) Monitor the extent to which Coast Guard servicemembers participate in TAP within prescribed time frames. (Recommendation 3) Monitor the extent to which Coast Guard servicemembers who elect to participate in additional 2-day classes are afforded the opportunity to attend. (Recommendation 4) Issue an updated Commandant Instruction that defines the roles and responsibilities of the personnel who administer the program and ensure servicemembers’ participation. (Recommendation 5) Once reliable data are available by installation or unit, enable unit commanders and the higher-level commanders to whom they report to access TAP performance information specifically for the units they oversee so that they can monitor compliance with all TAP requirements. (Recommendation 6) Once reliable data are available, share TAP information with DOD and other interagency partners, such as data on participation in required TAP courses and additional 2-day classes. (Recommendation 7) Agency Comments and our Evaluation We provided a draft of this report to the Departments of Homeland Security, Defense, Education, Labor, and Veterans Affairs, the Office of Personnel Management, and the Small Business Administration for their review and comment. The formal written response of the Department of Homeland Security (DHS) is reproduced in appendix II. In addition, DHS provided technical comments from Coast Guard officials that we incorporated into the report as appropriate. The other agencies did not provide any comments. In its written comments, DHS agreed with all seven of our recommendations. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objective, Scope, and Methodology Overview This report examines (1) what is known about the reliability of Transition Assistance Program (TAP) data on participation levels and the factors that affect Coast Guard servicemembers’ participation, and (2) the extent to which the Coast Guard measures TAP performance and monitors key areas of TAP implementation. To address these questions, we surveyed Coast Guard installations with full-time TAP operations; reviewed Coast Guard data on TAP participation for fiscal years 2012 to 2017; visited one Coast Guard installation and interviewed TAP managers from two additional Coast Guard installations selected for diversity in location, among other reasons; and interviewed Coast Guard officials responsible for overseeing TAP implementation for the Coast Guard. We also reviewed relevant federal laws, regulations, policies, documents, and publications. Information in this report is current as of the date GAO received formal agency comments from DHS. Survey Our survey of Coast Guard installations with full-time TAP operations asked about how TAP was being implemented. The survey included questions about the accessibility of TAP components, challenges Coast Guard servicemembers faced in attending the components, and the level of commander support for participation. Our survey targeted front-line TAP managers, who could draw on the expertise of TAP course facilitators, transition counselors, career counselors, and other key TAP staff as necessary. After drafting the survey questions, we pretested them with a TAP manager to ensure (1) the questions were clear and unambiguous, (2) terminology was used correctly, (3) the survey did not place an undue burden on agency officials, (4) the information could feasibly be obtained, and (5) the survey was comprehensive and unbiased. We revised the content and format of the survey based on the feedback we received. We initially sent the survey to TAP managers at all 13 Coast Guard installations at which TAP staff were located. We removed one installation when we later found that the TAP manager position was vacant and revised the total to 12 Coast Guard installations. The survey was accessible online from October 31, 2016, through January 18, 2017, through a secure server that recipients were able to access using unique usernames and passwords. We sent an email announcement to TAP staff at all 13 Coast Guard installations at which TAP staff are located on October 24, 2016. We sent a second email on October 31, 2016 to notify participants the survey was available online, and provided their unique passwords and usernames. We sent two follow-up e-mails (November 14, 2016 and November 28, 2016) to those who had not responded. Finally, we contacted all remaining nonrespondents by telephone starting December 5, 2016. The survey was available online until we reached a 100 percent response rate. Interviews with Coast Guard Installation TAP Staff and Servicemembers To increase our understanding into how TAP was being implemented at installations and supplement our survey findings, we visited one Coast Guard installation and interviewed TAP managers from two additional installations. We selected the installations based on several factors, including the size of the installation, proximity to Department of Defense (DOD) installations, and diverse locations in the United States. (See table 1.) At Coast Guard Base Elizabeth City in North Carolina, the installation we visited, we interviewed the TAP manager, uniformed career counselors, and senior installation leadership. During our interviews with TAP managers at all three installations, we asked about the extent to which Coast Guard servicemembers participate in TAP’s required and additional 2-day classes, including whether the servicemembers attended classes online or in a classroom setting, challenges to ensuring Coast Guard servicemembers participate in TAP, and the extent to which they monitor Coast Guard servicemembers’ participation in TAP. At Coast Guard Base Elizabeth City, we also interviewed 25 Coast Guard servicemembers (both officers and enlisted personnel) to get their perspective on how well TAP worked and any challenges they had participating. To help guide the interviews with the Coast Guard servicemembers, we asked them to complete a short questionnaire that asked about their experiences with the TAP program. Interviews with Agency Personnel We also interviewed TAP staff at Coast Guard headquarters to learn about TAP policy, monitoring efforts, and performance measures for the service overall. For example, we asked what policies and procedures guide installations’ TAP implementation; what performance measures the Coast Guard uses to monitor TAP; how performance results are reported and shared with different levels of Coast Guard leadership; and to what extent the Coast Guard uses results from TAP participant satisfaction assessments. We also asked whether the Coast Guard plans to shift to DOD’s new TAP-IT Enterprise System and how using the new system could affect its monitoring efforts in the future. In evaluating the Coast Guard’s performance measures, we focused on measures related to servicemembers’ transition experiences before leaving the military. We did not gather information on post-program evaluations and outcomes because they were determined to be outside the scope of this review. Data Reliability Assessment We reviewed DHS data on TAP participation for fiscal years 2012 to 2017. To assess the reliability of the Coast Guard’s TAP participation data, we interviewed agency officials knowledgeable about the data. We determined these data were not sufficiently reliable due to limitations with the Coast Guard’s data collection system. Specifically, the system lacks adequate controls to ensure TAP data are complete and accurate. We conducted this performance audit from February 2016 to April 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Meeta Engle (Assistant Director), Amy MacDonald (Analyst-in-Charge), James Bennett, Holly Dye, David Forgosh, Ying Long, Jonathan McMurray, Jean McSween, Andrew Sherrill, Benjamin Sinoff, and Timothy Young, made significant contributions to this report. Also contributing to this report were Susan Aschoff, Jessie Battle, Ramona Burton, Melinda Cordero, Elizabeth Curda, Dawn Hoff, Ben Licht, Serena Lo, Sheila McCoy, Almeta Spencer, Christopher Schmitt, James Whitcomb, and Jill Yost. Appendix IV: Related Products Transitioning Veterans: DOD Needs to Improve Performance Reporting and Monitoring for the Transition Assistance Program, GAO-18-23. Washington, D.C.: November, 8, 2017. Transitioning Veterans: Improvements Needed in DOD’s Performance Reporting and Monitoring of the Transition Assistance Program, GAO-18-225T. Washington, D.C.: November 8, 2017. Department of Defense: Transition Assistance Program (TAP) for Military Personnel, GAO-16-302R. Washington, D.C.: December 17, 2015. Veterans’ Employment: Need for Further Workshops Should Be Considered before Making Decisions on Their Future, GAO-15-518. Washington, D.C.: July 16, 2015. Military and Veteran Support: DOD and VA Programs That Address the Effects of Combat and Transition to Civilian Life, GAO-15-24. Washington, D.C.: November 7, 2014. Veterans Affairs: Better Understanding Needed to Enhance Services to Veterans Readjusting to Civilian Life, GAO-14-676. Washington, D.C.: September 10, 2014. Transitioning Veterans: Improved Oversight Needed to Enhance Implementation of Transition Assistance Program, GAO-14-144. Washington, D.C.: March 5, 2014. Military and Veterans’ Benefits: Enhanced Services Could Improve Transition Assistance for Reserves and National Guard, GAO-05-544. Washington, D.C.: May 20, 2005. Military and Veterans’ Benefits: Observations on the Transition Assistance Program, GAO-02-914T (July 18, 2002).

Thousands of Coast Guard servicemembers have left the military and transitioned into civilian life, and some of these new veterans may face significant challenges, such as finding and maintaining employment. To help them prepare, federal law mandated that DHS provide separating Coast Guard servicemembers with counseling, employment assistance, and information on veterans' benefits through TAP. GAO was asked to examine TAP implementation. This review analyzes (1) the reliability of TAP data on participation levels for Coast Guard servicemembers and the factors that affect participation, and (2) the Coast Guard's performance measures and monitoring efforts related to TAP. GAO interviewed Coast Guard headquarters staff; surveyed 12 Coast Guard installations that conduct TAP (100 percent response rate); collected and reviewed participation data for reliability; and interviewed TAP managers from three installations selected for size and location, and 25 Coast Guard servicemembers at one location. (For a companion report on TAP implementation for separating and retiring servicemembers in other military services, see GAO-18-23 .) The United States Coast Guard (Coast Guard), which is overseen by the Department of Homeland Security (DHS), lacks complete or reliable data on participation in the Transition Assistance Program (TAP), designed to assist servicemembers returning to civilian life. According to senior Coast Guard officials, a major reason why data are not reliable is the lack of an up-to-date Commandant Instruction that specifies when to record TAP participation data. Consequently, the data are updated on an ad-hoc basis and may not be timely or complete, according to officials. Federal internal control standards call for management to use quality information to achieve the entity's objectives. Until the Coast Guard issues an up-to-date Commandant Instruction that establishes policies and procedures to improve the reliability and completeness of TAP data, it will lack quality information to gauge the extent to which it is meeting TAP participation requirements in the VOW to Hire Heroes Act of 2011. According to GAO's survey of Coast Guard installations, various factors affected participation, such as servicemembers serving at geographically remote locations or separating from the Coast Guard rapidly. TAP officials and Coast Guard servicemembers GAO interviewed said commanders and direct supervisors sometimes pulled servicemembers out of TAP class or postponed participation because of mission priorities. TAP managers also said they rely on delivering TAP online because many Coast Guard servicemembers are stationed remotely. The Coast Guard cannot effectively measure performance to ensure key TAP requirements are met because it lacks reliable data and does not monitor compliance with several TAP requirements. Further, the Coast Guard has not established a formal performance goal against which it can measure progress, although federal internal control standards stipulate that management should consider external requirements—such as the laws with which the entity is required to comply—to clearly define objectives in specific and measurable terms. Establishing a goal could help the Coast Guard define expected performance. In addition, the Coast Guard does not monitor TAP requirements regarding the timeliness of servicemembers' TAP participation or their access to additional 2-day classes. Consequently, it cannot know whether servicemembers are starting TAP early enough to complete the program or those who elected to attend additional 2-day classes were able to do so before separation or retirement, as required by the Act. Finally, the Coast Guard lacks an up-to-date Commandant Instruction that establishes the roles and responsibilities of Coast Guard staff in implementing TAP. Federal internal control standards stipulate that management should assign responsibility and delegate authority to key roles throughout the entity. Issuing an up-to-date Commandant Instruction that defines roles and responsibilities would clarify who is ultimately responsible for ensuring Coast Guard servicemembers attend TAP, thereby facilitating accountability.

GAO_GAO-18-452T

Background The Freedom of Information Act establishes a legal right of access to government information on the basis of the principles of openness and accountability in government. Before FOIA’s enactment in 1966, an individual seeking access to federal records faced the burden of establishing a “need to know” before being granted the right to examine a federal record. FOIA established a “right to know” standard, under which an organization or person could receive access to information held by a federal agency without demonstrating a need or reason. The “right to know” standard shifted the burden of proof from the individual to a government agency and required the agency to provide proper justification when denying a request for access to a record. Any person, defined broadly to include attorneys filing on behalf of an individual, corporations, or organizations, can file a FOIA request. For example, an attorney can request labor-related workers’ compensation files on behalf of his or her client, and a commercial requester, such as a data broker who files a request on behalf of another person, may request a copy of a government contract. In response, an agency is required to provide the relevant record(s) in any readily producible form or format specified by the requester, unless the record falls within a permitted exemption that provides limitations on the disclosure of information. FOIA Amendments and Guidance Call for Improvements in How Agencies Process Requests Various amendments have been enacted and guidance issued to help improve agencies’ processing of FOIA requests, including: The Electronic Freedom of Information Act Amendments of 1996 (e- FOIA amendments) strengthened the requirement that federal agencies respond to a request in a timely manner and reduce their backlogged requests. The amendments, among other things, made a number of procedural changes, including allowing a requester to limit the scope of a request so that it could be processed more quickly and requiring agencies to determine within 20 working days whether a request would be fulfilled. This was an increase from the previously established time frame of 10 business days. The amendments also authorized agencies to multi-track requests— that is, to process simple and complex requests concurrently on separate tracks to facilitate responding to a relatively simple request more quickly. In addition, the amendment encouraged online, public access to government information by requiring agencies to make specific types of records available in electronic form. Executive Order 13392, issued by the President in 2005, directed each agency to designate a senior official as its chief FOIA officer. This official was to be responsible for ensuring agency-wide compliance with the act by monitoring implementation throughout the agency and recommending changes in policies, practices, staffing, and funding, as needed. The chief FOIA officer was directed to review and report on the agency’s performance in implementing FOIA to agency heads and to Justice on an annual basis. (These are referred to as chief FOIA officer reports.) The OPEN Government Act, which was enacted in 2007, made the 2005 executive order’s requirement for agencies to have a chief FOIA officer a statutory requirement. It also required agencies to submit an annual report to Justice outlining their administration of FOIA, including additional statistics on timeliness. Specifically, the act called for agencies to adequately track their agency’s FOIA request processing information throughout the reporting year and then produce reports on that topic to comply with FOIA reporting requirements and Justice guidance for reporting. The FOIA Improvement Act of 2016 addressed procedural issues, including requiring that agencies: (1) make records available in an electronic format if they have been requested three or more times; (2) notify requesters that they have a minimum of 90 days to file an administrative appeal, and (3) provide dispute resolution services at various times throughout the FOIA process. This act also created more duties for chief FOIA officers, including requiring them to offer training to agency staff regarding FOIA responsibilities. The act also revised and added new obligations for OGIS, and created the Chief FOIA Officers Council to assist in compliance and efficiency. Further, the act required OMB, in consultation with Justice, to create a consolidated online FOIA request portal that allows the public to submit a request to any agency through a single website. FOIA Authorizes Agencies to Use Other Federal Statutes to Withhold Information Prohibited from Disclosure In responding to requests, FOIA authorizes agencies to utilize one of nine exemptions to withhold portions of records, or the entire record. Agencies may use an exemption when it has been determined that disclosure of the requested information would harm an interest related to certain protected areas. These nine exemptions can be applied by agencies to withhold various types of information, such as information concerning foreign relations, trade secrets, and matters of personal privacy. One such exemption, the statutory (b)(3) exemption, specifically authorizes withholding information under FOIA on the basis of a law which: requires that matters be withheld from the public in such a manner as to leave no discretion on the issue; or establishes particular criteria for withholding or refers to particular types of matters to be withheld; and if enacted after October 28, 2009, specifically refers to section 552(b)(3) of title 5, United States Code. To account for agencies use of the statutory (b)(3) exemptions, FOIA requires each agency to submit, in its annual report to Justice, a complete listing of all statutes that the agency relied on to withhold information under exemption (b)(3). The act also requires that the agency describe for each statute identified in its report (1) the number of occasions on which each statute was relied upon; (2) a description of whether a court has upheld the decision of the agency to withhold information under each such statute; and (3) a concise description of any information withheld. Further, to provide an overall summary of the statutory (b)(3) exemptions used by agencies in a fiscal year, Justice produces consolidated annual reports that list the statutes used by agencies in conjunction with (b)(3). Processing a FOIA Request As previously noted, agencies are generally required by the e-FOIA amendments of 1996 to respond to a FOIA request within 20 working days. Once received, the request is to be processed through multiple phases, which include assigning a tracking number, searching for responsive records, and releasing the records response to the requester. Also, as relevant, FOIA allows a requester to challenge an agency’s final decision on a request through an administrative appeal or a lawsuit. Specifically, a requester has the right to file an administrative appeal if he or she disagrees with the agency’s decision on their request. Agencies have 20 working days to respond to an administrative appeal. Figure 1 provides a simplified overview of the FOIA request and appeals process. In a typical agency, as indicated, during the intake phase, a request is logged into the agency’s FOIA tracking system, and a tracking number is assigned. The request is then reviewed by FOIA staff to determine its scope and level of complexity. The agency then typically sends a letter or email to the requester acknowledging receipt of the request, with a unique tracking number that the requester can use to check the status of the request. Next, FOIA staff (non-custodian) begin the search to retrieve the responsive records by routing the request to the appropriate program office(s).This step may include requesting that the custodian (owner) of the record search and review paper and electronic records from multiple locations and program offices. Agency staff then process the responsive records, which includes determining whether a portion or all of any record should be withheld based on FOIA’s exemptions. If a portion or all of any record is the responsibility of another agency, FOIA staff may consult with the other agency or may send (“refer”) the document(s) to that other agency for processing. After processing and redaction, a request is reviewed for errors and to ensure quality. The documents are then released to the requester, either electronically or by regular mail. In addition, FOIA allows requesters to sue an agency in federal court if the agency does not respond to a request for information within the statutory time frames or if the requesters believe they are entitled to information that is being withheld by the agency. Further, the act requires the Office of Special Counsel (OSC) to initiate a proceeding to determine whether disciplinary action is warranted against agency personnel in cases involving lawsuits where a court has found, among other things that agency personnel may have acted arbitrarily or capriciously in responding to a FOIA request. The act requires Justice to notify OSC when a lawsuit meets this requirement. FOIA Oversight and Implementation Responsibility for the oversight of FOIA implementation is spread across several federal offices and other entities. These include Justice’s OIP, NARA’s OGIS, and the Chief FOIA Officers Council. These oversight agencies and the council have taken steps to assist agencies to address the provisions of FOIA. Justice’s OIP is responsible for encouraging agencies’ compliance with FOIA and overseeing their implementation of the act. In this regard, the office, among other things, provides guidance, compiles information on FOIA compliance, provides FOIA training, and prepares annual summary reports on agencies’ FOIA processing and litigation activities. The office also offers FOIA counseling services to government staff and the public. Issuing guidance. OIP has developed guidance, available on its website, to assist federal agencies by instructing them in how to ensure timely determinations on requests, expedite the processing of requests, and reduce backlogs. The guidance also informs agencies on what should be contained in their annual FOIA reports to Justice’s Attorney General. The office also has documented ways for federal agencies to address backlog requests. In March 2009 the Attorney General issued guidance and related policies to encourage agencies to reduce their backlogs of FOIA requests. In addition, in December 2009, OMB issued a memorandum on the OPEN Government Act, which called for a reduction in backlogs and the publishing of plans to reduce backlogs. Further, in August 2014, OIP held a best practices workshop and issued guidance to agencies on reducing FOIA backlogs and improving timeliness of agencies’ responses to FOIA requests. The OIP guidance instructed agencies to obtain leadership support, routinely review FOIA processing metrics, and set up staff training on FOIA. Overseeing agencies’ compliance. OIP collects information on compliance with the act by reviewing agencies’ annual FOIA reports and chief FOIA officer reports. These reports describe the number of FOIA requests received and processed in a fiscal year, as well as the total costs associated with processing and litigating requests. Providing training. The office offers an annual training class that provides a basic overview of the act, as well as hands-on courses about the procedural requirements involved in processing a request from start to finish. In addition, it offers a seminar outlining successful litigation strategies for attorneys who handle FOIA cases. Preparing administrative and legal annual reports. OIP prepares two major reports yearly—one related to agencies’ annual FOIA processing and one related to agencies’ FOIA litigation and compliance. The first report, compiled from agencies’ annual FOIA reports, contains statistics on the number of requests received and processed by each agency, the time taken to respond, and the outcome of each request, as well as other statistics on FOIA administration such as number of backlogs, and the use of exemptions to withhold information from a requestor. The second report describes Justice’s efforts to encourage compliance with the act and provides a listing of all FOIA lawsuits filed or determined in that year, the exemptions and/or dispositions involved in each case, and any court-assessed costs, fees, and penalties. NARA’s OGIS was established by the OPEN Government Act of 2007 to oversee and assist agencies in implementing FOIA. OGIS’s responsibilities include reviewing agency policies and procedures, reviewing agency compliance, recommending policy changes, and offering mediation services. The 2016 FOIA amendments required agencies to update response letters to FOIA requesters to include information concerning the roles of OGIS and agency’s FOIA public liaisons. As such, OGIS and Justice worked together to develop a response letter template that includes the required language for agency letters. In addition, OGIS, charged with reviewing agency’s compliance with FOIA, launched in 2014 a FOIA compliance program. OGIS also developed a FOIA compliance self- assessment program, which is intended to help OGIS look for potential compliance issues across federal agencies. The Chief FOIA Officers Council is co-chaired by the Director of OIP and the Director of OGIS. Council members include senior representatives from OMB, OIP, and OGIS, together with the chief FOIA officers of each agency, among others. The council’s FOIA-related responsibilities include: developing recommendations for increasing compliance and disseminating information about agency experiences, ideas, best practices, and innovative approaches; identifying, developing, and coordinating initiatives to increase transparency and compliance; and promoting the development and use of common performance measures for agency compliance. Selected Agencies Collect and Maintain Records That Can Be Subject to FOIA Requests. The 18 agencies selected for our review are charged with a variety of operations that affect many aspects of federal service to the public. Thus, by the nature of their missions and operations, the agencies have responsibility for vast and varied amounts of information that can be subject to a FOIA request. For example, the Department of Homeland Security’s (DHS) mission is to protect the American people and the United States homeland. As such, the department maintains information covering, among other things, immigration, border crossings, and law enforcement. As another example, the Department of the Interior’s (DOI) mission includes protecting and managing the Nation’s natural resources and, thus, providing scientific information about those resources. Table 1 provides details on each of the 18 selected agencies’ mission and the types of information they maintain. The 18 selected agencies reported that they received and processed more than 2 million FOIA requests from fiscal years 2012 through 2016. Over this 5-year period, the number of reported requests received fluctuated among the agencies. In this regard, some agencies saw a continual rise in the number of requests, while other agencies experienced an increase or decrease from year to year. For example, from fiscal years 2012 through 2014, DHS saw an increase in the number of requests received (from 190,589 to 291,242), but in fiscal year 2015, saw the number of requests received decrease to 281,138. Subsequently, in fiscal year 2016, the department experienced an increase to 325,780 requests received. In addition, from fiscal years 2012 through 2015, the reported numbers of requests processed by the selected agencies showed a relatively steady increase. However, in fiscal year 2016, the reported number of requests processed by these agencies declined. Figure 2 provides a comparison of the total number of requests received and processed in this 5-year period. Selected Agencies Implemented the Majority of FOIA Requirements Reviewed Among other things, the FOIA Improvement Act of 2016 and the OPEN Government Act of 2007 calls for agencies to (1) update response letters, (2) implement tracking systems, (3) provide FOIA training, (4), provide required records online, (5) designate chief FOIA officers, and (6) update and publish timely and comprehensive regulations. As part of our ongoing work, we determined that the 18 selected agencies included in our review had implemented the majority of the six FOIA requirements evaluated. Specifically, 18 agencies updated response letters, implemented tracking systems, 15 agencies provided required records online, and 12 agencies designated chief FOIA officers. However, only 5 of the agencies published and updated their FOIA regulations in a timely and comprehensive manner. Figure 3 summarizes the extent to which the 18 agencies implemented the selected FOIA requirements. Beyond these selected agencies, Justice’s OIP and OMB also had taken steps to develop a government-wide FOIA request portal that is intended to allow the public to submit a request to any agency from a single website. Selected Agencies Have Updated Their FOIA Response Letters The 2016 amendments to FOIA required agencies to include specific information in their responses when making their determinations on requests. Specifically, agencies must inform requesters that they may seek assistance from the FOIA Public Liaison, file an appeal to an adverse determination within a period of time that is not less than 90 days after the date of such adverse determination; and seek dispute resolution services from the FOIA Public Liaison of the agency or OGIS. Among the 18 selected agencies, all had updated their FOIA response letters to include this required information. All Selected Agencies Had Implemented FOIA Tracking Systems Various FOIA amendments and guidance call for agencies to use automated systems to improve the processing and management of requests. In particular, the OPEN Government Act of 2007 amended FOIA to require that federal agencies establish a system to provide individualized tracking numbers for requests that will take longer than 10 days to process and establish telephone or Internet service to allow requesters to track the status of their requests. Further, the President’s January 2009 Freedom of Information Act memorandum instructed agencies to use modern technology to inform citizens about what is known and done by their government. In addition, FOIA processing systems, like all automated information technology systems, are to comply with the requirements of Section 508 of the Rehabilitation Act (as amended). This act requires federal agencies to make their electronic information accessible to people with disabilities. Each of the 18 selected agencies had implemented a system that provides capabilities for tracking requests received and processed, including an individualized number for tracking the status of a request. Specifically, Ten agencies used commercial automated systems, (DHS, EEOC, FDIC, FTC, Justice, NTSB, NASA, Pension Benefit Guaranty Corporation, and USAID). Three agencies developed their own agency systems (State, DOI, and TVA). Five agencies used Microsoft Excel or Word to track requests (Administrative Conference of the United States, American Battle Monuments Commission, Broadcasting Board of Governors, OMB, and U.S. African Development Foundation). Further, all of the agencies had established telephone or Internet services to assist requesters in tracking the status of requests; and they used modern technology (e.g., mobile applications) to inform citizens about FOIA. For example, the commercial systems allow requesters to submit a request and track the status of that request online. In addition, DHS developed a mobile application that allows FOIA requesters to submit requests and check the status of existing requests. All Reviewed Agencies’ Chief FOIA Officers Have Offered FOIA Training The 2016 FOIA amendments require agencies’ chief FOIA officers to offer training to agency staff regarding their responsibilities under FOIA. In addition, Justice’s OIP has advised every agency to make such training available to all of their FOIA staff at least once each year. The office has also encouraged agencies to take advantage of FOIA training opportunities available throughout the government. The 18 selected agencies’ chief FOIA officers offered FOIA training opportunities to staff in fiscal years 2016 and 2017. For example: Eleven agencies provided training that gave an introduction and overview of FOIA (the American Battle Monuments Commission, EEOC, Justice, FDIC, FTC, NARA, Pension Benefit Guaranty Corporation, State, TVA, U.S. African Development Foundation, and USAID). Three agencies offered training for their agencies’ new online FOIA tracking and processing systems (DOI, NTSB, and Pension Benefit Guaranty Corporation). Three agencies provided training on responding to, handling, and processing FOIA requests (DHS, DOI, and State). Three agencies offered training on understanding and applying the exemptions under FOIA (FDIC, FTC, and U.S. African Development Foundation). Two agencies offered training on the processing of costs and fees (NASA and TVA). The Majority of Selected Agencies Post Required Records Online Memorandums from both the President and the Attorney General in 2009 highlight the importance of online disclosure of information and further direct agencies to make information available without a specific FOIA request. Further, the 2016 FOIA amendments require online access to government information and require agencies to make information available to the public in electronic form for up to four categories: agency final opinions and orders, administrative staff manuals of interest to the public, and frequently requested records. While all 18 agencies that we reviewed post records online, only 15 of them had posted all categories of information, as required by the FOIA amendments. Specifically, 7 agencies—the American Battle Monuments Commission, the Pension Benefit Guaranty Corporation, and EEOC, FDIC, FTC, DOJ, and State—had, as required, made records in all four categories publicly available online. In addition, 5 agencies that were only required to publish online records in three of the categories—the Administrative Conference of the United States, Broadcasting Board of Governors, DHS, OMB, and USAID— had done so. Further, 3 agencies that were only required to publish online records in two of the categories—U.S. African Development Foundation, NARA, and TVA— had done so. The remaining 3 agencies—DOI, NASA, and NTSB—had posted records online for three of four required categories. Regarding why the three agencies did not post all of their four required categories of online records, DOI officials stated that the agency does not make publically available all FOIA records that have been requested 3 or more times, as it does not have the time to post all such records that have been requested. NASA officials explained that, while the agency issues final opinions, it does not post them online. As for NTSB, while its officials said they try to post information that is frequently requested, they do not post the information on a consistent basis Making the four required categories of information available in electronic form is an important step in allowing the public to easily access to government documents. Until these agencies make all required categories of information available in electronic form, they cannot ensure that they are providing the required openness in government. Most Reviewed Agencies Designated a Senior Official as a Chief FOIA Officer In 2005, the President issued an executive order that established the role of a Chief FOIA Officer. In 2007, amendments to FOIA required each agency to designate a chief FOIA officer who shall be a senior official at the Assistant Secretary or equivalent level. Of the 18 selected agencies, 12 agencies have Chief FOIA Officers who are senior officials at the Assistant Secretary or equivalent level. The Assistant Secretary level is comparable to senior executive level positions at levels III, IV, and V. Specifically, State has designated its Assistant Secretary of Administration, Bureau DOI and NTSB had designated its Chief Information Officers; Administrative Conference of the United States, Broadcasting Board of Governors, FDIC, NARA, and U.S. African Development Foundation have designated their general counsels; and Justice, NASA, TVA, and USAID designated their Associate Attorney General, Associate Administrator for Communications, the Vice President for Communications, and the Assistant Administrator for the Bureau of Management, respectively. However, 6 agencies — American Battle Monuments Commission DHS, EEOC, Pension Benefit Guaranty Corporation, FTC, and OMB — do not have chief FOIA officers that are senior officials at the Assistant Secretary or equivalent level. According to officials from 5 of these agencies, the agencies all have chief FOIA officers and officials believed they had designated the appropriate officials. Officials at FTC acknowledged that the chief FOIA officer position is not designated at a level equivalent to an Assistant Secretary but a senior position within the agency. However, while there are chief FOIA officers at these agencies, until the chief FOIA officers are designated at the Assistant Secretary or equivalent level, they will lack assurance regarding the necessary authority to make decisions about agency practices, personnel, and funding. Most Reviewed Agencies Have Not Updated Regulations as Required to Inform the Public of Their FOIA Operations FOIA requires federal agencies to publish regulations in the Federal Register that inform the public of their FOIA operations. Specifically, in 2016, FOIA was amended to require agencies to update their regulations regarding their FOIA operations. To assist agencies in meeting this requirement, OIP created a FOIA regulation template for agencies to use as they update their regulations. Among other things, OIP’s guidance encouraged agencies to: describe their dispute resolution processed, describe their administrative appeals process for response letters of notify requesters that they have a minimum of 90 days to file an inform requesters that the agency may charge fees for requests determined as “unusual” circumstances ; and update the regulations in a timely manner (i.e., update regulations by 180 days after the enactment of the 2016 FOIA amendment.) Five agencies in our review—DHS, DOI, FDIC, FTC, and USAID— addressed all five requirements in updating their regulations. In addition, seven agencies addressed four of the five requirements: the Administrative Conference of the United States, EEOC, Justice, NARA, NTSB, Pension Benefit Guaranty Corporation, and TVA did not update their regulations in a timely manner. Further, four agencies addressed three or less requirements (U.S. African Development Foundation, State, NASA, and Broadcasting Board of Governors) and two agencies (American Battle Monuments Commission and OMB) did not address any of the requirements. Figure 4 indicates the extent to which the 18 agencies had addressed the five selected requirements. Agencies that did not address all five requirements provided several explanations as to why their regulations were not updated as required: American Battle Monuments Commission stated that while they updated their draft regulation in August 2017, it is currently unpublished due to internal reviews with the General Counsel in preparation for submission to the Federal Register. No new posting date has been established. American Battle Monuments Commission last updated its regulation in February 26, 2003. State officials noted that their regulation was updated two months prior to the new regulation requirements but did not provide a specific reason for not reissuing its regulation. As such, they explained that they have a working group reviewing their regulation for updates, with no timeline identified. State last updated its regulation on April 6, 2016. NASA officials did not provide a reason for not updating its regulation as required. Officials did, however, state that its draft regulation is with the Office of General Counsel for review. NASA last updated its regulations on August 11, 2017. Broadcasting Board of Governors officials did not provide a reason for not updating its regulation as required. Officials did, however, note that the agency is in the process of updating its regulation and anticipates it will complete this update by the end of 2018. The Broadcasting Board of Governors last updated its regulation on February 2, 2002. OMB officials did not provide a reason for not updating the agency’s regulation as required. Officials did, however, state that due to a change in leadership they do not have a time frame for updating their regulation. OMB last updated its regulation on May 27, 1998. The chief FOIA officer at the U.S. African Development Foundation stated that, while the agency had updated and submitted their regulation to be published in December 2016, they were unpublished due to an error that occurred with the acknowledgement needed to publish the regulation on the federal register. The regulation was subsequently published on February 3, 2017. The official further noted that when the agency responds to FOIA requests it has not charged a fee for unusual circumstances, and therefore they did not believe they had to disclose information regarding fees in its regulation. Until these six agencies publish updated regulations that address the necessary requirements, as called for in FOIA and OIP guidance, they likely will be unable to provide the public with required regulatory and procedural information to ensure transparency and accountability in the government. Justice and OMB Have Taken Steps to Develop an Online FOIA Request Portal The 2016 FOIA amendments required OMB to work with Justice to build a consolidated online FOIA request portal. This portal is intended to allow the public to submit a request to any agency from a single website and include other tools to improve the public’s access to the benefits of FOIA. Further, the act required OMB to establish standards for interoperability between the consolidated portal and agency FOIA systems. The 2016 FOIA amendments did not provide a time to develop the portal and standards. With OMB’s support, Justice developed an initial online portal. Justice’s OIP officials stated that they expect to update the portal to provide basic functionality that aligns with requirements of the act, including the ability to make a FOIA request, and technical processes for interoperability amongst agencies’ various FOIA systems. According to OIP officials, in partnership with OMB, OIP was able to identify dedicated funding source to operate and maintain the portal to ensure its success in the long term, with major agencies sharing in the costs to operate, maintain, and fund any future enhancements designed to improve FOIA processes. The first iteration of the National FOIA portal launched on Justice’s foia.gov website on March 8, 2018. Agencies Have Methods to Reduce Backlogged Requests, but Their Efforts Have Shown Mixed Results In our draft report, we determined that the 18 selected agencies in our review had FOIA request backlogs of varying sizes, ranging from no backlogged requests at some agencies to 45,000 or more requests at other agencies. Generally, the agencies with the largest backlogs had received the most requests. In an effort to aid agencies in reducing their backlogs, Justice’s OIP identified key practices that agencies can use. However, while the agencies reported using these practices and other methods, few of them managed to reduce their backlogs during the period from fiscal year 2012 through 2016. In particular, of the four agencies with the largest backlogs, only one—NARA—reduced its backlog. Agencies attributed their inability to decrease backlogs to the number and complexity of requests, among other factors. However, agencies also lack comprehensive plans to implement practices on an ongoing basis. Agencies Have FOIA Request Backlogs of Varying Sizes, and Most Increased from Fiscal Year 2012 through 2016 The selected agencies in our review varied considerably in the size of their FOIA request backlogs. Specifically, from fiscal year 2012 through 2016, of the 18 selected agencies 10 reported a backlog of 60 or fewer requests, and of these 10 agencies, 6 reported having no backlog in at least 1 year. 4 agencies had backlog numbers between 61 and 1,000 per year; and 4 agencies had backlogs of over 1,000 requests per year. The four agencies with backlogs of more than 1,000 requests for each year we examined were Justice, NARA, State and DHS. Table 2 shows the number requests and the number of backlogged request for the 18 selected agencies during the 5-year period. Over the 5-year period, 14 of the 18 selected agencies experienced an increase in their backlogs in at least 1 year. By contrast, 2 agencies (Administrative Conference of the United States and the U.S. African Development Foundation) reported no backlogs, and 3 agencies (American Battle Monument Commission, NASA and NARA) reported reducing their backlogs. Further, of the four agencies with the largest backlogs (DHS, State, Justice, and NARA) only NARA reported a backlog lower in fiscal year 2016 than in fiscal year 2012. Figure 5 shows the trends for the four agencies with the largest backlogs, compared with the rest of the 18 agencies. In most cases, agencies with small or no backlogs (60 or fewer) also received relatively few requests. For example, the Administrative Conference of the United States and the U.S. African Development Foundation reported no backlogged requests during any year but also received fewer than 30 FOIA requests a year. The American Battle Monuments Commission also received fewer than 30 requests a year and only reported 1 backlogged request per year in 2 of the 5 years examined. However, the Pension Benefit Guaranty Corporation and FDIC received thousands of requests over the 5-year period, but maintained zero backlogs in a majority of the years examined. PBGC received a total of 19,120 requests during the 5-year period and only reported a backlog of 8 requests during one year, fiscal year 2013. FDIC received a total of 3,405 requests during the 5-year period and reported a backlog of 13 requests in fiscal year 2015 and 4 in fiscal year 2016. The four agencies with backlogs of 1,000 or more (Justice, NARA, State, and DHS) received significantly more requests each year. For example, NARA received between about 12,000 and 50,000 requests each year, while DHS received from about 190,000 to 325,000 requests. In addition, the number of requests NARA received in fiscal year 2016 was more than double the number received in fiscal year 2012. DHS received the most requests of any agency—a total of 1,320,283 FOIA requests over the 5- year period. Agencies Identified a Variety of Methods to Reduce Backlogs, but Few Saw Reductions The Attorney General’s March 2009 memorandum called on agency chief FOIA officers to review all aspects of their agencies’ FOIA administration and report to Justice on steps that have been taken to improve FOIA operations and disclosure. Subsequent Justice guidance required agencies are to include in their chief FOIA officer reports information on their FOIA request backlogs, including whether the agency experienced a backlog of requests; whether that backlog decreased from the previous year; and, if not, reasons the backlog did not decrease. In addition, agencies that had more than 1,000 backlogged requests in a given year were required to describe their plans to reduce their backlogs. Beginning in fiscal year 2015, these agencies were to describe how they implemented their plans from the previous year and whether that resulted in a backlog reduction. In addition, Justice’s OIP identified best practices for reducing FOIA backlogs. The office held a best practices workshop on reducing backlogs and improving timeliness. The office then issued guidance in August 2014 which highlighted key practices to improve the quality of a FOIA program. OIP identified the following methods in its best practices guidance. Utilize resources effectively. Agencies should allocate their resources effectively by using multi-track processing, making use of available technology, and shifting priorities and staff assignments to address needs and effectively manage workloads. Routinely review metrics. Agencies should regularly review their FOIA data and processes to identify challenges or barriers. Additionally, agencies should identify trends to effectively allocate resources, set goals for staff, and ensure needs are addressed. Emphasize staff training. Agencies should ensure FOIA staff are properly trained so they can process requests more effectively and with more autonomy. Training and engagement of staff can also solidify the importance of the FOIA office’s mission. Obtain leadership support. Agencies should ensure that senior management is involved in and supports the FOIA function in order to increase awareness and accountability, as well as make it easier to obtain necessary resources or personnel. Agencies identified a variety of methods that they used to address their backlogs. These included both the practices identified by Justice, as well as additional methods. Ten agencies maintained relatively small backlogs of 60 or fewer requests and were thus not required to develop plans for reducing backlogs. However, 2 of these 10 agencies, who both received significant numbers of requests, described various methods used to maintain a small backlog: PBGC officials credits its success to training, not only for FOIA staff, but all Incoming personnel, while also awarding staff for going above and beyond in facilitating FOIA processing. Pension Benefit Guaranty Corporation has incorporated all the best practices identified by OIP, including senior leadership involvement that supports FOIA initiatives and program goals, routine review of metrics to optimize workflows, effective utilization of resources and staff training. According to FDIC officials, its overall low backlog numbers are attributed to a trained and experienced FOIA staff, senior management involvement, and coordination among FDIC divisions. However, FDIC stated the reason for the increase in backlogs in fiscal year 2015 was due to increased complexity of requests. The 4 agencies with backlogs greater than 60 but fewer than 1,000 (EEOC, DOI, NTSB, and USAID) reported using various methods to reduce their backlogs. However, all 4 showed an increase over the 5-year period. EEOC officials stated that it had adopted practices recommended by OIP such as multi-track processing, reviewing workloads to ensure sufficient staff, and using temporary assignments to address needs. However, it has seen a large increase in its backlog numbers, going from 131 in fiscal year 2012 to 792 in fiscal year 2016. EEOC attributed the rise in backlogs to an increase in requests received, loss of staff, and the complex and voluminous nature of requests. DOI, according to agency officials, has also tried to incorporate reduction methods and best practices, including proactively releasing information that may be of interest to the public, thus avoiding the need for a FOIA request; enhanced training for its new online FOIA tracking and processing system; improved inter-office collaboration; monthly reports on backlogs and weekly charts on incoming requests to heighten awareness among leadership; and monitoring trends. Yet, DOI has seen an increase in its backlog, from 449 in fiscal year 2012 to 677 in fiscal year 2016, an increase of 51 percent. DOI attributed the increase to loss of FOIA personnel, increase in the complexity of requests, increase in FOIA-related litigation, increase in incoming requests, and staff having additional duties. Officials at NTSB stated that it utilized contractors and temporary staff assignments to augment staffing and address backlogs. Despite the effort, NTSB saw a large increase in backlogs, from 62 in fiscal year 2012 to 602 in fiscal year 2016. Officials stated that reason for the increase was due to increased complexity of requests, including requests for “any and all” documentation related to a specific subject, often involving hundreds to thousands of pages per request. According to USAID officials, the agency conducts and reviews inventories of its backlog and requests to remove duplicates and closed cases, group and classify requests by necessary actions and responsive offices, and initiate immediate action. In addition, USAID seeks to identify tools and solutions to streamline records for review and processing. However, its backlog numbers have continually increased, from 201 in fiscal year 2012 to 318 in fiscal year 2016. USAID attributes that increase to increase in the number of requests, loss of FOIA staff, increased complexity and volume of requests, competing priorities, and world events that may drive surges in requests. Of the four agencies with the largest backlogs, all reported taking steps that in some cases included best practices identified by OIP; however, only NARA successfully reduced its backlog by the end of the 5-year period. Justice made noted that it efforts to reduce its backlog by incorporating best practices. Specifically, OIP worked with components within Justice through the Component Improvement Initiative to identify causes contributing to a backlog and assist components in finding efficiencies and overcoming challenges. The Chief FOIA Officer continued to provide top-level support to reduction efforts by convening the department’s FOIA Council to manage overall FOIA administration. In addition, many of the components created their own reduction plans, which included hiring staff, utilizing technology, and providing more training, requester outreach, and multitrack processing. However, despite these efforts, the number of backlogs steadily increased during the 5-year period, from 5,196 in fiscal year 2012 to 10,644 in fiscal year 2016, an overall increase of 105 percent. Justice attributes the increase in backlogs to several challenges, including an increase of incoming requests and an increase in the complexity of those requests. Other challenges that Justice noted were staff shortages and turnover, reorganization of personnel, time to train incoming staff, and the ability to fill positions previously held by highly qualified professionals. NARA officials stated that one key step NARA took was to make corrections in its Performance Measurement and Reporting System. They noted that this system previously comingled backlogged requests with the number of pending FOIA requests, skewing the backlog numbers higher. The improvements included better accounting for pending and backlogged cases, distinguishing between simple and complex requests, and no longer counting as open cases that were closed within 20 days, but not until the beginning of the following fiscal year. In addition, officials also stated that the FOIA program offices have been successful at working with requesters to narrow the scope of requests. NARA also stated that it was conducting an analysis of FOIA across the agency to identify any barriers in the process. Officials also identified other methods, including using multi-track processing, shifting priorities to address needs, improved communication with agencies, proactive disclosures, and the use of mediation services. NARA has shown significant progress in reducing its backlog. In fiscal year 2012 it had a backlog of 7,610 requests, which spiked to 9,361 in fiscal year 14. However, by fiscal year 2016 the number of backlogged requests had dropped to 2,932 despite an more than doubling of requests received for that fiscal year. However, NARA did note challenges to reducing its backlog numbers, namely, the increase in the number of requests received. State developed and implemented a plan to reduce its backlog in fiscal year 2016. The plan incorporated two best practices by focused on identifying the extent of the backlog problem and developing ways to address the backlog with available resources. According to State officials, effort was dedicated to improve how FOIA data was organized and reported. Expedited and litigation cases were top priorities, whereas in other cases a first in first out method was employed. Even with these efforts, however, State experienced a 117 percent increase in its backlog over the 5-year period. State’s backlog doubled from 10,045 in fiscal year 2014 to 22,664 in fiscal year 2016. Among the challenges to managing its backlog, State reported an increase in incoming requests, a high number of litigation cases, and competing priorities. Specifically, the number of incoming requests for State increase by 51 percent during the 5-year period. State has also reported that it has allocated 80 percent of its FOIA resources to meet court-ordered productions associated with litigation cases, resulting in fewer staff to work on processing routine requests. This included, among other efforts, a significant allocation of resources in fiscal year 2015 to meet court-imposed deadlines to process emails associated with the former Secretary of State, resulting in a surge of backlogs. In 2017 State began an initiative to actively address its backlogs. The Secretary of State issued an agency-wide memorandum stating the department’s renewed efforts by committing more resources and workforce to backlog reduction. The memo states new processes are to be implemented for both the short and long-term, and the FOIA office has plans to work with the various bureaus to outline the tasks, resources, and workforce necessary to ensure success and compliance. With renewed leadership support, State has reported significant progress in its backlog reduction efforts. DHS, in its chief FOIA officer reports, reported that it implemented several plans to reduce backlogs. The DHS Privacy office, which is responsible for oversight of the department’s FOIA program, worked with components to help eliminate the backlog. The Privacy Office sent monthly emails to component FOIA officers on FOIA backlog statistics, convened management meetings, conducted oversight, and reviewed workloads. Leadership met weekly to discuss the oldest pending requests, appeals, and consultations, and determined needed steps to process those requests. In addition, several other DHS components implemented actions to reduce backlogs. Customs and Border Protection hired and trained additional staff, encouraged requesters to file requests online, established productivity goals, updated guidance, and utilized better technology. U.S. Citizenship and Immigration Services, National Protection and Programs Directorate, and Immigration and Customs Enforcement increased staffing or developed methods to better forecast future workloads ensure adequate staffing. Immigration and Customs Enforcement also implemented a commercial off-the-shelf web application, awarded a multi-million dollar contract for backlog reduction, and detailed employees from various other offices to assist in the backlog reduction effort. Due to efforts by the Privacy Office and other components, the backlog dropped 66 percent in fiscal year 2015, decreasing to 35,374. Yet, despite the continued efforts in fiscal year 2016, the backlog numbers increased again, to 46,788. DHS attributes the increases in backlogs to several factors, including an increase in the number of requests received, increased complexity and volume of responsive records for those requests, loss of staff and active litigation with demanding production schedules. One reason the eight agencies with significant backlogs may be struggling to consistently reduce their backlogs is that they lack documented, comprehensive plans that would provide a more reliable, sustainable approach to addressing backlogs. In particular, they do not have documented plans that describe how they will implement best practices for reducing backlogs over time, including specifying how they will use metrics to assess the effectiveness of their backlog reduction efforts and ensure that senior leadership supports backlog reduction efforts, among other best practices identified by OIP. While agencies with backlogs of 1,000 or more are required to describe backlog reduction efforts in their chief FOIA officer reports, these consist of a high-level narrative and do not include a specific discussion of how the agencies will implement best practices over time to reduce their backlog. In addition, agencies with backlogs of fewer than 1,000 requests are not required to report on backlog reduction efforts; however, the selected agencies in our review with backlogs in the hundreds still experienced an increase over the 5-year period. Without a more consistent approach, agencies will continue to struggle to reduce their backlogs to a manageable level, particularly as the number and complexity of requests increase over time. As a result, their FOIA processing may not respond effectively to the needs of requesters and the public. Various Types of Statutory Exemptions Exist and Many Have Been Used by Agencies FOIA requires agencies report annually to Justice on their use of statutory (b)(3) exemptions. This includes specifying which statutes they relied on to exempt information from disclosure and the number of times they did so. To assist agencies in asserting and accounting for their use of these statutes, Justice instructs agencies to consult a running list of all the statutes that have been found to qualify as proper (b)(3) statutes by the courts. However, agencies may also use a statute not included in the Justice list, because many statutes that appear to meet the requirements of (b)(3) have not been identified by a court as qualifying statutes. If the agency uses a (b)(3) statute that is not identified in the qualifying list, Justice guidance instructs the agency to include information about that statute in its annual report submission. Justice reviews the statute and provides advice to the agency, but does not make a determination on the appropriateness of using that statute under the (b)(3) exemption. Based on data agencies reported to Justice, during fiscal years 2010 to 2016, agencies claimed 237 statutes as the basis for withholding information. Of these statutes, 75 were included on Justice’s list of qualifying statutes under the (b)(3) exemption. Further, we identified 140 additional statutes that were not identified in our 237 statutes claimed by agencies during fiscal years 2010 to 2016, but have similar provisions to other (b)(3) statutes authorizing an agency to withhold information from the public. We found that the 237 statutes cited as the basis for (b)(3) exemptions during the period from fiscal year 2010 to 2016 to fell into eight general categories of information. These categories were (1) personally identifying information, (2) national security, (3) commercial, (4) law enforcement and investigations, (5) internal agency, (6) financial regulation, (7) international affairs, and (8) environmental. Figure 6 identifies the eight categories and the number of agency-claimed (b)(3) statutes in each of the categories. Of the 237 (b)(3) statutes cited by agencies, the majority—178—fell into four of the eight categories: Forty-nine of these statutes related to withholding personally identifiable information including, for example, a statute related to withholding death certificate information provided to the Social Security Administration. Forty-five statutes related to the national security category. For example, one statute exempted files of foreign intelligence or counterintelligence operations of the National Security Agency. Forty-two statutes were in the law enforcement and investigations category, including a statute that exempts from disclosure information provided to Justice pursuant to civil investigative demands pertaining to antitrust investigations. Forty-two statutes fell into the commercial category. For example, one statute in this category related to withholding trade secrets and other confidential information related to consumer product safety. The remaining 59 statutes were in four categories: internal agency functions and practices, financial regulation, international affairs, and environmental. The environmental category contained the fewest number of statutes and included, for example, a statute related to withholding certain air pollution analysis information. As required by FOIA, agencies also reported the number of times they used each (b)(3) statute. In this regard, 33 FOIA-reporting agencies indicated that they had used 10 of the 237 (b)(3) statutes more than 200,000 times. Of these 10 most-commonly used statutes, the single most-used statute (8 U.S.C § 1202(f)) related to withholding records pertaining to the issuance or refusal of visas to enter the United States. It was used by 4 agencies over 58,000 times. Further, of the 10 most-commonly used statutes, the statute used by the greatest number of agencies (26 U.S.C § 6103) related to the withholding of certain tax return information; it was used by 24 FOIA-reporting agencies about 30,000 times. By contrast, some statutes were only used by a single agency. Specifically, the Department of Veterans Affairs used a statute related to withholding certain confidential veteran medical records (38 U.S.C. § 7332) more than 16,000 times. Similarly, EEOC used a statute related to employment discrimination on the basis of disability (42 U.S.C. § 12117) more than 10,000 times. Table 4 shows the 10 most-used statutes under the (b)(3) exemption, the agency that used each one most frequently, and the number of times they were used by that agency for the period covering fiscal years 2010 through 2016. Most Statutes Enacted after 2009 That Were Used by Agencies Did Not Specifically Cite the (b)(3) Exemption The OPEN FOIA Act of 2009 amended FOIA to require that any federal statute enacted subsequently must specifically cite paragraph (b)(3) of FOIA to qualify as a (b)(3) exemption statute. Prior to 2009, a federal statute qualified as a statutory (b)(3) exemption if it (1) required that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (2) established particular criteria for withholding or refers to particular types of matters to be withheld. In response to the amendment, in 2010, Justice released guidance to agencies stating that any statute enacted after 2009 must specifically cite to the (b)(3) exemption to qualify as a withholding statute. Further, the guidance encouraged agencies to contact Justice with questions regarding the implementation of the amendment. Even with this guidance, we found that a majority of agency-claimed statutes during fiscal years 2010 through 2016 did not specifically cite the (b)(3) exemption. Specifically, of the 237 (b)(3) statutes claimed by agencies, 103 were enacted or amended after 2009 and, thus, were subject to the requirement of the OPEN FOIA Act. Of those 103 statutes, 86 lacked the required statutory text that cited exemption (b)(3) of FOIA. Figure 7 shows the number of agency-claimed statutes subject to the OPEN FOIA Act of 2009 requirement that did not cite the (b)(3) exemption. Agencies are using these statutes as the basis for withholding information when responding to a FOIA request. This is despite these statutes not having a reference to the (b)(3) exemption as required by the 2009 FOIA amendments. Federal Court Decisions Have Not Required the Office of Special Counsel to Initiate Disciplinary Actions for the Improper Withholding of Records In our report, being issued today, we found that, according to the available information and Justice and OSC officials, since fiscal year 2008, no court orders have been issued that have required OSC to initiate a proceeding to determine whether disciplinary action should be taken against agency FOIA personnel. Specifically, officials in Justice’s Office of Information Policy stated that there have been no lawsuits filed by a FOIA requester that have led the courts to conduct all three requisite actions needed for Justice to refer a court case to OSC. Justice’s litigation and compliance reports identified six court cases (between calendar years 2013 and 2016) in which the requesters sought a referral from the courts in an attempt to have OSC initiate an investigation. However, in all six cases, the courts denied those requests, finding that each case did not result in the courts taking the three actions necessary to involve OSC. Thus, given these circumstances, Justice has not referred any court orders to OSC to initiate a proceeding to determine whether disciplinary action should be taken against agency FOIA personnel. For its part, OSC officials confirmed that the office has neither received, nor acted on, any such referrals from Justice. As such, OSC has not had cause to initiate disciplinary actions for the improper withholding of FOIA records. In summary, the 18 agencies we selected for review fully implemented half of the six FOIA requirements reviewed and the vast majority of agencies implemented two additional requirements. However, 5 agencies published and updated their FOIA regulations in a timely and comprehensive manner. Fully implementing FOIA requirements will better position agencies to provide the public with necessary access to government records and ensure openness in government. The selected agencies in our review varied considerably in the size of their backlogs. While 10 reported a backlog of 60 or fewer requests, 4 had backlogs of over 1,000 per year. Agencies identified a variety of methods that they used to address their backlogs, including practices identified by Justice, as well as additional methods. However, the selected agencies varied in the success achieved for reducing their backlogs. This was due, in part, to a lack of plan that describes how the agencies will implement best practices for reducing backlogs over time. Until agencies develop plans to reduce backlogs, they will be limited in their ability to respond effectively to the needs of requesters and the public. Accordingly, our draft report contains 23 planned recommendations to selected agencies. These recommendations address posting records online, designating chief FOIA officers, updating regulations consistent with requirements, and developing plans to reduce backlogs. Implementation of our recommendations should better position these agencies to address FOIA requirements and ensure the public is provided with access to government information. Chairman Grassley, Ranking Member Feinstein, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contact and Staff Acknowledgments If you have any questions on matters discussed in this testimony, please contact David A. Powner at (202) 512-9286 or at [email protected]. Individuals who made key contributions to this testimony are Anjalique Lawrence (assistant director), Lori Martinez (analyst in charge), Gerard Aflague, David Blanding, Christopher Businsky, Rebecca Eyler, James Andrew Howard, Carlo Mozo, David Plocher, and Sukhjoot Singh. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

FOIA requires federal agencies to provide the public with access to government records and information based on the principles of openness and accountability in government. Each year, individuals and entities file hundreds of thousands of FOIA requests for information on numerous topics that contribute to the understanding of government actions. In the last 9 fiscal years, federal agencies subject to FOIA have received about 6 million requests. GAO was asked to summarize its draft report on federal agencies' compliance with FOIA requirements. GAO's objectives, among others, were to (1) determine the extent to which agencies have implemented selected FOIA requirements; (2) describe the methods established by agencies to reduce backlogged requests and the effectiveness of those methods; and (3) identify any statutory exemptions that have been used by agencies as the basis for withholding (redacting) information from requesters. To do so, GAO selected 18 agencies based on their size and other factors and assessed their policies against six FOIA requirements. GAO also reviewed the agencies' backlog reduction plans and developed a catalog of statutes that agencies have used to withhold information. In its draft report, GAO determined that all 18 selected agencies had implemented three of six Freedom of Information Act (FOIA) requirements reviewed. Specifically, all agencies had updated response letters to inform requesters of the right to seek assistance from FOIA public liaisons, implemented request tracking systems, and provided training to FOIA personnel. For the three additional requirements, 15 agencies had provided online access to government information, such as frequently requested records, 12 agencies had designated chief FOIA officers, and 5 agencies had published and updated their FOIA regulations to inform the public of their operations. Until these agencies address all of the requirements, they increase the risk that the public will lack information that ensures transparency and accountability in government operations. The 18 selected agencies had backlogs of varying sizes, with 4 agencies having backlogs of 1,000 or more requests during fiscal years 2012 through 2016. These 4 agencies reported using best practices identified by the Department of Justice, such as routinely reviewing metrics, as well as other methods, to help reduce their backlogs. Nevertheless, these agencies' backlogs fluctuated over the 5-year period (see figure). The 4 agencies with the largest backlogs attributed challenges in reducing their backlogs to factors such as increases in the number and complexity of FOIA requests. However, these agencies lacked plans that described how they intend to implement best practices to reduce backlogs. Until agencies develop such plans, they will likely continue to struggle to reduce backlogs to a manageable level. Agencies used various types of statutory exemptions to withhold information when processing FOIA requests during fiscal years 2010 to 2016. The majority of these fell into the following categories: personally identifiable information, national security, law enforcement and investigations, and confidential and commercial business information.

GAO_GAO-18-294

Background Overview of Election Administration In the United States, election authority is shared by federal, state, and local officials, and election administration is highly decentralized and varies among state and local jurisdictions. Congressional authority to regulate elections derives from various constitutional sources, depending upon the type of election. Federal election laws have been enacted that include provisions pertaining to voter registration, protecting the voting rights of certain minority groups, and other areas of the elections process. States regulate various election activities, including some requirements related to these federal laws, but generally delegate election administration responsibilities to local jurisdictions. Federal Roles and Responsibilities Congress has passed legislation in major functional areas of the voting process. For example, HAVA includes a number of provisions related to voting equipment and other election administration activities, including, for instance, requiring at least one voting system equipped for persons with disabilities at each polling place in federal elections. After HAVA was enacted, Congress appropriated more than $3 billion for the EAC to distribute to states to make election administration improvements, such as the replacement of punch card and mechanical lever voting equipment. In addition to HAVA, federal laws have been enacted in other areas of the voting process. For example, the Voting Rights Act of 1965, as amended, contains, among other requirements, provisions designed to protect the voting rights of U.S. citizens of certain ethnic groups whose command of the English language may be limited. In accordance with the act, covered states and jurisdictions must provide written materials—such as ballots or registration forms—in the language of certain “language minority groups” in addition to English, as well as other assistance, such as bilingual poll workers. State and Local Roles and Responsibilities The responsibility for the administration of elections resides at the state and local levels. States regulate various election activities, such as absentee and early voting requirements and Election Day procedures, but generally delegate election administration responsibilities to local jurisdictions. Some states have mandated statewide election administration guidelines and procedures that foster uniformity in the ways local jurisdictions conduct elections, including the types of voting equipment used. Other states have guidelines that generally permit local election jurisdictions considerable autonomy and discretion in the way they run elections. Although some states bear some election costs, including those associated with voting equipment, local jurisdictions generally pay for most aspects of election administration. Unless states require otherwise, local jurisdictions generally have discretion over activities such as training election officials and, in most states, over the selection and purchase of voting technology. Among other things, local election officials register eligible voters; design ballots; educate voters on how to use voting technology; provide information on the candidates and ballot measures; arrange for polling places; recruit, train, organize, and mobilize poll workers; prepare and test voting equipment for use; and count ballots. The Voting Process Voting before Election Day States have established alternatives for voters to cast a ballot other than at the polls on Election Day, including absentee voting and early voting. All states and the District of Columbia have provisions allowing voters to cast their ballots before Election Day by voting absentee, with variations on who may vote absentee, whether the voter needs to provide an excuse for requesting an absentee ballot, and the time frames for applying for and submitting absentee ballots. Some states also permit registered voters to apply for an absentee ballot on a permanent basis so that those voters automatically receive an absentee ballot in the mail prior to every election without providing an excuse or reason for voting absentee. In addition to absentee voting, some states allow early in- person voting. In general, early voting allows voters from any precinct in the jurisdiction to cast their vote in person without providing an excuse, before Election Day either at one specific location or at one of several locations. Further, three states and a number of local election jurisdictions in other states conduct vote-by-mail elections, wherein ballots are automatically sent to every eligible voter. In-Person Voting on Election Day For in-person voting on Election Day, election authorities subdivide local election jurisdictions into precincts. Voters generally cast their ballots at the polling places for the precincts to which they are assigned by election authorities. In addition, some states provide jurisdictions the discretion to allow voters to cast their ballots at vote centers, which are polling places at which any registered voter in the local election jurisdiction may vote on Election Day, regardless of the precinct in which the voter resides. Within the polling place, poll workers check in voters and determine their eligibility to vote by verifying their registration using voter lists or poll books—a list of individuals eligible to vote within the voting precinct or local jurisdiction. After checking the voters in, poll workers direct them to a voting booth to mark their electronic or paper ballots, and then voters submit the ballots for counting. The manner in which votes are cast and counted can vary depending on the voting method and technology employed by the jurisdiction. Postelection Activities Following the close of the polls on Election Day, election officials and poll workers complete steps such as securing equipment and ballots, transferring paper ballots or electronic records of vote counts to a central location for counting, and determining the outcome of the election. Votes counted include those cast on Election Day, absentee ballots, early votes (where applicable), and valid provisional ballots. While preliminary results are available usually by the evening of Election Day, the certified results are generally not available until a later date. EAC Voluntary Voting System Guidelines and Testing and Certification Program Overview of Voluntary Guidelines and Testing and Certification Program The EAC has responsibility for developing the voluntary voting system guidelines and overseeing the testing and certification of voting systems based on these guidelines. The EAC works in conjunction with NIST and the Technical Guidelines Development Committee (TGDC) to develop the voluntary guidelines. According to the EAC, these guidelines are a set of specifications and requirements against which voting systems, including hardware and software, can be tested to receive a certification from the EAC. According to NIST, the guidelines are intended to ensure that federal testing provides assurance to state and local election officials that the voting systems meet a defined set of requirements. The EAC testing and certification program verifies that voting systems comply with basic functionality, accessibility, and security capabilities established by the voluntary guidelines. Typically, voting system vendors submit their systems to the EAC for testing and certification and the systems are evaluated by EAC-accredited voting system test laboratories against the guidelines. These laboratories make recommendations regarding certification to the EAC. According to the EAC, an EAC-certified voting system means that the voting system has been tested by a federally accredited test laboratory and complies with the guidelines. Establishment of Federal Voting System Guidelines and Updates According to the EAC, prior to its establishment and the creation of its voluntary voting system guidelines, the first set of federal voluntary Voting System Standards were adopted in 1990 by the Federal Election Commission. The National Association of State Election Directors voluntarily assumed the role of accrediting voting system test laboratories and certifying voting systems to the federal standards. In 2002, the Federal Election Commission adopted a new version of the federal standards. After the EAC’s creation, in 2005, the EAC developed and adopted the third iteration of federal standards, in accordance with HAVA, and the standards were renamed the Voluntary Voting System Guidelines (VVSG). This third iteration of federal voting system guidelines was referred to as the 2005 VVSG or VVSG 1.0, as it is called today. According to the EAC, VVSG 1.0 increased security requirements for voting systems and were intended to expand access, including opportunities to vote privately and independently, for individuals with disabilities. In 2006, the National Association of State Election Directors terminated its voting system testing program and subsequently, in 2007, the EAC launched its own testing and certification program. In March 2015, a fourth iteration of the voluntary guidelines was adopted by the EAC, referred to as VVSG 1.1. According to the EAC, VVSG 1.1 clarified the guidelines to improve testability by testing laboratories, among other updates, and focused on areas that could be improved without requiring significant changes to the testing and certification process. In January 2016, the EAC adopted an implementation plan for VVSG 1.1 whereby all new voting systems being tested for certification would be required to be tested against the VVSG 1.1 beginning on July 6, 2017. As of November 2017, no voting systems have been certified using VVSG 1.1. The EAC, NIST, and TGDC are in the process of developing the next iteration of the voluntary guidelines (known as VVSG 2.0), and these guidelines are expected to be issued in late summer 2018. Typically, a lag exists between when guidelines are issued and when they are used for testing and certification. EAC officials stated that it has generally taken about 18 months before the guidelines are ready for use for testing voting systems. This is due in part to the need for the voting system test laboratories to be reaccredited to test to the new voluntary guidelines by the EAC. According to EAC officials, after the guidelines are approved for use, it typically takes 2 to 4 years before voting system vendors can develop voting systems that are ready for testing and certification. States’ Participation in the EAC Testing and Certification Program Participation in the EAC testing and certification program is voluntary. Each state determines its own standards for voting systems in statute or administrative regulation, which can be based on the voluntary guidelines established by the EAC. Specifically, most states require some level of participation in the EAC testing and certification program as mandated by their state laws or regulations. As of December 2017, 13 states require federal certification of their voting systems, 24 states and the District of Columbia require testing by a federally accredited laboratory or require testing to federal voting system standards, and 13 states have no federal requirements. Some states have their own voting system standards and conduct their own testing and certification to these standards, either in addition to or as an alternative to the federal voluntary guidelines. Vendors that want to supply their voting systems to local jurisdictions and states must comply with state requirements. See appendix II for federal certification and testing requirements by state, including the associated statutes and regulations we reviewed. Local Election Jurisdictions Primarily Used Two Types of Voting Equipment, Monitored Such Equipment, and Were Generally Satisfied with Equipment Performance Local Election Jurisdictions Primarily Used Optical/Digital Scan and Direct Recording Electronic Equipment during the 2016 General Election According to our analysis of the predominant type of equipment used to process the largest number of ballots during the 2016 general election, jurisdictions using optical/digital scan equipment represented the largest estimated share of the population nationwide, followed by jurisdictions using direct recording electronic (DRE) equipment. Specifically, on the basis of our local election jurisdiction survey, we estimate that jurisdictions with about 63 percent of the population nationwide used optical/digital scan equipment as their predominant voting equipment during the election, while jurisdictions with an estimated 32 percent of the population nationwide used DREs. Jurisdictions with less than 1 percent of the population nationwide used paper hand-counted ballots. See figure 1. Within the optical/digital scan equipment category, the most widely used model of optical/digital scan equipment was the precinct count optical/digital scan, with jurisdictions having an estimated 46 percent of the population nationwide using it as their predominant voting equipment. Figure 2 shows the predominant types of voting equipment that were used by jurisdictions during the 2016 general election, broken out by model of equipment used. While many jurisdictions predominantly used one type of voting equipment, some reported using multiple types. Jurisdictions may choose to use more than one type of equipment as a means to process different types of ballots such as absentee or provisional or to provide accessibility options for voters with disabilities. Overall, we estimate that jurisdictions with about 59 percent of the population nationwide used only one type of equipment during the 2016 general election, while jurisdictions with about 37 percent of the population nationwide used multiple types of equipment during the election. Jurisdictions that used two types of equipment are estimated to have about 30 percent of the population nationwide, while those that used more than two types of voting equipment had approximately 6 percent of the population nationwide. See figure 3 for the types of voting equipment used. Local Election Jurisdictions Monitored Equipment Performance in Various Ways According to results from our survey of local election jurisdictions, jurisdictions monitored the performance of their voting equipment during the 2016 general election through a variety of methods, such as equipment testing, performance measurement and tracking of malfunctions, and postelection audits and recounts. Such monitoring can provide information to jurisdictions about how their equipment is functioning and help ensure the accuracy of the outcomes of elections and address any identified issues or problems. Testing of Voting Equipment Results from our survey of local election jurisdictions indicate that the extent to which jurisdictions tested their voting equipment varied by test type. Key types of voting equipment testing include acceptance testing, logic and accuracy testing, and parallel testing. Acceptance testing verifies that new equipment or any equipment that has been outside election administrators’ control (e.g., for repair) conforms to the purchase agreements and is identical to equipment that was tested and certified by state or federal testing organizations. According to our local jurisdiction survey results, jurisdictions with an estimated 49 percent of the population nationwide conduct acceptance testing of their equipment. Logic and accuracy (also known as functional or readiness) testing is performed in advance of an election to determine whether voting equipment will function properly, such as displaying the correct ballot, collecting votes, and tabulating results. Parallel testing is performed on Election Day by running test votes cast with known results, then comparing the actual and expected results. Of these two types of testing, according to our local jurisdiction survey results, logic and accuracy testing was the most widely performed type of testing as jurisdictions with 99 percent of the population nationwide conducted such testing for the 2016 general election. Jurisdictions with an estimated 37 percent of the population nationwide conducted parallel testing. Performance Measures and Reported Errors and Malfunctions According to our local jurisdiction survey results, jurisdictions monitored the performance of their predominant voting equipment during the 2016 general election using a variety of measures. Accuracy of the equipment in counting votes was tracked, measured, or assessed by jurisdictions having an estimated 87 percent of the population nationwide. Another widely monitored aspect of voting equipment performance was the accuracy of the equipment in recording voter selections before counting— jurisdictions with 78 percent of the population nationwide tracked, measured, or assessed that aspect. Overvotes and undervotes were also widely used measures, with jurisdictions having about 63 and 64 percent of the population nationwide, respectively, tracking, measuring, or assessing those measures. According to the results of our local jurisdiction survey, most jurisdictions did not experience extensive or widespread errors or malfunctions with their equipment during the 2016 general election. We estimate that jurisdictions with 93 percent of the population did not experience equipment errors or malfunctions on a “somewhat” or “very” common basis during the election. Of those that did experience equipment errors or malfunctions of some type on a “somewhat” or “very” common basis, the error or malfunction most frequently encountered was jams or misfeeds. We estimate that this error or malfunction was experienced on a “very common” basis by jurisdictions with about 1 percent of the population nationwide and on a “somewhat common” basis by jurisdictions with about 3 percent of the population nationwide. The next most frequent error or malfunction experienced as a “very” or “somewhat” common occurrence was that equipment response was sluggish or slower than acceptable, which was experienced by jurisdictions with an estimated 3 percent of the population nationwide. Postelection Audits and Recounts State and local election officials also determined how their voting equipment performed and verified election results by conducting postelection audits and recounts. According to 35 out of 46 respondents to our state survey, the state election agency or local election jurisdictions in their states conducted postelection audits or targeted recounts of results from the 2016 general election. On the basis of our local jurisdiction survey, we estimate that jurisdictions with approximately 45 percent of the population nationwide conducted postelection audits or targeted recounts. Among jurisdictions of different size, large jurisdictions had a higher estimated share of their population within jurisdictions that conducted postelection audits or recounts than did medium or small jurisdictions. Specifically, jurisdictions with 82 percent of the population within large jurisdictions conducted postelection audits or recounts. In contrast, an estimated 55 percent and 37 percent of the population within medium and small jurisdictions, respectively, was represented by jurisdictions that conducted postelection audits or recounts. Local Election Jurisdictions Experienced Various Benefits and Challenges with Voting Equipment and Were Generally Satisfied or Very Satisfied with Equipment Performance Benefits and Challenges of Predominant Equipment Used According to the results of our local election jurisdiction survey, jurisdictions using the two main types of voting equipment (DRE or optical/digital scan) experienced mostly similar benefits as a result of using their respective type of predominant equipment. Table 1 shows the top benefits experienced by jurisdictions according to the type of predominant voting equipment used. In addition to the benefits mentioned above, jurisdictions experienced other benefits associated with using their respective type of predominant voting equipment. For example, jurisdictions that had an estimated half or more of the population within jurisdictions using each of the different types of voting equipment also experienced the following benefits from using their equipment: Jurisdictions predominantly using DREs: accessibility for individuals with disabilities or impairments, timely election night reporting, ease of presenting lengthy ballots in a clear and understandable way, protection and preservation of votes cast against potential non- cybersecurity related threats, and customer support and problem resolution assistance from vendor. Jurisdictions predominantly using optical/digital scan equipment: timely election night reporting, ease of troubleshooting or resolving equipment malfunctions during Election Day, preventing or alerting voters of any overvotes or undervotes before ballot is cast, ability to facilitate a postelection audit, security of equipment against outside electronic hacking or intrusion, and ease of conducting routine maintenance. Jurisdictions also experienced challenges while using their predominant voting equipment, although to a lesser extent overall than they experienced benefits. Table 2 shows the top challenges experienced by jurisdictions according to the type of predominant voting equipment used. The next most frequently experienced challenges by jurisdictions were the following (estimates with the values for the 95 percent confidence intervals are shown in parentheses): Jurisdictions predominantly using DREs: cost to maintain voting equipment (an estimated 12 percent; 6, 19); cost to operate voting equipment (8 percent; 3, 14); and ease of conducting routine maintenance (7 percent; 2, 14). Jurisdictions predominantly using optical/digital scan equipment: cost to operate voting equipment (an estimated 11 percent; 7, 15); preventing or alerting voters of any overvotes or undervotes before ballot is cast (9 percent; 2, 23), and ease of connectivity with other election administration systems (e.g., voter registration, election night reporting) (9 percent; 2, 23). Satisfaction with Predominant Voting Equipment On the basis of our local election jurisdiction survey, we estimate that jurisdictions with approximately 96 percent of the population nationwide were very satisfied or generally satisfied with the performance of their predominant voting equipment during the 2016 general election. Specifically, we estimate that jurisdictions with approximately 70 percent of the population nationwide were very satisfied with their voting equipment’s performance and 26 percent were generally satisfied (see fig. 4). Jurisdictions with about 2 percent of the population nationwide were generally dissatisfied or very dissatisfied with the performance of their predominant voting equipment. When comparing satisfaction with the performance of their predominant voting equipment used in the 2016 general election against the performance of their predominant equipment used in the 2012 general election, we estimate that jurisdictions with 67 percent of the population nationwide were just as satisfied with their equipment’s performance in 2016 as in 2012, while 16 percent reported they were more satisfied (see fig. 5). Among jurisdictions that used different predominant types of equipment, jurisdictions that predominantly used optical/digital scan equipment that were more satisfied with their equipment’s performance in 2016 had a larger estimated share of their population (20 percent) compared to jurisdictions that predominantly used DRE equipment (4 percent). Local Election Jurisdictions and States Consider Multiple Factors and Selected Jurisdictions Have Varying Approaches When Replacing Voting Equipment Local Election Jurisdictions and States Consider Multiple Factors When Deciding Whether to Replace Voting Equipment On the basis of our review of literature and studies, interviews with election subject matter experts, and analysis of our local election jurisdiction and state surveys, we identified four key factors and related issue areas within them that jurisdictions and states consider when deciding whether to replace voting equipment. After considering the factors, jurisdictions may decide to replace their equipment or continue using their existing equipment. The four key factors we identified are: (1) the need for voting equipment to meet federal, state, and local voting system standards and requirements; (2) the cost to acquire new equipment and availability of funding; (3) the ability to maintain equipment and receive timely vendor support; and (4) the overall performance and features of voting equipment. In our local election jurisdiction and state surveys, we asked election officials to rate issue areas related to each of these factors as to how important they were when determining whether to replace voting equipment and then rank the issue areas in terms of which were “most important” in making the determination. Analysis of the results of our surveys indicates that the 24 issue areas within the four factors vary in their relative importance to jurisdictions and states when determining whether to replace voting equipment. Need for Voting Equipment to Meet Federal, State, and Local Voting System Standards and Requirements The need for voting equipment to meet applicable federal, state, and local voting system standards and requirements is a factor considered by local election jurisdictions and states when determining whether to replace equipment. At the federal level, HAVA generally requires that voting equipment be accessible to individuals with disabilities. As discussed earlier, HAVA also established the EAC which developed and maintains the voluntary guidelines that voting equipment can be tested against to receive federal certification. In turn, many states have established requirements that voting equipment be federally certified or meet some or all of the standards established by the federal guidelines. According to election subject matter experts we spoke with, in addition to federal requirements and standards, some states have imposed additional requirements that voting equipment must meet or satisfy such as having the capability to present all ballot issues and candidates on one page or presenting ballots in multiple languages, for example. We identified four issue areas related to this factor. Figure 6 shows the importance local jurisdictions and state election officials attributed to the various issue areas within this factor when determining whether to replace voting equipment. For example, the need for equipment to meet state and local requirements and standards was considered “very important” by jurisdictions with 87 percent of the population nationwide and as one of the three “most important” issue areas overall by jurisdictions with 36 percent of the population nationwide. Among the states, this issue area was considered as “very important” by 18 out of the 25 states that indicated having a role in determining whether to replace voting equipment and as one of the three “most important” issue areas overall by 7 out of the 25 states. According to election subject matter experts we spoke with, the costs to acquire new equipment and the availability of funding to pay those costs is a key factor that jurisdictions and states consider when determining whether to replace voting equipment. Acquiring new voting equipment involves a variety of costs and expenses. For example, in addition to the cost of the equipment itself, there can be other associated costs, such as training for poll workers and elections staff on the new equipment and voter outreach and education about the change in equipment, that may be incurred as existing equipment is replaced. These related acquisition and transition costs and expenses are incurred by the jurisdictions and states, which in turn must obtain or allocate resources to cover those costs. We identified four issue areas related to this factor. Figure 7 shows the importance local jurisdictions and state election officials attributed to these issue areas when determining whether to replace voting equipment. For example, the availability of state and local funds was considered “very important” by jurisdictions with 62 percent of the population nationwide and as one of the three “most important” issue areas overall by jurisdictions with 18 percent of the population nationwide. Among the states, this issue area was considered as “very important” by 20 out of the 25 states that indicated having a role in determining whether to replace voting equipment and as one of the three “most important” issue areas overall by 9 out of the 25 states. Given the importance of funding for the acquisition of new voting equipment and the assistance federal HAVA grants have previously provided, we asked states and jurisdictions additional questions in our surveys about their funding practices and the extent to which they have HAVA grant funds remaining to acquire voting equipment. The results from our surveys provided the following additional information about these issues: Use of local and state funding sources for acquisition of new voting equipment: On the basis of our local election jurisdiction survey, we estimate that, among various potential funding sources, jurisdictions with 79 percent of the population nationwide obtain funds to acquire new voting equipment through local general funds or budgets as a direct appropriation. Additionally, we estimate that jurisdictions with 43 percent of the population nationwide use state financial assistance or cost sharing as a source of funds for new equipment. According to the results from our state survey, states have different levels of involvement in providing funds for the acquisition of voting equipment. Over half (24) of the 46 states that responded to our survey indicated that they do not provide any financial assistance or cost sharing to local jurisdictions for equipment acquisition, while 11 indicated that they cover all acquisition costs. Eight states indicated that their state provides some financial assistance or cost sharing with local jurisdictions for equipment acquisition, while 2 states indicated a different type of involvement in funding the acquisition of voting equipment, such as covering only the costs of acquiring accessible voting equipment. Availability of HAVA funds: On the basis of our local jurisdiction survey, we estimate that jurisdictions with 10 percent of the population nationwide had HAVA funds remaining to apply toward the acquisition of new voting equipment, with jurisdictions representing 6 percent of the population only having enough HAVA funds to acquire a portion of the equipment needed. Additionally, we estimate that jurisdictions with 42 percent of the population nationwide had no HAVA funds remaining while jurisdictions with 46 percent of the population did not know whether they had any HAVA funds remaining. Impact of lack of HAVA funds: Among jurisdictions that did not have any HAVA funds remaining or only enough to buy a portion of the equipment needed, jurisdictions with an estimated 36 percent of the population indicated that the lack of HAVA funds had affected their decisions regarding the replacement of voting equipment. Further, jurisdictions with an estimated 57 percent of the population in this subgroup (of jurisdictions that indicated that the lack of HAVA funds affected their replacement decisions) delayed the replacement of voting equipment while jurisdictions with 25 percent of the population in this subgroup were not able to acquire the equipment that would best meet their needs. Ability to Maintain Equipment and Receive Timely Vendor Support The ability of local election jurisdictions and states to maintain voting equipment and receive timely vendor support is a factor considered when determining whether to replace equipment, particularly as the equipment ages. Election subject matter experts we spoke with noted the importance of access to replacement parts for existing voting equipment as something jurisdictions and states may consider when determining whether to replace equipment. Without adequate access to replacement parts and technical service, either from vendors or supplied by in-house expertise, it can be difficult for jurisdictions and states to maintain their current equipment at a satisfactory level. We identified five issue areas related to this factor. Figure 8 shows the importance local jurisdictions and state election officials attributed to these issue areas when determining whether to replace voting equipment. For example, the sufficiency of vendor support and problem resolution was considered “very important” by jurisdictions with 81 percent of the population nationwide and as one of the three “most important” issue areas overall by jurisdictions with 7 percent of the population nationwide. Among the states, this issue area was considered as “very important” by 15 out of the 25 states that indicated having a role in determining whether to replace voting equipment but no state considered it as one of the three “most important” issue areas overall. The overall performance and features, both of the existing voting equipment and of potential replacement equipment, is also a factor considered by local election jurisdictions and states when determining whether to replace voting equipment. For example, jurisdictions and states may consider the age of their current equipment and how well it is performing, as well as how its performance compares to that of new equipment available for acquisition. In addition, according to elections literature we reviewed and election subject matter experts we spoke with, jurisdictions and states may also take into account specific features new voting equipment can provide that might better meet their needs. The desired features may vary from jurisdiction to jurisdiction depending on specific needs and circumstances, but such features may include an enhanced ability to process a high volume of absentee ballots, capability to present ballots in multiple languages, or ease for poll workers to set up and for voters to use, for example. We identified 11 issue areas related to this factor. Figure 9 shows the importance local jurisdictions and state election officials attributed to these issue areas when determining whether to replace voting equipment. For example, the overall performance of the voting equipment was considered “very important” by jurisdictions with 83 percent of the population nationwide and as one of the three “most important” issue areas overall by jurisdictions with 20 percent of the population nationwide. Among the states, this issue area was considered as “very important” by 18 out of the 25 states that indicated having a role in determining whether to replace voting equipment while 4 out of the 25 states considered it as one of the three “most important” issue areas overall. Given the potential challenges local election officials have identified with using aging or outdated equipment, in our local election jurisdiction survey we asked jurisdictions when they first used their predominant voting equipment. Based on their responses, we estimate that jurisdictions with over half of the population nationwide used predominant voting equipment in the 2016 general election that was first deployed between 2002 and 2006 (see fig. 10) Jurisdictions with the next largest estimated share of the population (28 percent) used equipment that was first deployed between 2012 and 2016. Approaches to Replacing Voting Equipment Varied across Selected Jurisdictions The five local election jurisdictions we selected to include in our review either replaced their voting equipment between 2012 and 2016 or plan to replace their equipment in time for the 2020 general election. We selected these jurisdictions to obtain variation in, to the extent possible, population of jurisdiction, type of voting equipment replaced and selected, and state involvement in selecting and funding voting equipment replacement, among other factors. Table 3 summarizes information related to voting equipment replacement across the five selected jurisdictions. These jurisdictions illustrate varying approaches that localities have used or are using to replace their voting equipment based on their specific needs, circumstances, and resources. For example, Los Angeles County, California. The county has a large and diverse electorate and is in the process of self-designing its own voting system, which is expected to consist of ballot marking devices that produce paper ballots to be tallied on central count digital scanners. County officials stated that the current design concept for the new equipment is intended to provide greater flexibility in administering elections, provide a more user-friendly and accessible voting experience, enhance accuracy and auditability, and could potentially lower costs for system upgrades if developed as planned. For example, according to officials, the ballot marking device is intended to provide the ease of use of a touch screen interface, which would incorporate features such as scrolling and tapping that are familiar to voters who use mobile devices, and will include a headset, tactile keypad, and other devices for voters with disabilities. It would also allow the county to have ballots with multiple formats and a large number of races. The county’s process for developing and deploying its new voting equipment began in 2009 and has five phases—(1) public opinion and stakeholder baseline research, (2) establishment of voting system guiding principles, (3) system design and engineering, (4) manufacturing and certification, and (5) phased implementation. According to officials, the county has taken a user-centered approach to the design of the new voting equipment that prioritizes the specific needs and expectations of the voters. The county is currently in the manufacturing and certification phase and reported that about $19 million has been expended to develop the new voting equipment as of December 31, 2017. County officials told us they plan to retain ownership of the intellectual property rights of the new voting equipment so that the system remains publicly owned and not proprietary like traditional vendor equipment. The county plans to pilot the new equipment in some early voting locations in 2019 and fully roll it out in 2020. Travis County, Texas. The county began its efforts to design its own voting equipment based in part on findings and recommendations from an election study group it convened in 2009. In 2012, it developed a concept for a DRE with a voter-verified paper audit trail that centered on system security, auditability, and the use of commercial off-the-shelf technology. In September 2017, the county announced that it had decided to no longer pursue building the voting equipment because the proposals it received from vendors and other organizations for developing key components of the equipment were not sufficient to build a complete voting system, among other reasons. According to county officials, the county plans to acquire either DREs or ballot marking devices with precinct count digital scanners from a voting system vendor with the goal that whatever equipment it acquires incorporates some of the key features it had intended for its self-designed equipment. For example, officials stated that the new equipment must produce printed paper records that can be tallied and connected with electronic voting records through an automated process and allow for third party verification of results and better postelection audits. They noted that they are prepared to work with vendors to customize existing equipment to meet the county’s requirements if needed. County officials estimate that the new equipment will cost about $16 million and stated that acquisition will be funded through local bonds. The county issued a request for proposals for the equipment in November 2017 and plans to have it in place for the 2020 election. Anne Arundel County, Maryland. In 2016, the county replaced its DREs with a system in which voters manually mark paper ballots and insert them into precinct count digital scanners which then count them. Maryland requires the use of uniform voting equipment in polling places statewide and the state and counties each pay 50 percent of the costs of acquiring equipment. In 2007, Maryland enacted a law that prohibited the use of a voting system unless the State Board of Elections (SBE) determined that the system provides a voter-verifiable paper record, thereby requiring the state’s DREs to be replaced. According to Maryland SBE officials, state law specifically required the purchase of precinct count scanners so the board did not consider other types of voting equipment. The SBE issued a request for proposals for the new voting equipment in July 2014 and four vendors responded. The board formed an evaluation committee to analyze the technical and financial details of the proposals, and according to officials, the committee hosted a public demonstration to collect feedback on the equipment under consideration and worked with the University of Baltimore to perform usability and accessibility testing on the equipment. The SBE decided to lease rather than purchase the equipment for a number of reasons. For example, officials said that leasing provided increased flexibility to update or replace equipment more frequently and had lower upfront costs. According to SBE officials, the current payment to the vendor for leasing the digital scan equipment statewide is approximately $1.1 million per quarter. SBE and Anne Arundel County officials stated that deployment of the new equipment in the 2016 general election went smoothly with no significant challenges. The state contracted with a third party vendor to conduct a postelection audit of the 2016 general election by using independent software to tally all digital ballot images. The audit confirmed the accuracy of the election results. According to SBE officials, the new equipment’s ability to capture and store digital images of the ballots made this type of audit possible. Anne Arundel County officials stated that the ability to conduct such an audit is one of the main benefits of the new equipment. Lafayette County, Florida. Lafayette County has a small population and, in 2016, replaced its precinct count optical scan equipment with precinct count digital scan equipment. The county formed a consortium with 11 other counties in the state to help acquire its new equipment. According to the county’s Supervisor of Elections, having the consortium approach state officials as a group helped secure HAVA funds to help the counties purchase the voting equipment. In addition, he stated that being a part of the consortium helped the counties negotiate a lower price for their equipment than what they could have obtained individually because they pooled their purchases and acquired a higher volume of machines. According to the Supervisor of Elections, the consortium decided to purchase precinct count digital scanners from the same vendor the counties had used before because county staff were familiar with the vendor and equipment, among other reasons. He stated that the total cost to purchase Lafayette County’s new voting equipment was about $70,000. The Supervisor of Elections said that the digital scanners have features that were an improvement over the county’s previous optical scan equipment. For example, he told us that the new scanners have more robust security features, such as locking panels, seals, and a requirement for a passcode to access the system. He also noted that the scanners digitally capture and store ballot images. The Supervisor of Elections and the two poll workers we interviewed stated that deployment of the new voting equipment went smoothly and the county did not experience any challenges because the new and previous equipment are both precinct count scanning systems. According to the Supervisor of Elections, a postelection audit that was conducted, in which the county manually tallied ballots from a randomly selected race and precinct, found that the results were accurate. Beaver County, Utah. Beaver County has a small population and previously used DREs with a voter-verified paper audit trail. In 2014, Beaver County began conducting vote-by-mail elections and replaced its DREs with central count digital scan equipment to support this change. County officials said that, in 2014, they verbally requested proposals for the new equipment from their current vendor and an elections services company that the county had employed in 2012 to provide training, systems testing, and other support for elections. According to the Deputy Clerk, the county requested proposals from these two entities because county officials were familiar with them and were not aware of other vendors that might submit proposals. Officials stated that the county received a proposal from the elections services company, and selected the company because it was the only bid received and the equipment the company sold met the county’s needs and was federally certified. The county reported that the cost to purchase the equipment was about $46,000. Officials said that they are very satisfied with the performance of the new voting equipment. They noted that conducting vote-by-mail elections and using central count scanners allow them to administer elections from one location on Election Day, which requires less time and resources than having to manage multiple polling places. Officials also stated that the new digital scanners are able to count a high volume of ballots in a short period of time. According to officials, the county conducted two postelection audits for the 2016 general election—one required by the state and another that the county initiated. They reported that both audits validated the election results. See appendix V for additional details about voting equipment replacement in our five selected jurisdictions, including the factors that influenced their decisions to replace voting equipment; selection, acquisition, and implementation of their equipment; and perspectives on the process. Stakeholders Have Varying Views on How the Voting System Guidelines Affect Equipment Replacement and Development, and the EAC is Updating the Guidelines with Stakeholder Input Stakeholders Provided Varying Perspectives on How the Current Voluntary Guidelines and Testing and Certification Processes Affect Replacing and Developing Voting Equipment On the basis of our survey of state election officials and interviews with officials from selected voting system vendors and subject matter experts—representatives from nongovernmental research and other organizations involved in the field of election administration—we found that these stakeholders have varying perspectives on how the current Voluntary Voting System Guidelines (VVSG 1.0 and VVSG 1.1) and their associated testing and certification processes facilitated or posed challenges to the replacement and development of voting equipment. The states we surveyed and the other selected stakeholders we interviewed primarily had experience with VVSG 1.0. As discussed earlier, the VVSG 1.1 were issued in March 2015, but due to the time it generally takes to implement updates to new guidelines, including developing testing programs, among other things, no systems had been certified under this version of the guidelines as of November 2017. One vendor’s system underwent partial testing using VVSG 1.1 but the vendor withdrew the system before the testing was completed. Perspectives on How the Voluntary Guidelines Facilitate Replacing and Developing Voting Equipment States and selected vendors and subject matter experts provided varying perspectives on how aspects of the current voluntary voting system guidelines and their associated testing and certification processes facilitate the replacement and development of voting equipment. Generally, stakeholders indicated that the guidelines and processes provide assurance that new equipment meets certain requirements, provide guidance for equipment developers, provide a model for state standards, and provide cost savings for states that do not have to duplicate federal testing. For example, 15 of the 26 state survey respondents said the guidelines provide assurance that new voting equipment meets baseline requirements related to security, functionality, usability, accessibility, and privacy. One of these 15 state respondents noted that if the EAC certified voting equipment against the federal guidelines, he believes it meets the highest election standards and also meets requirements set by his state. Another of these 15 state respondents noted that voting equipment that has been tested using the federal guidelines and certified by the EAC will have a higher level of reliability than equipment that has not met these guidelines or been certified by the EAC. Subject matter experts from one nongovernmental organization noted that states that establish their own voting system standards often use the federal guidelines as a base to help develop their standards because the federal guidelines have comprehensive requirements and are well vetted. Experts from another nongovernmental organization said that the guidelines establish a standard for voting equipment features and performance, which may help small jurisdictions that want to acquire new voting equipment but may not have the expertise to independently evaluate the equipment. Further, officials from most of the vendors we interviewed agreed that the federal standards serve as effective baseline requirements. For example, officials from five of the seven vendors we interviewed said that when they are developing voting systems, the federal guidelines help them define the baseline standards that their systems should meet, and five of the nine subject matter experts said the federal guidelines provide baseline requirements. Further, 4 of the 26 state survey respondents indicated that the current voluntary guidelines help reduce the costs and resources needed for states to test and approve new voting equipment. For example, one of the 4 state respondents reported that states do not have to rely on their own voting system testing laboratories for all aspects of the testing and certification of new voting equipment to meet state requirements because most of the testing and certification relevant to state requirements has already been done by EAC-accredited testing laboratories and the EAC. The official noted that this allows the states to do less testing, which could save them money. Perspectives on How the Voluntary Guidelines Pose Challenges to Replacing and Developing Voting Equipment The states we surveyed and selected vendors and subject matter experts we interviewed also reported that aspects of the current voluntary voting system guidelines and their associated testing and certification processes could pose challenges to the replacement and development of voting equipment in a number of ways. Specifically, some stakeholders indicated that aspects of the guidelines and processes could discourage innovation in equipment development, could limit the choices of voting equipment on the market because the testing and certification processes take too long, and could be costly for states and vendors. For example, officials representing three of the seven vendors we interviewed said the current federal guidelines may discourage innovation for new voting equipment because they are too specific or overly prescriptive. Officials from one of these three vendors said the current guidelines require a specific oval size on the ballots, prescribing how tall and wide the oval should be. Instead of such requirements, the officials said they would like the guidelines to be more performance-based and state, for example, that voters should be able to successfully mark a ballot a specified percentage of the time. Further, officials from another vendor said that the current guidelines are generally written for the purpose of testing and certifying end-to-end voting systems rather than system components such as ballot marking devices, which are generally developed by smaller vendors. As a result, according to this vendor, smaller vendors may face challenges getting new technology certified and into the market. EAC officials stated that they recognize that the current guidelines should be more flexible because specificity may limit innovation and they believe the updates to the VVSG 2.0 should help address this issue. In addition, some stakeholders said they believed that the voluntary guidelines and associated testing and certification processes take too long, and thus limit the choices of voting equipment on the market and make it difficult to make improvements to existing equipment. For example, officials from 8 of the 27 state survey respondents and three subject matter experts said the guidelines and their respective processes limit the number of voting systems that are available for acquisition. Three of the 8 states and three subject matter experts said, in their view, the EAC testing and certification process takes too long. In addition, according to one subject matter expert, if a jurisdiction wants to make changes to its existing voting equipment, such as incorporating new software, it can be a difficult and lengthy process to certify the modified equipment, and in some cases the entire system must be recertified. Also, an official from one vendor said that the federal certification processes are complicated, onerous, and time-consuming and they discourage vendors from making modifications to their voting systems even though the modifications might improve the systems. EAC officials said they have heard from stakeholders that the certification process takes too long but stated that this perception was more accurate in the years immediately following the EAC’s issuance of the VVSG 1.0 in 2005. They said that if voting equipment has been modified and is ready for testing and there are no significant problems encountered during the testing, certifying modifications should take a few weeks to a few months to complete and full system testing and certification of new systems should take about 6 to 9 months. Further, officials from 4 of the 27 states that responded to our survey said the EAC testing and certification process can be costly. One state election official said that the cost of certification may discourage vendors from developing new systems and pursuing EAC certification for their systems, which could limit their ability to sell or supply their systems to state and local election jurisdictions. In addition, this state election official noted that costly federal certification of voting systems has limited the voting equipment choices for election officials. Further, officials from one vendor said that they submitted a new voting system for EAC testing and certification and spent over $12 million before they learned that there were significant issues with getting their system certified. According to EAC officials, this was an uncommon occurrence that resulted from the vendor submitting a system that needed additional work and was not ready for certification. The vendor decided to withdraw its system from the testing and certification process. The EAC Is Updating the Voluntary Voting System Guidelines with Stakeholder Input and Plans to Issue the New Version in 2018 Shortly after the adoption of VVSG 1.1 in March 2015, the EAC, in conjunction with NIST and the TGDC, began work to develop the next iteration of the guidelines, VVSG 2.0, and anticipates issuing the new version in late summer 2018. The EAC, NIST, and the TGDC have taken actions to develop VVSG 2.0 that may address some of the issues with the earlier iterations of the guidelines that were raised by stakeholders. For example, they have established goals to guide the VVSG 2.0 development process, established working groups to inform the guidelines, and developed VVSG 2.0 high-level principles and guidelines. Establishment of Voluntary Voting System Guidelines Development Goals and Working Groups According to the EAC and NIST, in August 2014, the Future VVSG Working Group, which consisted of officials from state and local election offices, technical experts in such areas as security and disability, and voting system vendors, among others, began work which culminated in the creation of 12 goals to guide the development efforts for the voluntary guidelines. One goal, for example, states that the guidelines’ requirements should be performance based and technology neutral. The goal statement further elaborates that the guidelines should be free from detailed descriptions of any technology, and that the guidelines should be functional in nature so that they can more easily be redefined as technology changes. Another development goal states that the voluntary guidelines and its testing and certification processes should not impose unanticipated cost burdens onto organizations. These goals are designed to address some of the issues with the current voluntary guidelines identified by the stakeholders we interviewed as posing challenges to the replacement and development of voting systems, such as discouraging innovation because they are too specific and discouraging vendors and other voting system developers from pursuing EAC certification for their systems because the process is potentially costly. After the 12 goals for the voluntary guidelines were developed, the EAC and NIST established a new process for developing the next guidelines that is intended to allow for broader and more transparent stakeholder involvement than prior guidelines’ development efforts. This new process brings stakeholders together through a working group structure to develop the guidelines. According to the EAC, the previous process did not fully allow for stakeholder input or effectively leverage stakeholder expertise in developing the guidelines because comments on the guidelines were solicited from the Standards Board and external stakeholders after most of the work had been done. In 2015, the EAC and NIST established seven working groups to obtain feedback and input from stakeholders early in the voluntary guidelines development process. According to the EAC and NIST, the four constituency and three election cycle working groups were created as a public/private partnership to inform the development of the guidelines and are composed of state and local election officials, representatives from the federal and private sectors, members of standards bodies, EAC committee members, academic researchers, and other interested parties. The working groups are led by EAC and NIST staff, and have more than 600 participants across the seven groups. EAC and NIST officials stated that they have informed election officials and other stakeholders about opportunities to participate on these working groups to share their ideas. The four constituency working groups represent areas related to human factors (accessibility and usability), cybersecurity, interoperability, and testing and are charged with developing guidance or other deliverables related to these four areas. For example, one objective for the human factors working group is to identify gaps or issues with current accessibility and usability requirements for voting. The election cycle working groups—focused on pre-election, election, and postelection activities—develop process models related to election activities. For example, an objective for the election working group is to identify the necessary functionality of election systems needed to administer early voting and Election Day activities. The work by these seven working groups will help inform the development of the voluntary guidelines’ requirements. Table 4 shows the seven working groups and their respective responsibilities. Some of the stakeholders we interviewed participate in these working groups. For example, officials from six of the seven voting system vendors we contacted said they have a representative on one or more of the constituency working groups. Generally, these six vendors said the working groups are a positive feature of the voluntary guidelines’ development process. For example, officials from one vendor said they have been encouraged by the amount of collaboration on the working groups, and officials from another vendor said it is beneficial that vendors are part of the working groups because they bring experience and expertise with designing and developing various types of voting systems. Development of the VVSG 2.0 High-Level Principles and Guidelines In August 2017, the TGDC adopted high-level principles and supporting guidelines for the VVSG 2.0. These principles and guidelines are intended to provide system design goals and broad descriptions of the functions that make up a voting system, in contrast to the VVSG 1.1 which focused more on device- or system-specific requirements. The VVSG 2.0 will be supplemented by requirements consisting of technical details voting system vendors can use to design devices that meet the new guidelines. The supplemental requirements will also detail test assertions for how the accredited test laboratories will validate that a system complies with the requirements. One of the VVSG 2.0 principles, for example, is that ballots and vote selections should be presented in a clear, understandable way so that they can be marked, verified, and cast by all voters. The corresponding guidelines for this principle focus on ballots being perceivable, operable, and understandable. For example, the guideline for perceivable ballots notes that default voting system settings for displaying ballots should work for the widest range of voters and allow voters to adjust settings and preferences to meet their needs. Another VVSG 2.0 principle is that the voting system should be designed to support interoperability, including having voting devices that can interface with each other. The corresponding guidelines for this principle include using standard data formats and commercial off-the-shelf devices if they meet applicable requirements. According to NIST officials, one goal of the interoperability working group is to develop guidance that will enable election equipment and interfacing software to interoperate more easily and “speak the same language.” NIST officials stated that this goal is intended to allow vendors to build and certify system components instead of a full voting system. These principles are designed to help address some of the issues reported by stakeholders, such as the impact of prescriptive requirements for ballot designs on vendor innovation and the challenges encountered with component certification under the current voluntary guidelines. Further, officials from the EAC told us that one key change with the VVSG 2.0 is that the EAC commissioners no longer have to approve changes to the supplemental requirements and test assertions, which will instead be vetted by the EAC’s Board of Advisors and Standards Board. EAC officials noted that this allows for greater flexibility to make improvements to the requirements and testing process, including making changes in response to technological advancements. Additionally, depending on the situation, the new voluntary guidelines are intended to allow for more streamlined testing and certification processes. For example, EAC officials said that under the new guidelines, if there are modifications that have been made to a voting system that has already been certified, the changes can be tested without having the entire voting system go back through the testing and certification process. Next Steps in Developing the VVSG 2.0 According to EAC officials, the next steps in the VVSG 2.0 development process are to share the high-level principles and guidelines with the EAC’s Board of Advisors and Standards Board for further vetting, provide the public the opportunity to comment on them, and provide them to the EAC commissioners for approval. Specifically, before final adoption of the guidelines, both boards are to review and submit comments and recommendations regarding the guidelines to the commissioners. EAC officials anticipate that the EAC boards will likely review and pass resolutions in support of the principles and guidelines in April 2018. Following the board reviews, there will be a 90-day period for public comment on the VVSG 2.0, as required by HAVA. The EAC hopes that the time it typically takes to respond to public comments will be shorter than for prior voluntary guidelines, due to the extensive feedback and comments received and considered by the working groups during the development phase. EAC officials anticipate that the EAC commissioners will vote on the VVSG 2.0 principles and guidelines in August or September 2018, and the VVSG 2.0 will be issued after they are approved. According to EAC and NIST officials, the working groups have begun developing the supplemental requirements for the new guidelines. They said that the requirements are expected to be drafted by the summer of 2018 and test assertions for most voting systems are expected to be developed by the summer of 2019. EAC officials noted that it will likely take 12 to 24 months after the EAC commissioners approve the new guidelines before they are ready for use. EAC officials plan to submit to the EAC commissioners a range of recommended dates to consider for implementation. They added that in developing these dates, including when vendors will be required to test new equipment against the updated guidelines, they must consider various factors such as the time voting equipment vendors will need to build their new equipment to VVSG 2.0, and reaccreditation of voting system test laboratories to ensure they can test to VVSG 2.0. Because of the lag between when the guidelines will be issued and when they will be used for testing and certification, EAC officials stated that it is unlikely that systems will be certified in time to be ready for use in the 2020 election. However, these officials noted that they are available to meet with vendors that would like to start developing equipment based on the new guidelines. Agency and Third- Party Comments We provided a draft of this report to the EAC, NIST, and election offices in the five local election jurisdictions that we selected and their respective states for review and comment. The EAC, two jurisdictions, and two states provided technical comments, which we incorporated in the report as appropriate. NIST, three jurisdictions, and three states indicated that they had no comments in e-mails received from March 1 through March 23, 2018. We are sending copies of this report to the EAC, NIST, election offices in the five selected local jurisdictions and their respective states that participated in our research, appropriate congressional committees and members, and other interested parties. In addition, this report is available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions, please contact Rebecca Gambler at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology This report addresses the following questions: 1. What types of voting equipment did local election jurisdictions use for the 2016 general election, and what are jurisdiction perspectives on equipment use and performance? 2. What factors are considered when deciding whether to replace voting equipment and what approaches have selected jurisdictions taken to replace their equipment? 3. What are selected stakeholders’ perspectives on how federal voting system guidelines affect the replacement and development of voting equipment, and what actions has the Election Assistance Commission (EAC) taken to update the guidelines? Objective 1 For our first objective, we conducted a web-based survey of officials from a stratified random sample of 800 local election jurisdictions nationwide to obtain information from the jurisdictions on the voting equipment used during the 2016 general election and perspectives on equipment use and performance. In total, we received 564 completed questionnaires for a weighted response rate of 68 percent. We surveyed the officials about the types of voting equipment they used, various characteristics of the equipment used, their perspectives on the benefits and challenges they experienced while using the equipment, and how satisfied they were with its performance during the election. Overall, there are 10,340 local election jurisdictions nationwide that are responsible for conducting elections. States can be divided into two groups according to how they delegate election responsibilities to the local election jurisdictions. One group is composed of 41 states that delegate election responsibilities primarily to counties. We also included the District of Columbia in this group of states. However, even within this group there are some exceptions to how election responsibilities are delegated. For example, there are no counties in Alaska, so the state groups all of its Boroughs and Census Areas into four election regions; and 6 states—Illinois, Maryland, Missouri, Nevada, New York, and Virginia—delegate responsibilities to some cities independently from counties. The group of 41 states and the District of Columbia contains about one-fourth of the local election jurisdictions nationwide. The other group is composed of 9 states that delegate election responsibilities to subcounty governmental units, known by the U.S. Census Bureau as Minor Civil Divisions (MCD). This group of states contains about three- fourths of the local election jurisdictions nationwide. The categorization of the 50 states and the District of Columbia by how election responsibilities are organized is as follows (states in bold delegate election responsibilities to some cities independently from counties): County-level states: Alabama, Alaska (four election regions), Arizona, Arkansas, California, Colorado, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming MCD–level states: Connecticut, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, Rhode Island, Vermont, and Wisconsin While 27 percent of election jurisdictions nationwide are in states that delegate election responsibilities primarily to counties, according to the 2010 Census, 89 percent of the U.S. population lived in these states. The U.S. population distribution between the two state groups is shown in table 5. The sampling unit for our survey was the geographically distinct local election jurisdiction at the county, city, or MCD level of local government (or, in Alaska, the election region). We constructed our nationwide sample frame of all local election jurisdictions using 2010 decennial Census data and information on local jurisdictions from state election office websites. Census population data were available for all counties, county equivalents, and MCDs. To obtain a representative sample that included a mix of both rural and non-rural jurisdictions, we used a two-level stratified sampling method in which the sample units, or jurisdictions, were broken out into rural and non-rural strata. To do this, we used the U.S. Department of Agriculture’s Economic Research Service’s Rural-Urban Continuum Code (RUCC) system which classifies counties into a nine-category continuum based on their characteristics and location relative to metropolitan areas. The RUCC continuum coding scheme is shown in table 6. To assign a continuum code to each local election jurisdiction, we matched the RUCC county code to each county in the population frame. Cities that are independent local election jurisdictions and spread geographically across one or more counties received the lowest numbered code among the counties which contain them (i.e., most urban). For independent cities that administer their own elections but are contained geographically within a single county, the city received the code assigned to the county. Where necessary, the parent state’s 2010 decennial Census report was checked to make sure all counties that included part of the independent city were identified. MCDs in New England and the Midwest received the code of the parent county that contained them. For our sampling purposes, the rural stratum was defined as all local election jurisdictions with an RUCC code of 7, 8, or 9. The non-rural stratum was defined as all local election jurisdictions with a code of 1, 2, 3, 4, 5, or 6. Of the 10,340 local election jurisdictions nationwide, 70 percent were classified as non-rural while 30 percent were classified as rural. We selected a two-level stratified sample of 800 local election jurisdictions. Using the RUCC codes, we allocated 600 sampling units, or jurisdictions, to the non-rural stratum and 200 to the rural stratum. To obtain a sample that also reflected the population distribution across jurisdictions nationwide, we used the population of the local election jurisdiction as the measure of unit size and selected the sample units within each stratum with probability proportionate to population of the local election jurisdiction, without replacement. We used jurisdiction population size, rather than the number of eligible or registered voters, because these Census data were readily available for all counties and MCDs nationwide. Because the sample was selected with probability proportionate to population size, any jurisdiction (county or MCD) with more than about 225,000 people was selected with certainty. Table 7 shows the breakout of jurisdictions by population size, the total population within each size grouping, and the number of jurisdictions sampled. After selecting the units to be included in our survey sample, we obtained contact information for the chief election official within the jurisdictions selected. To do this, we first collected contact information for local election jurisdictions from state election office websites and other publicly available sources. We then called the jurisdiction offices directly to confirm the accuracy of the information and the appropriate official and e- mail address to which the survey URL and the respondent’s login information for the questionnaire should be sent. We launched our web- based local election jurisdiction survey on March 27, 2017, and made it available to respondents to complete online through July 14, 2017. Log in information to the survey was e-mailed to the chief election official of each sampled jurisdiction. Between April 4, 2017, and July 10, 2017, we conducted follow-up with nonrespondents by phone and e-mail. During this follow-up, we learned that some MCDs in Minnesota contract with their respective counties to carry out election administration responsibilities, including those concerning the use of voting equipment. In these cases, we reassigned and sent the questionnaire for the particular MCD to the appropriate county election official for completion. Finally, we adjusted the sampling weights to compensate for nonresponse using weighting classes within each stratum that were based upon population size of the jurisdictions. All sample surveys are subject to sampling error—that is, the extent to which the survey results differ from what would have been obtained if the whole population had been observed. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. As each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval. This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. As a result, we are 95 percent confident that each of the confidence intervals based on our web-based survey includes the true values in the sample population. In addition to the reported sampling errors, the practical difficulties of conducting any survey may introduce other types of errors, commonly referred to as nonsampling errors. For example, differences in how a particular question is interpreted, the sources of information available to respondents, or the types of people who do not respond can introduce unwanted variability into the survey results. We took numerous steps in questionnaire development, data collection, and the editing and analysis of the survey data to minimize nonsampling errors. For example, to inform the development of our questionnaire, we reviewed existing reports and studies about voting equipment and elections, such as those by various national public policy research organizations and professional associations of state and local officials involved in election administration, as well as previous GAO surveys and work related to this issue area. In addition, we interviewed election subject matter experts and representatives from organizations in the field of election administration and voting equipment to obtain their views and perspectives on potential issues and subject areas to consider covering in our questionnaire. We also pretested the draft questionnaire by telephone with officials in 4 local election jurisdictions (3 counties and 1 MCD) of various sizes in 4 states and had the draft questionnaire reviewed by two election experts. We used these pretests and reviews to further refine our questions, develop new questions, clarify any ambiguous portions of the questionnaire, and identify any potentially biased questions, and made revisions, as necessary. Further, during our analysis of the responses, we found that due to a higher level of nonresponse by very small jurisdictions of 2,500 persons or less, some national-level estimates that included responses from jurisdictions of all sizes had wider than desired confidence intervals. To improve the precision of these national-level estimates, we subsequently excluded the very small jurisdictions of 2,500 persons or less from our analysis. Computer analyses were conducted to identify any inconsistencies in response patterns or other indications of questionnaire response errors. All computer syntax was peer reviewed and verified by separate programmers to ensure that the syntax had been written and executed correctly. Unless noted otherwise, the point estimates we report are national-level point estimates representing the experiences, views, and opinions of all local election jurisdictions nationwide with populations greater than 2,500. We also provide some point estimates for jurisdiction population subgroups, such as large jurisdictions (greater than 100,000 persons), medium jurisdictions (25,001 to 100,000 persons), and small jurisdictions (2,501 to 25,000 persons), and jurisdictions that used a particular type of voting equipment, in cases where statistically significant differences exist between the subgroups that may be of interest. The jurisdictions we surveyed were selected with probability proportionate to population size, so rather than expressing the point estimates in terms of the percentage of jurisdictions nationwide that had a specified characteristic, we express the point estimates for the survey responses in terms of the percentage of the population nationwide that resides within jurisdictions that had a specified characteristic. Similarly, in instances where we report point estimates for jurisdiction subgroups, we express the point estimate in terms of the percentage of the population that resides within jurisdictions of that respective subgroup that had a specified characteristic. Objective 2 For our second objective, we used our local election jurisdiction survey as described above to obtain information from jurisdictions about the factors they consider when determining whether to replace their voting equipment. In addition to the local election jurisdiction survey, we also conducted a web-based survey of the state-level election offices in the 50 states and the District of Columbia about issues pertaining to the states’ role in selecting and acquiring voting equipment, including the factors considered when determining whether to replace voting equipment. In total, we obtained 46 responses (a 90 percent response rate). We took the same steps to develop the state questionnaire as we did in developing the local election jurisdiction questionnaire described above. We conducted pretests of our draft state questionnaire by telephone with election officials of 4 states with varying election system characteristics such as type of voting equipment used, population size, use of federal voting equipment certification processes, and age of equipment, among other characteristics. We also had the draft questionnaire reviewed by two election experts. We used these pretests and reviews to help further refine our questions, develop new questions, clarify any ambiguous portions of the survey, and identify any potentially biased questions, and made revisions, as necessary. Prior to fielding our state survey, we contacted the secretaries of state or other responsible state-level officials, as well as officials from the District of Columbia, to confirm the contact information for the director of elections or comparable official for their respective state. We launched our web-based state survey on April 6, 2017, and made it available to respondents to complete online through May 19, 2017. Log-in information to the survey was e-mailed to directors of elections or comparable officials. Between April 12, 2017, and May 16, 2017, we conducted follow- up with nonrespondents by phone and e-mail. The total number of responses to individual questions may be fewer than 46, depending upon how many respondents were eligible or chose to respond to a particular question. For example, survey respondents who indicated that their state did not have a role in determining whether to replace voting equipment were directed to skip all subsequent questions related to the factors considered when determining whether to replace equipment. Because this survey was not a sample survey, there are no sampling errors. However, the practical difficulties of conducting any survey may introduce nonsampling errors. For example, differences in how a particular question is interpreted, the sources of information available to respondents, or the types of people who do not respond can introduce unwanted variability into the survey results. We included steps in both the data collection and data analysis stages for the purpose of minimizing such nonsampling errors. For example, we examined the survey results and performed computer analyses to identify inconsistencies and other indications of error. Where these occurred, survey respondents were contacted to provide clarification and the response was modified to reflect the revised information. A second, independent analyst checked the accuracy of all computer analyses. The scope of this work did not include verifying states’ survey responses with local election officials. For additional perspectives and context on the factors considered by jurisdictions and states when replacing voting equipment, we also used our reviews of existing reports and studies about voting equipment and elections and interviews with election subject matter experts, including representatives from nongovernmental research and other organizations involved in the field of election administration and voting equipment. For our review of existing reports and studies, we reviewed literature covering the period from 2005 through 2017 including general news, trade and industry articles, association and nonprofit publications, and government reports related to voting system technology, specifically on the replacement and development of voting systems and voting system standards or guidelines. For our interviews, we identified and selected nine subject matter experts based on our review of reports and studies on voting equipment, their expertise and work in this area, and recommendations from these and other researchers. These subject matter experts represented the following organizations: (1) Brennan Center for Justice, (2) National Conference of State Legislatures, (3) National Association of Secretaries of State, (4) National Association of Counties, (5) National Association of State Election Directors, (6) Verified Voting, (7) Kennesaw State University Center for Election Systems, (8) Center for Election Innovation and Research, and (9) Election Data Services, Inc. The information we obtained from these experts cannot be generalized; however, these experts provided additional perspectives and information on the factors considered by jurisdictions and states when replacing voting equipment. In addition, we interviewed election officials from five local jurisdictions— Los Angeles County, California; Travis County, Texas; Anne Arundel County, Maryland; Lafayette County, Florida; and Beaver County, Utah— that replaced their voting equipment between 2012 and 2016 or plan to replace their equipment in time for the 2020 general election to learn about the approaches and practices they used and obtain their perspectives on the replacement process. We selected these jurisdictions to reflect variation in, to the extent possible, population of jurisdiction, type of voting equipment replaced and selected, state involvement in selecting and funding voting equipment, and particular practices used to replace equipment (e.g., self-designing equipment, leasing equipment), among other factors. For each jurisdiction, we interviewed—on site or by phone—local election officials, state election officials in the jurisdiction’s state, and individuals who have served as poll workers at the jurisdiction’s polling locations if applicable. While these five jurisdictions are not representative of all local election jurisdictions nationwide that replaced or plan to replace their voting equipment, they provide examples of various approaches for replacing voting equipment and perspectives on key issues with replacing equipment. We corroborated various information we obtained through these interviews by reviewing relevant state statutes and documentation that these jurisdictions provided to us, such as postelection reports, voting system studies, expenditure summaries, and solicitations for vendor proposals to provide voting equipment and services. Objective 3 To address objective 3, we used responses to our survey of state election officials and interviews with seven selected voting system vendors, the nine selected subject matter experts mentioned above, and officials from the EAC and National Institute of Standards and Technology (NIST) to obtain perspectives on how federal voting system guidelines and their associated testing and certification processes affect the replacement and development of voting equipment. We obtained perspectives on the most recent federal voluntary voting system guidelines (Voluntary Voting System Guidelines, versions 1.0 and 1.1) because they are currently being used to federally test and certify voting systems. We selected the seven voting system vendors based on the prevalence of jurisdictions’ use of their equipment, and to obtain variation in the type of voting system manufactured, such as optical scanners and direct recording electronic voting equipment, and whether systems were federally certified, under test to be certified, or not certified. We also wanted to include a company that plans to enter the voting system market and potentially submit its product for federal certification. Based on these criteria, we selected the following voting equipment vendors—Dominion Voting Systems, DFM Associates, Election Systems and Software, Everyone Counts, Hart InterCivic, Open Source Election Technology Institute, and Unisyn Voting Solutions. To determine the actions taken or planned by the EAC to update the federal voluntary voting system guidelines, we reviewed EAC and NIST documents and interviewed officials from the EAC and NIST about these actions. We also interviewed the seven selected voting system vendors about their involvement, if any, in updating the guidelines and their perspectives on these actions. The perspectives of the seven voting system vendors and nine subject matter experts are not generalizable but provide examples of views on the federal guidelines and their associated testing and certification processes from a range of stakeholders. We conducted this performance audit from June 2016 to April 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Categories of State Requirements for Federal Certification and Testing of Voting Systems We reviewed state statutes and regulations as of December 2017 regarding the testing and certification of voting systems to describe the extent to which state laws and regulations reference federal voting system certification or testing standards and the extent to which states require the use of these standards. As shown in table 8 below, we grouped the state laws into three categories for the purposes of this report: (1) requires full federal certification; (2) requires testing by a federally accredited laboratory and/or testing to federal voting system standards; and (3) no federal requirements. Category 2 includes states that use some aspect of the federal testing and certification program but do not require full certification. A number of states in this category require both testing by a federally accredited laboratory and testing to federal standards, but we included in this category states that had either requirement in state law or regulation. Category 3 includes some states that utilize the federal certification or testing standards to some extent but that do not require certification or testing to meet federal standards by law or regulation. We then sent our categorization to state officials in the 50 states and the District of Columbia and incorporated changes that we received from those officials. Appendix III: Results of GAO’s Survey of Local Election Jurisdictions on Voting Equipment To determine the types of voting equipment local election jurisdictions used for the 2016 general election, jurisdiction perspectives on equipment use and performance, and the factors jurisdictions consider when deciding whether to replace voting equipment, we conducted a web- based survey of officials from a stratified random sample of 800 local election jurisdictions nationwide. In total, we received 564 completed questionnaires for a weighted response rate of 68 percent. The questions we asked in our survey are shown below. Our survey was composed of closed- and open-ended questions. In this appendix, we include all survey questions and results of responses to the closed-ended questions; we do not provide information on responses provided to open- ended questions. The tables below represent the estimated percentages of the jurisdictions’ responses to the closed-ended questions. The estimates we report are rounded to the nearest percentage point and are national-level point estimates representing the experiences, views, and opinions of all local election jurisdictions nationwide with populations greater than 2,500. Because our estimates are from a generalizable sample, we express our confidence in the precision of our particular estimates as 95 percent confidence intervals which are also provided in the tables. As the jurisdictions we surveyed were selected with probability proportionate to population size, rather than expressing the point estimates in terms of the percentage of jurisdictions nationwide that had a specified characteristic, we express the point estimates for the survey responses in terms of the percentage of the population nationwide that resides within jurisdictions that had a specified characteristic. For a more detailed discussion of our survey methodology, see appendix I. Survey Contact Question 1 (open-ended question): What is the name, title, telephone number, and e-mail address of the primary person completing this questionnaire so that we may contact someone if we need to clarify any responses? Use of Commercial Off-the-Shelf (COTS) Components The Election Assistance Commission’s (EAC) Voluntary Voting System Guidelines, Version 1.1, defines commercial off-the-shelf (COTS) products as software, firmware, devices, or components that are used in the United States by many different people or organizations for many different applications other than certified voting systems and are incorporated into the voting system with no manufacturer- or application- specific modification. Examples of COTS components include hardware that can be purchased commercially (e.g., tablet devices, scanners, printers, memory cards or chips, etc.) and integrated as part of voting equipment. The next series of questions asks about your jurisdiction’s integration of COTS components into voting equipment that was acquired from a vendor or self-designed by your jurisdiction. For the purpose of questions 30-36 (the next 7 questions), the term “voting equipment” refers only to the equipment your jurisdiction used to cast and count votes. Additional Comments Question 58 (open-ended question): If you have any additional comments concerning any of the topics covered in this questionnaire, please use the space below. Appendix IV: Results of GAO’s Survey of States on Voting Equipment To obtain information on the types of voting equipment used in the 2016 general election and the factors states consider when deciding whether to replace voting equipment, we conducted a web-based survey of state- level election offices in the 50 states and the District of Columbia. The questions we asked in our survey of state election offices are shown below. Our survey was composed of closed- and open-ended questions. In this appendix, we include all survey questions and results of responses to the closed-ended questions; we do not provide information on responses provided to open-ended questions that required manually entered text responses. The tables below represent the frequencies of state responses to the questions. We received surveys from 46 states (a 90 percent response rate), while 5 states did not respond. However, the total number of responses to individual questions may be fewer than 46, depending upon how many states were eligible or chose to respond to a particular question. For a more detailed discussion of our survey methodology, see appendix I. Survey Contact Question 1 (open-ended question): What is the name, title, telephone number, and e-mail address of the primary person completing this questionnaire so that we may contact someone if we need to clarify any responses? Additional Comments Question 46 (open-ended question): If you have any additional comments concerning any of the topics covered in this questionnaire, please use the space below. Appendix V: Approaches to Voting Equipment Replacement in Selected Local Election Jurisdictions The five local election jurisdictions we selected to include in our review— Los Angeles County, California; Travis County, Texas; Anne Arundel County, Maryland; Lafayette County, Florida; and Beaver County, Utah— used varying approaches in replacing their voting equipment. Election officials in these jurisdictions and in their respective state election offices provided a range of perspectives on their experiences and the replacement process. Los Angeles County, California Los Angeles County is the most populous local election jurisdiction in the nation. It currently uses hand-marked paper ballots that are tallied using central count optical scan equipment, which has been in place since 2003. Prior to 2003 and dating back to 1968, these same ballots were used for its punch card voting system. The county is in the process of self-designing its own voting system, which is expected to consist of electronic ballot marking devices (BMDs) that produce paper ballots to be tallied on central count digital scanners, and plans to fully implement it in 2020. Key Factors That Influenced the County’s Decision to Replace Its Voting Equipment According to county officials, the overall performance and features of the county’s voting equipment and the need for the equipment to meet potential state and local requirements were among the key factors that influenced the county’s decision to begin the process of replacing its optical scan system. County election officials stated that while the county’s current voting equipment is reliable, accurate, and familiar to voters, the design and the age of the equipment do not offer the technical and functional flexibility necessary to continue to accommodate potential state regulatory changes and the growing and increasingly diverse county electorate. For example, officials stated that the current equipment may not be able to effectively accommodate state mandates that may require changes to ballot formats or length. Specifically, officials said that state legislation enacted in 2015 requires many cities within Los Angeles County to consolidate their elections with the county’s by 2022, and as a result, the number of races and measures on the ballot may exceed the 12-page capacity that the current equipment can accommodate. They also noted that the technical limitations of the equipment present challenges to providing voters with greater voting options, such as early voting or the use of vote centers on Election Day, and features that enhance accessibility and ease of use. Planned New Voting Equipment and In-Person Voting Process The county has developed a design concept and specifications for its new voting equipment and is in the process of soliciting and selecting vendors to manufacture it. It has acquired several functional prototypes of the current design for the new equipment and has outlined the planned in- person voting process using this equipment, as shown in figure 11. According to county officials, the equipment specifications and in-person voting process have not been finalized and continue to be refined. County officials stated that the current design concept for the new equipment is intended to provide greater flexibility in administering elections, provide a more user-friendly and accessible voting experience, enhance accuracy and auditability, and could potentially lower costs for system upgrades if developed as planned: Greater flexibility for administering elections. According to county election officials, the new equipment is designed to provide more flexibility for administering elections and to respond to changing legislative provisions on conducting elections. For example, the California Voter’s Choice Act, which was enacted in September 2016, generally authorizes Los Angeles County to conduct vote center elections beginning in 2020 if certain conditions are met. Officials stated that the proposed new equipment is expected to facilitate the use of vote centers because it would have the capability to electronically retrieve a voter’s ballot regardless of the precinct in which the voter is registered. They also noted that the BMD would allow the county to have ballots with multiple formats and a large number of races. A more user-friendly and accessible voting experience. County election officials stated that the BMD is intended to provide the ease of use of a touch screen interface, which would incorporate features such as scrolling and tapping that are familiar to voters who use mobile devices. The BMD would also allow voters to select from English or the 11 other languages the county plans to support and is designed to include accessibility devices, such as a headset and tactile keypad for voters with vision impairments and other disabilities. Voters would be able to make their selections and cast their paper ballot without having to handle the ballot. Officials stated that these features are expected to allow voters with special needs to use the same equipment as all other voters and cast their votes independently and privately. The county’s proposed design also includes an interactive sample ballot which voters can access from their computers or mobile devices to pre-mark their vote selections, convert to a Quick Response (QR) code, and then scan into the voting equipment to populate their ballots. Officials stated that this feature may help reduce lines by decreasing the time it takes for voters to mark their ballots once they reach the BMD. Enhance accuracy and auditability. The new voting equipment is designed to record vote selections on paper in human readable text. County officials stated that this is expected to more clearly capture voter intent than manually marked ballots, reduce the time and resources needed by county staff to interpret voters’ intent, and increase the accuracy of election results and public trust in the voting process. Officials stated that the new equipment is also expected to improve the county’s auditing capabilities. For example, the digital scanner is designed to allow the county to efficiently audit the results of individual races and measures, including conducting risk-limiting audits in which a specified number of ballots cast for a particular race are reviewed to confirm the election result for that race. According to officials, the county’s current equipment tallies ballots by precinct and does not keep an electronic record of the specific votes cast on individual ballots. As such, it provides the capability of auditing the results by precinct but not individual races at the ballot level. Easier and less costly upgrades. According to county officials, the design of the voting equipment is intended to be modular so that key components can be replaced individually. Officials stated that this is intended to allow the county to more easily update equipment and incorporate technological advances because it will be able to swap out components if more affordable, better technology becomes available on the market. Officials said that the cost of replacing equipment parts is expected to be lower than with traditional voting systems. Process for Developing the New Voting Equipment Los Angeles County’s Voting Systems Assessment Project (VSAP) was established by the Registrar-Recorder/County Clerk in 2009 to help guide the development and acquisition of the county’s new voting equipment. According to county election officials, the VSAP has taken a user- centered approach to the design of the new voting equipment that prioritizes the specific needs and expectations of the voters and incorporates the requirements of county election administrators. Officials also stated that they sought to have a transparent design process that included voter input and participation to help promote public confidence in the new voting equipment. The project has five phases—(1) public opinion and stakeholder baseline research, (2) establishment of voting system guiding principles, (3) system design and engineering, (4) manufacturing and certification, and (5) phased implementation. The county is currently in the manufacturing and certification phase. Officials reported that about $19 million has been expended to develop the new voting equipment as of December 31, 2017. Officials also stated that after the new system is certified, an additional $49 million in state funds from the Voting Modernization Bond Act of 2002 will be available to the county. Table 108 describes the VSAP phases, their associated expenditures and funding sources, and examples of key actions taken or planned in each phase. County officials told us they plan to retain ownership of the intellectual property rights of the new voting equipment so that the system remains publicly owned and not proprietary like traditional vendor equipment. The county also plans to use an open source technology framework wherein the source code for the system software is available for review and use by other election jurisdictions and entities by license. According to county election officials, this will allow other jurisdictions to, for example, have similar systems manufactured for their use. Officials stated that having the county own the system design on behalf of the public and using an open source software model are expected to provide greater flexibility for any jurisdictions using the software to cost-effectively make modifications to the equipment and adapt it to their varying needs and requirements. For example, jurisdictions would no longer be limited to relying on a single manufacturer if they would like to make an enhancement to the equipment or replace parts. Officials noted that there is currently no licensing model or institutional framework in use for a publicly owned elections system. However, they stated that open source technology solutions in other industries have been successfully implemented and administered, and the county’s new system software could potentially be licensed and administered in a similar manner. In addition, county officials stated that they have outlined a clear business plan in the Request for Proposal (RFP) and during various information sessions with vendors which officials believe will help incentivize them to participate in building the system without potentially owning the equipment or its intellectual property rights. Specifically, officials noted that vendors would primarily receive revenue from the services they would provide, such as building the equipment and software platform and providing ongoing maintenance and support, rather than from selling the equipment itself. County officials stated that implementing the new voting equipment and moving to vote center elections in 2020 are changes to administering elections for the county that will require a substantial educational and informational effort. Officials noted that they have involved numerous stakeholders throughout the VSAP process to help effectively prepare for these changes and plan to allocate resources to educate voters and train poll workers. Some of these efforts are already underway. For example, the county has posted information and videos on the planned new voting equipment and process on the VSAP website and has been using the BMD prototype for public demonstrations and internal training on the new voting process. Travis County, Texas Travis County currently uses direct recording electronic (DRE) equipment without a voter-verified paper audit trail (VVPAT), which has been in place since 2001. The county also has conducted vote center elections since 2011. Starting in 2009, the county took steps to design and build its own equipment, including developing a concept for a DRE with a VVPAT that centered on system security and auditability. In September 2017, the county decided to no longer pursue building the voting equipment and plans to purchase equipment from a vendor. The county plans to have the new equipment in place for the 2020 election. Key Factors That Influenced the County’s Decision to Replace Its Voting Equipment According to county officials, the overall performance and features of the county’s voting equipment was the primary reason for deciding to begin the process of replacing its DREs. In 2009, the Travis County Clerk convened an Election Study Group to assess the county’s current equipment and make recommendations for future equipment. This group was composed of 45 members representing election officials and workers, advocacy organizations, voters with disabilities, computer security experts, academics, and other segments of the community. According to the report that the group issued, most members expressed confidence in the way Travis County conducted elections and in the accuracy of its current equipment. However, they also expressed concerns over the equipment’s age and the lack of a paper trail, which they said decreased voter trust in the system and increased the risk of election equipment tampering. The group noted that the Travis County Clerk’s Office’s use of safeguards and security and testing procedures beyond those required by law helped minimize the risk of tampering. The report recommended that the county move toward using equipment that offers an electronic count and paper record as soon as an alternative that met the county’s requirements became available. Selection and Acquisition of New Voting Equipment Development of Self-Designed Voting Equipment The Election Study Group outlined 19 key requirements that Travis County’s new equipment should meet. The requirements included, for example, producing a paper voting record that can be verified by the voter and be used to independently, transparently, and efficiently reconcile an electronic tally in an audit or recount; allowing voters with special needs to vote using the same equipment as other voters; enabling early voting and the use of vote centers; and having reasonable purchase, operational, and system upgrade costs. The group found that no equipment on the market in 2009 met the needs of the county and, as a result, the county began exploring options to design its own equipment. Officials stated that this effort was also intended to provide an alternative to the current vendor model that could reduce maintenance costs and annual licensing fees that are incurred with proprietary systems. In 2012, the county Clerk convened a group of election administrators, usability experts, and academic experts in computer science and statistics, and through a series of discussion sessions, developed the concept for the county’s new system, which they named STAR (Secure, Transparent, Auditable, and Reliable) Vote. STAR-Vote was designed to be centered around a DRE that produces verifiable and auditable paper records. At the polling place, voters would make their selections on a DRE device with a commercial off-the-shelf (COTS) tablet, which would also be equipped with an auditory interface for visually impaired voters and other features to assist individuals with special needs. The voters’ selections would be encrypted and stored on the internally networked DRE devices, and voters would also receive a printed paper record with their choices. After reviewing the paper record and confirming their selections, voters would feed the paper record into a ballot box scanner to cast their vote. Once the polls closed, the devices storing the votes would be transported to receiving stations, where voting data are transmitted for electronic tabulation. The paper records would be available for audit or recount purposes. In addition, county officials stated that the equipment’s proposed encryption technology was designed to potentially allow for the following features without revealing any individual’s vote: Voters would receive a receipt that was attached to their paper records at the polling place and could go online after Election Day and use a code on the receipt to verify that their ballots had been cast and counted. Third parties, such as the League of Women Voters or political parties, could access encrypted voting data to verify that the results the county had reported matched vote totals they had independently derived from the data. The county could conduct risk-limiting audits to verify the consistency between the electronic and printed vote records and test the accuracy of the reported election outcomes. Audits could be conducted on individual ballots or races if needed. In June 2015, the county issued a Request for Information for STAR-Vote to solicit input on the design, development, implementation, and maintenance of the equipment. Based on information gathered from the request, it issued an RFP in October 2016 to solicit proposals from voting system vendors and others for the development and implementation of key components of the equipment for in-person voting. The county also issued a Statement of Intent for the equipment to inform interested parties of the county’s planned approach for the long-term management and support of STAR-Vote. According to these documents, the county planned to own the intellectual property rights for the equipment and provide open source software for its system to the elections community under a licensing agreement, which would allow other jurisdictions to use similar equipment. The Statement of Intent described the formation of a nonprofit organization to manage and support STAR-Vote and sought $25 million in funding from interested parties to complete the development of the open source software components, support the organization’s operating budget for the first 5 years, and provide a cash reserve. The county planned to use these funding commitments and local budget appropriations to develop, build, and deploy the equipment. In September 2017, the county announced that it had decided to no longer pursue developing and building STAR-Vote. The county stated that it received 12 proposals in response to the RFP but they were not sufficient to build a complete voting system. According to county officials, none of the proposals included the election management system for the equipment that would handle ballot definition and the tallying of results, among other related tasks. In addition, officials stated that they received limited responses to their solicitation for financial commitments in the Statement of Intent and thus lacked the necessary funding to develop and build the equipment. Officials noted that the open source software platform they had envisioned was seen by voting equipment vendors as a low-revenue business model in the current elections marketplace. They added that potential participants in a STAR-Vote entity may not have had a clear concept of how its business model might work, which they said was perhaps due to the county’s more limited focus on this aspect when they were initially designing the system. Given these obstacles and the age of the county’s current equipment, the county decided that it needed to move toward acquiring more immediately deliverable voting equipment through a voting system vendor. Selection and Acquisition of New Voting Equipment from a Vendor The county has incorporated some of the features of STAR-Vote into its requirements for new voting equipment. According to county officials, the county plans to acquire either DREs or ballot marking devices with precinct count digital scanners because, in their view, they are accurate (e.g., prevent voter errors, such as overvotes or stray marks on the ballot, and minimize questions about voter intent), allow individuals with disabilities to vote on the same equipment as other voters, support vote center elections, and offer fast reporting of election results. The county also plans to require that its next voting equipment have the following features: A voter-verified, paper list of choices for recount purposes. County officials stated that the equipment must produce printed paper records that can be tallied and connected with electronic voting records through an automated process. This electronic connectivity would allow paper-ballot recounts to be conducted on individual races. Security features that include support for third party verification of results and better postelection audits. According to county officials, the equipment they acquire must allow for third parties to independently verify reported election results and must support risk- limiting audits. Officials stated that they believe there is or will be equipment on the market in the near future that could support these features. They noted that they are also prepared to work with vendors to customize existing equipment to meet the county’s requirements if needed, acknowledging that such additions may increase expenses or require additional time to recertify parts of the voting system. County officials estimate that the new equipment will cost about $16 million and stated that acquisition will be funded through local bonds. County officials said they would like to have the new equipment in place for the 2020 election, which would require them to start deploying it no later than May 2019. The county issued an RFP for the system in November 2017, and officials stated that they plan to assemble a group of stakeholders similar to those who participated in the 2009 Election Study Group, as well as the individuals who designed STAR-Vote, to help evaluate the proposals received. Officials noted that their current equipment is functioning and robust, but that the new equipment must be deployed before the current equipment begins to degrade. In addition, they stated that the May 2019 implementation date is the latest possible date in order to allow sufficient time to educate voters and train county staff and election judges on the new equipment before using it in the 2020 election. Anne Arundel County, Maryland Anne Arundel County had used DREs without a VVPAT since 2004 and replaced its equipment in 2016 with a system in which voters manually mark paper ballots and insert them into precinct count digital scanners which then count them. Maryland requires the use of uniform voting equipment in polling places statewide and the state and counties each pay 50 percent of the costs of acquiring equipment. In our state survey, Maryland officials reported that the state determines when voting equipment is to be acquired and selects the type and model of voting equipment that local jurisdictions use. Key Factors That Influenced Maryland’s Decision to Replace Its Voting Equipment According to the Maryland State Board of Elections (SBE) and Anne Arundel County Board of Elections officials, the need for voting equipment to meet state requirements, the overall performance and features of the equipment, and the ability to maintain the equipment were among the key factors that influenced the state’s decision to replace its equipment. Specifically, in 2007, Maryland enacted a law that prohibited the use of a voting system unless the SBE determined that the system provides a voter-verifiable paper record, thereby requiring the state’s DREs to be replaced. SBE officials said that the passage of the new law was driven primarily by a push from voting advocates to move to new equipment that used paper ballots and provided a verifiable paper trail. Although the law was enacted in 2007, state funding for the new equipment was not available until 2014 due to budgetary constraints. While the change in state law was the main reason for replacing its voting equipment, both SBE and Anne Arundel County officials noted that the state’s previous DRE equipment was nearing the end of its life cycle and various problems had begun to occur more frequently. For example, SBE officials said that nonresponsive touch screens and battery unit failures became more common with the equipment used in the state. In addition, Anne Arundel County officials stated that while their equipment generally performed satisfactorily, some of the touch screens had begun to degrade and develop calibration issues, which resulted in the appearance of incorrectly recording voters’ selections. In addition, county officials said that the equipment could no longer support certain software or security updates, and replacement parts were challenging to acquire. Selection and Acquisition of New Voting Equipment According to SBE officials, state law specifically required the purchase of precinct count scanners so the board did not consider other types of voting equipment. The SBE issued an RFP in July 2014 and four voting system vendors submitted proposals. The SBE formed an evaluation committee to analyze the technical and financial details of the proposals. According to SBE officials, the committee’s members included a state official with expertise on voting systems, a county election director, a county technical specialist, and election experts and researchers, among others. Anne Arundel County election officials stated that the SBE also established various subcommittees to solicit input from county officials as the state made its selection. They said that relevant local elections staff members were involved in the selection process and that in their view, the process had worked well. According to SBE officials, in addition to assessing the vendors’ proposals, the evaluation committee worked with the University of Baltimore to perform usability and accessibility testing on the equipment under consideration. The committee also hosted a public demonstration to collect feedback on such areas as ease of use and confidence that votes were accurately cast. Officials stated that after conducting its assessment of the equipment, the committee presented its findings to the SBE, and in October 2014, the board selected the voting equipment to be acquired based on the committee’s recommendation. Maryland requires equipment to be certified by the EAC and the SBE before use in the state. The selected equipment had been certified by the EAC in July 2014 and was certified by the SBE in December 2014. As part of the certification process, the SBE tested the equipment to ensure that it met requirements in the Maryland elections code, including simulating primary and general elections using ballots typically used by jurisdictions in the state, and reviewed the findings from the public demonstration and usability testing performed during the selection process. The SBE decided to lease rather than purchase the equipment for a number of reasons. Specifically, SBE officials said that leasing provided increased flexibility to update or replace equipment more frequently and had lower upfront costs. In addition, the state did not want to buy new equipment until the implementation of updated federal guidelines. Under the current contract to lease the digital scan equipment, payments are made to the vendor on a quarterly basis. According to SBE officials, the current payment to the vendor for leasing the digital scan equipment statewide is approximately $1.1 million per quarter. SBE officials said that the process to acquire new equipment is inherently challenging, but in their view, the process generally went well. Knowing what type of equipment the state needed to acquire simplified the process and reduced the number of proposals that officials needed to review. Nevertheless, they noted that the process took more of their time and resources than they had anticipated, which presented challenges because the state was holding elections during the same time period it was selecting and acquiring the equipment. However, the SBE met its goal of implementing the new equipment by 2016. Deployment of New Voting Equipment SBE and Anne Arundel County officials stated that deployment of the new equipment in the 2016 general election went smoothly with no significant challenges. The officials said they took a number of steps to help ensure a successful rollout. For example, SBE officials said that they established a strong project management team and hired contractors to assist with tracking progress toward key deadlines; drafting policies, procedures, and training manuals; and testing equipment and sending it to the counties. Anne Arundel County officials said that they hired about 40 temporary staff to assist with deploying the new equipment and other tasks during the general election. In addition, they stated that the county conducted extensive election judge training and held mock elections using the new equipment. The officials noted that with the new paper-based system, the county needed to recruit and train more election judges compared to past elections to hand out ballots, show voters how to operate the equipment, and handle provisional voting. The two election judges we interviewed stated that the training they received was very comprehensive and effectively prepared them for Election Day. Both SBE and Anne Arundel County officials stated that additional voter education efforts would have been beneficial. According to SBE officials, the SBE had developed plans for a statewide multimedia effort to educate voters on the new equipment but did not receive funding to implement it. A scaled down effort was carried out instead, which included demonstrating voting equipment at meetings and fairs around the state, producing local media news stories, and posting a video on the SBE’s website on how to use the new equipment. SBE and Anne Arundel County officials stated that the more limited voter education efforts might have contributed to longer lines on Election Day in some polling places because many voters were unfamiliar with the equipment and some had questions or needed assistance with using it. However, these officials noted that voter wait times were not a widespread or significant issue during the general election. The two election judges we interviewed stated that some voters needed help inserting their ballots into the scanner, but observed that voters generally appeared to find the new equipment easy to use. They also noted that some voters commented that paper ballots provided them with reassurance with regards to the security of their vote. SBE and Anne Arundel County officials said that the equipment itself performed satisfactorily in the 2016 general election with only minor problems. For example, state officials said that the scanners jammed occasionally, but this was easily resolved by elections personnel. In addition, most polling locations in the state were allocated only one scanner, so some jurisdictions with two-page ballots, such as Anne Arundel County, experienced lines because of the length of time it took for voters to scan their ballots. Anne Arundel County officials plan to analyze voter registration data to help determine the number of scanners needed at each polling place and share the information with the SBE to help inform allocations for future elections. More generally, SBE officials noted that the new system has less equipment to manage—about 2,600 digital scan units compared to the approximately 18,000 DRE units used statewide in prior elections—so there is less pre-election testing and postelection maintenance that has to be done, saving time and labor for the state and counties. The state contracted with a third party vendor to conduct a postelection audit of the 2016 general election by using independent software to tally all digital ballot images. The audit confirmed the accuracy of the election results. According to SBE officials, the new equipment’s ability to capture and store digital images of the ballots made this type of audit possible. Anne Arundel County officials stated that the ability to conduct such an audit is one of the main benefits of the new equipment. Lafayette County, Florida Lafayette County has a small population and, in 2016, replaced its precinct count optical scan equipment with precinct count digital scan equipment. The county formed a consortium with other counties in the state to help acquire its new equipment. Key Factors That Influenced the County’s Decision to Replace Its Voting Equipment According to the county’s Supervisor of Elections, the cost to acquire new equipment and availability of funding and the need to meet state requirements were among the key factors that influenced the county’s decision to replace its voting equipment. He stated that Lafayette County’s optical scanners were approximately 15 years old but were generally in good condition and performed satisfactorily in prior elections. County officials had planned to replace the county’s aging voting equipment by 2018 or 2020, but decided to replace it in 2016 because of the opportunity to join a consortium of counties that formed to acquire new equipment, which the Supervisor stated helped secure funding for and lower the costs of purchasing the equipment. In addition, the Supervisor of Elections said that, to comply with state law, the county needed to acquire a paper ballot system with a BMD to replace the DRE it had used for voters with disabilities. Specifically, as of July 2008, Florida law required all voting in the state to be done using mark-sense paper ballots, which are generally counted using optical or digital scanners, except for voting by individuals with disabilities. Current state law requires jurisdictions to use these paper ballots for accessible voting by 2020. As such, according to the Supervisor of Elections, part of the impetus for acquiring new voting equipment was to replace the county’s DRE to meet the 2020 deadline in the law. Selection and Acquisition of New Voting Equipment The Supervisor of Elections stated that Lafayette County is a small county and does not have much purchasing power. He said that Lafayette County and other small counties in the state formed a consortium to lobby the state for assistance and to leverage their collective purchasing power. The 12-county consortium was established in a 2015 meeting that was attended by county election officials, the Florida Deputy Secretary of State, and the vendor that supplied the counties’ previous voting system. According to the Lafayette County Supervisor of Elections, the consortium decided to purchase precinct count digital scanners from the same vendor the counties had used before because county staff were familiar with the vendor and equipment, and the cost for the equipment was lower than similar equipment from another vendor that some counties in the consortium had considered. In addition, the Supervisor of Elections stated that the digital scanners have features that were an improvement over the county’s previous optical scan equipment. For example, he stated that the new scanners have more robust security features, such as locking panels, seals, and a requirement for a passcode to access the system. He also noted that the scanners have touch screens that flip up and are back-lit, which are easier for voters and poll workers to read and more clearly identify overvotes. Further, he stated the scanners digitally capture and store ballot images. The two Lafayette County poll workers we interviewed confirmed that the new equipment more clearly identified overvotes for them and for voters than did the previous equipment. According to the county’s Supervisor of Elections, having the consortium approach state officials as a group helped secure HAVA funds to help the counties purchase the voting equipment. In addition, he stated that being a part of the consortium helped the counties negotiate a lower price for their equipment than what they could have obtained individually because they pooled their purchases and acquired a higher volume of machines. While the consortium negotiated as a unit, each county has an individual contract with the vendor. The Supervisor of Elections stated that the total cost to purchase Lafayette County’s new voting equipment—which included seven digital scanners, seven BMDs for voters with disabilities, and various system components—was about $70,000. The equipment was acquired primarily with HAVA funds, although he noted that the county allocated about $12,000 in local funds to purchase three additional BMDs. A memorandum of agreement for funding and purchasing the equipment was signed by Lafayette County and the state in November 2015 and, according to the Supervisor of Elections, the equipment was acquired in late 2015 and first used in the March 2016 primary election. Deployment of New Voting Equipment The Supervisor of Elections and the two poll workers we interviewed stated that deployment of the new voting equipment went smoothly and the county did not experience any challenges because the new and previous equipment are both precinct count scanning systems. The Supervisor noted that the voting process remained the same for the voter, so extensive voter education efforts were not needed. He stated that Lafayette County did not experience any equipment malfunctions during the November 2016 general election, and a postelection audit that was conducted, in which the county manually tallied ballots from a randomly selected race and precinct, found that the results were accurate. Beaver County, Utah Beaver County has a small population and previously used DREs with a VVPAT. In 2014, Beaver County began conducting vote-by-mail elections and replaced its DREs with central count digital scan equipment to support this change. Key Factors That Influenced the County’s Decision to Replace Its Voting Equipment According to Beaver County officials, the overall performance and features of the equipment and the ability to maintain the equipment were among the key factors in their decision to replace the county’s equipment. Officials stated that the county had been using DREs since 2005 and that by 2013, they had come to the conclusion that the equipment was not very efficient or user-friendly for administering elections. For example, the Deputy Clerk stated that it was time consuming to both set up the equipment and tally the votes, which required collecting and uploading the memory component from each of the DREs. She also noted that the operating software for the equipment’s election management system had become out-of-date and did not have a user-friendly interface. According to the Deputy Clerk, this made it difficult for staff to navigate without detailed training, which was time consuming and costly. In addition, county election officials said that they were unsure about future maintenance and system upgrade costs and decided it would be more cost-effective to spend funds on purchasing new voting equipment rather than on upgrades to equipment with which they were not very satisfied. In 2013, the county decided to begin conducting vote-by-mail elections the following year and to acquire new equipment to support this change. According to county officials, this decision was due to the performance of their DREs and a desire to reduce costs and increase the efficiency of administering elections, among other reasons. Officials said that because the county was moving to vote-by-mail elections and DREs would no longer be needed for each precinct, the county would instead acquire central count scanners designed to count the mail-in ballots it would receive at the county elections office. Selection and Acquisition of New Voting Equipment According to Beaver County officials, the main individuals involved in the process to select and acquire the county’s new voting system included the current Beaver County Clerk, Deputy Clerk, a county information technology official, and the previous county clerk, among others. When the county started the process in 2013, the state had not initiated any efforts to help local jurisdictions acquire new equipment. As such, both Utah and Beaver County election officials said that the state was aware of the county’s decision to replace its equipment but was not involved in the selection and acquisition process. County officials stated that they wanted to acquire central count scanners to support conducting vote-by-mail elections and a BMD for in-person voting at the elections office for individuals with disabilities. Officials said that, in 2014, they verbally requested proposals from their current vendor and an elections services company that the county had employed in 2012 to provide training, systems testing, and other support for elections. According to the Deputy Clerk, the county requested proposals from these two entities because county officials were familiar with them and were not aware of other vendors that might submit proposals. Officials said that the county received a proposal from the elections services company, and selected the company because it was the only bid received and the equipment the company sold met the county’s needs and was federally certified. They stated that one of the challenges they experienced as a small county looking to purchase equipment was that vendors were not actively marketing to them. In addition, the Deputy Clerk noted that she had limited elections and information technology experience when the county started the selection process. However, she said that the election services company was familiar with Utah’s elections code and federal voting system requirements, helped negotiate with the vendor to acquire the new equipment, and educated county staff on the equipment. Beaver County reported that the cost to purchase the equipment—two central count digital scanners, a BMD, and associated system components—was about $46,000. Local funds were used to purchase the scanners and HAVA funds were used to purchase the BMD. According to Beaver County officials, county commissioners approved the procurement of the equipment in spring 2014 and it was first used in the June 2014 primary elections. Deployment of New Voting Equipment Beaver County officials stated that they deployed the new equipment in 2014 because it was more manageable to conduct such a transition during a non-presidential election year. They noted that they needed to educate the public about both voting by mail and the new voting equipment. Officials stated that the county used local newspaper ads, social media posts, and direct mailings to provide information on these changes. Officials also posted information on the county’s website and allowed people to observe logic and accuracy testing of the equipment. They noted that educating the public on the new voting method and equipment in smaller elections during 2014 and 2015 helped voters become more comfortable with what to expect for the presidential election in 2016. County officials said that they are very satisfied with the performance of the new voting equipment. They noted that conducting vote-by-mail elections and using central count scanners allow them to administer elections from one location on Election Day, which requires less time and resources than having to manage multiple polling places. Officials also stated that the new digital scanners are able to count a high volume of ballots in a short period of time. They said that, for the November 2016 general election, the vote tallying was completed within an hour of the polls closing, which allowed the county to report results quickly. However, one challenge they experienced was that the new equipment’s data format for election night reporting of results to the state was not compatible with the state’s reporting system. To address this issue, county officials reformatted the data to produce a report that could be uploaded into the state’s system, but cautioned that this may not be feasible for larger jurisdictions. According to officials, the county conducted two postelection audits for the 2016 general election—one required by the state and another that the county initiated. For the state audit, the county hand counted 1 percent of total ballots from a randomized list. In addition, the county conducted its own audit by running all ballots on its other digital scanner to compare results. According to officials, both audits validated the election results. Appendix VI: GAO Contact and Acknowledgments GAO Contact Acknowledgments In addition to the contact named above, Tom Jessor (Assistant Director), David Alexander, Carl Barden, Chuck Bausell, Brett Fallavollita, Sally Gilley, Christopher Hatscher, Eric Hauswirth, Richard Hung, Jill Lacey, Serena Lo, Jan Montgomery, Heidi Nielson, Shannin O’Neill, Claire Peachey, Jeff Tessin, and Johanna Wong made significant contributions to this report. We gratefully acknowledge the substantial time and cooperation of the state and local election officials, and stakeholders and experts whom we interviewed.

Much of the voting equipment acquired with federal funds after the enactment of the Help America Vote Act in 2002 may now be reaching the end of its life span, and some states and local election jurisdictions—which number about 10,300 and generally have responsibility for conducting federal elections—have or are considering whether to replace their equipment. GAO was asked to examine voting equipment use and replacement. This report addresses (1) the types of voting equipment jurisdictions used for the 2016 general election and their perspectives on the equipment; (2) factors considered when deciding whether to replace equipment and replacement approaches in selected jurisdictions; and (3) stakeholder perspectives on how federal voting system guidelines affect replacing and developing equipment. GAO surveyed officials from a nationwide generalizable sample of 800 local jurisdictions (68 percent weighted response rate) and all 50 states and the District of Columbia (46 responded) to obtain information on voting equipment use and replacement. GAO also interviewed officials from (1) five jurisdictions, selected based on population size and type of voting equipment used, among other things, to illustrate equipment replacement approaches; and (2) seven voting system vendors, selected based on prevalence of jurisdictions' use of equipment, type of equipment manufactured, and systems certified, to obtain views on federal voting system guidelines. These interviews are not generalizable, but provide insights into jurisdictions' and vendors' experiences. Local election jurisdictions primarily used optical scan and direct recording electronic (DRE), also known as touch screen, equipment during the 2016 general election and were generally satisfied with voting equipment performance. Specifically, on the basis of GAO's nationwide generalizable survey of local election jurisdictions, GAO estimated that jurisdictions with 63 percent (from 54 to 72 percent) of the population nationwide used optical or digital scan equipment as their predominant voting equipment during the election, while jurisdictions with 32 percent (from 23 to 41 percent) of the population nationwide used DREs. In addition, the survey results indicated that accurate vote counting and efficiency of operation were top benefits experienced by jurisdictions for both types of equipment, and storage and transportation costs were a top challenge. Further, GAO estimated that jurisdictions with 93 percent (from 88 to 96 percent) of the population nationwide did not experience equipment errors or malfunctions on a very or somewhat common basis and jurisdictions with 96 percent (from 94 to 98 percent) of the population were very or generally satisfied with the performance of their equipment during the 2016 general election. GAO identified four key factors that jurisdictions and states consider when deciding whether to replace voting equipment—(1) need for equipment to meet federal, state, and local voting system standards and requirements; (2) cost to acquire new equipment and availability of funding; (3) ability to maintain equipment and receive timely vendor support; and (4) overall performance and features of equipment. When replacing equipment, the five jurisdictions GAO selected for interviews used varying approaches based on their specific needs and resources. For example, Los Angeles County, California, which has a large and diverse electorate, is self-designing its own voting equipment and, according to officials, has incorporated a user-centered approach that prioritizes the needs and expectations of its voters. Lafayette County, Florida, which has a small population, joined a consortium of other small counties to help obtain funding and pool purchasing power to replace its equipment. The state election officials we surveyed and the seven selected voting system vendors we interviewed, among other stakeholders, had varying perspectives on how the current voluntary federal voting system guidelines affected the replacement and development of voting equipment. These guidelines can be used to test and certify equipment to verify that it meets baseline functionality, accessibility, and security requirements. The stakeholders we surveyed or interviewed generally indicated that the guidelines and their associated testing processes provide helpful guidance for equipment developers, cost savings for states that do not have to duplicate federal testing, and assurance that certified equipment meets certain requirements. However, some of these stakeholders stated that aspects of the guidelines could discourage the development of innovative equipment and limit the choices of voting equipment on the market. The Election Assistance Commission (EAC), which is responsible for developing the federal guidelines, is updating them with stakeholder input and plans to issue a new version in late summer 2018. GAO incorporated technical comments provided by the EAC and election officials from the selected local jurisdictions and their respective states as appropriate.

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Background FAA Next Generation Air Transportation System In December 2003 Congress enacted the Century of Aviation Reauthorization Act, laying the foundation for NextGen. The intent of NextGen is to increase air transportation-system capacity, enhance airspace safety, reduce delays experienced by airlines and passengers, lower fuel consumption, and lessen adverse environmental effects from aviation, among other benefits. This effort is a multi-year, incrementally iterative transformation that will introduce new technologies and leverage existing technologies to affect every part of the national airspace system. These new technologies will use an Internet Protocol-based network to communicate. NextGen consists of components that provide digital communications between controllers and pilots, and that also use satellite-based surveillance to aid in airspace navigation. Because of these new communication methods, NextGen increases reliance on integrated information systems and distribution of information, digital communication methods, and global positioning system (GPS) technology that may put the air traffic control system at greater risk for intentional or unintentional information-system failures and breaches. We have previously reported on progress that FAA has made in implementing NextGen. For example, in 2015 we found that FAA faces cybersecurity challenges in at least three areas: (1) protecting air-traffic control information systems, (2) protecting aircraft avionics used to operate and guide aircraft, and (3) clarifying cybersecurity roles and responsibilities among multiple FAA offices. Among other recommendations, we recommended—and FAA concurred—that the agency should assess developing a cybersecurity threat model. Evolution of Tracking Military Aircraft in the National Airspace Historically, FAA and DOD capabilities have allowed both agencies—as well as NORAD—to monitor and track military aircraft flying in the national airspace. For example, FAA maintains two layers of radar—primary surveillance radar and secondary surveillance radar—to track and identify aircraft flying in the national airspace system. Primary surveillance radar identifies the location of aircraft flying in the national airspace by transmitting a signal and calculating the amount of time that passes until that signal bounces off the aircraft and returns to the radar. FAA also uses secondary surveillance radar that transmits an interrogation signal to aircraft flying in the national airspace. A receiver on the aircraft receives the interrogation signal and then transmits a broadcast back to this radar with flight information. Table 1 shows the evolution and capabilities of different transponders that broadcast aircraft information to receivers. The fields identified in the table are critical for identifying and tracking aircraft. Of the different transponder modes and technology, ADS-B Out provides the most precise and comprehensive data. ADS-B Out makes it easier for third parties to identify and track aircraft, as ADS-B Out broadcasts include registration number, precise location, aircraft dimensions, and other information. This additional information reduces the need to identify aircraft using private databases and to determine aircraft location by comparing time difference of arrival among receivers. The content of these aircraft broadcasts varies depending on the type of transmitter providing the information from the aircraft. For example, earlier broadcast systems, including the Mode 3/A and Mode C systems, transmit a temporary four-digit transmit code (commonly referred to as a squawk code) assigned by air traffic control that facilitates aircraft tracking during a single flight. Since FAA was the sole source of flight data for systems preceding Mode S, the agency could filter out military aircraft flight information for security reasons before providing information to the public about other aircraft flying in the national airspace. Mode S Transponder Mode S transponders provide more information than do the Mode 3/A and Mode C transponders. For example, the Mode S transponder broadcast identifies an aircraft-specific, 24-bit fixed address (commonly known as the ICAO address) assigned under International Civil Aviation Organization (ICAO) standards. An aircraft retains this fixed address based on its registration, and thereby facilitates aircraft identification until the aircraft is reregistered and receives a new ICAO address. FAA and aviation groups have reported that with the proliferation of commercial and amateur receivers, the public can now track individual aircraft by receiving the aircraft’s ICAO address, squawk code, and altitude. In addition, these entities have reported that since aviation groups and hobbyists have connected the receivers, the networked receivers can calculate and identify the latitude and longitude of the aircraft they are tracking. In addition, according to these reports, some groups maintain aircraft information databases and receiver networks that can identify aircraft by ICAO address and can locate aircraft by comparing the time difference of arrival of Mode S signals between three or more receivers. Using data derived from this work, interested parties— including adversaries (for example, foreign intelligence entities, terrorists, and criminals)—can identify military aircraft by type and registration number, and can track the aircraft while in flight through Mode S fixed address broadcasts. Using this readily available public information, we were able to track various kinds of military aircraft that were equipped with Mode S transponders. ADS-B Technology ADS-B consists of two distinct aircraft information services, ADS-B Out and ADS-B In. As previously stated, ADS-B Out technology is one of the main components of FAA’s NextGen effort. It is a performance-based surveillance technology using GPS-enabled satellites to produce flight information, such as an aircraft’s location and velocity, and according to FAA, it is more precise than radar. These precise data provide air traffic controllers and pilots with more accurate information to keep aircraft safely separated in the national airspace. This technology combines aircraft avionics, a positioning capability, and ground infrastructure to enable accurate transmission of information from aircraft to the air traffic control system. This technology periodically transmits information without a pilot or operator involved (that is, Automatic); collects information from GPS or other suitable navigation systems (that is, Dependent); provides a method of determining 3-dimensional position and identification of aircraft, vehicles, or other assets (that is, Surveillance); and transmits the information available to anyone with the appropriate receiving equipment (that is, Broadcast). Using this readily available public information, we were able to track various kinds of military aircraft that were equipped with ADS-B transponders. ADS-B In is the technology that enables receivers to have direct access to information broadcasted through ADS- B Out transponders. FAA’s final rule requiring all aircraft that fly in certain categories of airspace to equip with ADS-B by January 1, 2020, applies to the ADS-B Out technology. FAA has not issued a rule or requirement for aircraft to equip with the ADS-B In technology, as of July 2017. However, according to representatives from Airlines for America, an airline industry advocacy organization, airlines have begun to install the ADS-B In capability on commercial aircraft due to the benefits they anticipate from the capability (for example, the ability of passenger airliners to reduce separation standards to save time and reduce fuel consumption). In addition, according to Air Force officials, the Air Force plans to install ADS-B In on future KC-46 transport/tanker aircraft. This report focuses on the ADS-B Out requirement when referencing ADS-B technology unless otherwise noted. According to DOD and FAA documents and officials, FAA has identified ADS-B implementation as providing an opportunity to save costs by divesting a number of secondary-surveillance radars. According to FAA officials, as of April 2017 the agency was re-evaluating its original ADS-B backup strategy and the need for retaining additional secondary- surveillance radars. According to these officials, FAA plans to maintain all high-altitude secondary-surveillance radars and the low-altitude secondary-surveillance radars around 30 or more of the busiest airports. Relationship between FAA and DOD in Managing National Airspace The FAA and DOD are to cooperate in order to regulate airspace use. Specifically, the FAA is responsible for providing air navigation services, including air traffic control across most of the United States, and is leading the overall NextGen efforts in the United States. The FAA’s air traffic control system works to prevent collisions involving aircraft operating in the national airspace system, while also facilitating the flow of air traffic and supporting national security and homeland defense missions. In addition, in accordance with International Civil Aviation Organization guidelines, the FAA has categorized airspace as controlled, uncontrolled, or not used in the United States. According to the ADS-B Out rule, after January 1, 2020, no person may operate an aircraft in certain categories of airspace defined by the rule unless otherwise authorized by air traffic control authorities. DOD conducts its missions within the national airspace system as both an aircraft operator and, as delegated by the FAA, as provider of air traffic control and other air navigation services. DOD has the authority to certify its own aircraft, manage airspace, and provide air traffic control-related services in accordance with FAA requirements. DOD also provides guidance to FAA concerning security matters pertaining to the national airspace system. DOD is responsible for ensuring that DOD components, such as the military services, have sufficient access to airspace to meet security requirements, and that civilian and military aircraft can operate safely both domestically and abroad. DOD also releases airspace to the FAA when it does not need the space for military purposes. The FAA also works with DOD to ensure aviation safety between civil and military aircraft. The FAA designates airspace over certain parts of the United States as Special Use Airspace, because the areas may have prohibited airspace, restricted airspace, warning areas, or alert areas. It might be hazardous for civil aircraft to operate in that restricted airspace due to these designations. Special Use Airspace allows military aircraft to operate safely in separate, clearly defined airspace in order to conduct missions in support of the National Security Strategy and the National Military Strategy. The FAA also issues safety briefings that could identify military-protected, temporarily flight-restricted areas, to prevent civil pilots from flying into the airspace. These briefings also include information such as flight safety advice and information on air traffic technology, such as ADS-B. The FAA also shares radar information with NORAD to support the defense of North America over areas such as the National Capital Region surrounding Washington, D.C. Roles and Responsibilities The FAA is responsible for providing airspace navigation services within the United States and has a particular entity—the FAA Office of NextGen—that directs its NextGen requirements. In 2007 the Deputy Secretary of Defense designated the Air Force as the lead service for representing DOD and for leading and coordinating efforts across DOD. To accomplish this responsibility, the Air Force established a Lead Service Office, hereinafter referred to as the DOD Lead Service Office. These and numerous other entities have a role in implementing NextGen and ADS-B, as shown in table 2 below. DOD and FAA Have Identified Security and Mission Risks Related to ADS-B Out Technology but Have Not Approved Any Solutions to Mitigate Them Since 2008, DOD and FAA have identified a variety of ADS-B- related risks that could adversely affect military security and missions. While DOD and FAA have identified some potential mitigations for these risks, the departments have not approved any solutions. DOD and FAA Have Identified Risks to DOD Security and Missions Related to ADS-B Technology Documents we reviewed and officials we met with identified a variety of operations and physical security risks that could adversely affect DOD missions. These risks arise from information broadcast by ADS-B itself, as well as from potential ADS-B vulnerabilities to electronic warfare- and cyber-attacks, and from the potential divestment of secondary- surveillance radars. ADS-B Information Presents Operations and Physical Security Risks Information broadcasted from ADS-B transponders poses an operations security risk for military aircraft. For example, a 2015 assessment that RAND conducted on behalf of the U.S. Air Force stated that the broadcasting of detailed and unencrypted position data for fighter aircraft, in particular for a stealth aircraft such as the F-22, may present an operations security risk. The report noted that information about the F- 22’s precise position is classified Secret, which means that unauthorized disclosure of this information could reasonably be expected to cause serious damage to the national security. Similarly, in 2012 MITRE issued a report on behalf of the DOD Lead Service Office that identified a number of risks—including the ability to track movement in and out of restricted airspaces and changes in operations—to ADS-B-equipped aircraft. In addition to these documents, DOD officials identified a number of increased operations and physical security risks associated with aircraft equipped with ADS-B technology. In DOD’s 2008 comments about FAA’s draft rule requiring ADS-B Out technology, the department informed FAA that DOD aircraft could be identified conducting special flights for sensitive missions in the United States and potentially compromised due to ADS-B technology. Such sensitive missions could include low-observable surveillance, combat air patrol, counter-drug, counter-terrorism, and key personnel transport. While some military aircraft are currently equipped with Mode S transponders that provide individuals who have tracking technology the altitude of the aircraft, ADS- B poses an increased risk. Specifically, according to documents we reviewed and officials we met with, a confluence of the following three issues has led to ADS-B technology presenting more risks to DOD aircraft, personnel, equipment, and operations: Additional information. The additional information provided through ADS-B technology— including the aircraft’s precise location, velocity, and airframe dimensions—increases both direct physical risks to DOD aircraft, personnel, and equipment, and long-term risks to DOD air operations. Accessibility of information. ADS-B technology also introduces risks to aircraft, personnel, equipment, and operations, because it provides information to the public that was not previously accessible. FAA filters information about DOD’s flights so that the information is not available to the public via any FAA data feed. According to FAA officials, this filtering was effective for protecting such information for Mode-S equipped DOD aircraft until the 2012 timeframe, when the capability of third-party networked receivers started to allow position determination for such aircraft. With ADS-B, aircraft location and other information is broadcast from the aircraft, where FAA cannot filter it. While individuals and groups could obtain additional information about DOD flights operating with Mode S, such as an aircraft’s fixed address, information such as geographic location and velocity was not included in broadcasts. Individuals could estimate location and velocity of DOD flights by locating the signal through privately owned receiver networks. By equipping military aircraft with ADS-B technology, individuals and groups would receive additional identifiers, location information, and airframe information through aircraft broadcasts and, as a result, could identify and track aircraft without the use of fixed address databases and with less receiver infrastructure. Historical data. ADS-B technology better enables individuals and groups to track flights in real time and use computer programs to log ADS-B transmissions over time. Therefore, individuals or groups could observe flight paths in detail, identify patterns-of-life, or counter or exploit DOD operations. ADS-B Could Affect Current and Future Air Defense and Air Traffic Missions While NORAD and DOD officials told us that they will benefit from information provided by ADS-B technology, NORAD, DOD, and professional organizations’ documents and officials also noted that electronic warfare- and cyber-attacks—and the potential divestment of secondary-surveillance radars as a result of reliance on ADS-B—could adversely affect current and future air operations. For example, a 2015 Institute of Electrical and Electronics Engineers article about ADS-B stated that ADS-B is vulnerable to an electronic- warfare attack—such as a jamming attack—whereby an adversary can effectively disable the sending and receiving of messages between an ADS-B transmitter and receiver by transmitting a higher power signal on the ADS-B frequencies. The article notes that while jamming is a problem common to all wireless communication, the effect is severe in aviation due to the system’s inherently wide-open spaces, which are impossible to control, as well as to the importance and criticality of the transmitted data. As a stand-alone method, jamming could create problems within the national airspace. Jamming can also be used to initiate a cyber-attack on aircraft or ADS-B systems. According to the article in the 2015 Institute of Electrical and Electronics Engineers publication, adversaries could use a cyber-attack to inject false ADS-B messages (that is, create “ghost” aircraft on the ground or air); delete ADS-B messages (that is, make an aircraft disappear from the air traffic controller screens); and modify messages (that is, change the reported path of the aircraft). The article states that jamming attacks against ADS- B systems would be simple, and that ADS-B data do not include verification measures to filter out false messages, such as those used in spoofing attacks. FAA officials stated that the agency is aware of these possible attacks, and that it addresses such vulnerabilities by validating ADS-B data against primary- and secondary-surveillance radar tracks. Both FAA and DOD have identified a potential solution to address this vulnerability. However, this solution has not been tested and as of November 2017, no testing has been scheduled. In addition to electronic warfare- and cyber-attacks, both NORAD and DOD officials expressed concerns that the air defense and military air traffic control missions would be affected if FAA were to divest secondary- surveillance radars following ADS-B implementation. According to DOD and FAA documents and officials, FAA has identified ADS-B implementation as an opportunity to save costs by divesting a number of secondary-surveillance radars. However, according to NORAD and DOD officials, in those locations where FAA divests of radars, the missions would be at higher risk if an aircraft operator were to turn off the aircraft’s ADS-B technology; if an adversary were to conduct an electronic or cyber-attack on the ADS-B system; or if the ADS-B system were to experience a technical failure. According to NORAD command officials, the command relies on information from FAA radars to monitor air traffic in the national airspace system. If an aircraft is operating without ADS-B, if a GPS or ADS-B system fails, or if an adversary has jammed an aircraft’s GPS signal or ADS-B transmissions, then the command will have to rely on primary- and secondary-surveillance radar to track the aircraft’s location. FAA officials stated that FAA is chiefly responsible for air safety, while NORAD and DOD are chiefly responsible for air defense, and that they believe there will be sufficient radar coverage for DOD to conduct its missions. FAA officials stated that they will maintain sufficient backup systems to ensure air traffic safety for all flights, and will maintain radar in excess of their needs to support NORAD’s missions. FAA officials stated that they will maintain all primary-surveillance radar, all high-altitude secondary-surveillance radar, and low-altitude secondary-surveillance radar near at least thirty major flight terminals. However, according to NORAD and DOD officials, FAA has not proposed an updated legacy primary- and secondary-surveillance radar divestment plan since 2012 for use by NORAD and DOD in assessing potential effects on the mission. NORAD is a bi-national command that requires support from U.S. federal agencies—not just DOD—and relies on FAA radar to support its mission, and it will need to ensure that sufficient air surveillance resources are in place. DOD and FAA Have Not Approved Any Solutions to Address ADS-B Risks Although DOD, FAA, and other organizations have identified risks to military security and missions since 2008, DOD and FAA have not approved any solutions to address these risks. This is because DOD and FAA have focused on equipping military aircraft with ADS-B technology and have not focused on solving or mitigating security risks from ADS-B. The approach being taken by FAA and DOD will not address key security risks that have been identified, and delays in producing an interagency agreement have significantly reduced the time available to implement any agreed-upon solutions before January 1, 2020, when the full deployment of ADS-B Out is required. Federal internal control standards state that federal agencies should make risk-based decisions in a timely manner. Specifically, OMB Circular A-123 states that management should evaluate and document internal control issues and determine appropriate corrective actions for internal control deficiencies on a timely basis. In the case of equipping military aircraft with ADS-B technology and addressing any risks associated with it, DOD and FAA have shared responsibility. In 2008 DOD informed FAA that military aircraft would need special accommodations to the ADS-B Out rule due to national security concerns, such as sensitive missions and electronic warfare vulnerabilities. In 2010 FAA responded to DOD’s comments to the draft ADS-B Out rule stating that the agency would collaborate with departments or agencies, including DOD and the Department of Homeland Security, to develop memorandums of agreement to accommodate their national defense mission requirements while supporting the needs of all other national airspace system users. Since that time, DOD components have identified actions that could mitigate some of the risks. For example, DOD and others have identified such mitigations as masking DOD aircraft identifiers, maintaining current inventory of primary-surveillance radars, allowing pilots to turn off ADS-B broadcasts, and seeking an exemption from installing ADS-B technology on select military aircraft (for example, fighter and bomber aircraft). However, as of June 2017—almost 7 years after FAA acknowledged that it would address DOD’s concerns (and less than 3 years before full deployment of ADS-B Out is required)—DOD and FAA have not approved any solutions to these risks. The DOD’s Lead Service Office and FAA have focused on developing a memorandum of agreement that they hope will create a framework for future collaboration at the local level. However, our work and that of NORAD and other DOD components identified a number of limitations to DOD’s Lead Service Office and FAA’s dependence on this draft memorandum of agreement. For example, the draft memorandum does not address the following: the details necessary to establish solutions or mitigations between DOD and FAA for identified security risks. The draft memorandum focuses on equipage of ADS-B technology on military aircraft, cost estimates, and agency and office responsibilities. DOD acknowledges that it will equip military aircraft with ADS-B technology and operate to the greatest extent possible by the January 1, 2020, compliance date. However, the draft memorandum does not identify solutions for the identified operations and physical security risks. the electronic warfare and cyber-attack concerns and the effect on sensitive defense missions that DOD has identified. the flexibility required by NORAD to support freedom of movement within the continental United States, Alaska, and Canada airspace for military missions. The draft memorandum would place negotiating accommodations for NORAD’s bi-national mission at the local level— an act that NORAD officials characterized as unfeasible because military aircraft supporting NORAD missions require uninhibited airspace access throughout the United States and Canada, as a response may be required anywhere and at any time. According to NORAD officials, the command would incur a significant burden to finalize memorandums of agreement with more than 600 air traffic control facilities and ensure commonality with all facilities in the continental United States and Alaska. Furthermore, NORAD officials stated that these missions should not be limited by local restrictions created by the ADS-B Out rule. For example, DOD aircraft flying over one state while supporting an Operation Noble Eagle mission could be stationed at a military base in another state and thus not have an agreement with local FAA controllers. potential mission risks associated with the divestment of secondary- surveillance radars. Delays in the completion of a memorandum of agreement have exacerbated uncertainty as to whether security issues will be addressed in any manner. DOD and FAA have met to discuss the existing draft memorandum of agreement since December 2016. In April 2017 officials from DOD Lead Service Office told us that they expected DOD and FAA to finalize the memorandum of agreement by June 2017; however, in May 2017 DOD officials informed us that the estimated completion date had slipped to February 2018. A significant amount of work will likely need to be accomplished between the eventual approval of the memorandum and implementation in a timely manner. For example, FAA officials acknowledged that the agency would need to issue, update, or both issue and update internal guidance once the memorandum is signed prior to local FAA officials being able to negotiate and agree to arrangements with local military commanders. Similarly, the draft memorandum, if approved, would place a significant burden on local DOD entities to negotiate agreements. For example, the Army expressed concerns that local negotiations—at 76 locations, according to Army estimates—would take from 1 to 2 years to complete after FAA and DOD have signed the memorandum of agreement. Army officials also highlight concerns that local FAA air traffic controllers may not enter into agreements with Army units, or that local agreements will be contingent upon the density of local air traffic or the personalities of those negotiating the agreements. Additionally, assuming that actions are agreed upon among the key stakeholders—DOD, FAA, and NORAD—to resolve or mitigate the identified security risks, DOD, FAA and NORAD will need sufficient time to implement these actions. This is due to the complexity of the ADS-B vulnerabilities and potential mitigations for operations and physical security, electronic warfare, cyber-attack, and potential effects of secondary-radar divestment. As of June 2017, DOD and FAA had not identified any other solutions that could address the risks and concerns identified by DOD and others since 2008. Unless FAA and DOD approve one or more solutions that address all the risks associated with ADS-B technology, DOD security and military missions could face unmitigated risks. These include physical, cyber- attack, and electronic warfare security risks, as well as risks associated with divesting secondary-surveillance radars. Furthermore, unless FAA and DOD focus on the security risks of ADS-B and approve one or more solutions in a timely fashion, they may not have time to plan for and execute any technical, programmatic, or policy actions that may be necessary before all of DOD’s aircraft are required to be equipped with ADS-B technology on January 1, 2020. DOD Has Achieved Mixed Implementation of Key ADS-B Tasks Directed in 2007 Of the eight tasks associated with the implementation of ADS-B Out technology in the 2007 DOD NextGen memorandum—issued by the Deputy Secretary of Defense to ensure that the NextGen vision for the future national airspace system met DOD’s requirements and the appropriate management of DOD’s resources—DOD has implemented two, has partially implemented four, and has not implemented two. Specifically, we found that DOD has implemented the following two tasks: Establishing a Joint Program Office. The Deputy Secretary of Defense directed the Secretary of the Air Force to establish and provide administrative support for a DOD Joint Program Office for NextGen. According to the 2007 NextGen memorandum, the office is responsible for coordinating DOD activities related to the NextGen effort, facilitating technology transfer for those research and development activities with potential NextGen application, and advocate for DOD interests, requirements, and capabilities in NextGen. The Air Force established a Joint Program Office to provide services to the entire military aviation community on communication navigation surveillance/air traffic management issues in various capacities. Officials from the DOD Joint Program Office told us that the office has tested various avionic systems for methods of meeting ADS-B requirements. The office has also established an Internet portal for the services to order avionics, including those associated with ADS-B technology. Appointing a DOD representative to the FAA’s interagency Joint Planning and Development Office. The 2007 NextGen memorandum directed that the Secretary of the Air Force appoint a DOD representative to the Joint Planning and Development Office’s board of directors responsible for assisting in the development and coordination of DOD-wide policies and decisions concerning NextGen. In March 2012 DOD’s Lead Service Office appointed an Air Force officer who also manages the DOD Lead Service Office as the DOD representative to the FAA’s interagency Joint Planning and Development Office. DOD partially implemented the following four tasks: Validating NextGen program requirements. The 2007 NextGen memorandum directed that the Secretary of the Air Force document and seek validation for NextGen program requirements through the Joint Capabilities Integration Development System process. The Air Force took the initial step in having its NextGen program requirements validated through DOD’s Joint Capabilities Integration Development System process in October 2014. However, the focus of the assessment was on the Air Force’s requirements and not that of other military services or components. This is not fully consistent with the 2007 memo, which states that the Air Force—as the lead service— should integrate the needs and requirements of the DOD components into cohesive plans and policies for inclusion in NextGen joint planning and development. Establishing guidance on DOD NextGen responsibilities and objectives. The 2007 NextGen memorandum directed the Assistant Secretary of Defense for Homeland Defense and Global Security, the DOD Chief Information Officer, and the Director of Administration, in consultation with the DOD Lead Service, to submit a proposed DOD directive within 180 days specifying the department’s objectives with respect to NextGen and the continuing roles and responsibilities of the Lead Service and the DOD Policy Board on Federal Aviation. In 2013, about 5 years after the original due date for the180-day requirement, DOD updated its DOD Directive 5030.19, DOD Responsibilities on Federal Aviation. While the updated directive references the responsibilities of the DOD Policy Board on Federal Aviation and the Secretary of the Air Force, per the 2007 NextGen memorandum, the directive does not specify DOD’s objectives with respect to NextGen, as required by the memorandum. Developing an initial plan defining actions, responsibilities, and milestones for DOD’s NextGen efforts: The 2007 NextGen memorandum required DOD’s Lead Service, in coordination with the principal members of the DOD Policy Board on Federal Aviation, to develop an initial plan defining actions, responsibilities, and milestones for DOD’s participation in the NextGen efforts and FAA’s Joint Planning and Development Office. This initial plan was to include an implementation plan for the NextGen Joint Program Office and was to be updated semiannually. In 2013 the Air Force, in executing its responsibilities as Lead Service, issued a DOD NextGen Implementation Plan to describe the strategy, principles, and actions for the transition of DOD aviation operations (air and ground) to the national airspace system environment defined by FAA in its NextGen Implementation Plan. We found that the 2013 plan identified responsibilities of DOD components and established indicators meant to give a sense of progress made in NextGen implementation. However, the plan did not include detailed transition planning for ADS- B and was not updated semiannually, as required. Incorporating NextGen into the planning, budgeting, and programming process: According to the 2007 NextGen memorandum, the Secretary of the Air Force is to coordinate DOD- wide NextGen planning, budgeting, and programing guidance in conjunction with the Under Secretary of Defense for Policy and the Director of Program Analysis and Evaluation for consideration in the formulation of planning and programming guidance documents. The memorandum also directed DOD components to coordinate with the Air Force on NextGen programs they agreed to support using inter- service memorandums of understanding, and to fund procurement through service annual program objective memorandum processes. DOD provided evidence that the military departments used the program objective memorandum process to fund ADS-B Out. However, the DOD Lead Service Office did not provide department- wide planning, budgeting, and programming guidance for ADS-B or any other NextGen elements to DOD components. Similarly, DOD did not provide any inter-service memorandums of understanding that would document NextGen programs that the services agreed to fund. According to officials from the DOD Lead Service Office, this office is not responsible for planning, budgeting, and programming because the office is organizationally located within the Air Force Headquarters Office of the Deputy Chief of Staff for Operations. However, while the office may not be responsible for planning, budgeting, and programming within the Air Force, the office can issue—or coordinate the issuance—of such guidance, as directed by the Deputy Secretary of Defense. DOD had not taken significant action or fully implemented the following two actions: Integrating NextGen requirements into plans and policies: The Secretary of the Air Force, in executing the service’s responsibilities as Lead Service, did not integrate the needs and requirements of DOD components related to ADS-B into cohesive plans and policies for inclusion in NextGen joint planning and development, as directed by the Deputy Secretary of Defense in 2007. According to officials from the DOD Lead Service Office, they met the intent of these tasks through the 2012 United States Air Force Next Generation Air Transportation System Keystone Document, the 2013 Department of Defense (DOD) Mid-Term NextGen Concept of Operations, and the 2013 Department of Defense (DOD) Mid-Term Next Generation (NextGen) Implementation Plan. However, the Air Force NextGen Keystone Document applies to the Air Force and not to NORAD or other DOD components. In addition, the DOD Mid-Term NextGen Concept of Operations and the DOD Mid-Term NextGen Implementation Plan do not discuss planning for ADS-B Out requirements, which are critical to NextGen. Providing periodic and recurring NextGen progress reports: The Assistant Secretary of Defense for Homeland Defense and Global Security did not provide periodic and recurring NextGen progress reports to the Deputy Secretary of Defense, as instructed in the 2007 NextGen memorandum. According to the memorandum, the Assistant Secretary was designated as the principal staff assistant for NextGen and was responsible for oversight, support, and advocacy for the lead service with respect to the interagency and Joint Planning and Development Office. Officials from the Office of the Deputy Assistant Secretary of Defense for Homeland Defense Integration and from Defense Support to Civil Authorities acknowledged that the Office of the Assistant Secretary of Defense for Homeland Defense and Global Security had not tracked ADS-B implementation or provided progress reports to the Deputy Secretary of Defense—with the exception of advocating for ADS-B installation exemptions for aircraft that could not comply with the mandate—for retention of ground-based radars, and some minimal advocacy related to compliance with the FAA ADS-B Out rule. DOD could not provide a clear explanation with regard to those requirements that we determined not to have been fully implemented. Officials from the DOD Lead Service Office provided a number of potential reasons to explain why the memorandum’s tasks might not have been fully implemented. For example, as noted earlier, officials stated that other documents captured those requirements. Further, officials told us they believe that implementation of many of the preceding tasks was accomplished through other means, although our analysis concluded that the task was either not implemented or was partially implemented, as noted previously. These officials also noted that—although there is no expiration date on the 2007 NextGen memorandum—many DOD officials consider such memorandums to be applicable for 12 to 18 months. In addition, DOD Lead Service Office officials noted that many DOD components had not assigned a high level of priority to NextGen implementation. As a result of DOD’s not fully implementing the 2007 NextGen memorandum—including developing or revising a DOD directive that specifies DOD’s objectives with respect to NextGen, issuing an implementation plan that includes detailed transition planning for ADS-B and is updated semiannually, and providing recurring progress reports to the Deputy Secretary of Defense—DOD components have lacked direction and cohesion while trying to address FAA’s requirement to equip military aircraft. For example: Officials from the Air Force Life Cycle Management Center’s Fighters and Bombers Directorate told us that they have not been provided any guidance. The directorate does not intend to install ADS-B technology on Air Force fighters or bombers until they receive DOD guidance. Yet, the deadline to equip DOD aircraft that will fly in the national airspace remains January 1, 2020. DOD does not have a coordinated or accurate schedule for equipping ADS-B technology on military aircraft. Although DOD submitted a schedule to Congress in June 2015, officials from the DOD Lead Service Office told us that the timeframes for that plan were no longer accurate, and that the plan would be updated as part of the memorandum of agreement in February 2018. Some DOD components have installed or plan to install civilian GPS receivers on their aircraft to meet FAA’s ADS-B technical requirements. According to DOD officials, DOD aircraft that equip with commercial GPS receivers will not be as protected from GPS security issues as they would have been had they used a military GPS receiver. According to officials from the Office of the DOD Chief Information Officer, the office with primary responsibility for GPS receiver security policy, no one within DOD—including the DOD Lead Service Office or other DOD components—had made them aware that DOD components were installing civilian receivers on aircraft. Since—according to an official within the DOD Lead Service Office— neither the Office of the Assistant Secretary of Defense for Homeland Defense and Global Security nor any other elements of the Office of the Under Secretary of Defense for Policy were engaged in discussion regarding the draft memorandum of agreement with the DOD Lead Service Office and FAA, the Secretary of Defense’s senior policy advisor may not be aware of provisions that may be incorporated in the agreement. For example, the draft memorandum of agreement contains a provision that could result in the department’s being financially responsible for sharing the costs of sustaining secondary- surveillance radars. According to a 2007 FAA document, it will cost FAA approximately $442 million to maintain these radars from fiscal years 2017 to 2035. If DOD components do not fully implement key tasks that would facilitate assurance of DOD requirements in the future NextGen system and appropriate management of DOD resources—such as those tasks that the Deputy Secretary of Defense originally directed in 2007, or any tasks that the Secretary deems appropriate—DOD may risk having less efficient and less effective implementation of NextGen requirements, increased costs of implementation, or missed opportunities to address operations risks. Conclusions The NextGen system has the potential to increase the efficiency and effectiveness of the nation’s expanding air traffic. As with many such procedural and technological innovations, DOD stands to benefit from NextGen’s vision. As is the case with all such electronic and cyber systems in the information age, this must be balanced with sufficient consideration of the operations and security effects for DOD. DOD and FAA have not approved any solutions that address risks resulting from ADS-B on DOD aircraft—including operations, physical, cyber, and electronic warfare security risks, as well as risks associated with divesting secondary-surveillance radars. Unless DOD and FAA focus their efforts on the security aspects of ADS-B on DOD aircraft and produce one or more solutions to these risks, DOD aircraft and missions will be exposed to unmitigated risks that could jeopardize safety, security, and mission success. Also, unless DOD fully implements the tasks that would facilitate consistent, long-term planning and implementation of NextGen throughout the department, DOD’s full integration into the NextGen system and the integrity and security of DOD’s forces and missions will be hindered. Given the amount of time that has transpired since DOD initially raised security concerns in 2008 and the amount of time it will take to formalize, operationalize, and train employees to implement any agreements prior to the January 1, 2020, deadline, it is critical that both DOD and FAA make this a high priority. Recommendations for Executive Action We are making two recommendations, including one to the Secretaries of Defense and Transportation, and one to the Secretary of Defense: We recommend that the Secretaries of Defense and of Transportation address ADS-B Out security concerns by approving one or more solutions that address ADS-B Out -related security risks or incorporating mitigations for security risks into the existing draft memorandum of agreement. These approved solutions should address operations, physical, cyber-attack, and electronic warfare security risks; and risks associated with divesting secondary-surveillance radars. The solution or mitigations should be approved as soon as possible in order to allow sufficient time for implementation. We recommend that the Secretary of Defense direct DOD components to implement key tasks that would facilitate consistent, long-term planning and implementation of NextGen—such as those tasks that the Deputy Secretary of Defense originally directed in 2007, or any tasks that the Secretary deems appropriate based on a current assessment of the original tasks. Agency Comments and Our Evaluation We provided a draft of the report to DOD and the Department of Transportation for review and comment. Written comments from DOD on the classified draft and from the Department of Transportation on this report are reprinted in their entirety in appendixes II and III, respectively, and summarized below. DOD and the Department of Transportation also provided technical comments, which we incorporated as appropriate. The Department of Transportation concurred and DOD partially concurred with the first recommendation to approve one or more solutions that address ADS-B Out security risks or incorporating mitigations for security risks into the existing draft memorandum of agreement and that these solutions should address operations, physical, cyber-attack, and electronic warfare security risks as well as risks associated with divesting secondary-surveillance radar. In its written comments, the Department of Transportation stated that it has recently developed and is now in the process of validating military flight tracking risk mitigation solutions that are technologically viable and operationally effective. Both the Department of Transportation and DOD stated that they would approve one or more solutions to address ADS-B Out related security risks. For example, both departments stated that among other actions, they would complete a memorandum of agreement between FAA and DOD that would incorporate security concerns identified in the report. DOD estimated that the memorandum of agreement will be signed in February 2018. We believe the steps identified by both the Department of Transportation and DOD, if implemented as planned, would meet the intent of our recommendation. DOD partially concurred with the second recommendation to implement key tasks that would facilitate consistent, long-term planning and implementation of NextGen—such as those tasks that the Deputy Secretary of Defense originally directed in 2007 or any tasks that the Secretary deems appropriate based on a current assessment of the original tasks. DOD stated the Secretary of the Air Force would identify within the next 120 days which relevant key tasks would facilitate the implementation of NextGen to include assessing the status of tasks that were directed in the Deputy Secretary of Defense memorandum, “Implementation of the Next Generation Air Transportation within the Department of Defense 2007.” DOD stated that the assessment would include a comprehensive review of modernization efforts regarding NextGen and other global initiatives and that includes suitable security and cybersecurity mitigation measures. DOD also stated that the Policy Board for Federal Aviation would track key task implementation in coordination with the Secretary of the Air Force and other appropriate DOD officials. This would also include periodic updates to the Deputy Secretary of Defense. We believe these steps would meet the intent of our recommendation if implemented as planned. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Secretary of Homeland Security; the Secretary of Transportation; and the commander of NORAD. We are also sending copies to the Under Secretary of Defense for Policy; the Under Secretary of Defense for Acquisition, Technology, and Logistics; the Chairman of the Joint Chiefs of Staff; the Secretaries of the military departments; and the Administrator of FAA. In addition, the report is available at no charge on the GAO website http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9971 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology Senate Report 114-255, accompanying a bill for the National Defense Authorization Act of Fiscal Year 2017, included a provision that we assess issues related to the defense implications of implementation of the Federal Aviation Administration’s (FAA) Next Generation Air Transportation System (NextGen) and Automatic Dependent Surveillance—Broadcast (ADS-B), a main component of NextGen. This report assesses the extent to which (1) the Department of Defense (DOD) and the FAA have identified security and operations risks and approved solutions to address these risks to military aircraft equipped with ADS-B Out technology; and (2) DOD has implemented key tasks in the 2007 Deputy Secretary of Defense memorandum on implementing NextGen. The scope of our review included all DOD and Department of Transportation offices responsible for oversight or administration of ADS- B implementation by DOD as part of the NextGen program. Our review also included Airlines for America, as it represented a significant portion of the civil aviation industry in negotiations with FAA on ADS-B implementation. Table 3 contains a list of the organizations and offices we contacted during the course of our review. To assess the extent to which DOD and FAA have identified security and operations risks and approved solutions to address these risks to military aircraft equipped with ADS-B Out technology, we reviewed policies, procedures, guidance, assessments, and other relevant documents from DOD, FAA, and NORAD that address ADS-B Out implementation, acquisition, operations, and cybersecurity risk management and mitigation, and any other issues that might be pertinent to identifying and addressing operations and security risks resulting from ADS-B Out. We also reviewed publicly available literature discussing potential ADS-B Out cybersecurity vulnerabilities. Specifically, we conducted a literature review of work related to vulnerabilities in ADS-B technology. To identify studies that potentially highlighted vulnerabilities that we could discuss with agency officials, we conducted key-word searches of government and private databases to identify public, private, academic, and other professional research related to ADS-B vulnerabilities. The government databases we searched included those of GAO, the Congressional Research Service, the Congressional Budget Office, and agency Inspectors General. The private databases searched include Web of Science, ProQuest, and ProQuest Professional. To determine relevance to our review, we assessed whether article subjects were related to vulnerabilities or vulnerability mitigations for ADS-B systems. We reviewed those studies cited in our report and found their methodologies to be sufficient. To further address our objective, we interviewed officials from NORAD, DOD, the military services, and FAA on potential risks, vulnerabilities, and mitigation strategies. We did not conduct independent security and vulnerability assessments of ADS-B technology to corroborate or validate security risks identified by NORAD, DOD, FAA, and others. While military aircraft and existing radar systems may be equipped with devices (including Mode S transponders) that could also pose security risks, this report focused on risks and potential solutions associated with ADS-B Out technology that FAA mandated DOD to install on its aircraft by January 1, 2020. We also visited multiple public websites to understand the extent to which the public could track current military flights over the United States. We met with a representative from one of these websites to understand the underlying sources of information and how the information was used to compile the images. To understand DOD and FAA coordination, we reviewed laws, guidance, and directives related to agency cooperation for the NextGen system and implementation of ADS-B technology. This included the 2010 FAA Federal Register entry that provided guidelines and requirements for coordination between agencies and the 2007 Deputy Secretary of Defense memorandum on implementing NextGen, which states that DOD components must develop cohesive plans and policies. To assess the extent to which DOD has implemented key tasks in the 2007 Deputy Secretary of Defense memorandum on implementing NextGen, we reviewed the Deputy Secretary of Defense’s 2007 NextGen memorandum and identified 20 tasks that were directed by the Deputy Secretary for the purpose of ensuring that NextGen meets DOD requirements, and that DOD’s resources are appropriately focused and managed. We focused on the 8 tasks wherein the accomplishment of the task would be significant to the development of plans and policies related to the implementation of the FAA’s ADS-B Out technology requirement. To evaluate the implementation status of these 8 tasks, we collected relevant documentation, interviewed officials from DOD, and reviewed this information. Initially, two analysts separately reviewed this information to determine whether each of the 8 tasks was implemented or not implemented. Later, a panel of four analysts collectively reviewed both sets of analyses completed for each task and determined whether a task would be better categorized as partially implemented, instead of implemented, or as not implemented. We conducted this performance audit from June 2016 to January 2018, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Defense This report (GAO-18-177) is an unclassified version of GAO-18-176C—which had report number GAO-17-509C at the time it was transmitted to DOD for comment. Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Tommy Baril (Assistant Director), Tracy Barnes, David Beardwood, Virginia Chanley, Benjamin Emmel, Kevin Newak, Joshua Ormond, Matthew Sakrekoff, Amanda Weldon, and Edwin Yuen made major contributions to this report. Colleen Candrl, Mark Canter, Raj Chitikila, Tracy Harris, Kirk Kiester, Amie Lesser, Nicholas Marinos, Madhav Panwar, John Shumann, James Tallon, and Cheryl Weissman also made contributions to this report. Related GAO Products Next Generation Air Transportation System: Improved Risk Analysis Could Strengthen FAA’s Global Interoperability Efforts. GAO-15-608. Washington, D.C.: July 29, 2015 Air Traffic Control: FAA Needs a More Comprehensive Approach to Address Cybersecurity As Agency Transitions to NextGen. GAO-15-370. Washington D.C.: April 14, 2015. National Airspace System: Improved Budgeting Could Help FAA Better Determine Future Operations and Maintenance Priorities. GAO-13-693. Washington, D.C.: August 22, 2013. NextGen Air Transportation System: FAA Has Made Some Progress in Midterm Implementation, but Ongoing Challenges Limit Expected Benefits, GAO-13-264. Washington D.C.: April 8, 2013. Next Generation Air Transportation System: FAA Faces Implementation Challenges. GAO-12-1011T. Washington, D.C.: September 12, 2012. Next Generation Air Transportation: Collaborative Efforts with European Union Generally Mirror Effective Practices, but Near-Term Challenges Could Delay Implementation, GAO-12-48. Washington, D.C.: November 3, 2011.

DOD has until January 1, 2020, to equip its aircraft with ADS-B Out technology that would provide DOD, FAA, and private citizens the ability to track their flights in real-time and track flight patterns over time. This technology is a component of NextGen, a broader FAA initiative that seeks to modernize the current radar-driven, ground-based air transportation system into a satellite-driven space-based system. Senate Report 114-255 included a provision for GAO to assess the national defense implications of FAA's implementation of ADS-B. This report assesses the extent to which (1) DOD and FAA have identified operations and security risks and approved solutions to address these risks to ADS-B Out -equipped military aircraft; and (2) DOD has implemented key tasks in the 2007 memorandum on implementing NextGen. GAO analyzed risks identified by DOD and FAA related to ADS-B vulnerabilities, and how they could affect current and future air defense and air traffic missions. GAO also reviewed the tasks in the 2007 NextGen Memorandum and assessed whether the eight tasks specifically related to ADS-B were implemented. Since 2008, the Department of Defense (DOD) and the Department of Transportation's Federal Aviation Administration (FAA) have identified a variety of risks related to Automatic Dependent Surveillance-Broadcast (ADS-B) Out technology that could adversely affect DOD security and missions. However, they have not approved any solutions to address these risks. Compared with other tracking technology, ADS-B Out provides more information, such as an aircraft's precise location, velocity, and airframe dimensions, and better enables real-time and historical flight tracking. Individuals—including adversaries—could track military aircraft equipped with ADS-B Out technology, presenting risks to physical security and operations. This readily available public information allowed GAO to track various kinds of military aircraft. ADS-B Out is also vulnerable to electronic warfare and cyber-attacks. Since FAA is planning to divest radars as part of ADS-B implementation, homeland defense could also be at risk, since the North American Aerospace Defense Command relies on information from FAA radars to monitor air traffic. DOD and FAA have drafted a memorandum of agreement that focuses on equipping aircraft with ADS-B Out but does not address specific security risks. Unless DOD and FAA focus on these risks and approve one or more solutions in a timely manner, they may not have time to plan and execute actions that may be needed before January 1, 2020—when all aircraft are required to be equipped with ADS-B Out technology. Of the eight tasks associated with the implementation of ADS-B Out technology in the 2007 DOD NextGen memorandum—issued by the Deputy Secretary of Defense to ensure that the NextGen vision for the future national airspace system met DOD's requirements and the appropriate management of DOD's resources—DOD has implemented two, has partially implemented four, and has not implemented two. DOD has established a joint program office and identified a lead service, but it has only partially validated ADS-B Out requirements, developed a directive, issued an implementation plan, and incorporated NextGen into the planning, budgeting, and programming process. DOD has not taken significant action to integrate the needs and requirements of DOD components related to ADS-B into cohesive plans and policies for inclusion in NextGen joint planning and development, and has not provided periodic and recurring NextGen progress reports to the Deputy Secretary of Defense. As a result of DOD not fully implementing the 2007 NextGen memorandum, DOD components have lacked direction and cohesion while trying to address FAA's requirement to equip military aircraft. This is a public version of a classified report GAO issued in January 2018.

GAO_GAO-18-130

Background DOD is the largest U.S. federal department and one of the most complex organizations in the world. In support of its military operations, the department manages many interdependent business functions, including logistics management, procurement, health care management, and financial management. DOD relies extensively on IT to support its business functions. According to its IT investment data, the department has 2,097 business system investments. The department’s fiscal year 2018 IT budget request states that DOD plans to spend about $8.7 billion in fiscal year 2018 on its defense business systems. The IT budget organizes investments by mission areas. The four mission areas are enterprise information environment, business, warfighting, and defense intelligence. Figure 1 shows the amount of DOD’s requested fiscal year 2018 IT budget that the department plans to spend on each mission area. The department further organizes its IT budget by segments. For example, the business mission area includes segments such as financial management, health, and human resource management. Figure 2 shows the department’s projected fiscal year 2018 spending for each segment in the business mission area. GAO designated the department’s business systems modernization efforts as high risk in1995 and has continued to do so in the years since. DOD currently bears responsibility, in whole or in part, for half of the programs (17 of 34 programs) across the federal government that we have designated as high risk. Seven of these areas are specific to the department, and 10 other high-risk areas are shared with other federal agencies. Collectively, these high-risk areas are linked to the department’s ability to perform its overall mission and affect the readiness and capabilities of U.S. military forces. DOD’s business systems modernization is one of the department’s specific high-risk areas and is essential for addressing many of the department’s other high-risk areas. For example, modernized business systems are integral to the department’s efforts to address its financial and supply chain high-risk areas. Since 2005, we have issued 11 reports in response to mandates directing GAO to assess DOD’s actions to respond to business system modernization provisions contained in Section 2222 of Title 10, United States Code. These reports contained 23 recommendations to help strengthen the department’s management of its business systems. As of September 2017, the department had implemented 13 of the recommendations and 2 had been closed as not implemented. The other 8 recommendations remain open. The 11 reports are listed in appendix II. The NDAA for Fiscal Year 2016 Included Provisions for Managing Defense Business Systems The NDAA for Fiscal Year 2016 included provisions requiring DOD to perform certain activities aimed at ensuring that its business system investments are managed efficiently and effectively. Specifically, the act established requirements for the department related to issuing policy and guidance for managing defense business systems; developing and maintaining a defense business enterprise architecture; establishing a Defense Business Council to provide advice to the Secretary on managing defense business systems; and obtaining approvals before systems proceed into development (or if no development is required, into production or fielding) and related annual reviews. According to the Joint Explanatory Statement accompanying the NDAA for Fiscal Year 2016, the act revised Section 2222 of Title 10, United States Code, to streamline requirements and clarify the responsibilities of senior officials related to acquiring and managing business systems. Key revisions pertain to: Covered defense business systems. The code previously defined a covered defense business system as a system having a total cost of over $1 million over the period of the future-years defense program. As revised, the code now defines a covered defense business system as a system that is expected to have a total amount of budget authority over the period of the current future-years defense program of over $50 million. Priority defense business systems. The act established a new category of system, called a priority defense business system. This is a system that is (1) expected to have a total amount of budget authority of over $250 million over the period of the current future- years defense program, or (2) designated by the DCMO as a priority defense business system based on specific program analyses of factors including complexity, scope, and technical risk, and after notification to Congress of such designation. Thresholds and officials responsible for review and certification of defense business systems. The code previously stated that the DCMO had responsibility for reviewing and certifying all defense business system investments over $1 million over the future-years defense program. The revised code states that, unless otherwise assigned by the Secretary of Defense, military department Chief Management Officers (CMO) are to have approval authority for their covered defense business system investments below $250 million over the future-years defense program. The DCMO is to have approval authority for defense business systems owned by DOD components other than the military departments, systems that will support the business process of more than one military department or other component, and priority defense business systems. Certification requirements. The code previously required that a defense business system program be reviewed and certified, at least annually, on the basis of its compliance with the business enterprise architecture and appropriate business process reengineering. In addition to these requirements, the revised code requires that the business system program be reviewed and certified on the basis of having valid, achievable requirements and a viable plan for implementing the requirements; having an acquisition strategy designed to eliminate or reduce the need to tailor commercial off-the- shelf systems; and being in compliance with the department’s auditability requirements. Key Roles and Responsibilities for Managing Defense Business Systems DOD Instruction 5000.75: Business Systems Requirements and Acquisition assigns roles and responsibilities for managing defense business system investments. Table 1 identifies the key entities and their responsibilities for managing defense business system investments. DOD Has Made Progress in Complying with Legislative Provisions for Managing Defense Business Systems, but More Remains to Be Done DOD has taken steps to address provisions of the NDAA for Fiscal Year 2016 related to defense business system investments. Specifically, as called for in the act, the department has established guidance that addresses most legislative requirements for managing its defense business systems; however, the military departments are still developing guidance to fully address certification requirements for their systems. Further, DOD has developed a business enterprise architecture and is in the process of updating the architecture to improve its content. The department also has a plan to improve the usefulness of the business enterprise architecture; however, the department has not delivered the plan’s intended capabilities. In addition, the department is in the process of updating its IT enterprise architecture; however, it does not have a plan for improving the department’s IT and computing infrastructure for each of the major business processes. Further, the department has not yet demonstrated that the business enterprise architecture and the IT enterprise architecture are integrated. The department fully addressed the act’s requirement related to defense business system oversight. Specifically, the department’s governance board, called the Defense Business Council, addressed legislative provisions to provide advice to the Secretary of Defense. Lastly, DOD and the military departments did not apply new legislative requirements when certifying business systems for fiscal year 2017. Instead, the DOD DCMO certified the systems in our sample in accordance with the previous fiscal year’s (fiscal year 2016) certification requirements. DOD Issued Guidance Addressing Most Legislative Requirements for Managing Business Systems The NDAA for Fiscal Year 2016 required the Secretary of Defense to issue guidance by December 31, 2016 to provide for the coordination of, and decision making for, the planning, programming, and control of investments in covered defense business systems. The act required this guidance to address six elements: Policy to ensure DOD business processes are continuously reviewed and revised to implement the most streamlined and efficient business processes practicable and eliminate or reduce the need to tailor commercial off-the-shelf systems to meet or incorporate requirements or interfaces that are unique to the department. A process to establish requirements for covered defense business systems. Mechanisms for planning and controlling investments in covered defense business systems, including a process for the collection and review of programming and budgeting information for covered defense business systems. Policy requiring the periodic review of covered defense business systems that have been fully deployed, by portfolio, to ensure that investments in such portfolios are appropriate. Policy to ensure full consideration of sustainability and technological refreshment requirements, and the appropriate use of open architectures. Policy to ensure that best acquisition and systems engineering practices are used in the procurement and deployment of commercial systems, modified commercial systems, and defense-unique systems to meet DOD missions. Of these six elements called for by the act, the department has issued guidance that fully addresses four elements and partially addresses two elements. Table 2 summarizes our assessment of DOD’s guidance relative to the act’s requirements. DOD fully addressed the element requiring policy to ensure that the business processes of the department are continuously reviewed and revised. For example, DOD Instruction 5000.75 requires the functional sponsor of a defense business system to engage in continuous process improvement throughout all phases of the business capability acquisition cycle. The department also fully addressed the element to provide a process for establishing requirements for covered defense business systems with DOD Instruction 5000.75, which introduces the business capability acquisition cycle for business system requirements and acquisition. In addition, DOD fully addressed the element to provide mechanisms for planning and controlling investments in covered defense business systems. Specifically, the department’s Financial Management Regulation; Directive 7045.14 on its planning, programming, budgeting, and execution process; and the April 2017 Defense Business System Investment Management Guidance provide such mechanisms. For example, the April 2017 investment management guidance includes a process, called the integrated business framework, which the department is to follow for selecting, managing, and evaluating the results of investments in defense business systems. In addition, the directive assigns the DOD CIO responsibility for participating in the department’s annual resource allocation process and for advising the Secretary and Deputy Secretary of the Defense on IT resource allocations and investment decisions. Further, DOD fully addressed the requirement for a policy requiring the periodic review of covered business systems that have been fully deployed, by portfolio, to ensure that investments in such portfolios are appropriate. Specifically, the department’s April 2017 Defense Business System Investment Management Guidance requires the department to annually review an organization’s plan for managing its portfolio of defense business systems over the period of the current future-years defense program (e.g., Army’s plan for its financial management systems) to ensure, among other things, that the portfolio is aligned with applicable functional strategies (e.g., DOD’s strategy for its financial management functional area). DOD partially addressed the element requiring policy to ensure full consideration of sustainability and technological refreshment requirements, and the appropriate use of open architectures. Specifically, the department established policy requiring consideration of open architectures, but it has not established policy requiring consideration of sustainability and technological refreshment requirements. The Office of the DCMO stated that future guidance is expected to provide a policy to ensure full consideration of sustainability and technological refreshment requirements. However, the department could not provide a time frame for when the guidance will be developed and issued. Without a policy requiring full consideration of sustainability and technological refreshment requirements for its defense business system investments, the department may not be able to ensure that it has a full understanding of the costs associated with these requirements. As a result, the department may not be able to effectively manage spending on these systems. DOD has also partially addressed the element requiring policy to ensure that best acquisition and systems engineering practices are used in the procurement and deployment of commercial, modified-commercial, and defense-unique systems. Specifically, the department has established policy requiring the acquisition of business systems to be aligned with commercial best practices and to minimize the need for customization of commercial products to the maximum extent possible. On the other hand, the department has not established policy to ensure the use of best systems engineering practices. With regard to this finding, officials in the Office of the DCMO asserted that DOD Instruction 5000.75 addresses the requirement. However, while the instruction requires the system acquisition strategy to include a description of how the program plans to leverage systems engineering, it does not require the use of best systems engineering practices. Without a policy requiring the use of best systems engineering practices in the procurement and deployment of commercial, modified, and defense- unique systems, the department may be limited in its ability to effectively balance meeting system cost and performance objectives. DOD Issued Guidance that Addresses New Certification Requirements, and the Military Departments Have Made Mixed Progress in Issuing Supporting Guidance In addition to guidance for addressing the aforementioned legislative requirements for business systems management, the NDAA for Fiscal Year 2016 requires the Secretary to direct the DCMO and the CMO of each of the military departments to issue and maintain supporting guidance, as appropriate and within their respective areas of responsibility. In this regard, one of the key areas for which the DCMO and military department CMOs are to provide supporting guidance is the review and certification of defense business systems in accordance with specific requirements. Specifically, the act requires that, for any fiscal year in which funds are expended for development or sustainment pursuant to a covered defense business system program, the appropriate approval official is to review the system to determine if the system: has been, or is being, reengineered to be as streamlined and efficient as practicable, and whether the implementation of the system will maximize the elimination of unique software requirements and unique interfaces; is in compliance with the business enterprise architecture or will be in compliance as a result of planned modifications; has valid, achievable requirements, and a viable plan for implementing those requirements (including, as appropriate, market research, business process reengineering, and prototyping activities); has an acquisition strategy designed to eliminate or reduce the need to tailor commercial off-the-shelf systems to meet unique requirements, incorporate unique requirements, or incorporate unique interfaces to the maximum extent practicable; and is in compliance with the department’s auditability requirements. The act and DOD Instruction 5000.75 define the systems that the DOD DCMO is responsible for certifying and the systems that military department CMOs are responsible for certifying. Consistent with the act, in April 2017, the DCMO issued guidance for certifying officials that addresses the certification requirements. Table 3 provides our rating and assessment of the DCMO’s guidance for implementing defense business system certification requirements. By establishing guidance requiring that defense business systems be certified on the basis of the legislative requirements, the department is better positioned to ensure that a covered system does not proceed into development (or, if no development is required, into production or fielding) without the appropriate due diligence. Further, the department has taken steps which should help ensure that funds are limited to systems in development or sustainment that meet these requirements. Air Force and Navy Guidance Partially Addresses Certification Requirements; Army Has Not Yet Issued Guidance The military departments have made mixed progress in developing supporting guidance to assist in making certification decisions regarding systems within their respective areas of responsibility. More specifically, the Air Force has issued supporting guidance that addresses three of the act’s five certification requirements, but does not address the remaining two requirements. Navy has issued guidance that addresses two of the certification requirements, partially addresses one requirement, and does not address two requirements. The Army has not yet issued guidance on any of the five certification requirements. Table 4 provides an overview of our assessment of the Air Force’s, Navy’s, and Army’s guidance relative to the NDAA for Fiscal Year 2016 certification requirements. Each department’s efforts are further discussed following the table. Air Force. In April 2017, the Department of the Air Force issued guidance for certifying business systems for fiscal year 2018. The guidance addresses the requirements that a system be certified on the basis of sufficient business process reengineering, business enterprise architecture compliance, and valid requirements and a viable plan to implement them. Specifically, the guidance states that Air Force core defense business systems are required to comply with the business process reengineering guidance prescribed in the DCMO’s February 2015 Defense Business Systems Investment Management Process Guidance and for systems to assert compliance with the architecture through DCMO’s Integrated Business Framework—Data Alignment Portal. In addition, the guidance states that the department must follow DOD Instruction 5000.75, which requires that certifying officials determine that business requirements are valid and capability efforts have feasible implementation plans. However, the Air Force guidance does not address the remaining two certification requirements. Officials in the office of the Air Force DCMO acknowledged that the Air Force’s business system certification guidance does not address determining how the acquisition strategy is designed to eliminate or reduce the need to tailor commercial off-the-shelf systems to meet unique requirements, incorporate unique requirements, or incorporate unique interfaces to the maximum extent practicable or is in compliance with DOD’s auditability requirements. In May 2017, Air Force DCMO officials stated that the department was in the process of developing guidance. However, as of December 2017, the Air Force had not described specific plans to update its business system certification guidance. Navy. The Department of the Navy issued guidance in May 2016. This guidance addresses the requirements that a system be certified on the basis of sufficient business process reengineering and business enterprise architecture compliance. In this regard, the guidance provides guidelines for documenting business process reengineering and requires verification that business process reengineering is complete. The guidance also specifies that defense business systems are to map alignment with the business enterprise architecture in DCMO’s Integrated Business Framework–Data Alignment Portal. Navy’s guidance partially addresses the certification requirement for determining if a defense business system has valid requirements and a viable plan to implement them. Specifically, the guidance includes information on validating requirements; however, it does not include information on determining if a system has a viable plan to implement the requirements. In addition, Navy’s guidance does not address the remaining two certification requirements, which are to determine that the covered defense business system has an acquisition strategy that eliminates or reduces the need to tailor commercial-off-the-shelf systems, and that the system is in compliance with DOD’s auditability requirements. In August 2017, officials in the Office of the Under Secretary of the Navy (Management) stated that the office was in the process of updating its May 2016 Defense Business System Investment Certification Manual. The officials stated that the goal is to issue interim investment certification guidance by May 2018. As of November 2017, however, Navy had not established a plan for when it expects to publish finalized certification guidance. Army. The Department of the Army has not issued guidance that addresses any of the act’s certification requirements. The Army issued a template that was to be used to develop fiscal year 2018 portfolio review submissions. However, the template does not address any of the certification requirements. Officials in the Army’s Office of Business Transformation explained that the Army used DOD DCMO’s 2014 guidance to certify its business systems for fiscal year 2017. In May 2017, they stated that the Army was in the process of developing guidance to implement DOD’s new instruction. In November 2017, an official in the Army’s Office of Business Transformation stated that the office was in the process of completing the guidance and aimed to provide it to the Deputy Under Secretary’s office for signature in January 2018. However, the department has not committed to a specific time frame for when the new guidance is expected to be issued. Without guidance for the certification authority to determine that defense business systems have addressed each of the act’s certification requirements, the Air Force, Navy, and Army risk allowing systems to proceed into development or production that do not meet these requirements. In particular, the military departments risk wasting funds on developing and maintaining systems that do not have valid requirements and a viable plan to implement the requirements, introduce unnecessary complexity, or that do not adequately support the Department of Defense’s efforts to meet its auditability requirements. DOD Has Efforts Underway to Improve Its Business Enterprise Architecture, but Its IT Architecture Is Not Complete According to the NDAA for Fiscal Year 2016, DOD is to develop and maintain a defense business enterprise architecture to guide the development of integrated business processes within the department. In addition, the act states that the business architecture must be consistent with the policies and procedures established by the Director of the Office of Management and Budget. Among other things, OMB policy calls for agencies to develop an enterprise architecture that describes the current architecture, target architecture, and a transition plan to get to the target architecture. The act also calls for the business architecture to contain specific content, including policies, procedures, business data standards, business information requirements, and business performance measures that are to apply uniformly throughout the department. DOD has developed a business enterprise architecture that is intended to help guide the development of its defense business systems. The department issued version 10 of the business architecture, which is currently being used to support system certification decisions, in February 2013. The business architecture and related documentation include content describing aspects of the current architecture, target architecture, and a transition plan to get to the target architecture. In addition, the business architecture includes content that addresses the act’s requirements. Table 5 provides examples of required content in DOD’s business enterprise architecture. Nevertheless, some content included in version 10 of the business architecture is outdated and incomplete. For example, version 10 of the business architecture’s repository of laws, regulations, and policies was last updated in February 2013, and officials in the Office of the DOD CIO and Office of the DCMO confirmed that they are not current. Further, the department’s March 2017 business architecture compliance guidance stated that not all relevant business data standards are identified in the business architecture. In addition, based on our review, information about performance measures documented in the architecture is incomplete. For example, target values for performance measures associated with acquisition and logistics initiatives are not identified. According to officials in the Office of the DCMO, the department is working to update the business architecture. Specifically, the department has developed version 11 of the business architecture to, in part, replace outdated architecture content. According to the officials, version 11 of the architecture is currently available online, but version 10 remains the official version of the business enterprise architecture used for system certification decisions. The officials stated that the department continues to add content to version 11, and they expect that it will be used as the basis of system certification decisions for fiscal year 2019. In addition, DOD has ongoing work to address a key recommendation we made in July 2015 associated with improving the usefulness of its business architecture. In particular, we reported that the majority of military department portfolio managers that we surveyed believed that the business architecture had not been effective in meeting intended outcomes. For example, only 25 percent of the survey respondents reported that the business architecture effectively enabled DOD to routinely produce timely, accurate, and reliable business and financial information for management purposes. In addition, only 38 percent reported that the business architecture effectively guided the implementation of interoperable defense business systems. As a result, we reported that the architecture had produced limited value and recommended that the department use the results of our survey to determine additional actions that can improve the department’s management of its business enterprise architecture activities. In response to our recommendation, DOD identified opportunities to address our survey findings and developed a plan for improving its ability to achieve architecture-related outcomes. DOD’s business enterprise architecture improvement plan was signed by the Assistant DCMO in January 2017. However, the department has not yet demonstrated that it has delivered the capabilities described by the plan; thus, we will continue to monitor DOD’s progress to fully address this recommendation. DOD Has Taken Steps to Develop Its IT Enterprise Architecture, but Does Not Have a Plan That Provides a Road Map for Improving the Department’s IT and Computing Infrastructure In addition to the business enterprise architecture, according to the act, the DOD CIO is to develop an IT enterprise architecture. This architecture is to describe a plan for improving the IT and computing infrastructure of the department, including for each of the major business processes. Officials in the Office of the DOD CIO stated that the department considers its information enterprise architecture to be its IT enterprise architecture. The DOD CIO approved version 2.0 of its information enterprise architecture in August 2012. According to DOD documentation, this architecture describes the department’s current information enterprise (i.e., information resources, assets, and processes used to share information across the department and with its mission partners) and includes a vision for the target information enterprise; documents required capabilities, and the activities, rules, and services needed to provide them; and includes information for applying and complying with the architecture. Nevertheless, while the architecture includes content describing the department’s current and target information enterprise, which is consistent with OMB guidance, it does not include a transition plan that provides a road map for improving the department’s IT and computing infrastructure. Related to this finding, DCMO officials did not agree with our assessment concerning the department’s IT enterprise architecture transition plan. In this regard, officials in the Office of the DCMO stated that the department’s DOD IT Portfolio Repository includes information for managing efforts to improve IT and computing infrastructure at the system level. According to the repository’s data dictionary, this information can include system life cycle start and end dates, as well as information that supports planning for a target environment. However, documentation describing DOD’s information enterprise architecture does not identify the DOD IT Portfolio Repository as being part of the architecture. Moreover, it does not include a plan for improving the department’s IT and computing infrastructure for each of the major business processes. Officials in the Office of the CIO acknowledged that the architecture does not include such plans. According to the officials, the department is currently developing version 3.0 of its information enterprise architecture (i.e., its IT enterprise architecture). The officials stated that the department does not currently intend for the architecture to include a plan for improving the department’s IT and computing infrastructure that addresses each of the major business processes. They added, however, that there is an effort to ensure that functional areas, such as human resources management, are included. DCMO officials stated that the department has not defined how the DOD IT enterprise architecture needs to be segmented for each major business process because the infrastructure requirements seem to be similar for each of the processes. Without an architecture that includes a plan for improving its IT and computing infrastructure, including for each of the major business processes, DOD risks not ensuring that stakeholders across the department have a consistent understanding of the steps needed to achieve the department’s future vision, agency priorities, potential dependencies among investments, and emerging and available technological opportunities. DOD Has Not Demonstrated That Its Business and IT Architectures Are Integrated According to the act, the DOD business enterprise architecture is to be integrated into the DOD IT enterprise architecture. The department’s business architecture compliance guide also recognizes that the business architecture is to be integrated with the IT enterprise architecture. However, the department has not demonstrated that it has integrated the business enterprise architecture into the information enterprise architecture. Specifically, the department did not provide documentation associated with either architecture that describes how the two are, or are to be, integrated. The business enterprise architecture compliance guide states that DOD Directive 8000.01 implements the requirement that the two architectures are to be integrated. However, the directive does not address how they are, or are to be, integrated. Officials in the Offices of the CIO and the DCMO described steps they were taking to coordinate the development of the next versions of the information enterprise architecture (i.e., IT enterprise architecture) and business enterprise architecture. However, these steps were not sufficient to help ensure integration of the two architectures. Specifically, in June 2017, officials in the Office of the DOD CIO stated they were participating in the development of the next version of the business architecture and that the DOD CIO is represented on the Business Enterprise Architecture Configuration Control Board. Officials in the Office of the DCMO confirmed that DOD CIO officials participate on the board. However, officials from the Office of the DCMO said that, until it met in June 2017 the board had not met since 2014. Moreover, documentation of the June 2017 meeting, and a subsequent November 2017 meeting, did not indicate that the board members had discussed integration of the department’s business and information enterprise architectures. In addition, officials in the Office of the DCMO reported that the office has not actively participated in the information enterprise architecture working group. Further, our review of meeting minutes from this working group did not identify participation by officials in the Office of the DCMO, or that integration of the architectures was discussed. The Office of the DCMO described other mechanisms for its sharing of information about architectures with the Office of the DOD CIO. For example, the Office of the DCMO stated that it participates with DOD CIO bodies governing version 3.0 development. Nevertheless, the Office of the DCMO reiterated that technical integration of the architectures has not been designed. Until DOD ensures that its business architecture is integrated into its IT enterprise architecture, the department may not be able to ensure that its business strategies capitalize on technologies and that its IT infrastructure will support DOD’s business priorities and related business strategies. The Defense Business Council Addressed Legislative Provisions to Provide Advice on Defense Business Systems to the Secretary of Defense The NDAA for Fiscal Year 2016 requires the Secretary to establish a Defense Business Council, chaired by the DCMO and the DOD CIO, to provide advice to the Secretary on: developing the business enterprise architecture, reengineering the department’s business processes, developing and deploying business systems, and developing requirements for business systems. DOD established the department’s Defense Business Council in October 2012, prior to the act. According to its current charter, dated December 2014, the Council is co-chaired by the DCMO and the DOD CIO. In addition, the Council is to serve as the principal governance body for vetting issues related to managing and improving defense business operations. Among other things, it serves as the investment review board for defense business system investments. The Defense Business Council charter also states that the Council was established as a principal supporting tier of governance to the Deputy’s Management Action Group. The Deputy’s Management Action Group was established by an October 2011 memorandum issued by the Deputy Secretary of Defense. According to information published on DCMO’s website, the group was established to be the primary civilian-military management forum that supports the Secretary of Defense, and is to address top department issues that have resource, management, and broad strategic and/or policy implications. The group’s primary mission is to produce advice for the Deputy Secretary of Defense in a collaborative environment and to ensure that the group’s execution aligns with the Secretary of Defense’s priorities. According to the Office of the DCMO, the Defense Business Council determines whether or not to elevate a topic to the Deputy’s Management Action Group to address on behalf of the Secretary. Based on our review of meeting documentation for 27 meetings that the Defense Business Council held between January 2016 and August 2017, the Council discussed the four topics on which the NDAA for Fiscal Year 2016 requires it to provide advice to the Secretary. According to the Office of the DCMO, during the discussions of these topics, the Council did not identify any issues related to the topics that needed to be elevated to the Deputy’s Management Action Group. Table 6 identifies the number of meetings in which the Council discussed each topic during this time period. By ensuring that the required business system topics are discussed during Defense Business Council meetings, the department should be positioned to raise issues to the Deputy’s Management Action Group, and ultimately, to advise the Secretary of Defense on matters associated with these topics. DOD Certified Selected Business Systems for Fiscal Year 2017 on the Basis of Earlier Certification Requirements The NDAA for Fiscal Year 2016 requires that, for any fiscal year in which funds are expended for development or sustainment pursuant to a covered defense business system program, the Secretary of Defense is to ensure that a covered business system not proceed into development (or, if no development is required, into production or fielding) unless the appropriate approval official reviews the system to determine if the system meets five key requirements, as previously discussed in this report. In addition, the act requires that the appropriate approval official certify, certify with conditions, or decline to certify that the system satisfies these five requirements. The department issued DOD Instruction 5000.75, which established business system categories and assigned certifying officials, consistent with the act. Table 7 describes the business system categories and the assigned certifying officials, as defined in DOD Instruction 5000.75. The DOD DCMO certified the five systems in our sample (which included the military departments’ systems) for fiscal year 2017. However, these certifications were issued in accordance with the previous fiscal year’s (fiscal year 2016) certification requirements. Those requirements had stipulated that a defense business system program was to be reviewed and certified on the basis of the system’s compliance with the business enterprise architecture and appropriate business process reengineering, rather than on the basis of having met all five requirements identified in the NDAA for Fiscal Year 2016. Specifically, DCMO certified the systems on the basis of determining that the systems were in compliance with the business enterprise architecture and had been sufficiently reengineered. However, none of the systems were certified on the basis of a determination that they had valid, achievable requirements and a viable plan for implementing them; had an acquisition strategy to reduce or eliminate the need to tailor commercial off-the-shelf systems; or were in compliance with the department’s auditability requirements. Officials in the Offices of the DOD DCMO, the Air Force DCMO, the Under Secretary of the Navy (Management), and Army Business Transformation told us that the systems were not certified relative to three of the requirements because the department did not issue guidance to reflect changes made by the NDAA for Fiscal Year 2016 in time for the fiscal year 2017 certification process. Prior to the NDAA for Fiscal Year 2016, relevant legislation and DOD guidance only called for annual determinations to be made regarding whether a system complied with the business enterprise architecture and whether appropriate business process reengineering had been conducted. In January 2016, the DCMO issued a memorandum stating that the department planned to issue new guidance and policy to implement the new legislation by the end of February 2016. However, the department did not issue additional guidance addressing the new certification requirements until April 2017. The system certifications, which were required by the act to be completed before systems could spend fiscal year 2017 funds, occurred in August and September 2016. In explaining the delay in issuing new guidance on the certification requirements, officials in the Office of the DCMO stated that the statutory deadline for issuing guidance was December 31, 2016. They added that, given this statutory deadline, and the start of fiscal year 2017 on October 1, 2016, it was their determination that Congress did not intend for the NDAA for Fiscal Year 2016’s certification requirements to be fully implemented before fiscal year 2017 started. DCMO officials stated that they intend for the department to use the certification requirements established by the NDAA for Fiscal Year 2016 for future system certifications. While it was reasonable for the department to use the earlier guidance for its fiscal year 2017 certifications, given that the new guidance had not yet been issued, it will be important going forward that the department certifies business systems on the basis of the certification requirements established in the NDAA for Fiscal Year 2016 and its related guidance addressing these requirements. Certifying systems on the basis of the act’s requirements should help ensure that funds are not wasted on developing and maintaining systems that do not have valid requirements and a viable plan to implement the requirements, that introduce unnecessary complexity, or that impede the Department of Defense’s efforts to meet its auditability requirements. Conclusions Since the NDAA for Fiscal Year 2016 was signed in November 2015, DOD has issued guidance that addresses most provisions of the NDAA for Fiscal Year 2016 related to managing defense business system investments. However, the department has not established policies requiring consideration of sustainability and technology requirements and the use of best systems engineering practices in the procurement and deployment of its systems. Having these policies would better enable the department to ensure it is efficiently and effectively procuring and deploying its business systems. In addition, the Air Force, the Army, and Navy have made mixed progress in issuing guidance to assist in making certification decisions regarding systems within their respective areas of responsibility. Specifically, the Air Force and Navy issued guidance on the certification of business systems that does not fully address new certification requirements, while the Army has not issued any updated guidance for its certifications. As a result, the Air Force, Navy, and Army risk wasting funds on developing and maintaining systems that do not have valid requirements and a viable plan to implement the requirements, introduce unnecessary complexity, or do not adequately support the Department of Defense’s efforts to meet its auditability requirements. Also, DOD has developed an IT architecture, but this architecture does not address the act’s requirement that it include a plan for improving the department’s IT and computing infrastructure, including for each business process. In addition, DOD’s plans for updating its IT architecture do not address how the department intends to integrate its business and IT architectures, as called for by the act. As a result, DOD risks not having a consistent understanding of what is needed to achieve the department’s future vision, agency priorities, potential dependencies among investments, and emerging and available technological opportunities. Recommendations for Executive Action We are making six recommendations, including three to the Secretary of Defense and one to each of the Secretaries of the Air Force, the Navy and the Army: The Secretary of Defense should define a specific time frame for finalizing, and ensure the issuance of (1) policy requiring full consideration of sustainability and technological refreshment requirements for its defense business system investments; and (2) policy requiring that best systems engineering practices are used in the procurement and deployment of commercial systems, modified commercial systems, and defense-unique systems to meet DOD missions. (Recommendation 1) The Secretary of the Air Force should define a specific time frame for finalizing, and ensure the issuance of guidance for certifying the department’s business systems on the basis of (1) having an acquisition strategy designed to eliminate or reduce the need to tailor commercial off- the-shelf systems to meet unique requirements, incorporate unique requirements, or incorporate unique interfaces to the maximum extent practicable; and (2) being in compliance with DOD’s auditability requirements. (Recommendation 2) The Secretary of the Navy should define a specific time frame for finalizing, and ensure the issuance of guidance for certifying the department’s business systems on the basis of (1) having a viable plan to implement the system’s requirements; (2) having an acquisition strategy designed to eliminate or reduce the need to tailor commercial off-the-shelf systems to meet unique requirements, incorporate unique requirements, or incorporate unique interfaces to the maximum extent practicable; and (3) being in compliance with DOD’s auditability requirements. (Recommendation 3) The Secretary of the Army should define a specific time frame for finalizing, and ensure the issuance of guidance for certifying the department’s business systems on the basis of (1) being reengineered to be as streamlined and efficient as practicable, and determining that implementation of the system will maximize the elimination of unique software requirements and unique interfaces; (2) being in compliance with the business enterprise architecture; (3) having valid, achievable requirements and a viable plan to implement the requirements; (4) having an acquisition strategy designed to eliminate or reduce the need to tailor commercial off-the-shelf systems to meet unique requirements, incorporate unique requirements, or incorporate unique interfaces to the maximum extent practicable; and (5) being in compliance with DOD’s auditability requirements. (Recommendation 4) The Secretary of Defense should ensure that the DOD CIO develops an IT enterprise architecture which includes a transition plan that provides a road map for improving the department’s IT and computing infrastructure, including for each of its business processes. (Recommendation 5) The Secretary of Defense should ensure that the DOD CIO and Chief Management Officer work together to define a specific time frame for when the department plans to integrate its business and IT architectures and ensure that the architectures are integrated. (Recommendation 6) Agency Comments and Our Evaluation DOD provided written comments on a draft of this report, which are reprinted in appendix III. In the comments, the department stated that it concurred with three of the recommendations and partially concurred with three of the recommendations. DOD also provided evidence that it has fully addressed one of the recommendations. In addition, DOD provided technical comments that we incorporated in the report, as appropriate. DOD stated that it concurred with our first recommendation, which called for it to define a specific time frame for finalizing, and ensure the issuance of, policies that fully address provisions in the NDAA for Fiscal Year 2016. Furthermore, the department stated that it had complied with the recommendation. Specifically, the department stated that it had published its defense business systems investment management guidance in April 2017. This guidance identifies DOD’s Financial Management Regulation, Volume 2B, Chapter 18 “Information Technology” and supporting IT budget policy and guidance as well as DOD Instruction 5000.75 and supporting acquisition policy and guidance. The department stated that the Financial Management Regulation specifically addresses the requirement for sustainability and technological refreshment requirements for its defense business system investments. While DOD reported taking this action, we do not agree that the department has complied with our recommendation. In reviewing the department’s guidance, we found that none of the cited management documents includes a policy requiring consideration of sustainability and technological refreshment requirements for DOD’s defense business systems. Further, none of these documents includes a policy requiring that best systems engineering practices be used in the procurement and deployment of commercial, modified-commercial, and defense unique systems. Without a policy requiring full consideration of sustainability and technological refreshment requirements for its defense business system investments, the department may not be able to ensure that it has a full understanding of the costs associated with these requirements. Further, without a policy requiring the use of best systems engineering practices in systems procurement and deployment, the department may be limited in its ability to effectively balance meeting system cost and performance objectives. Accordingly, we continue to believe that our recommendation is valid. The department concurred with our second recommendation, that the Secretary of the Air Force define a specific time frame for finalizing, and ensure the issuance of, guidance that fully addresses certification requirements, in accordance with the NDAA for Fiscal Year 2016. Moreover, the department stated that the Air Force has complied with the recommendation. Specifically, DOD stated that Air Force Manual 63-144 details the consideration of using existing commercial solutions without modification or tailoring. However, while the manual provides a foundation on which the Air Force can build, it is not sufficient to fully address our recommendation because it does not include guidance on certifying business systems on the basis of having an acquisition strategy that eliminates or reduces the need to tailor commercial-off-the-shelf systems. In addition, the department did not demonstrate that the Air Force has issued guidance for certifying business systems on the basis of being in compliance with DOD’s auditability requirements. Rather, the Air Force stated that it has pending guidance that addresses the acquisition strategy and auditability requirements. We plan to evaluate the guidance to determine the extent to which it addresses our recommendation after it is issued. The department partially agreed with our third recommendation, that the Secretary of the Navy define a specific time frame for finalizing, and ensure the issuance of, guidance that fully addresses certification requirements. Specifically, DOD stated that Navy agreed to issue guidance. Subsequently, on March 8, 2018, Navy issued its updated guidance. However, Navy disagreed with the recommendation, as written, and suggested that GAO revise the recommendation to state that “The Secretary of the Navy should ensure guidance is issued according to established timeline for certifying the department’s business systems. . .” According to Navy, this change would support alignment with the timeline for certifying the department’s business systems driven by the Chief Management Officer investment review timeline. Based on our analysis, we found the guidance that Navy issued to be consistent with our recommendation. Thus, we plan to close the recommendation as fully implemented. We have also annotated this report, where appropriate, to explain that the Navy issued guidance while the draft of this report was at the department for comment. On the other hand, we did not revise the wording of our recommendation, as we believe it appropriately reflected the importance of Navy taking action to ensure the issuance of its guidance. The department stated that it concurred with our fourth recommendation, which called for the Secretary of the Army to define a specific time frame for finalizing, and ensure the issuance of, guidance for certifying the department’s business systems on the basis of the certification requirements. Furthermore, on March 23, 2018, the Army issued its guidance. However, because of the timing of this report relative to when the Army provided its guidance to us (on March 27, 2018), we have not yet completed an assessment of the guidance. We have annotated this report, where appropriate, to reflect the Army’s action on our recommendation. The department stated that it partially concurred with our fifth recommendation. This recommendation called for the DOD CIO to develop an IT enterprise architecture which includes a transition plan that provides a road map for improving the department’s IT and computing infrastructure, including for each of its business processes. Toward this end, the department agreed that the DOD CIO should develop an architecture that enables improving the department’s IT and computing infrastructure for each of its business processes. However, the department also stated that the recommendation is not needed because the goal is already being accomplished by a set of processes, organizations, protocols, and architecture data. For example, the department described processes and relationships between the Office of the DOD CIO and the Office of the Chief Management Officer and the boards that support the department’s business and IT enterprise architectures. In particular, the department stated that information enterprise architecture data relevant to the business enterprise are accessed via the DOD Information Enterprise Architecture Data Selection Wizard and imported into the business enterprise architecture. The department further stated that, if the business capability acquisition cycle process indicates a need to improve the IT or computing infrastructure, the Office of the Chief Management Officer has a protocol to initiate a proposal to change the information enterprise architecture. We agree that the department’s processes, organizations, protocols, and architecture data are keys to successful IT management. However, during the course of our audit, we found that documentation describing DOD’s IT architecture did not include a plan for improving the department’s IT and computing infrastructure for each of the major business processes. Moreover, officials in the Office of the CIO acknowledged that the architecture did not include such a plan. Without a transition plan that provides a road map for improving the department’s IT and computing infrastructure, including for each of its business processes, it will be difficult for the department to rely on its personnel to timely and proactively manage and direct modernization efforts of such a magnitude as DOD’s systems modernization efforts. Further, without such a plan, DOD risks not being able to ensure that stakeholders across the department have a consistent understanding of the steps needed to achieve the department’s future vision, agency priorities, potential dependencies among investments, and emerging and available technological opportunities. Thus, we maintain that the department should fully implement our recommendation. The department stated that it partially concurred with our sixth recommendation, that the DOD CIO and DCMO work together to define a specific time frame for when the department plans to integrate its business and IT architectures. In particular, the department stated that it agrees that the DOD CIO and Chief Management Officer should work together to establish a time frame and ensure coordination and consistency of the IT and business architectures. However, the department disagreed with the use and intent of the term “integrate,” as stated in the recommendation, although it did not explain the reason for this disagreement. Instead, it proposed that we change our recommendation to read “The GAO recommends the Secretary of Defense ensure the DoD CIO and CMO work together to define a specific timeline for coordinating its business and IT architectures to achieve better enterprise alignment among the architectures.” We agree that it is important to achieve coordination and consistency between the business and IT architectures. However, the department did not provide documentation associated with either architecture that describes how the two are, or are to be, integrated, as called for by the NDAA for Fiscal Year 2016 and DOD guidance. Integrating the architectures would help ensure that business strategies better capitalize on existing and planned technologies and that IT solutions and infrastructure support business priorities and related business strategies. Thus, we continue to believe that our recommendation is valid. However, we have updated the recommendation to state that the DOD CIO and the Chief Management Officer should work together. We made this change because, effective February 1, 2018, the Secretary of Defense eliminated the DCMO position and expanded the role of the Chief Management Officer, in accordance with the National Defense Authorization Act for Fiscal Year 2018. We are sending copies of this report to appropriate congressional committees; the Secretary of Defense; the Secretaries of the Army, Navy, and Air Force; and the Director of the Office of Management and Budget. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-4456 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made contributions to this report are listed in appendix IV. Appendix I: Objective, Scope, and Methodology Our objective was to determine the actions taken by the Department of Defense (DOD) to comply with provisions included in the National Defense Authorization Act for Fiscal Year 2016 (NDAA). These provisions require DOD to perform certain activities aimed at ensuring that its business system investments are managed efficiently and effectively. Specifically, we determined to what extent DOD has 1. established guidance for effectively managing its defense business 2. developed and maintained a defense business enterprise architecture and information technology (IT) enterprise architecture, in accordance with relevant laws and Office of Management and Budget (OMB) policies and guidance; 3. used the Defense Business Council to provide advice to the Secretary on developing the business enterprise architecture, reengineering the department’s business processes, developing and deploying business systems, and developing requirements for business systems; and 4. ensured that covered business systems are reviewed and certified in accordance with the act. To address the extent to which DOD has established guidance for effectively managing defense business system investments, we obtained and analyzed the department’s guidance, as well as the guidance established by the Departments of the Air Force, Army, and Navy, for managing defense business systems relative to the act’s requirements. Specifically, the NDAA for Fiscal Year 2016 required the Secretary of Defense to issue guidance, by December 31, 2016, to provide for the coordination of and decision making for the planning, programming, and control of investments in covered defense business systems. The act required this guidance to include the following six elements: Policy to ensure DOD business processes are continuously reviewed and revised to implement the most streamlined and efficient business processes practicable and eliminate or reduce the need to tailor commercial off-the-shelf systems to meet or incorporate requirements or interfaces that are unique to the department. Process to establish requirements for covered defense business systems. Mechanisms for planning and controlling investments in covered defense business systems, including a process for the collection and review of programming and budgeting information for covered defense business systems. Policy requiring the periodic review of covered defense business systems that have been fully deployed, by portfolio, to ensure that investments in such portfolios are appropriate. Policy to ensure full consideration of sustainability and technological refreshment requirements, and the appropriate use of open architectures. Policy to ensure that best acquisition and systems engineering practices are used in the procurement and deployment of commercial systems, modified commercial systems, and defense-unique systems to meet DOD missions. We assessed the February 2017 DOD Instruction 5000.75, Business Systems Requirements and Acquisitions, and April 2017 defense business system investment management guidance, which the department issued to address the act’s requirements. In addition, we assessed the department’s Financial Management Regulation and directive on its planning, programming, budgeting, and execution process, which the department stated also address the act’s provisions. We also assessed DOD’s guidance for managing business system investments relative to the act’s business system certification requirements. The act requires that the Secretary of Defense ensure that a covered defense business system not proceed into development (or, if no development is required, into production or fielding) unless the appropriate approval official determines that the system meets five requirements. The act further requires for any fiscal year in which funds are expended for development or sustainment pursuant to a covered defense business system program, the appropriate approval official to review the system to determine if the system: has been, or is being, reengineered to be as streamlined and efficient as practicable, and whether the implementation of the system will maximize the elimination of unique software requirements and unique interfaces; is in compliance with the business enterprise architecture or will be in compliance as a result of planned modifications; has valid, achievable requirements, and a viable plan for implementing those requirements (including, as appropriate, market research, business process reengineering, and prototyping activities); has an acquisition strategy designed to eliminate or reduce the need to tailor commercial off-the-shelf systems to meet unique requirements, incorporate unique requirements, or incorporate unique interfaces to the maximum extent practicable; and is in compliance with the department’s auditability requirements. We compared Office of the Deputy Chief Management Office (DCMO) certification guidance with the act’s certification requirements. In addition, we compared the guidance established by the Departments of the Air Force, the Army, and the Navy for certifying their business systems with the act’s certification requirements. We also interviewed cognizant officials responsible for managing defense business system investments at DOD, including the military departments. Specifically, we interviewed officials in the Office of the DCMO, the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, the Office of the Chief Information Officer (CIO), and the Offices of the CMOs in the Departments of the Air Force, Army, and Navy. To determine the extent to which DOD has developed and maintained a defense business enterprise architecture and IT enterprise architecture, in accordance with relevant laws and OMB policy and guidance, we assessed the business enterprise architecture against the relevant laws and OMB policy and guidance; the IT enterprise architecture against the relevant laws and OMB policy and guidance; and the department’s efforts to integrate its business and IT architectures against the act’s requirement. To determine the extent to which the department has developed and maintained a business enterprise architecture in accordance with relevant laws and OMB policy and guidance, we reviewed version 10 of its business enterprise architecture, which was released in February 2013, and related information relative to the act’s requirements; U.S. Code, Title 44, Section 3601, which defines an enterprise architecture; and OMB policy and guidance. We also reviewed version 11 of the architecture to determine the extent to which it differed from version 10. Further, we reviewed the department’s business enterprise architecture improvement plan, which it developed in response to a recommendation we made in July 2015. Specifically, we recommended that the department use the results of our portfolio manager survey to determine additional actions that could improve the department’s management of its enterprise architecture activities. In response to our recommendation, the department developed and approved a plan in January 2017. We assessed the extent to which the department had delivered the planned capabilities relative to the plan. We also reviewed the extent to which the delivery dates of the three planned capabilities and associated tasks changed over time relative to the plan. To assess the extent to which the department developed and maintained an IT enterprise architecture in accordance with relevant laws and OMB policy and guidance, we reviewed content from the department’s IT enterprise architecture and compared it with requirements from the act, U.S. Code, Title 44, Section 3601, and OMB policy and guidance. Specifically, we reviewed version 2.0 of the department’s information enterprise architecture, which was released in August 2012, relative to the act’s requirement for the DOD CIO to develop an IT enterprise architecture that is to describe a plan for improving the IT and computing infrastructure of the department, including for each of the major business processes. We reviewed volumes I and II of the information enterprise architecture and the four enterprise-wide reference architectures to determine if the architecture described a plan for improving the IT and computing infrastructure of the department, as called for by the act. We also reviewed whether the architecture included content that described the current and the target environments, and a transition plan to get from the current to the target environment, consistent with OMB policy and guidance. To determine the extent to which the department has integrated its business and IT architectures, as required by the act, we reviewed DOD Directive 8000.01, Management of the Department of Defense Information Enterprise. We also reviewed meeting documentation from the information enterprise architecture working group responsible for the development of an updated architecture. In addition, we reviewed meeting documentation from the Business Enterprise Architecture Configuration Control Board to identify any discussions among CIO and DCMO officials regarding integration of the two architectures, as well as the level of participation by both parties. Finally, we interviewed officials in the Office of the DCMO and the Office of the CIO about efforts to develop and maintain a business enterprise architecture, develop an IT enterprise architecture, and integrate the business and IT architectures. To determine the extent to which the department has used the Defense Business Council to provide advice to the Secretary of Defense on developing the business enterprise architecture, reengineering the department’s business processes, developing and deploying business systems, and developing requirements for business systems, in accordance with the act, we analyzed the department’s December 2014 Defense Business Council Charter and April 2017 defense business systems investment management guidance. We compared information in the charter and guidance to the requirement that the Secretary establish the Defense Business Council to advise the Secretary on the required defense business system topics. In addition, we obtained and analyzed meeting summaries and briefings for 27 Defense Business Council meetings that took place from January 2016 through August 2017. Specifically, we assessed the frequency with which the meetings held during this time period addressed the required topics. We chose this time period because 2016 was the first calendar year following the enactment of the NDAA for Fiscal Year 2016. Further, we chose August 2017 as our end date because it was the last month’s data that we could reasonably expect to obtain and review within our reporting time frame. We also interviewed officials in the Offices of the DCMO and CIO about the Defense Business Council and the Deputy’s Management Action Group, which is the governance entity to which the Council reports. To determine the extent to which DOD has ensured that covered business systems are reviewed and certified in accordance with the act, we reviewed a nongeneralizable sample of business systems from DOD’s two categories of covered defense business systems that require certification. To select the sample, we considered Category I systems, which were systems that were expected to have a total amount of budget authority of more than $250 million over the period of the current future- years defense program, and Category II systems, which were systems that were expected to have a total amount of budget authority of between $50 million and $250 million over the period of the future-years defense program. We further categorized the Category II systems into four groups—those owned by the Air Force, the Army, Navy, and the remaining DOD components. We selected one system with the highest expected cost over the course of the department’s future-years defense program from each group. This resulted in our selection of five systems: one Category I system, one Category II system from each military department, and one Category II system from the remaining DOD components. We reviewed, respectively, DOD’s Healthcare Management System Modernization Program; Air Force’s Maintenance, Repair and Overhaul initiative; Army’s Reserve Component Automation System; Navy’s Electronic Procurement System; and the Defense Logistics Agency’s Defense Agencies Initiative Increment 2. We determined that the number of systems we selected was sufficient for our evaluation. For each system, we assessed the extent to which it had been certified on the basis of the five certification requirements in the act. Specifically, we evaluated investment decision memos and certification assertions to determine if each system had been certified according to the act’s requirements, which include ensuring that the system had been, or was being, reengineered to be as streamlined and efficient as practicable, and the implementation of the system would maximize the elimination of unique software requirements and unique interfaces; was in compliance with the business enterprise architecture or would be in compliance as a result of planned modifications; had valid, achievable requirements, and a viable plan for implementing those requirements; had an acquisition strategy designed to eliminate or reduce the need to tailor commercial off- the-shelf systems to meet unique requirements, incorporate unique requirements, or incorporate unique interfaces to the maximum extent practicable; and was in compliance with the department’s auditability requirements. We did not determine whether the certification assertions were valid. For example, we did not evaluate business process reengineering activities to determine if they were sufficient. We also interviewed DOD DCMO and military department officials about the certification of these systems. To determine the reliability of the business system cost data used to select the systems, we reviewed system documentation for the three systems DOD uses to store data, which include the Defense Information Technology Investment Portal, the DOD Information Technology Portfolio Repository, and the Select and Native Programming-Information Technology system. In this regard, we requested and reviewed department responses to questions about the systems and about how the department ensures the quality and reliability of the data. In addition, we requested and reviewed documentation related to the systems (e.g., data dictionaries, system instructions, and user training manuals) and reviewed the data for obvious issues, including missing or questionable values. We also reviewed available reports on the quality of the inventories (e.g., inspector general reports). We found the data to be sufficiently reliable for our purpose of selecting systems for evaluation. We conducted this performance audit from January 2017 to March 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Prior GAO Reports on Department of Defense Business System Modernization Since 2005, we have issued 11 reports assessing DOD’s actions to respond to business system modernization provisions contained in U.S. Code, Title 10, Section 2222. The reports are listed below. DOD Business Systems Modernization: Additional Action Needed to Achieve Intended Outcomes, GAO-15-627 (Washington, D.C.: July 16, 2015). Defense Business Systems: Further Refinements Needed to Guide the Investment Management Process, GAO-14-486 (Washington, D.C. May 12, 2014). DOD Business Systems Modernization: Further Actions Needed to Address Challenges and Improve Accountability, GAO-13-557 (Washington, D.C.: May 17, 2013). DOD Business Systems Modernization: Governance Mechanisms for Implementing Management Controls Need to Be Improved, GAO-12-685 (Washington, D.C.: June 1, 2012). Department of Defense: Further Actions Needed to Institutionalize Key Business System Modernization Management Controls, GAO-11-684 (Washington, D.C.: June 29, 2011). Business Systems Modernization: Scope and Content of DOD’s Congressional Report and Executive Oversight of Investments Need to Improve, GAO-10-663 (Washington, D.C.: May 24, 2010). DOD Business Systems Modernization: Recent Slowdown in Institutionalizing Key Management Controls Needs to Be Addressed, GAO-09-586 (Washington, D.C.: May 18, 2009). DOD Business Systems Modernization: Progress in Establishing Corporate Management Controls Needs to Be Replicated Within Military Departments, GAO-08-705 (Washington, D.C.: May 15, 2008). DOD Business Systems Modernization: Progress Continues to Be Made in Establishing Corporate Management Controls, but Further Steps Are Needed, GAO-07-733 (Washington, D.C.: May 14, 2007). Business Systems Modernization: DOD Continues to Improve Institutional Approach, but Further Steps Needed, GAO-06-658 (Washington, D.C.: May 15, 2006). DOD Business Systems Modernization: Important Progress Made in Establishing Foundational Architecture Products and Investment Management Practices, but Much Work Remains, GAO-06-219 (Washington, D.C.: November 23, 2005). Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact above, individuals making contributions to this report include Michael Holland (Assistant Director), Cheryl Dottermusch (Analyst in Charge), John Bailey, Chris Businsky, Camille Chaires, Nancy Glover, James Houtz, Anh Le, Tyler Mountjoy, Monica Perez-Nelson, Priscilla Smith, and Adam Vodraska.

DOD spends billions of dollars each year on systems that support its key business areas, such as personnel and logistics. For fiscal year 2018, DOD reported that these business system investments are expected to cost about $8.7 billion. The NDAA for Fiscal Year 2016 requires DOD to perform activities aimed at ensuring that business system investments are managed efficiently and effectively, to include taking steps to limit their complexity and cost. The NDAA also includes a provision for GAO to report every 2 years on the extent to which DOD is complying with the act's provisions on business systems. For this report, GAO assessed, among other things, the department's guidance for managing defense business system investments and its business and IT enterprise architectures (i.e., descriptions of DOD's current and future business and IT environments and plans for transitioning to future environments). To do so, GAO compared the department's system certification guidance and architectures to the act's requirements. GAO also interviewed cognizant DOD officials. The Department of Defense (DOD) has made progress in complying with most legislative provisions for managing its defense business systems, but additional actions are needed. For example, the National Defense Authorization Act (NDAA) for Fiscal Year 2016 required DOD and the military departments to issue guidance to address five requirements for reviewing and certifying the department's business systems. While DOD has issued guidance addressing all of these requirements, as of February 2018, the military departments had shown mixed progress. ● Fully addressed: The department provided evidence that it fully addressed this requirement. ◐ Partially addressed: The department provided evidence that it addressed some, but not all, portions of this requirement. ◌ Not addressed: The department did not provide any evidence that it addressed this requirement. Source: GAO analysis of Department of Defense documentation. | GAO-18-130 The military departments' officials described plans to address the gaps in their guidance; however, none had defined when planned actions are to be completed. Without guidance that addresses all five requirements, the military departments risk developing systems that, among other things, are overly complex and costly to maintain. DOD has efforts underway to improve its business enterprise architecture, but its information technology (IT) architecture is not complete. Specifically, DOD's business architecture includes content called for by the act. However, efforts to improve this architecture to enable the department to better achieve outcomes described by the act, such as routinely producing reliable business and financial information for management, continue to be in progress. In addition, DOD is updating its IT enterprise architecture, which describes, among other things, the department's computing infrastructure. However, the architecture lacks a road map for improving the department's IT and computing infrastructure for each of the major business processes. Moreover, the business and IT enterprise architectures have yet to be integrated, and DOD has not established a time frame for when it intends to do so. As a result, DOD lacks assurance that its IT infrastructure will support the department's business priorities and related business strategies.

GAO_GAO-18-84

Background This section provides a brief background into nutrient pollution, federal and state activities to address water pollution, and nutrient credit trading. Nutrient Pollution According to EPA, nutrient pollution is one of America’s most widespread, costly, and challenging environmental problems. Nutrients are natural parts of aquatic ecosystems that support the growth of algae and aquatic plants, which provide food and habitat for fish, shellfish, and smaller organisms that live in water. However, when too many nutrients enter the environment, often as the direct result of human activities, the air and water can become polluted. The primary sources of nutrient pollution are fertilizer, animal manure, wastewater treatment plants, power plants, storm water runoff, cars, detergents, failing septic tanks, and pet waste. (See fig. 1.) Too much nitrogen and phosphorus in surface waters can cause algae to grow faster than ecosystems can handle. Significant increases in algae can harm water quality and habitats. Large growths of algae, called algal blooms, can severely reduce or eliminate oxygen in the water, leading to the illnesses and death of large numbers of fish. Some algal blooms are harmful to humans because they produce elevated levels of toxins and bacteria that can make people sick if they come into contact with or drink contaminated water or consume tainted fish or shellfish. According to a 2016 memorandum from EPA, nutrient pollution contributes to a trend of increasing numbers of harmful algal blooms in surface waters and consequentially a growing threat to public health and local economies. For instance, in 2016, algal blooms occurred along U.S. coastlines from Alaska to Florida, closing beaches, affecting tourism and local economies, and resulting in a state of emergency declaration in four coastal counties in Florida and more than 250 health advisories nationwide. Federal and State Activities to Address Water Pollution The Clean Water Act establishes a nationwide approach improving and maintaining the quality of rivers, streams, lakes, and other surface water bodies. Under this approach, states—overseen by EPA—are to set water quality standards, monitor water quality, and assess water quality against the applicable standards. Water quality standards define the water quality goals of a water body, or portion thereof, by designating the use or uses to be made of the water and by setting criteria necessary to protect the uses. These standards establish an additional legal basis for controlling pollution entering the waters of the United States from point sources, such as wastewater treatment plants. Water quality standards include the following, among other things: designated uses of the water body, such as the protection and propagation of fish, shellfish, and wildlife; criteria to protect designated uses, such as specific criteria or levels for toxic or nutrient pollutants that could harm aquatic life; anti-degradation requirements that describe the conditions under which water quality may be lowered in surface waters while still protecting existing uses and high quality waters; and other general policies to address implementation issues. To protect a water body’s designated uses, a state must establish numeric criteria, or, where numeric criteria cannot be established or as a supplement to them, narrative or biomonitoring criteria. EPA has encouraged states to incorporate numeric criteria into water quality standards and TMDLs for water bodies with nutrient impairments because they require less interpretation to implement than narrative criteria. Numeric criteria express precise, measurable levels of particular chemicals or conditions allowable in a water body. In contrast, narrative criteria express in a qualitative form how to protect a designated use of a water body. Narrative criteria often describe the desired conditions of a water body as being “free from” certain negative conditions. For instance, to protect a designated use, narrative criteria could require that a particular water body be free from floating non-petroleum oils of vegetable or animal origin. According to EPA, under most circumstances, water quality criteria that limit specific toxic pollutants are expressed numerically. However, according to EPA officials, most water quality criteria that limit nutrient pollutants are expressed narratively. EPA has provided support to states on how to develop numeric criteria through written guidance, webinars, and workshops. According to EPA officials and data, however, there has been limited state progress in developing numeric criteria for nutrients. As of 2017, six states had at least one statewide numeric criterion for either nitrogen or phosphorus for some water bodies. Through the monitoring and assessment process, states are to identify water bodies that do not meet established water quality standards and are therefore considered to be impaired. The Clean Water Act generally requires—for each water body that a state has identified as impaired— that the state develop a TMDL for each pollutant impairing the water body. A TMDL reflects the calculation of the maximum amount of a pollutant that a water body can receive, while meeting and continuing to meet water quality standards for that particular pollutant. A TMDL determines a pollutant reduction target and allocates load reductions necessary to meet that target to both point and nonpoint source(s) of the pollutant, although under the Clean Water Act only point sources can be required to reduce pollutants. For a point source, legal discharge limits based on the targets identified in the TMDL are incorporated into an NPDES permit. An NPDES permit can be issued as an individual permit to a single facility, written to reflect site-specific conditions of that facility, or as a general permit for multiple facilities with similar operations and types of discharges. For example, Connecticut uses a general permit to implement the Long Island Sound TMDL. This permit authorizes 79 wastewater treatment facilities to discharge nitrogen into the sound and includes a specific nitrogen limit for each facility. Under the Clean Water Act and EPA’s regulations, states or EPA can typically determine the most appropriate geographic area and pollutants for each TMDL. The Chesapeake Bay TMDL is the largest TMDL that EPA has developed. This TMDL identifies the necessary nutrient pollution reductions across the bay jurisdictions, which encompass seven states in a 64,000-square-mile watershed, and comprise 276 smaller TMDLs for 92 individual Chesapeake Bay tributaries. Similarly, the Long Island Sound TMDL identifies the necessary nitrogen pollution reductions for parts of Connecticut and New York that discharge into the sound. In contrast, many TMDLs cover a single water body, such as a lake or a segment of a river. Unlike its approach for point sources, the Clean Water Act’s approach to curtailing nonpoint source pollution is largely voluntary. One of the primary ways that EPA addresses nonpoint source nutrient pollution is with the section 319 program. Through this grant-based program, EPA funds voluntary projects aimed at reducing nonpoint source pollution, particularly runoff from agricultural production. Grants from this program support a wide variety of activities including the development and implementation of best management practices (BMP), which are used to reduce or eliminate the introduction of pollutants into receiving waters. Some common agricultural BMPs include planting strips of trees or shrubs along stream banks to serve as buffers or planting cover crops, such as clover, in fields near water bodies to reduce nutrient runoff. Nutrient Credit Trading EPA also encourages states to use nutrient credit trading to help address nutrient pollution. Nutrient credit trading programs are designed to allow a point source to purchase pollutant reduction credits from another point source or a nonpoint source in the same watershed with the intent of meeting the discharge limits established in an NPDES permit. These limits establish a baseline that credit generators must discharge below before they can sell credits. According to EPA guidance, point sources that exceed their discharge limit can buy credits to be compliant with their permits, and point sources that have discharged below their limits can sell credits. Because the Clean Water Act does not require nonpoint sources to meet nutrient reduction targets established in a TMDL, there is no demand to buy credits. However, nonpoint sources can sell credits in some programs once these sources have reduced pollution below the targets established in the TMDL for the watershed or geographic area. To provide states with guidance on developing and implementing trading programs, EPA issued its Water Quality Trading Policy in 2003 and its Water Quality Trading Toolkit for Permit Writers in 2007. According to the EPA toolkit, states have the flexibility to structure a trading program to meet state needs including the type of entities allowed to trade; the types of pollutants traded, such as nutrients; and the mechanism for carrying out the trades. Additionally, the legal and policy framework for trading programs can vary. The Clean Water Act does not explicitly identify trading as an option to comply with NPDES permits. According to EPA’s guidance, however, the act provides authority for EPA and states to develop a variety of programs and activities to control pollution; including trading programs, provided that these programs are consistent with the act. For instance, trading must not violate any of the act’s provisions, such as the anti-degradation policy, which maintains and protects the existing uses of water bodies, or the anti-backsliding policy, which prohibits the modification of existing NPDES permits with less stringent standards than those established in the previous permit. Eleven States Had Nutrient Credit Trading Programs in 2014, and Trading Provided Flexibility for Some Point Sources to Meet Nutrient Discharge Limits in the 3 States We Reviewed According to EPA data and interviews with EPA officials, in 2014, a total of 19 nutrient credit trading programs existed in 11 states. The majority of nutrient credit trades occurred in 3 states—Connecticut, Pennsylvania, and Virginia. Most point sources participating in these 3 state programs in 2014 did not purchase credits. However, EPA and state officials and stakeholders told us that trading provided point sources with flexibility that allowed them to manage risk, reduce the cost of compliance, and better manage the timing of upgrades of their nutrient removal technology. Eleven States Had a Total of 19 Trading Programs in 2014, and 3 States Accounted for the Majority of Trades, According to EPA In 2014, a total of 19 nutrient credit trading programs existed in 11 states, according to EPA data and interviews with EPA officials. These 11 states were California, Connecticut, Florida, Georgia, Idaho, Minnesota, North Carolina, Ohio, Pennsylvania, South Carolina, and Virginia. Three of the states—Georgia, Minnesota, and North Carolina—had more than one nutrient credit trading program. Each program covered a specific watershed, portion of a watershed, municipality, or permit holder (see fig. 2). See appendix II for a list of the 19 programs. EPA documents and officials indicated that trading may be less viable in some locations than in others. EPA’s documentation discusses factors that can affect the viability of trading. For example, trading should occur within an area—such as a watershed—that is appropriately defined to ensure that trades will maintain water quality standards within that area. In a 2008 evaluation of water quality trading, EPA identified other location-specific conditions that influence whether trading occurs, including the regulatory environment, the nature of participants, and watershed characteristics. EPA officials in Region 9 explained, for example, that they do not see strong demand for nutrient credit trading in their region because there are not many nutrient impaired watersheds with a favorable combination of point sources that need credits and willing credit generators. Trading activity varied among the 19 programs. According to EPA data, not every state with a trading program had trades in 2014. According to EPA data and officials, the majority of nutrient credit trades occurred in 3 states—Connecticut, Pennsylvania, and Virginia—which were also the largest programs in terms of the number of participating point sources. According to state data and officials, the number of trades in these states in 2014 ranged from 31 to 151. (See table 1.) Under EPA guidance, each state has the flexibility to establish or approve a nutrient credit trading program or programs to meet its own situation. The three programs we reviewed are each structured somewhat differently. Specifically, see the following: Connecticut adopted legislation for a nutrient trading program in 2001. The state also issued a general permit in 2002 that allows 79 point sources in the Long Island Sound watershed to trade nitrogen credits. Connecticut’s program does not allow nonpoint sources to generate credits. All nutrient credit trades are automatically processed annually by the state credit exchange, known as Connecticut’s Nitrogen Credit Exchange Program. Connecticut state officials explained that, at the end of the year, the exchange compares each point source’s total pounds of nitrogen discharged to its discharge limit. Each point source that discharges less than its limit receives a payment from the exchange. Each point source that discharges more than its limit—and thus would be out of compliance with the general permit if it failed to secure credits in a timely manner—is billed for the credits needed to bring it into compliance with its discharge limits. Because these transactions are conducted annually, the number of trades reported for Connecticut in 2014 is the same as the number of participating point sources that purchased credits in 2014. Pennsylvania established its trading policy and guidance in 2005. The state issues individual NPDES permits to point sources that allow for trading both nitrogen and phosphorus credits in the Chesapeake Bay watershed. In this program, both point sources and nonpoint sources may generate credits to sell to point sources for compliance with permit limits. Like Connecticut, Pennsylvania has an exchange for buying and selling credits, which is called PENNVEST. Unlike Connecticut, the exchange does not automatically conduct trades at the end of the year. Instead, point sources and nonpoint sources can choose whether to use the exchange to buy or sell credits, or whether to conduct sales outside the exchange. Pennsylvania officials told us that sales typically occur outside the exchange. According to Pennsylvania officials, the proportion of trades going through the exchange has been less than 10 percent annually since 2014. Virginia established its trading program through state legislation in 2005. The state uses a general NPDES permit that allows point sources within the Virginia portion of the Chesapeake Bay watershed to trade nitrogen and phosphorus credits. The general permit does not normally allow point sources to use credits generated by nonpoint sources for compliance with the general permit. Point sources covered under this permit generally trade with each other through the Virginia Nutrient Credit Exchange Association, although there can be a handful of bilateral trades, according to Virginia officials and state data. Most Point Sources Participating in the Three State Programs We Reviewed Did Not Purchase Credits, but Trading Provided Flexibility, According to Officials In the three states we reviewed, most point sources participating in the trading programs did not purchase credits to meet nutrient discharge limits, according to state data and officials. Officials from each state explained that many point sources have upgraded their nutrient removal technology in order to help them meet discharge limits. For example, from 2002, when Connecticut’s trading program began, through 2014, 53 of the 79 point sources in Connecticut’s trading program had invested in new technology to improve nutrient removal, according to state documents. As a result, many of those point sources generate nutrient reductions that they can sell as credits and do not usually need to purchase credits, according to state data and officials. Most point sources in the three states we reviewed did not purchase credits in 2014. (See table 2.) The percentage of point sources in those trading programs that did purchase credits to meet discharge limits ranged from 14 to 49 percent, depending on the state. Specifically, see the following: In Virginia, 14 percent of point sources in the trading program purchased credits in 2014—the lowest percentage in the states we reviewed. Virginia officials told us that few point sources purchased credits because many point sources upgraded their nutrient removal technology before implementing the TMDL in anticipation of the stricter discharge limits and were able to meet discharge limits without purchasing credits. In Pennsylvania, 29 percent of point sources in the trading program purchased credits in 2014. Officials in Pennsylvania told us, however, that the demand for credits has continued to drop as point sources upgrade their nutrient removal technology. They said that most point sources that were planning to upgrade have done so. In Connecticut, 49 percent of point sources in the trading program purchased credits in 2014—the highest percentage of the states we reviewed. According to Connecticut’s 2014/2015 program report, the number of point sources that bought credits in 2014 was due to (1) increased discharges from three large wastewater treatment facilities that were under construction that year and (2) cold weather that affected the ability of point sources to remove nutrients from their discharges using biological processes. For comparison, 35 percent of point sources bought credits in Connecticut in 2015. A member of the Nutrient Credit Exchange Advisory Board in Connecticut told us that since the program began in 2002, the number of point sources that have needed to buy credits has generally decreased over time as these facilities have upgraded their nutrient removal technology. State officials expect this trend to continue in the future as more point sources complete their technology upgrades. For the point sources that did purchase credits in 2014, state officials in the three states we reviewed told us that the total amount (in pounds) of nutrients that point sources purchased as credits to meet their individual discharge limits was generally small relative to the aggregate discharge limits (see table 3). In addition, the number of credits purchased by point sources was generally much less than the number of credits generated (see table 4). However, because the three programs collect data differently, we could not make comparisons across all three states for both measures. Specifically, for two of the states—Connecticut and Virginia—we were able to compare the amount (in pounds) of nutrients purchased to the aggregate discharge limit, but we did not have comparable data for Pennsylvania. For the number of credits purchased relative to the number of credits available, we were able compare the data for Pennsylvania and Virginia, but we could not make the comparison for Connecticut. Nevertheless, the available state data show that the amount (in pounds) of nutrient credits purchased in these three programs in 2014 was generally small. The state data for 2014 showed that the amount of nutrient credits purchased in these three programs was generally small. Specifically, see the following: Point sources participating in Connecticut’s nutrient credit trading program in 2014 purchased about 645,000 pounds of nitrogen credits to meet individual discharge limits. In total, point sources in the program had an aggregate discharge limit of about 3.3 million pounds for nitrogen. Point sources in Connecticut purchased the most pounds relative to the aggregate discharge limit among the states we reviewed—about 20 percent. However, in 2014, point sources removed far more nutrients—5.3 million pounds of nitrogen—than the 645,000 pounds purchased. Point sources participating in Virginia’s nutrient credit trading program in 2014 purchased about 164,000 pounds of nitrogen credits and 35,000 pounds of phosphorus credits to meet individual discharge limits. In total, point sources in the program had an aggregate discharge limit of about 19 million pounds for nitrogen and 1.6 million pounds for phosphorus. Therefore, the pounds of nitrogen and phosphorus traded in Virginia in 2014 represented about 1 percent and 2 percent, respectively, of the aggregate discharge limit for these nutrients. In addition, the number of credits purchased by point sources in Virginia was less than the number of credits generated. Specifically, point sources in Virginia purchased about 164,000 nitrogen credits out of 6 million nitrogen credits generated, and about 35,000 phosphorus credits out of 797,000 phosphorus credits generated. Officials in Pennsylvania told us that the amount of nutrients traded in their program was small relative to the aggregate discharge limits, but they could not provide data in terms of pounds that we could use to make the comparison. However, data from Pennsylvania show that the number of credits purchased by point sources was generally much less than the number of credits generated. Specifically, point sources in Pennsylvania purchased about 805,000 nitrogen credits out of 1.9 million nitrogen credits generated, and about 85,000 phosphorus credits out of 111,000 phosphorus credits generated. In the three states we reviewed, most credits sold were generated by point sources, not nonpoint sources. As previously discussed, Pennsylvania was the only state we reviewed that allowed nonpoint sources to generate and sell credits. Of the credits sold in Pennsylvania, a relatively small percentage was sold by nonpoint sources. Specifically, nonpoint sources sold 36 percent of all nitrogen credits purchased in 2014 and 11 percent of all phosphorus credits. According to state officials, there were seven nonpoint source sellers of credits, including at least four sellers that aggregate credits generated by multiple agricultural operations. Although most point sources in these states did not buy credits in 2014, EPA officials, state officials, and point source stakeholders told us that nutrient credit trading was important because it gave point sources flexibility in meeting nutrient discharge limits. According to officials and stakeholders, this flexibility allowed point sources to manage risk, reduce the cost of compliance, and better manage the timing of upgrades of point sources’ nutrient removal technology. Specifically, see the following: Managing risk. Although each point source’s permit contains specific discharge limits, a point source’s actual discharge varies from year to year. For example, an official from the Virginia Nutrient Credit Exchange Association explained that point sources will forecast their anticipated discharge over a 5-year period. However, there can be considerable variance from the forecast for any given year because of, for example, unpredictable weather, which can upset biological nutrient removal processes. Therefore, nutrient trading gives point sources insurance against unexpectedly high discharges by allowing them to “true up” at the end of the year by buying credits from point sources that discharged below their limits. This reduces the risk that an individual point source faces noncompliance with its permitted limit. Reducing the cost of compliance. Stakeholders said that upgrading nutrient removal technology to meet discharge limits is economically feasible for some point sources but is potentially unaffordable for point sources with fewer financial resources and smaller economies of scale. For example, one point source credit buyer in Connecticut told us that the buyer’s facilities had invested in upgrading nutrient removal technology, but any additional upgrades to meet the discharge limits would not be economically feasible. The buyer explained that, within a trading program, those point sources with lower pollution control costs can generate additional reductions in pollution, which they can use to generate credits to sell to those point sources with higher pollution control costs. As a result, trading can make nutrient reduction efforts more cost-efficient system-wide. Managing the timing of upgrades. Trading helps point sources better manage the timing of upgrades to their nutrient removal technology, according to state officials and point source stakeholders. For example, a point source stakeholder in Virginia told us that it would have been difficult for all point sources to upgrade at once to meet the new discharge limits established in the NPDES permit under the TMDL, since there was a limited pool of engineers and construction companies that could install these upgrades, and that trading gave point sources time to schedule upgrades over several years. Additionally, in Pennsylvania, a point source credit buyer explained that the point source planned to complete a multi-year $34 million upgrade of its facilities in 2017 to meet discharge limits that came into effect in October 2012. To meet discharge limits in the meantime, the point source developed a program to purchase nitrogen credits from local nonpoint sources that would implement cover crop conservation practices to generate the necessary reductions. Therefore, trading allowed the point source to meet discharge limits during the period it was planning and completing the upgrade. Although nutrient credit trading has provided point sources with flexibility in meeting discharge limits, trading is not responsible for reducing nutrient pollution, according to EPA, state, and other stakeholders. These stakeholders told us that pollution reduction largely results from nutrient discharge limits in permits and the nutrient removal technology that point sources invest in to meet or reduce below those limits. States Oversee Nutrient Credit Trading Programs by Approving and Verifying Credit Generation, and EPA Reviews Permits That Allow for Trading States oversee nutrient credit trading programs by approving and verifying credit generation to ensure that credits represent real nutrient pollution reductions. EPA reviews permits, conducts periodic evaluations of point source facilities to ensure that trading is consistent with the Clean Water Act, and issues national-level guidance for nutrient credit trading. States Approve and Verify Credit Generation States oversee nutrient credit trading programs by approving and verifying credit generation to ensure that credits represent real nutrient pollution reductions. A state’s approval and verification process varies depending on whether the credit generator is a point or nonpoint source. For point sources, the states we reviewed followed a process for verifying credits that is based on the existing oversight process for NPDES permits. Because nonpoint sources do not have NPDES permits, states use a separate process to approve and verify that nonpoint sources’ pollution reduction activities have generated credits for trading. Process for Approving and Verifying Point Source Credits States we reviewed approve credit generation by point sources by including language that allows for trading in point sources’ individual or general NPDES permits. In Connecticut and Virginia, point sources covered under the states’ general permits are automatically approved to generate nutrient credits for trading. In Pennsylvania, point source facilities with language that allows for trading in their individual permits and that meet requirements in the state’s watershed implementation plan are approved to generate credits. In all three states, the language that allows for trading in these permits includes the individual discharge limit for each point source, which is called a baseline, for trading purposes. An approved point source is able to generate credits when it reduces its discharge below its baseline. To verify point source credits, the states we reviewed each use an oversight process based on its NPDES authority to oversee permits that include discharge monitoring and reporting, and inspections. Federal regulations require point sources with NPDES permits to periodically monitor compliance with the effluent limitations established in their permits and report the results to the permitting authority. Specific monitoring and reporting requirements, including the frequency of monitoring, are included in each permit. State officials in the three states we reviewed all told us that they use discharge monitoring reports to determine how many credits a point source has generated. For example, according to the terms of the general permit for nutrient discharges in Virginia, point sources must sample nitrogen and phosphorus from one time per month to three times per week, depending on the volume of discharge. By February 1 of each year, point sources must submit total annual nitrogen and phosphorus discharges to the Virginia Department of Environmental Quality using a discharge monitoring report, which covers discharges during the previous calendar year. State officials in Virginia told us that they review these reports for data quality and determine which point sources generated credits and which point sources must buy credits to meet discharge limits. Any credits that point sources intend to use for compliance during the previous calendar year must be purchased by June 1. In addition, state officials in all three states told us that they conduct periodic inspections of point source facilities to ensure that facilities are appropriately monitoring and reporting nutrient discharges as required under their permits. For example, officials in Pennsylvania told us that for point sources, the state’s Department of Environmental Protection conducts periodic inspections of point sources to ensure that they are meeting requirements that allow them to generate credits. These officials said that they generally inspect each facility at least once per year. Process for Approving and Verifying Nonpoint Source Credits In Pennsylvania, according to state officials and program documents, such as state regulations, a nonpoint source that seeks to generate credits must submit a request for credit certification. The request includes a description of how the nonpoint source intends to reduce nutrient pollution, such as through a BMP, and information about steps the nonpoint source will take to verify the credits including any relevant calculations, maps, and photographs. State officials review the request for technical acceptability and consistency with program requirements before approving credit generation. To verify nonpoint source credits after the credit-generating activity has taken place, officials in Pennsylvania told us that they review information about the performance of that activity, such as a BMP. According to the Pennsylvania Department of Environmental Protection’s website, officials review documentation to ensure that the credit-generating activity was implemented as described in the verification plan submitted with the certification request, and that all program requirements are met. In addition to reviewing documentation, officials may conduct activities such as monitoring the credit-generating activity, inspecting sites, and performing compliance audits. For example, as part of the verification process, a nonpoint source credit generator official told us that they had to provide before and after photos of the cover crop that was intended to prevent nutrient pollution in a local water body. They said that they provided documentation that the crops were planted at a certain time and were the appropriate types of crops. In addition, they provided calculations related to the crops planted and types of soil they were planted in, before the credits could be verified. EPA Reviews Permits and Conducts Periodic Evaluations of Point Source Facilities to Ensure That Trading Is Consistent with the Clean Water Act EPA oversees trading programs as part of its oversight of NPDES to ensure that they are fully consistent with the Clean Water Act and its implementing regulations, in particular when questions or concerns arise, according to EPA policy. EPA officials told us that they conduct oversight primarily through the regional offices, which (1) review NPDES permits; (2) review and comment on state regulatory frameworks for trading; and (3) evaluate point source facilities by collecting discharge information and conducting periodic on-site inspections to ensure, for example, that sampling and record keeping practices are in order. Additionally, EPA headquarters provides national-level guidance and training to state programs and stakeholders. Review of NPDES Permits According to EPA officials, EPA’s regional offices review NPDES permits that allow for trading to ensure that these permits meet the standards of the Clean Water Act and are consistent with EPA’s policy and guidance on trading. The regional offices can object to these permits, if necessary. EPA can request changes to permits to ensure that they align with federal requirements. Although EPA does not review every NPDES permit, it will generally review permits that allow for trading because these permits could be considered more complicated, controversial, or challenging, according to EPA officials. In the states we reviewed, officials told us that EPA has reviewed NPDES permits that allow for trading and has at times requested that states make changes to the permits. For example, officials in Pennsylvania told us that EPA has reviewed 180 permits from large facilities in the state’s trading program and objected to 14 of them, requiring state officials to modify those permits. Officials in Virginia said that EPA has reviewed its general permit that allows for nutrient credit trading. Virginia officials said that, during the most recent EPA review, the agency issued a formal objection to the permit and asked the state to increase the sampling frequency in the permit’s monitoring guidelines. As a result, Virginia modified the permit to satisfy EPA’s request. Review of State Regulatory Frameworks for Trading and Evaluation of Facilities In addition to reviewing NPDES permits, EPA regional officials told us that they review and comment on states’ regulatory frameworks for trading. Officials said that they review these frameworks to identify any issues in developing and implementing the programs and that they request that state permitting agencies make changes when necessary. For example, in 2012, EPA Region 3 completed reviews of all six states and the District of Columbia in the Chesapeake Bay watershed, including the trading programs for both Virginia and Pennsylvania. After reviewing Pennsylvania’s trading program, EPA raised concerns about the state’s calculation of the baseline for nonpoint source credit generation. In response to EPA’s concerns, officials in Pennsylvania told us that they made changes in the way nonpoint source credits are calculated. EPA’s involvement in reviewing state trading frameworks can vary, according to EPA and state officials. For example, because of specific authorities written into the Chesapeake Bay TMDL, EPA Region 3 plays a very active role in reviewing state trading programs, according to officials from Region 3. By comparison, Connecticut state officials told us that since EPA Region 1 granted its initial approval of Connecticut’s trading program, there has been little direct involvement by EPA in overseeing the program. Stakeholders in the states we reviewed and EPA regional officials told us that EPA conducts periodic evaluations of point source facilities by collecting discharge monitoring data and conducting inspections. Officials at EPA Region 3 told us that they conduct inspections of facilities, review records and sampling procedures, and evaluate credit generators. A nutrient credit generator in Pennsylvania told us that EPA has audited the facility’s process for converting nutrient-rich manure into energy, mineral products, and nutrient credits. State officials in Virginia and Connecticut told us that they report nutrient discharge data to EPA for review. EPA Provides National-Level Oversight In addition to oversight activities conducted by the regions, EPA conducts some oversight of nutrient credit trading at the national level. EPA’s oversight at the national level involves: (1) setting national guidance for trading, (2) offering training on nutrient credit trading to state officials and stakeholders, and (3) periodically collecting some data on nutrient credit trading programs. Specifically, see the following: Guidance. EPA has issued three documents that provide guidance to states to assist them in developing and implementing nutrient credit trading programs: EPA’s 2003 Water Quality Trading Policy; the 2004 Water Quality Trading Assessment Handbook; and the 2007 Water Quality Trading Toolkit for Permit Writers, which EPA updated in 2009. Training. EPA has offered training for NPDES permit writers to help them better understand how to write NPDES permits that incorporate provisions for nutrient credit trading, according to EPA officials. EPA and USDA also sponsored a 3-day water quality trading workshop in September 2015 in Lincoln, Nebraska, on a range of different subjects related to water quality trading. According to the workshop’s summary document, over 200 attendees participated, including water resource professionals; third-party environmental market makers; academics; representatives of federal, state, and local governments; representatives of non-governmental organizations; and agricultural and environmental stakeholders. Data collection. According to EPA officials, there is no requirement for permittees to report data about trading programs at a national level and EPA has no systematic way to collect this information. However, EPA manually collects some trading data, such as the names of programs with permits that allow for trading, which provides the agency with a general understanding of the extent to which trading is being used nationally. Officials told us that they plan to update national trading data at least every 2 years and make them available online in the fall of 2017. The Presence of Discharge Limits and the Challenges of Measuring Nonpoint Sources’ Nutrient Reductions Affect Participation in Trading Programs, According to Stakeholders Stakeholders cited two key factors that have affected participation in nutrient credit trading—the presence of discharge limits for nutrients and the challenges of measuring nutrient reductions resulting from nonpoint sources’ implementation of BMPs. First, officials from the three states we reviewed, and other stakeholders we interviewed, cited the importance of discharge limits for nutrients as a driver to create demand for nutrient credit trading. Without such a driver, point sources have little incentive to purchase nutrient credits. According to EPA guidance, discharge limits—most commonly established in a TMDL—are the leading driver for nutrient credit trading markets. For the Pennsylvania and Virginia programs, the nutrient discharge limits are established in the Chesapeake Bay TMDL. For the Connecticut program, nutrient discharge limits are established in the Long Island Sound TMDL. The TMDL nutrient discharge limits are ultimately translated into discharge limits in the NPDES permits for point sources. Pennsylvania officials explained how discharge limits serve as a driver for trading. Officials stated that although the state established its nutrient trading program in 2005, the TMDL for Chesapeake Bay was not established until 2010. Officials noted that in the first years of the program, little trading took place because point sources did not have to meet nutrient discharge limits. Once EPA established the TMDL for the Chesapeake Bay—and Pennsylvania established discharge limits for point sources in the NPDES permits—demand for nutrient credit trading increased, according to Pennsylvania officials. Officials explained that if point sources had not yet upgraded their nutrient removal technology, and could not meet the NPDES permit discharge limits, they could buy nutrient credits to comply with discharge limits. EPA officials added that demand for trading could increase over the long term because of economic or population growth. In addition to programs in the three states, we also reviewed a program in the Ohio River Basin where nutrient credit trading activity has been limited, according to program officials. This multi-state trading program allows point and nonpoint sources in Ohio, Indiana, and Kentucky to generate and sell nutrient credits, and was designed as a pilot to test nutrient credit trading in case discharge limits were established. Program officials told us that while some credits have been generated and sold, participation in the program has been limited because there is no requirement—in either a TMDL or numeric water quality standards—for the point sources in these states to meet discharge limits. As the program is currently implemented, they said that credits are not purchased by point sources to comply with discharge limits but rather by corporations to meet internal sustainability goals or by philanthropists who want to invest in BMPs that address nutrient pollution in the Ohio River Basin. Unlike point sources, the Clean Water Act does not require nonpoint sources to meet nutrient discharge limits established in TMDLs or numeric water quality standards, and as a result, EPA said there is no federal regulatory driver creating demand for nonpoint sources to participate in nutrient credit trading programs. The second factor affecting participation in trading programs relates to the challenges of measuring nutrient reductions that result from nonpoint sources’ implementation of BMPs. According to EPA officials and guidance, federal and state agencies typically do not directly monitor nonpoint source pollution or the effectiveness of BMPs because the diffuse nature of nonpoint source pollution makes monitoring costly and impractical. Instead, agencies and other stakeholders rely on models to estimate the amount of pollution discharged by nonpoint sources and the effectiveness of BMPs. These models incorporate information about variables such as land use, soil type, and precipitation to estimate the amount of nutrients that will be reduced as the result of implementing a specific BMP. Even with these models, EPA guidance recommends that the programs use a rule that calls for nonpoint source credit generators to generate credits at a greater than a one-to-one basis to account for uncertainties in modeling. According to this guidance, the rule can also mitigate other uncertainties such as how well BMPs are designed and maintained and the risk of a BMP failing to produce the expected results. In part because of this uncertainty, two of the states we reviewed did not allow nonpoint sources to generate credits in their programs. State officials in Connecticut told us that it was easier for Connecticut to implement nutrient trading with point sources, as their discharges are easy to quantify. State officials in Virginia told us that point source to nonpoint source trading is complicated and they felt that they could meet their TMDL reduction goals solely with point source reductions. Pennsylvania does allow nonpoint sources to generate and sell credits but the state has developed a rule to help address some of these uncertainties. Specifically, Pennsylvania implemented a rule in 2016 requiring nonpoint sources to generate three nutrient credits for every nutrient credit sold. This rule was developed as an interim step to address EPA’s concern that the state’s calculation of the baseline for nonpoint source credit generation was not consistent with the reductions needed to meet the Chesapeake Bay TMDL goals. Pennsylvania’s rule, however, appears to have reduced the use of nonpoint source credits. State program data show that in 2016 approximately 115,000 nitrogen credits were available from nonpoint sources after the implementation of the rule, almost one-third the approximately 381,000 nitrogen credits that were available in 2014. An official at a wastewater treatment facility in south central Pennsylvania told us that the rule increased the cost to generate nonpoint source credits and reduced the number of nonpoint source credits available in Pennsylvania’s trading program. Specifically, to meet its discharge limits in 2014, this facility purchased approximately 75,000 nitrogen credits, 52,000 of which were generated from local farmers who installed BMPs on their land. In 2016, after the rule was implemented, the same facility purchased 95,000 nitrogen credits, only 5,000 of which were generated from local farmers. According to the point source officials, they could no longer rely solely on purchasing credits generated from local farmers because there were fewer nonpoint source credits available to purchase in 2016. To meet the discharge limit, this facility purchased the remaining credits they needed from other point sources because nonpoint source credits were not available. Pennsylvania officials told us that the decline in the number of nonpoint source credits is mostly due to the new rule. However, they said that other factors such as the low price of credits have also decreased the incentive to generate nonpoint source credits. According to EPA officials, the program should implement a stricter baseline, based on the pollution reduction targets established in the Chesapeake Bay TMDL. Pennsylvania officials told us that if they make the baseline requirements stricter, there may be no incentive for nonpoint sources to generate credits because it would be much more difficult to meet the minimum requirements and the cost of generating credits would be prohibitive. State officials and stakeholders also told us that even if a program allows nonpoint sources to trade, point sources often prefer to trade with other point sources because they have similar permit and monitoring requirements and are both legally liable for meeting discharge limits. Trading between point sources provides buyers with the assurance that the credits they purchase represent actual reductions and can be used for compliance with an NPDES permit. Agency Comments On September 12, 2017, we provided a draft of this report to EPA for review and comment. On September 29, 2017, EPA responded by email stating that its Office of Water had reviewed the draft report and EPA had no comments. We are sending copies of this report to the appropriate congressional committees, the Administrator of the Environmental Protection Agency, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology This report (1) examines the extent to which nutrient credit trading programs have been used and what the outcomes of the programs have been, (2) describes how states and the Environmental Protection Agency (EPA) oversee nutrient credit programs, and (3) describes what key factors stakeholders view as affecting participation in nutrient credit trading. To examine the extent to which nutrient credit trading programs have been used and what the outcomes of the programs have been, we first spoke with EPA headquarters and EPA regional officials and reviewed EPA data. EPA does not have a formal definition for water quality trading programs, of which nutrient credit trading is a subcategory, and is not required to keep information on these programs. EPA periodically gathers some limited information on trading programs, including the type of trading program, location, facilities participating, and estimated trades. The most recent data EPA had at the time we conducted our review were for 2014. EPA officials explained that the completeness and consistency of the data reported by states to EPA varied somewhat. For example, not all programs reported trading data for calendar year 2014. To verify the accuracy of EPA’s list of trading programs, we interviewed or e-mailed officials from all 10 EPA regions to confirm the presence or absence of trading programs in each state in 2014. For the 7 EPA regions with some form of trading program in their regions, we interviewed regional officials to gather more information about the type of trading conducted and whether there was trading activity in 2014. Using EPA’s information as a starting point, we developed a modified list of nutrient credit trading programs that existed in 2014. For our modified list, we excluded two programs, one from Region 5 and one from Region 10, from EPA’s data that did not trade nutrient credits. Based on our discussion with EPA officials, we also excluded trading programs that let residential septic system owners “trade” credits to encourage wastewater treatment facilities to take their systems online. We also excluded one program that included three states—the Ohio River Basin Interstate Water Quality Trading Project —because none of the participating states have discharge limits in their permits. In the process of interviewing EPA regions, we also added one program from Region 4 and two programs from Region 5 that EPA officials told us had been inadvertently left off EPA’s 2014 list. From this list, we then selected a nongeneralizable sample of the three nutrient credit trading programs—Connecticut, Pennsylvania, and Virginia—which appeared to have done the most trading and had the most participating point sources in 2014 for a more detailed examination. Because these programs were judgmentally selected, the results of our review of these programs cannot be generalized. For these three programs, we reviewed state laws and regulations, National Pollutant Discharge Elimination System (NPDES) permits, watershed implementation plans, program rules and policies, annual summaries of nutrient credit purchases and sales, and assessments of state trading programs when available. We also interviewed state and program officials and other stakeholders, such as point source and nonpoint source credit generators and buyers, to gather information on the programs, including structure, participants, number and type of trades, authorizing mechanisms, and outcomes. Specifically, to determine the number of trades we asked each state for its official list of trades from 2014, the most recent year for which we could get complete data from all programs. We counted each time a point source purchased credits as one trade. In addition, we asked states to provide us the number of point sources that purchased credits and the number of point sources in the trading programs, which we used to determine the percentage of point sources that purchased credits. The states post the number of point sources that purchased credits online, and the number of point sources in the program is identified in state documents. We also asked the states for the number of credits purchased and the aggregate discharge limit for point sources to determine the percentage of credits purchased in pounds of nutrients relative to the aggregate limit. The aggregate discharge limit is the maximum allowable discharge for point sources in the program. Because this limit represents the maximum amount of pollution allowable to meet water quality standards, it served as a point of reference for comparing the amount of discharge that was traded. We took these numbers from state records, and they are derived from the total maximum daily load, according to EPA policy. According to Virginia and Connecticut officials, in their programs one credit is equal to one equalized or delivered pound of pollution—that is, a pound of pollution after accounting for the delivery ratio. Pennsylvania could not provide us the number of pounds purchased. According to Pennsylvania officials, a nutrient credit does not equal a pound of pollution in their program because they use trading ratios, such as delivery ratios. This means that credits generated from different sources represent different nutrient reductions depending on where they are relative to the polluted water body. However, the aggregate discharge limit does not represent the pounds of nutrients that could have been traded, since the volume of trading was limited by the supply of credits, which was less than the aggregate discharge limit in Virginia and Pennsylvania. Specifically, to show this, we used state data on the number of credits generated and compared them with the number of credits purchased. Connecticut does not have data on the number of credits available. To assess the reliability of the state data, we visually reviewed the data for completeness and interviewed state officials responsible for collecting and using data about their quality assurance protocols and their confidence in the data. We found the data to be sufficiently reliable for our purposes and confirmed all final numbers with state officials. We interviewed state program officials in all three states to better understand the extent to which nutrient credit trading programs have been used and what the outcomes have been. During these interviews, we discussed the management of the programs, reviewed state trading data, and discussed the benefits and challenges of nutrient credit trading. We visited Pennsylvania to meet with program officials and stakeholders. Specifically, we met a representative of a credit aggregator that buys and sells credits from nonpoint source generators and toured a wastewater treatment facility that generates credits and a facility that generates nutrient credits by processing chicken manure into energy. We also spoke with buyers and sellers of nutrient credits in Connecticut and officials from the nutrient credit exchange in all three states. We did not audit these state trading programs or analyze their effectiveness or efficiency in meeting discharge limits or water quality standards. We also conducted a literature review of academic and economic journals. We searched peer-reviewed journals for articles published from 2011 through 2016 discussing water quality trading or nutrient credit trading. We did not find any additional trading programs in the United States that had not already been identified. To describe how states and EPA oversee nutrient credit programs, we reviewed relevant federal laws, regulations, and EPA policies and guidance related to nutrient credit trading. We reviewed state requirements for implementing the NPDES program, under the Clean Water Act and implementing regulations, which defines responsibilities applicable to states that serve as permitting authorities for overseeing point source permittees’ monitoring and reporting. These same authorities are used by states to oversee state trading programs. The Clean Water Act does not specifically authorize water quality trading, according to EPA officials; however, EPA has developed trading guidance for states interested in developing trading programs. We reviewed this guidance, specifically, EPA’s 2003 Water Quality Trading Policy and 2007 Water Quality Trading Toolkit for Permit Writers. We also reviewed state documents, such as watershed implementation plans, that identify trading program rules, and interviewed state officials and other stakeholders for our nongeneralizable sample of three nutrient credit trading programs. In our interviews we asked state officials how they oversee their trading programs. In particular, we asked how they approve point and nonpoint sources to generate credits, verify that a credit represents a real reduction in nutrient pollution, and monitor the buying and selling of credits to ensure that permit obligations are met. We also interviewed officials from EPA’s Office of Water and the 7 EPA regions with nutrient credit trading programs and asked them to describe EPA’s oversight role at the regional and national level. To describe what key factors stakeholders view as affecting participation in nutrient credit trading, we spoke with officials from EPA’s Office of Water, the 7 EPA regions with nutrient credit trading programs, and officials and stakeholders from the nongeneralizable sample of three nutrient credit trading programs. In addition, we reviewed documents and interviewed officials for one nongeneralizable multi-state trading program in the Ohio River Basin. We reviewed this program to better understand the key factors that can affect participation in nutrient trading programs. We interviewed officials from the institute that developed the program and corresponded with state officials from Kentucky and Ohio, two of the states involved in the Ohio Basin program. Finally, we interviewed representatives of stakeholder groups, such as those representing wastewater treatment facilities, national organizations for water issues, and agricultural conservation districts to get a broad perspective on the key factors that affect participation in nutrient credit trading programs. Appendix II: Nutrient Credit Trading in the United States in 2014 We identified 19 nutrient credit trading programs in 11 states and seven Environmental Protection Agency regions, in 2014.The 11 states that had programs are: California, Connecticut, Florida, Georgia, Idaho, Minnesota, North Carolina, Ohio, Pennsylvania, South Carolina, and Virginia (see table 5). Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Janet Frisch (Assistant Director), Chuck Bausell, Mark Braza, Ellen Fried, Patrick Harner, Karen Howard, Greg Marchand, Emily Ryan, Jason Trentacoste, and Daniel Will made key contributions this report. .

Nutrient pollution—caused by excess nitrogen and phosphorus entering water bodies—poses significant risks to the nation's water quality. Nutrients can enter water bodies from point sources and nonpoint sources. The Clean Water Act establishes the basic structure for regulating discharges of pollutants, including excess nutrients. Under the act, authorized states—assisted and overseen by EPA—set limits on nutrients impairing a water body and limits on point source discharges. EPA encourages states to use nutrient credit trading to address nutrient pollution. According to EPA, trading allows a point source to meet nutrient discharge limits by buying pollutant credits from a source that has reduced its discharges more than required. GAO was asked to examine nutrient credit trading programs. This report describes (1) the extent to which nutrient credit trading programs have been used and what the outcomes of the programs have been, (2) how states and EPA oversee nutrient credit trading programs, and (3) what key factors stakeholders view as affecting participation in nutrient credit trading. GAO reviewed EPA documents and interviewed EPA officials to gather information on trading programs. GAO then selected a nongeneralizable sample of three programs with the most trades in 2014 (based on the most recent available data); reviewed program documents; and interviewed EPA, state, and program officials and other stakeholders about the programs. In 2014, 11 states had 19 nutrient credit trading programs, and trading provided flexibility for some point sources, such as wastewater treatment plants, to meet nutrient discharge limits, according to Environmental Protection Agency (EPA) data and officials. The majority of nutrient credit trading during 2014 occurred in three state programs—programs in Connecticut, Pennsylvania, and Virginia. A review of trading data from these programs showed that most point sources participating in the three state programs did not purchase credits in 2014 to meet their discharge limits, which are established in National Pollutant Discharge Elimination System (NPDES) permits under the Clean Water Act. For the point sources that did purchase credits in 2014, state officials in the three states told GAO that the total amount in pounds of nutrients that point sources purchased as credits was generally small. Nevertheless, state officials explained that nutrient credit trading was useful because it allowed point sources to manage risk, reduce the cost of compliance, and better manage the timing of upgrades of nutrient removal technology. States oversee nutrient credit trading programs, and EPA helps ensure that programs are consistent with the act. States oversee nutrient credit trading programs by approving and verifying the generation of credits to ensure that credits represent real reductions in nutrient pollution. A state's approval and verification process varies depending on whether the credit generator is a point or nonpoint source, such as runoff from agricultural and urban areas. For point sources, the states GAO reviewed followed a process for verifying credits that is based on the existing oversight process for NPDES permits. Because nonpoint sources do not have NPDES permits, states use a separate process to approve and verify that nonpoint sources' pollution reduction activities have generated credits for trading. When questions or concerns arise, EPA uses its oversight authority to ensure that trades and trading programs are fully consistent with the act. EPA officials told GAO that they conduct oversight primarily through the regional offices, which (1) review NPDES permits, (2) review and comment on state regulatory frameworks for trading, (3) conduct periodic on-site inspections, and (4) provide national-level guidance and training to state programs and stakeholders. According to stakeholders, two key factors have affected participation in nutrient credit trading—the presence of discharge limits for nutrients and the challenges of measuring the results of nonpoint sources' nutrient reduction activities. Officials from the three states GAO reviewed and other stakeholders cited the importance of discharge limits for nutrients as a driver to create demand for trading. Without such a driver, point sources have little incentive to purchase nutrient credits. The challenges of measuring nutrient reductions by nonpoint sources create uncertainties about the value of credits generated by nonpoint sources. In part, because of these uncertainties, the states GAO reviewed either did not allow nonpoint sources to trade or created special rules for nonpoint sources. State officials and stakeholders also told GAO that even if a program allows nonpoint sources to trade, point sources often prefer to trade with other point sources because they have similar permit and monitoring requirements.

GAO_GAO-18-245

Background Federal Banking Supervision The purpose of federal banking supervision is to help ensure that banks throughout the financial system are operating in a safe and sound manner and are complying with banking laws and regulations in the provision of financial services. Banks in the United States are supervised by one of the following three federal regulators: FDIC supervises all FDIC-insured state-chartered banks that are not members of the Federal Reserve System and insured state savings associations and insured state chartered branches of foreign banks. The Federal Reserve supervises commercial banks that are state- chartered and members of the Federal Reserve System. OCC supervises federally chartered national banks and savings associations (also known as federal thrifts). FDIC, the Federal Reserve, and OCC are required to conduct a full- scope, on-site examination of each of their supervised banks at least once during each 12-month period. The regulators may extend the examination interval to 18 months, generally for banks and thrifts that have less than $1 billion in total assets and that meet certain conditions, such as satisfactory ratings, are well capitalized, and are not being subject to a formal enforcement action. As part of a full-scope examination, examiners review a bank’s risk exposure within a number of components using the Uniform Financial Institutions Rating System, which also is referred to as the CAMELS rating system (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk). Evaluations of CAMELS components consider a bank’s size and sophistication, the nature and complexity of its activities, and its risk profile. The end result of a full-scope, on-site examination is a report of examination, which includes the CAMELS ratings and other findings and is provided to the bank’s management and board of directors. A report of examination may include deficiencies or other issues that examiners found and that a bank is expected to address within specific time frames. Such issues generally are called supervisory recommendations by FDIC, supervisory findings by the Federal Reserve, and supervisory concerns by OCC. For purposes of this report, we collectively refer to such issues as supervisory concerns. Supervisory concerns may be designed to correct practices that deviate from sound risk management principles or noncompliance with laws and regulations. Supervisory concerns that involve more significant issues are brought to the attention of a bank’s board of directors and senior management in the report of examination as matters requiring immediate attention (MRIA) or matters requiring attention (MRA) under the Federal Reserve’s policies, matters requiring board attention (MRBA) under FDIC’s policies, and MRAs under OCC’s policies. If a bank were to fail to address a supervisory concern, its regulator could subject the bank to enhanced supervision, downgrade of a component or composite rating, or other supervisory actions, such as informal or formal enforcement actions. CRE Lending and Associated Risks Under their 2006 guidance, regulators define CRE loans to include construction loans, loans to finance CRE that are not secured by CRE, loans secured by multifamily property, and loans secured by nonfarm, nonresidential property in which the primary source of repayment derives from the rental income associated with the property or the proceeds of the sale, refinancing, or permanent financing of the property. CRE loans in which the primary source of repayment is not the property itself are called owner-occupied loans and can include loans to businesses for working capital purposes that use real estate as collateral. For example, a line of credit for a business’s operating expenses might be secured in part by commercial property, such as an office. Construction and land development (CLD) loans generally are considered to be the riskiest class of CRE, due to their long development times and because they can include properties (such as housing developments or retail space in a shopping mall) that are built before having firm commitments from buyers or lessees. In addition, by the time the construction phase is completed, market demand may have fallen, putting downward pressure on sales prices or rents—making this type of loan more risky. Regulatory Guidance on CRE Concentrations and Risk Management Practices Based on concerns about the increase in CRE concentrations at community banks and the risks associated with such concentrations, FDIC, the Federal Reserve, and OCC jointly issued guidance in December 2006 on CRE concentrations and sound risk management practices. The guidance described the regulators’ expectations for sound risk management practices for banks with concentrations in CRE loans. Specifically, the guidance identified seven key elements, or internal control areas, that a bank’s risk management practices should address to identify, monitor, and control its CRE concentration risk (see fig. 1). The 2006 CRE guidance also sets forth three criteria to identify banks with CRE loan concentrations that could be subject to greater supervisory scrutiny. According to the guidance, a bank that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk: CLD concentration threshold: CLD loans represent 100 percent or more of a bank’s total capital. Total CRE concentration threshold: Total nonowner-occupied CRE loans (including CLD loans) represent 300 percent or more of a bank’s total capital and total CRE lending increased by 50 percent or more during the previous 36 months. According to the guidance, the CLD and CRE thresholds do not constitute limits on a bank’s CRE lending activity but rather serve as high-level indicators to identify banks potentially exposed to CRE concentration risk. In 2011, we reported on how the federal banking regulators had responded to the potential risks of growing CRE concentrations at community banks, including by jointly issuing the 2006 CRE concentration guidance. We recommended that the regulators should enhance or supplement the 2006 CRE guidance and take steps to better ensure that such guidance is consistently applied. The regulators have taken steps to address our recommendation. Out of the approximately 5,900 banks that had a CRE loan portfolio as of the end of June 2017, a total of 504 banks exceeded either 100 percent in CLD loans as a percentage of total risk-based capital, or 300 percent in CRE loans as a percentage of total-risk based capital and had seen 50 percent CRE portfolio growth during the previous 36 months. Of these 504 banks, a total of 69 banks exceeded both the CLD criteria and the total CRE criteria (including the growth component). In December 2015, federal banking regulators issued a joint statement to remind banks of the 2006 regulatory guidance on prudent risk management practices for CRE lending activity through economic cycles. The regulators noted, among other trends, that many banks’ CRE concentration levels had been rising. According to the statement, regulators would continue to pay special attention to potential risks associated with CRE lending during 2016. Specifically, the regulators stated that when conducting examinations that include a review of CRE lending activities, they would focus on banks’ implementation of the prudent principles in the 2006 CRE guidance and other applicable guidance relative to identifying, measuring, monitoring, and managing concentration risk in CRE lending activities. According to officials from FDIC, the Federal Reserve, and OCC, their agencies use a variety of formal and informal processes to monitor the condition of banks and identify risks, including CRE concentration risk. For example, The Federal Reserve has a National Risk Council and FDIC and OCC have National Risk Committees that meet routinely to identify and evaluate risks facing banks and are supported by a number of other committees or other groups. FDIC officials told us that analysis done by FDIC’s Regional Risk Committees identified growth in CRE concentrations in 2015 and brought the issue to the National Risk Committee’s attention. OCC began actively monitoring CRE loan growth in the middle of 2014 and began focusing on CRE concentration risk management during bank examinations in 2015. OCC officials also stated that CRE concentration risk has been a key risk issue for the agency’s National Risk Committee since early 2016. Federal Reserve officials told us that the agency, including the Federal Reserve banks, began to monitor bank CRE concentrations more closely around mid-2013 after identifying an increase in CRE concentrations. According to FDIC, Federal Reserve, and OCC officials, they met together in early 2015 to discuss CRE lending growth and the rise in bank CRE loan concentrations and held subsequent meetings throughout the year, in part to discuss policy options for helping to ensure that banks were appropriately managing their CRE concentration risks. One of the outcomes of such interagency coordination was the December 2015 joint statement on CRE concentrations. Credit and Other Risks Related to Bank CRE Lending Have Increased over the Past Several Years Although the CRE sector has recovered since the 2007–2009 financial crisis, our trend and econometric analyses generally indicate that credit and other risks related to bank CRE lending have increased over the past several years. Based on indicators of CRE market conditions and loan performance, the CRE sector has recovered from the 2007–2009 financial crisis. For example, spending on CRE construction projects—a source of demand for bank financing—has rebounded. Vacancy rates for apartments, office buildings, and other CRE properties have declined. Similarly, as shown in figure 2, delinquency and charge-off rates on bank CRE loans have fallen from their post-crisis peaks and are at or below their lowest levels since 2002. Although these rates provide information on the current performance of bank CRE loans, they provide little or no information about potential future risks faced by banks. For example, high-risk loans made to less creditworthy borrowers could perform well when property markets and the economy are doing well but may perform poorly when property markets or the economy begin to slow. At the same time, our analyses of other market, underwriting, and lending data and forecasts from predictive econometric models we developed suggest that banks’ credit and concentration risks related to their CRE lending have increased. As shown in figure 3, according to a Federal Reserve survey, banks lowered their CRE loan underwriting standards— terms and conditions under which banks extend loans—after the financial crisis, but more banks began to tighten their underwriting standards since late 2015. In general, tightening underwriting standards may indicate that loan officers are reevaluating the degree of risk in CRE markets served by banks. According to Federal Reserve data, a larger share of banks has tightened underwriting standards on multifamily properties, such as apartments. CRE property prices, particularly for multifamily properties, have increased rapidly in recent years, and CRE property valuations have similarly increased. For example, as shown in figure 4, capitalization rates (the ratio of income generated by a property to the property’s price) on CRE properties have trended downward since around 2010—indicating that borrowers (i.e., property owners) may be earning less of a return on their CRE properties. Capitalization rates can be indicative of expected future price changes—for example, low capitalization rates may reflect expectations of future price increase, but can also be driven by investor sentiment not associated with fundamental aspects of properties. In addition, as shown in figure 5, the number of banks with concentrated portfolios in CLD or total CRE loans has been gradually increasing since around 2014. Greater concentrations in a particular lending sector (e.g., commercial real estate, residential real estate, or business lending) leave banks more vulnerable to a sectoral downturn, all else equal. To further assess risk in bank CRE lending, we developed and estimated several predictive models of aggregate losses on bank CRE loans. The models incorporate measures of CRE property prices, bank lending, and underwriting standards. The models generally found that, historically, higher future losses are predicted when CRE lending and prices are simultaneously high relative to gross domestic product, and when banks are tightening underwriting standards. Based largely on the simultaneous increase in bank CRE lending and CRE prices observed over the last several years, these models suggest that credit risk has increased, though it remains lower than the level of risk associated with the 2007– 2009 financial crisis. As we noted earlier, high property valuations and substantial increases in lending can simultaneously weaken collateral protections and indicate lower borrower quality, both of which can raise the risk of losses should the economy or CRE sector weaken. (See app. II for additional information on our models.) Regulators Examined Risk Management Practices of Banks with CRE Concentrations We found that regulators generally subjected banks with relatively high concentrations in CRE loans to greater supervisory scrutiny in comparison to banks with relatively lower concentrations in CRE loans in our review of 54 examinations for 40 banks conducted from 2013 through 2016. In all of these examinations, the regulators specifically assessed whether each bank had adequate risk management practices and capital for managing its CRE concentration risk and generally found that the banks had adequate risk management practices and capital. In a few examinations, regulators differed in how they addressed supervisory concerns about a bank’s CRE-related risk management practices. Regulators Examined Whether Banks with Relatively High CRE Concentrations Had Adequate Practices and Capital to Manage Their CRE Concentration Risk In our review of a nongeneralizable sample of 54 examinations conducted from 2013 through 2016, we found that FDIC, Federal Reserve, and OCC subjected banks with relatively high concentrations in CRE loans to greater supervisory scrutiny. In both their 2006 CRE guidance and 2015 CRE statement, the regulators indicated that banks with relatively high CLD or total CRE concentrations should maintain risk management practices commensurate with the level and nature of their concentration risk. The 2006 CRE guidance recognized that the sophistication of a bank’s CRE risk management practices depends on, among other things, the level and nature of its CRE concentrations and associated risk. As noted earlier, the guidance notes that a bank’s risk management practices should address seven internal control areas: (1) board and management oversight; (2) portfolio management; (3) management information systems; (4) market analysis; (5) credit underwriting standards; (6) portfolio stress testing and sensitivity analysis; and (7) credit risk review function. Based on our analyses, we found that the 2006 CRE guidance’s risk management framework is adequately designed to help ensure that banks effectively identify, measure, monitor, and control their CRE concentration risk. For example, the guidance is consistent with credit and concentration risk principles issued by international standard- setting bodies. Of the 54 reports of examination that we reviewed, 41 of them covered banks whose CLD or total CRE concentrations exceeded the CLD concentration threshold, total CRE concentration threshold, or both thresholds set forth in the 2006 guidance. In all of these examinations, we found that FDIC, Federal Reserve, and OCC examiners generally assessed whether each bank had implemented adequate risk management practices to manage their concentration risk. As shown in figure 6, in 26 of the 41 examinations, FDIC, Federal Reserve, and OCC examiners did not find any weaknesses in the banks’ CRE risk management practices across the seven internal control areas, but did find weaknesses in the remaining 15 examinations. In 15 of the 41 examinations we reviewed, FDIC, Federal Reserve, and OCC examiners found the banks had CRE-related risk management weaknesses in at least one of the seven internal control areas. Examiners most frequently found risk management weakness in three internal control areas: board and management oversight (11 instances), management information systems (8 instances), and stress testing (7 instances). To a slightly lesser extent, examiners found weaknesses in portfolio management, credit underwriting standards, and credit risk review function. Examiners communicated their supervisory concerns to these 15 banks in their reports of examinations. In 12 of the examinations, examiners included MRAs, MRBAs, or MRIAs in their reports of examination that directed the banks to correct their risk management weaknesses. In the other three examinations, examiners included recommendations or other notes in their reports of examination that generally directed the banks to correct their risk management weaknesses. Consistent with the 2006 CRE guidance, we found that examiners generally did not use the CLD or total CRE concentration thresholds as limits on bank CRE lending. With two exceptions, examiners did not direct banks that exceeded the CLD or CRE threshold to reduce their concentrations but rather focused on ensuring that the banks’ risk management practices were commensurate with the nature and level of their concentration risk. In the two exceptions, examiners found the banks’ practices and capital inadequate for managing their CLD or CRE concentration risk and directed the banks to reduce their concentrations and improve their risk management practices. We found that FDIC, Federal Reserve, and OCC examiners varied in the extent to which they documented—in the reports of examination and supporting workpapers—the scope of their review of banks’ CRE-related risk management practices and findings. For example, we were not always able to determine whether examiners found a bank’s practices adequate in one or more of the seven internal control areas based on our review of the report of examination and, if available, supporting workpapers. According to the regulators, reports of examinations are used primarily to document practices found to be inadequate and not practices found to be adequate. Moreover, the regulators told us that their examiners recently have been required to use a CRE examination module to document their assessment and findings of banks with concentrations exceeding the CLD or CRE threshold. Capital and Concentration Risk In the 41 examinations we reviewed where banks exceed one of the concentration thresholds, FDIC, Federal Reserve, and OCC examiners assessed whether the banks generally had capital commensurate with their CRE concentration risk. In 34 of the examinations, examiners determined that the banks’ capital levels were adequate for managing their CLD or total CRE concentration risk. In 7 of the examinations, examiners determined that the banks’ capital levels were inadequate. For six of the seven banks, examiners directed the banks in the reports of examination to reduce or manage their CRE concentrations in light of inadequate capital. In the case of one bank, examiners required the bank to comply with a previous formal enforcement action that addressed the need for the bank to adhere to its board-approved capital plan. Review of CRE-Related Risk Management Practices in Subsequent Examination Cycles For banks with relatively high CLD or total CRE concentrations, we found that Federal Reserve and OCC examiners assessed the banks’ CRE- related risk management practices in subsequent examinations. In our review of 41 examinations of banks that exceeded the CLD or CRE threshold, 26 of them covered two examination cycles of 13 banks conducted from 2013 through 2016. We found that examiners assessed the banks’ practices for managing their concentration risk in both examinations. In 14 examinations (covering 7 banks), examiners found that the banks had adequate risk management practices in both examinations. In six examinations (covering three banks), examiners found aspects of the banks’ risk management practices to be inadequate in their 2013 or 2014 examination and noted their supervisory concerns in the reports of examination. In the subsequent examinations, the examiners found that the banks had adequately addressed the previously identified risk management weaknesses. In six examinations (covering three banks), examiners found the banks’ practices for managing their CRE concentration risk to be adequate in the 2013 or 2014 examinations but inadequate in the subsequent examinations. The examiners issued the banks MRAs or MRIAs or took an informal enforcement action. Regulators Generally Did Not Examine CRE-Related Risk Management Practices of Banks with Concentrations below the CLD or Total CRE Threshold For banks with concentrations below the CLD or total CRE threshold, we found that regulators generally did not examine the banks’ CRE-related risk management practices. Thirteen of the 54 examinations we reviewed covered banks that did not exceed the CLD or CRE thresholds. Although the banks did not exceed either threshold, OCC examiners assessed the banks’ CRE-related risk management practices in 3 of the examinations. In 1 examination, examiners determined that the bank’s CRE-related risk management practices were adequate. The other 2 examinations covered subsequent cycle examinations of the same bank. In the first examination, examiners found that the bank had adequate practices for managing risk associated with its CRE loans but directed the bank through an MRA to incorporate stress testing of the loan portfolio into its monitoring. In the subsequent examination, the examiners found that the bank had addressed the MRA. In the other 10 examinations, FDIC, Federal Reserve, and OCC examiners did not mention in the report of examination the banks’ practices for managing the risk associated with their CRE loans. FDIC, Federal Reserve, and OCC officials told us that examiners use their professional judgment in determining whether to review a bank’s CRE-related risk management practices if the bank’s concentration is below the CLD and CRE threshold. This approach is consistent with the overall risk-based supervisory process used by the regulators, which focuses examiner resources on assessing bank management’s ability to identify and control risks. For example, FDIC’s examination guidelines note that examiners should focus their resources on a bank’s highest risk areas when assessing risk management programs, financial conditions, and internal controls. According to the guidance, the exercise of examiner judgment to determine the scope and depth of review in each functional area is crucial to the success of the risk-focused supervisory process. Regulators Differed in How They Addressed a Few Supervisory Concerns about Banks’ CRE-Related Risk Management Practices In a few examinations, we found differences across regulators in how they addressed supervisory concerns about banks’ CRE-related risk management practices because of differences in the regulators’ policies. In our nongeneralizable sample of 54 examinations, Federal Reserve, FDIC, and OCC examiners included CRE-related supervisory concerns, such as recommendations, MRAs, or MRBAs, in 22 of the reports of examinations. Although the regulators have policies for identifying and communicating supervisory concerns, their policies use different criteria. For example, OCC’s policies instruct examiners to use MRAs to describe practices that a bank must implement or correct to address a deficiency and not to use MRAs to require enhancements to bank practices that meet acceptable standards. However, the Federal Reserve’s and FDIC’s policies do not expressly include such criteria. Consistent with their policies, OCC examiners included MRAs in the reports of examination that we reviewed only when they found a bank’s CRE-related risk-management practices to be inadequate. In contrast, in 2 reports of examination, we found that FDIC examiners did not find the banks’ CRE- related risk management practices to be inadequate but included MRBAs to direct the banks to enhance or sustain certain CRE-related risk management practices. Similarly, in 1 report of examination, Federal Reserve examiners found that the bank’s risk management practices and capital were adequate for its CRE concentrations but included an MRA to require the bank to enhance its capital plan to include concentration risk considerations. FDIC, Federal Reserve, and OCC Have Recently Taken Formal Enforcement Actions against Banks for Not Adequately Managing Their CRE Concentration Risk In addition to their examinations, federal banking regulators have taken informal and formal enforcement actions against banks for not adequately managing their CRE concentration risk. In general, initial consideration and determination of whether informal or formal action is required usually results from examination findings. Unlike informal enforcement actions, formal enforcement actions are published or publicly available. From 2013 through 2016, FDIC, the Federal Reserve, and OCC took formal enforcement actions against banks for not adequately managing risks related to their CRE concentrations, including those outlined in the jointly issued 2006 CRE guidance. FDIC took 22 formal enforcement actions against banks for matters related to their CRE concentrations during this period. The Federal Reserve took 2 formal enforcement actions against banks for matters related to their risk management of CRE lending. OCC took 11 formal enforcement actions against banks for matters related to their CRE concentrations during this same period. The majority of these formal enforcement actions discussed the 2006 CRE guidance and directed the banks to improve their practices for managing their CRE concentration risk. For example, in a number of formal enforcement actions, the regulators ordered the banks to revise their written concentration risk management programs for identifying, monitoring, and controlling risks associated with concentrations of credit, consistent with the 2006 CRE guidance. Agency Comments We provided a draft of this report to FDIC, the Federal Reserve, and, OCC for review and comment. The agencies provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and FDIC, the Federal Reserve, and OCC. This report will also be available at no charge on our website at http://www.gao.gov. Should you or your staff have questions concerning this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VII. Appendix I: Objectives, Scope, and Methodology Our objectives in this report were to examine: (1) trends in the commercial real estate (CRE) lending markets, including changes in the level of credit and concentration risk in the markets, and (2) actions federal banking regulators took through their examinations to help ensure that banks with CRE concentrations are effectively managing the related risks. To examine trends in the CRE lending markets, we reviewed academic literature and prior GAO work and interviewed officials from the federal banking regulators and private data providers. Specifically, we interviewed officials at the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) to help identify potential indicators of risk in CRE markets. To further inform our assessment of risk, we reviewed prior GAO work on the lessons learned from prior banking crises and the use of early warning models for monitoring the financial system. We also reviewed academic research on early warning models of banking and real estate-related crises. To report trends and assess risk, we reviewed and analyzed a range of data that we considered to be reflective of various aspects of risk in CRE lending markets. Specifically, we reviewed and analyzed commercial property vacancy data from REIS (a private commercial real estate data provider); commercial property construction data from the U.S. Census Bureau; data on delinquencies and charge-offs on bank CRE loans from the Federal Reserve; data on commercial property prices and capitalization rates from Real Capital Analytics (a private commercial real estate data provider); FDIC data on bank CRE lending; and Federal Reserve data on underwriting standards. We evaluated trends in these data and used a subset of these data to estimate several predictive models of aggregate losses on bank CRE loans. (See app. II for more information on our predictive models.) To examine actions taken by federal regulators to help ensure that banks with high CRE concentrations are effectively managing the related risks, we reviewed and analyzed their relevant guidance and regulations on bank CRE lending, examination policies and procedures (e.g., examination manuals and modules), studies and other publications on risks in the banking industry, and formal enforcement actions taken from 2013 through 2016 for CRE-related matters. In addition, we analyzed Consolidated Reports of Condition and Income data from SNL Financial for the period from 2011 through 2016 to calculate banks’ construction and land development (CLD) and CRE concentrations during the period. Specifically, we used the concentration formulas in the 2006 CRE concentration guidance (jointly issued by the federal banking regulators) to calculate banks’ CLD and CRE concentrations and identify banks whose CRE concentrations exceeded, in full or in part, the guidance’s CRE concentration thresholds during part or all of the time frame. Based on whether the banks’ CRE concentrations exceeded the thresholds and other criteria discussed below, we selected a nongeneralizable sample of 40 banks overseen by FDIC, the Federal Reserve, or OCC. For the banks in our sample, we requested from the regulators copies of the reports of examination and, if available, related workpapers prepared by the regulators based on their full-scope examinations of the banks done from 2013 through 2014, and from 2015 through 2016. In addition to using banks’ CRE concentrations as a basis to select examinations, we judgmentally selected a nonprobability sample of banks based on the following criteria: Total asset size: We considered the size of the banks based on their total assets and selected banks from each of the following three ranges: (1) banks with $1 billion or more in total assets, (2) banks with $100 million or more but less than $1 billion in total assets, and (3) banks with less than $100 million in total assets. Primary regulator: We considered the primarily regulator of the banks and selected a sample of 40 banks that resulted in a total of 20 examinations to review from each regulator. Geographic distribution: We selected banks to ensure that at least one bank was from each of the four regions of the U.S. Census and each of the nine divisions within those regions. Based on the 40 banks we selected, we reviewed and analyzed 54 reports of examination and, if available, the related workpapers. We analyzed the examinations using criteria or other requirements specified in the 2006 CRE guidance jointly issued by the regulators and their examination policies and procedures. We did not review six examinations of banks supervised by the Federal Reserve. We also interviewed officials from FDIC, Federal Reserve, and OCC, and from a national banking association about bank CRE lending and applicable CRE guidance and requirements. For the data we analyzed under both of our objectives, we took a number of steps to assess the reliability of the data, including interviewing data providers; corroborating trends across multiple data sources; reviewing related documentation; inspecting data for missing values, outliers, or other errors; and reviewing relevant, prior GAO work. We determined that these data were sufficiently reliable for our reporting objectives. We conducted this performance audit from January 2017 to March 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: GAO Predictive Models of Aggregate Losses on Bank Commercial Real Estate Loans We developed and estimated several models of aggregate losses on bank commercial real estate (CRE) loans. These models attempt to predict future aggregate charge-offs using contemporary indicators of potential risks. We incorporated indicators of risk based on the cross- country research literature on early warning models of banking risk and prior GAO work on identifying early warning models as tools that could assist financial regulators in assessing risk. One study summarized the overall intuition for models of this class in the following way: “imbalances manifest themselves in the coexistence of unusually rapid cumulative growth in private sector credit and asset prices.” Our results were consistent with this concept and extend the aggregate early warning model literature to a sectoral model. As such, our models incorporate measures of CRE property prices, bank lending volumes, and bank loan underwriting standards. The models predict charge-offs 2–3 years into the future (the dependent variable is the average charge-off rate for 8 through 11 quarters into the future), using commercial bank charge-off rates from the Board of Governors of the Federal Reserve System (Federal Reserve), first quarter 1991 to second quarter 2017. (See below for an illustrative regression equation for one of these models.) We began with two model variations, one based on the levels of key variables and the other based on their growth rates, using the following independent variables, respectively: “Level” model: Level of CRE prices to gross domestic product (GDP), level of bank CRE lending to GDP, the interaction of the level of CRE prices and lending, and the net percentage of banks tightening underwriting standards on CRE loans. “Growth” model: Growth rate of CRE prices over the last year, growth rate of bank CRE lending over the last year, interaction of price and lending growth, and the net percentage of banks tightening underwriting standards on CRE loans. By inspection, the model based on levels also captured key aspects of the evolution of aggregate losses on bank CRE loans in recent decades—for example, low charge-offs prior to the crisis, the rapid increase during crisis, and very low charge-offs in recent years. In this model higher losses are predicted by tightening underwriting standards, and the interaction of (i.e., simultaneous increase in) the level of CRE prices and the level of CRE lending. The bulk of the explanatory power of the model appears to come from the interaction of the level of CRE prices and the level of CRE lending—consistent with Borio and Drehmann’s view that the coexistence of rapidly increasing credit and prices is associated with greater risk. These results are also consistent with a more general theory, for example, that periods of economic stability induce greater risk-taking over time, bidding up asset prices and loosening underwriting standards until ultimately increased valuations become unsustainable, prices fall, and borrowers begin to default. We estimated a number of additional models for robustness, to determine if goodness-of-fit and forecasts could be improved markedly, and to assess the degree of forecast uncertainty. For example we estimated a model with a censored dependent variable and used information criteria to select models that combined elements from our initially separate models based on growth rates and levels as well as a model that includes current charge-offs. In figure 7, we report the general trend in expected future charge-offs as well as convey forecast uncertainty based on differences in the forecasts of three of these models. In figure 8, we convey forecast uncertainty based on the 75 percent confidence interval for a combined model that we selected based on information criteria. Implicit in this exercise is the assumption that the data-generating process is reasonably stable—as a result, structural change associated with new financial products, new risk management tools, and new legal and regulatory frameworks could reduce the stability of the data- generating process. We interpret our results and forecasts in light of these potential limitations. Specifically, we do not interpret model results as concrete, precise predictions of aggregate commercial real estate losses but rather as an additional, general indication of the degree of risk in bank CRE lending. We mitigate risks associated with estimating this type of model with appropriate diagnostics, out-of-sample testing, and by developing the model in the context of the well-established early warning literature. That said, some inevitable limitations remain, including the potential omission of important risk factors and other approximations associated with our specification (e.g., our choice of a linear functional form). In addition, diagnostics for detecting nonstationary time series are imperfect, especially with small sample sizes, which may inflate our measures of statistical significance and traditional goodness-of-fit measures like r- squared. These biases may be present, however, in models that still generate useful predictions. In this “small data” context there is also risk of fitting (or over-fitting) the model to predict a particular credit event— though, again, this risk is mitigated somewhat in the context of the broad cross-country early warning literature and the use of out-of-sample testing. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Richard Tsuhara (Assistant Director), Tarek Mahmassani (Analyst in Charge), Abigail Brown, Tarik Carter, M’Baye Diagne, Michael Hoffman, Risto Laboski, Marc Molino, Jessica Sandler, Jennifer Schwartz, and Andrew Stavisky made significant contributions to this report.

In 2006, federal banking regulators jointly issued guidance that described their expectations for sound risk management practices for banks with CRE concentrations. The guidance includes two CRE thresholds that regulators use to identify banks that are potentially exposed to significant CRE concentration risk and could be subject to greater supervisory scrutiny. Concentrations in CRE loans at U.S. banks have been steadily increasing—raising safety and soundness concerns. In December 2015, the regulators jointly issued a public statement to remind banks of the 2006 CRE guidance. In light of the joint 2015 statement and GAO's ongoing monitoring of regulatory efforts to identify and respond to emerging threats to the banking system, GAO examined (1) trends in the CRE lending market, including changes in risk, and (2) actions taken by regulators to help ensure that banks with CRE concentrations are effectively managing the related risks. To address these issues, GAO analyzed CRE-related data; reviewed agency policies and guidance; and reviewed a nongeneralizable sample of 54 bank examinations conducted from 2013 through 2016 based on the banks' CRE concentrations, total assets, primary regulator, and geographic location. GAO also interviewed officials from the federal banking regulators. While the commercial real estate (CRE) sector has recovered since the 2007–2009 financial crisis, GAO's trend and econometric analyses generally indicate that risk in CRE lending by banks has increased over the past several years. Since the early 2000s, community banks have tended toward providing CRE loans more than other kinds of loans. Indicators of CRE market conditions and loan performance have been improving since 2011. At the same time, GAO's analyses of changes in CRE underwriting standards, property prices, and other data suggest that credit and concentration risks have increased in bank CRE lending. For example, the number of banks with relatively high CRE concentrations—measured by the ratio of a bank's CRE loans to its total capital—has been increasing. In addition, commercial property prices have been increasing rapidly, and property valuations also have risen in recent years. Similarly, GAO's predictive econometric models of CRE loan performance suggest that risk has increased, based largely on the simultaneous increase in bank CRE lending and CRE prices observed over the last several years, but is lower than the level associated with the 2007–2009 financial crisis. GAO found that federal banking regulators subjected banks with relatively high CRE concentrations to greater supervisory scrutiny based on its review of a nongeneralizable sample of 54 bank examinations covering 40 banks done by the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency from 2013 through 2016. Of the 54 examinations that GAO reviewed, 41 of them covered banks with relatively high CRE concentrations. In all of these examinations, regulators examined whether the banks had adequate risk management practices and capital to manage their CRE concentration risk. In 26 of the 41 examinations, regulators did not find any risk management weaknesses. However, in 15 of the 41 examinations, regulators found the banks had weaknesses in one or more risk management areas, such as board and management oversight, management information systems, or underwriting. The regulators generally communicated their findings to the banks in the reports of examination and directed the banks to correct their risk management weaknesses.

GAO_GAO-18-10

Background Major Drug-Producing and Drug-Transit Countries in the Western Hemisphere The majority of illicit drugs consumed in the United States is produced in Mexico and South America and enters the United States across the southwest border or through the Caribbean. Among countries in the Western Hemisphere, Colombia and Peru are major producers of illicit drugs, while Bolivia, Jamaica, and Mexico are both major producers and major transit countries, according to State (see fig. 1). Mexico is a major source and transit country for heroin, methamphetamine, and marijuana destined for the U.S. market. Jamaica is likewise the largest Caribbean supplier of marijuana for the U.S. market. Colombia is the world’s top producer of cocaine and is the major provider of cocaine available in the United States. While Bolivia and Peru are also major producers of cocaine, cocaine from these countries is generally smuggled into other South American countries for domestic consumption or for shipment to Europe, East Asia, and beyond, according to State. According to U.S. government estimates, illicit drugs originating in Mexico enter the United States directly through the southwest border, but virtually all cocaine from South America and marijuana from Jamaica are trafficked to the United States through the “Transit Zone”—a 7-million- square-mile area that encompasses Central America, Mexico, the eastern Pacific Ocean, the Gulf of Mexico, and the Caribbean Sea. The Transit Zone has four principal maritime trafficking routes: the Eastern Pacific, Western Caribbean, Central Caribbean, and Eastern Caribbean. The Transit Zone land route is funneled north through Central America into Mexico, where it splits in several directions up to the U.S. southwest border. Although Canada is not within the Transit Zone, various drugs, including fentanyl, transit through it before entering the United States, according to the Department of State. Illicit Drug-Trafficking Shifts and Related Challenges In recent years, the production, trafficking, and marketing of various illicit substances consumed in the United States have undergone significant shifts. For example, according to the 2016 National Drug Control Strategy, over the previous 8 years, opioid abuse emerged as the greatest drug threat to the nation. This development was complicated by a spike in the supply and purity of heroin, primarily from Mexico, resulting in a combined epidemic of heroin-opioid overdose deaths. According to the Centers for Disease Control and Prevention, heroin overdose deaths more than tripled between 2010 and 2015, as powerful synthetic opioids, notably illicit fentanyl, were often mixed with heroin without the user’s knowledge. Similarly, in its 2017 International Narcotics Control Strategy Report, State reported various indicators suggesting a significant increase in cocaine production and trafficking from Colombia. For example, according to this report, coca cultivation in Colombia increased by 39 percent in 2014 and by 42 percent in 2015, and the amount of cocaine trafficked out of Colombia has reached record levels. Consistent with these reported trends in cocaine production and trafficking, Centers for Disease Control and Prevention data indicate that, after falling sharply in the middle of the past decade, overdose deaths related to cocaine have been gradually rising in the United States. Finally, while a significant portion of the marijuana consumed in the United States continues to be smuggled from Western Hemisphere countries, including Canada, Jamaica, and Mexico, the domestic production and marketing of marijuana are undergoing important shifts, as several states and the District of Columbia have passed measures that legalize possession of limited amounts of the drug and provide for regulation of its production, processing, and sales. These shifting trends pose challenges for agencies’ counternarcotics efforts in the Western Hemisphere and domestically, as they strive to respond to changing conditions. Role of ONDCP in U.S. Counternarcotics Efforts in the Western Hemisphere ONDCP coordinates the National Drug Control Program and develops a 5-year National Drug Control Strategy, which it updates annually, as well as a number of companion strategies that focus on various geographical areas and emerging threats, to articulate the administration’s drug control policy. ONDCP was established by the Anti-Drug Abuse Act of 1988 to, among other things, enhance national drug control planning and coordination and represent the drug policies of the executive branch before Congress. In this role, ONDCP is responsible for (1) developing a national drug control policy, (2) developing and applying specific goals and performance measurements to evaluate the effectiveness of national drug control policy and National Drug Control Program agencies’ programs, (3) overseeing and coordinating the implementation of the national drug control policy, and (4) assessing and certifying the adequacy of the budget for national drug control programs. ONDCP requires National Drug Control Program agencies to submit an annual drug control budget, categorized into 10 federal drug control program areas. One program area is international efforts, which ONDCP defines as activities focused on regions outside the United States that are intended to reduce illegal drug availability in the United States or abroad. Three additional ONDCP drug control program areas—intelligence, interdiction, and investigations—include domestic as well as international efforts, as interdictions may occur at or outside U.S. borders, and intelligence and investigative efforts may target drug organizations operating outside the United States. Key Agencies Involved in International Efforts to Combat Illicit Drugs Entering the United States In addition to ONDCP, eight agencies are involved in the four program areas that support counternarcotics efforts in the Western Hemisphere to stop the production and transshipment of illicit drugs or their precursors destined for the United States. These activities include the following: interdictions at U.S. borders; maritime drug interdictions in international waters and in international interdictions in concert with partner nations in international and territorial waters; intelligence gathering to support drug interdictions, investigations, and international activities; investigations of drug organizations based in countries outside the United States; eradication support and efforts; and building foreign partner capacity to conduct counternarcotics activities. Table 1 shows the eight U.S. government agencies that allocate resources in one or more of the four ONDCP program areas— counternarcotics intelligence, interdiction, international activities, and investigations—that we included in our review. For a detailed description of ONDCP’s program areas, more information on the roles of these agencies, and the countries in which they operate, see appendixes I, II, and III, respectively. U.S. Agencies Identified Billions of Dollars in Spending Primarily or Partially for Western Hemisphere Counternarcotics Efforts for 2010 through 2015 Some Agencies Track Counternarcotics Spending by Region and Identified $5 Billion in Obligations for Activities in the Western Hemisphere Of the agencies included in our review, DOD, ICE, INL, and USAID track counternarcotics spending on a regional basis and provided data on funds obligated for counternarcotics activities in the Western Hemisphere. As table 2 shows, these agencies obligated more than $5 billion for counternarcotics activities in the Western Hemisphere during fiscal years 2010 through 2015. (See app. III for the agencies’ regional or country-level counternarcotics obligations, as available). DOD obligated a total of more than $2.8 billion for counternarcotics activities in the Western Hemisphere for fiscal years 2010 through 2015. According to DOD documents, these activities support U.S. domestic and foreign government efforts to combat drug trafficking and drug-related terrorist activities through detection and monitoring of illicit drug smuggling, information and intelligence sharing, and capacity building. DOD generally tracks its counternarcotics spending by geographic combatant command and various functional areas. A significant portion of DOD’s counternarcotics activities in the Western Hemisphere are conducted by U.S. Northern Command and U.S. Southern Command. These resources fund DOD’s training and equipment provided to foreign partners conducting counternarcotics activities, surveillance and communications systems, aircraft patrolling the transit zone, and costs associated with operating DOD’s Joint Interagency Task Force South. However, the obligations for counternarcotics activities that DOD reported for fiscal years 2010 through 2015 underrepresent its overall obligations for such activities because the reported amounts do not include U.S. Northern Command’s and U.S. Southern Command’s salaries and expenses of its personnel and counternarcotics-related intelligence activities. It also does not include DOD’s agency-wide intelligence gathering and training, as well as aircraft flight hours and ship days in support of counternarcotics activities. ICE expended a total of about $212 million for salaries and expenses of Homeland Security Investigations’ (HSI) agents and analysts working on drug cases in various countries in the Western Hemisphere during fiscal years 2010 through 2015. ICE made these expenditures for the following three HSI programs: The Domestic Investigations program covers enforcement efforts to disrupt cross-border criminal activity related to contraband smuggling and the dismantling of the transnational criminal organizations responsible for these activities. International Operations covers HSI’s international investigations involving transnational criminal organizations and serves as ICE’s liaison to foreign law enforcement counterparts overseas. The Office of Intelligence provides intelligence services for Domestic Investigations and International Operations to support criminal investigations to disrupt and dismantle criminal organizations involved in the transnational drug trade and associated money-laundering crimes. INL obligated a total of more than $1.5 billion for counternarcotics activities in the Western Hemisphere in fiscal years 2010 through 2015. During this period, INL funded projects that were designed to improve foreign law enforcement and intelligence-gathering capabilities; enhance the effectiveness of criminal justice sectors to allow foreign governments to increase drug shipment interdictions; investigate, prosecute, and convict narcotics criminals; and break up major drug-trafficking organizations. INL also used U.S. federal law enforcement entities to provide technical assistance to its counterparts overseas. Examples of INL’s technical assistance include the following: In Mexico, INL’s efforts focused on enhancing the Mexican government’s capacity to interdict illegal narcotics while not impeding the flow of legitimate goods. This included providing detection dogs, equipment, and training to the Mexican Federal Police, Customs, Army, and Navy. In Colombia, INL’s program focused on aerial eradication of coca plants, land and maritime interdictions, and capacity building for counternarcotics forces. In Peru, INL programs included support for manual eradication of coca plants, interdiction efforts, and drug demand reduction activities. In Central America, INL efforts included building interdiction capacities such as funding vetted units sponsored by federal law enforcement partners and providing technical assistance and equipment for air and maritime interdiction. In the Caribbean, INL efforts focused on building partner nation interdiction capacity, providing support for vetted units, and enhancing information sharing among partner nations. USAID obligated a total of about $638 million for Western Hemisphere counternarcotics activities in fiscal years 2010 through 2015, supporting alternative development projects in Bolivia, Colombia, Ecuador, and Peru. According to agency officials, the USAID mission in Colombia is working to create licit alternatives to coca production, including holistic support to viable and lucrative agricultural value chains, such as cacao, specialty coffee, and other products that can be sold on domestic and export markets; provision of rural financial services and credits for licit opportunities; efforts to attract private sector investment into rural regions; and, to a lesser degree, helping communities build infrastructure, such as roads, to help licit products reach markets. USAID’s alternative development program in Peru aims to promote licit incomes and improved governance to sustain coca reductions achieved through forced eradication. In partnership with the Peruvian national drug commission, the USAID mission in Peru facilitates the implementation of alternative development programs in the country, including improving the drug commission’s ability to monitor and evaluate these programs. The mission has also partnered with the private sector to improve processes involved in preparing cacao crops for the market. Agencies That Do Not Track Counternarcotics Spending by Region Reported About $34 Billion for Activities Focused on the Western Hemisphere While the other agencies in our review—CBP, Coast Guard, DEA, and OCDETF—do not track spending specific to their counternarcotics activities in the Western Hemisphere, they conduct most of their counternarcotics activities in the Western Hemisphere or target threats originating in Western Hemisphere countries, according to agency officials. Thus, while the agencies’ overall counternarcotics obligations overstate spending for such activities in the Western Hemisphere, these obligations approximate the Coast Guard’s, CBP’s, and OCDETF’s spending on activities that were primarily for these purposes in the region. However, DEA was not able to identify spending levels for counternarcotics activities in the Western Hemisphere, and the obligations it provided included spending for some domestic and other international counternarcotics activities. These four agencies had total obligations of nearly $34 billion for their overall counternarcotics activities during fiscal years 2010 through 2015 (see table 3). The Coast Guard obligated a total of almost $5.3 billion for its drug- interdiction activities for fiscal years 2010 through 2015. As the nation’s principal federal agency for maritime safety, security, and stewardship, the Coast Guard has a drug interdiction objective to reduce the flow of illegal drugs entering the United States by denying smugglers access to maritime routes. The Coast Guard’s counternarcotics obligations in fiscal years 2010 through 2015 covered the agency’s operating expenses, which include costs associated with operating Coast Guard facilities, maintaining capital equipment, improving management effectiveness, and maintaining an active duty military and civilian workforce. These funds also supported reserve training and acquisition, construction, and improvement of capital assets and facilities. The Coast Guard does not maintain data on the portion of the agency’s drug resources that are used for the interdiction of drugs trafficked to or from countries outside the Western Hemisphere. However, according to Coast Guard officials, because the agency’s counternarcotics efforts take place around U.S. maritime borders and in transit zones in the Western Hemisphere, the agency’s drug resources are generally expended in the Western Hemisphere. CBP obligated a total of more than $13 billion for its counternarcotics activities in fiscal years 2010 through 2015. According to the agency’s budget documents, CBP used its counternarcotics spending to carry out its border security mission at and between all ports of entry and to conduct air and marine operations in source, transit, and arrival zones in the Western Hemisphere. The agency also obligated funds to invest in border security technology and infrastructure to detect and monitor suspicious air, maritime, and land traffic. CBP’s counternarcotics funds also were used for training and information technology to support its activities. CBP officials indicated that, because CBP’s mission is to protect U.S. borders, the agency’s counternarcotics spending should generally be considered resources spent in the Western Hemisphere. However, CBP’s reported obligations also include resources dedicated to border protection measures to interdict shipments of drugs and precursor chemicals from countries outside the Western Hemisphere. DEA obligated a total of almost $13 billion for its domestic and international enforcement activities in fiscal years 2010 through 2015. DEA is the lead U.S. agency responsible for the development of the overall federal drug enforcement strategy, programs, planning, and evaluation. DEA’s budget includes categories for domestic enforcement, international enforcement, and state and local support. While domestic enforcement accounts for the majority of DEA’s resources, DEA coordinates its domestic and international enforcement activities (i.e., DEA’s foreign offices) to pursue, at the highest level, multinational drug organizations and, at the lowest level, independent drug cells, according to documents. With regard to international enforcement, DEA tracks regional spending for salaries and expenses associated with agents and intelligence analysts posted in countries overseas. DEA’s international enforcement includes more than $1 billion in obligations for salaries and expenses for personnel posted in Western Hemisphere countries in fiscal years 2010 through 2015. OCDETF obligated a total of about $2.1 billion for counternarcotics- related efforts in fiscal years 2010 through 2015. According to OCDETF reports, this funding supported investigations targeting the highest priority drug-related transnational crime organizations. OCDETF’s funds were used to reimburse a number of DOJ components—DEA, the FBI, and the OCDETF Fusion Center, a multiagency intelligence center—for their support of OCDETF investigations of high-priority targets. According to a senior OCDETF official, although the agency’s financial system does not contain information that would allow us to ascertain the amounts obligated for investigations of international targets located in the Western Hemisphere, very few OCDETF cases involve drugs coming into the United States from outside the Western Hemisphere. Most OCDETF investigations target drugs coming into the United States from other Western Hemisphere countries. Agencies Reported Collecting and Disseminating Best Practices and Lessons Learned Related to Counternarcotics Efforts ONDCP Facilitates Sharing of Counternarcotics Best Practices and Lessons Learned ONDCP facilitates the sharing of best practices and lessons learned with interagency and foreign partners by including the topic on the agendas of key meetings, according to ONDCP officials. For example, ONDCP officials described the sharing of best practices and lessons learned with stakeholders from Canada, Mexico, and the United States at technical workshops of the North American Drug Dialogue held in March 2017. At these workshops, the Department of State shared with its Mexican partners lessons learned pertaining to Colombia and Peru, including the following: Eradication of coca alone is not sufficient. A whole-of-government approach that provides security, the incentive of alternative development, the disincentive of eradication, and intelligence-led interdiction efforts that deny harvesters or traffickers the ability to profit from the product is essential. Results take time. For example, the 90-percent reduction in coca production in San Martin, Peru, took 12 years. Efforts should be geographically targeted and driven by information and intelligence, given scarce resources. For example, data can be used to allow for planning targeted eradication operations, based on intelligence or other information, and for the planning of complementary interventions, such as rural development or target eradication goals. According to ONDCP officials, best practices and lessons learned are also described in the National Drug Control Strategy as well as companion strategies such as the Southwest Border and Caribbean Counternarcotics strategies. For example, according to the 2010 National Drug Control Strategy, lessons learned such as the following can be drawn from Colombia’s experience that might be useful elsewhere: Host-government ownership. For example, although Plan Colombia required extensive U.S. financial support, the Colombian government demonstrated that it was fully committed to the initiative under consecutive administrations. Government-wide approach. Eradication can be an effective deterrent to illicit cultivation and can provide an incentive to move to licit crops. However, eradication must be accompanied by a government presence in rural areas; alternative development to preclude replanting or dispersal of plots; and a focus on rule of law and human rights, humanitarian needs, and social and economic reform to reduce the incentive to revert to illicit crops. Security. Security is a precondition for the successful expansion of social services and developmental assistance. Security must be maintained to allow the expansion of legal economic activities and the delivery of civilian services, including justice, education, and health, to a population unaccustomed to a significant government presence. Flexibility. Programs must adapt to changing circumstances, including adjusting programs that are not working as expected and adding new initiatives, if necessary. Long-term approach. Major counternarcotics programs designed to address complex and long-standing challenges require a multiyear investment in terms of financial resources and political commitment. ONDCP has also promoted best practices through other efforts. For example, the 2015 National Drug Control Strategy included an action item to work with the Organization of American States’ Inter-American Drug Abuse Control Commission to strengthen counterdrug Institutions in the Western Hemisphere. As part of this effort, ONDCP and the Department of State participated in the Demand Reduction and the Alternatives to Incarceration meetings, which focused on promoting best practices and expanding host-nation capacity. Reflecting this effort, Organization of American States’ officials cited as a best practice the training of 300 Colombian and Argentinian judges and chief justices, who learned about the Alternatives to Incarceration model, in November 2016. Most Agencies Reported Collecting Best Practices and Lessons Learned from Counternarcotics Efforts Officials at 7 of the 10 agencies included in our review reported having processes for identifying and collecting best practices and lessons learned from counternarcotics efforts in the Western Hemisphere. Officials at each of these seven agencies also reported having mechanisms to share best practices and lessons learned, including through web-enabled systems, and sharing these best practices and lessons learned with other U.S. agencies and foreign partners. In addition, officials at six of the seven agencies reported having a formal review process for determining best practices and lessons learned. USAID and DOD guidance and officials described comprehensive processes for collecting and sharing information about best practices and lessons learned. For example, according to USAID guidance, its Country Development Cooperation Strategy “should include a summary of lessons learned from the implementation of the previous Country Development Cooperation Strategy or other strategic plans (if applicable) and from previous experiences (e.g., projects and activities).” The guidance states that at least once during the course of implementing the Country Development Cooperation Strategy, USAID missions must collect information by conducting reviews of ongoing efforts and of options for better aligning their programs with changes in the context, agency direction, and lessons learned. In addition, according to USAID officials, other levels of program planning incorporate lessons learned and good programming, such as portfolio reviews and other processes involving the periodic assessment of a particular aspect of a mission or a Washington operating unit’s strategy, projects, or activities. USAID evaluations of its alternative development projects in Colombia include examples of best practices and lessons learned, such as the following: The success of a project depends on reducing the appeal of coca by improving the social and economic value of legal alternatives. Robust licit economies fueled by productive associations, local and regional market integration, and improved transportation networks can reduce coca cultivation. A necessary precondition for successful alternative development is the allocation of resources and personnel to rural areas where coca is cultivated. Only those strategies that can be accomplished within predetermined time frames and resource parameters and that have a proven track record of reducing coca cultivation should be implemented. Reinforcing local community institutions and providing youth-focused programming can help insulate vulnerable communities against the allure of drug trafficking and coca cultivation. DOD reported using a formal process for identifying and collecting best practices and lessons learned through its Joint Lessons Learned Program, which consists of five phases: discovery, validation, resolution, evaluation, and dissemination. According to DOD officials, the collection of best practices and lessons learned relating to counternarcotics in the Western Hemisphere through this program is intended to enhance readiness and effectiveness. DOD officials noted that the effort to collect best practices and lessons learned is routine and helps inform policy and budget proceedings. Annual conferences, such as the Counternarcotics and Global Threats Coordination Conference and the Program Objective Memoranda Conference, also offer an opportunity to identify, collect, and disseminate best practices and lessons learned as they relate to DOD’s counterdrug and counter-transnational-organized-crime operations. According to DOD officials, such conferences provide a forum for participants to learn how other relevant DOD components working on counternarcotics efforts are approaching counterdrug, transnational organized crime, and related issues. DOD officials also noted that they intend to use an interagency-agency-task-forces approach to counternarcotics interdiction that the U.S. Southern Command developed in Guatemala as a model for sharing best practices and lessons learned in the region. According to DOD officials, the U.S. Southern Command’s support included training in interdiction tactics, techniques, and procedures, and maintenance of provided equipment such as intercept boats, tactical vehicles, communications gear, and night vision devices. DOD officials reported that lessons learned include establishing the interagency legal framework early, clearly defining interagency relationships, developing the task force’s intelligence capability, implementing police authority and leadership, identifying measures of success, communicating the task force’s purpose and success to the public, and maintaining equipment. DOD officials said that they plan to use the Guatemalan interagency task force as a model with other foreign partners and new counterdrug units in Guatemala and in the region. State’s report, “Lessons Learned from the Mérida Initiative and Plan Colombia with Regard to Judicial Reform Efforts,” provides specific examples of operational and tactical lessons, as follows: Political will is critical. According to State, one of the clearest symbols of political will was Mexico’s and Colombia’s dedication of additional resources (to initiatives under the Mérida Initiative and Plan Colombia). In addition, according to State, the governments of El Salvador, Guatemala, and Honduras created a joint regional plan, the Plan of Alliance for Prosperity, underscoring their political will and significant commitment to improve economic opportunities, governance, and public safety. For example, these governments identified $2.6 billion in their 2016 budgets to, among other things, target criminal networks, tackle corruption, and strengthen government institutions. No lasting security without enhanced access to justice. The governments of Colombia and Mexico have undertaken efforts to expand access to justice in their countries. Since 2008, the government of Mexico has been working to improve the transparency and efficiency of its judicial system by implementing an oral-based accusatorial system. Partnership across agencies is critical. Plan Colombia represented a whole-of-government approach, with a broad U.S. interagency presence to work across the breadth of the Colombian government. This U.S. interagency presence built linkages at all levels and ensured continuity of vision through leadership transitions in the U.S. and Colombian governments. U.S. Agencies Use Various Mechanisms to Address Changing Counternarcotics Conditions in the Western Hemisphere ONDCP Strategies Lay Out Key Efforts to Respond to Emerging Counternarcotics Threats ONDCP works with agencies to coordinate responses to changing conditions in a variety of ways. ONDCP is responsible for developing (1) the National Drug Control Strategy, which sets forth a comprehensive plan to reduce illicit drug use through programs intended to prevent or treat drug use or reduce the availability of illegal drugs; and (2) several associated companion strategies, which target government efforts to respond to emerging counternarcotics threats for key geographic areas. The Strategy issued in 2010 laid out the administration’s 5-year blueprint for combatting drug use and included a section on counternarcotics efforts in the Western Hemisphere. The 2010 Strategy described an approach that reflected two core focus areas: (1) disrupting domestic drug trafficking and production and (2) strengthening international partnerships to reduce the availability of foreign-produced drugs in the United States. The Strategy, including the portions associated with counternarcotics efforts in the Western Hemisphere, is updated annually to reflect current priorities and conditions. According to ONDCP officials, an example of a key change since 2010 is the developing focus on the opioid crisis. In 2010, the President’s first National Drug Control Strategy emphasized the need for action to address opioid use disorders and overdose, while ensuring that individuals with pain receive safe, effective treatment. On April 19, 2011, the White House released its national Prescription Drug Abuse Prevention Plan, which outlined its goals for addressing prescription drug abuse and overdose. The 2016 Strategy continued the previous administration’s focus on the opioid crisis but recognized the growing threats from drug-trafficking organizations involved in manufacturing and distributing cocaine and synthetic drugs, including novel psychoactive substances such as synthetic cannabinoids. To address these efforts, the Strategy described U.S. agencies’ interdiction activities, and DEA led efforts to disrupt synthetic drug production and trafficking. The 2016 Strategy also noted U.S. collaboration with China to limit the export of precursor chemicals associated with the production of psychoactive substances. ONDCP also develops companion strategies with a geographic focus, such as the National Southwest Border Counternarcotics Strategy, the Northern Border Counternarcotics Strategy, and the Caribbean Border Counternarcotics Strategy. The 2015 Strategy acknowledges the companion strategies and indicates that the efforts they describe will be carried out. These strategies include objectives such as enhancing intelligence, interdicting drugs and drug proceeds, ensuring prosecution, disrupting and dismantling drug-trafficking organizations, and improving cooperation with international partners. The companion strategies have provided opportunities for more targeted responses to address emerging threats in specific geographic areas, which include the following: National Southwest Border Counternarcotics Strategy focused primarily on U.S. government efforts to prevent the trafficking of illicit drugs—heroin, methamphetamine, cocaine, and foreign-produced marijuana—across the U.S.-Mexican border. The strategy also addressed the illegal outbound movement of weapons and bulk currency from the United States, both of which are associated with activities of narcotics traffickers. As an example of the growing threat posed by the trafficking of heroin from Mexico, the quantity seized on the southwest border nearly tripled, from 1,080 kilograms in 2010 to 3,158 kilograms in 2015. To address these threats, ONDCP expanded the focus of the 2011 National Southwest Border Counternarcotics Strategy to provide border communities with enhanced prevention and drug treatment assistance, in the context of maintaining strong and resilient communities. The 2013 strategy stressed the same basic goals and objectives: substantially reduce the flow of illicit drugs, drug proceeds, and associated instruments of violence across the southwest border as well as maintain strong and resilient communities. This strategy also included indicators related to seizures of drugs at the border. The 2016 strategy differed slightly from the 2013 strategy by elaborating on the threats of various illicit drugs. It also noted that “anything that affects one part of the border affects the entire border” and noted that, for this reason, the National Southwest Border Counternarcotics Strategy must be synchronized with the other companion strategies, and the Heroin Availability Reduction Plan. National Northern Border Counternarcotics Strategy. The 2012 National Northern Border Counternarcotics Strategy, which ONDCP first issued that year, parallels the National Southwest Counternarcotics Border Strategy and focuses on ongoing efforts to reduce transnational organized crime threats on both sides of the border between the United States and Canada, specifically the movement of illicit drugs such as marijuana, ecstasy, methamphetamine, and cocaine, and the proceeds from the sale of those drugs. The 2014 strategy emphasizes enhanced federal collaboration with state, local, and tribal law enforcement agencies. The legislation mandating that ONDCP publish the National Northern Border Counternarcotics Strategy requires that this document be released biannually; as of June 2017, the 2016 version had not been released. Caribbean Border Counternarcotics Strategy. The Caribbean Border Counternarcotics Strategy, issued in January 2015, is substantially equivalent to the national counternarcotics strategies for the southwest and northern borders, according to ONDCP. The strategy identifies cocaine as the principal drug threat and a source of associated violence in the Caribbean region and notes that the documented cocaine flow via the Caribbean to the United States more than doubled from 2011 to 2013, rising from 38 metric tons to 91 metric tons. According to DEA, over 90 metric tons of cocaine was trafficked from South America using sea routes through the Caribbean corridor, primarily toward the Dominican Republic and Puerto Rico, in 2014. Interagency Groups, Task Forces, and Committees Coordinate Government Response to Emerging Counternarcotics Threats Interagency Working Groups ONDCP facilitates a number of interagency working groups to address emerging threats. According to ONDCP’s 2016 National Southwest Border Counternarcotics Strategy, interagency working groups relevant to counternarcotics efforts allow agencies with different authorities and resources to address common concerns, create a common operating picture, identify resource and capability gaps, and leverage resources. ONCDP has created working groups, such as groups focused on heroin and cocaine, to develop actions, goals, and measures to reduce the supply of those drugs in the U.S. market as a part of the overall effort to address treatment and demand, as noted in the following examples: In November 2015, ONDCP established the National Heroin Coordination Group in coordination with the National Security Council to provide guidance on interagency activities aimed at reducing the supply of heroin and illicit fentanyl in the U.S market. The working group includes agencies with federal law enforcement responsibilities and their components, select High Intensity Drug Trafficking Areas (HIDTA), the U.S. embassy in Mexico, and other federal agencies and state entities. In June 2016, the group produced the 5-year Heroin Availability Reduction Plan as part of the administration’s effort to prevent and treat heroin abuse. In January 2016, ONDCP created an internal working group on methamphetamine and synthetic drugs to coordinate efforts across drug control agencies. The group’s priorities included working in concert with federal partners, with source and transit countries to reduce the availability of illicit methamphetamine in the United States, and multilaterally to reduce the global trafficking of illicit methamphetamine and precursor chemicals coming primarily from Mexico. In September 2016, ONDCP created a National Cocaine Coordination Group to address emerging threats from cocaine brought on by the spike in coca cultivation and production as well as the associated increase in its trafficking and use in the United States. In addition to employing three permanent staff, the interagency group draws from expertise in intelligence, public health, and international demand reduction at DOJ, the FBI, other federal partners, and various parts of ONDCP. Interagency Task Forces Agencies use task forces to enhance the interagency coordination needed to respond to emerging threats, according to officials. For example, to address the smuggling of illicit drugs over the southwest border, in May 2014 DHS established three new joint task forces—Joint Task Force–East, Joint Task Force–West, and the Joint Task Force for Investigations—in support of its Southern Border and Approaches Campaign. The task forces coordinate operations to combat transnational criminal organizations and counter illegal drug flows at maritime approaches and in between ports of entry. All three joint task forces incorporate elements of the Coast Guard, CBP, and ICE as well as DHS’s U.S. Citizenship and Immigration Services. Joint Task Force–East is responsible for the southern maritime border and approaches, Joint Task Force–West is responsible for the southern land border and the West Coast, and the Joint Task Force for Investigations focuses on investigations in support of the geographic task forces. Task forces also enhance coordination, deconfliction, and information sharing by colocating representatives from different entities, which facilitates interaction and enables information sharing, as we previously reported. For example, Joint Interagency Task Force South includes 26 agencies and 20 foreign partners that work together to detect and monitor illicit trafficking in the air and maritime domains, facilitating international and interagency interdiction and apprehension. Information sharing is a critical aspect of the Joint Interagency Task Force South’s strategic approach in supporting national and foreign partner nation law enforcement and promoting regional stability in the Western Hemisphere. As part of this effort, Joint Interagency Task Force South uses a tool known as the Cooperative Situational Information Integration system to share strategic communications and information with foreign partner nations, according to Joint Interagency Task Force South officials. In addition, U.S. Tactical Analysis Teams, which are posted at U.S. missions overseas, and liaison officers from foreign partner nations, provide for a high level of integrated information, according to officials at Joint Interagency Task Force South. Officials indicated that Tactical Analysis Teams and liaison officers provide the information that results in 60 to 70 percent of all task force cases, directly contributing to 50 to 60 percent of all Joint Interagency Task Force South drug seizures. The task force reported that its efforts resulted in 80 percent of total U.S. cocaine seizures (282 of 338 metric tons) in fiscal year 2016. According to Joint Interagency Task Force South, the advantages of working as a task force include the ability to use the participants’ various legal authorities (see the text box for an example): DOD brings detection and monitoring authorities. DOJ and DHS bring anticrime authorities. The Coast Guard brings its maritime law enforcement authorities. DEA, the FBI, and HSI bring drug and finance laws enforcement authorities. CBP and HSI bring customs and immigration authorities. Partner nations bring multiple authorities from their countries. A typical case that illustrates how the various authorities of component agencies work together in the Joint Interagency Task Force South could start with receipt of actionable law enforcement information from the Drug Enforcement Administration. This information prompts the deployment of a Customs and Border Protection or Coast Guard plane that subsequently detects and monitors a suspect vessel until Joint Interagency Task Force South can deploy a Coast Guard, U.S. Navy, or allied government’s ship with an on-board law enforcement detachment to investigate. When the deployed ship arrives at the vessel’s location, the Coast Guard assumes control of the investigation. If the suspect vessel is not registered in the United States, the Coast Guard commander implements a bilateral agreement with the vessel’s country of registration to confirm the vessel’s nationality and to stop, board, and search the vessel for drugs. If drugs are found, the State Department, Department of Justice, and the vessel’s country of registry coordinate jurisdiction over, and disposition of, the vessel, drugs, and crew. OCDETF has also established multiagency Strike Forces (i.e., a type of task force) in 12 key cities around the country. According to OCDETF’s fiscal year 2017 report to Congress, the Strike Forces aggressively target the highest-level trafficking organizations and function as central points of contact for OCDETF agents and federal prosecutors nationwide, gathering intelligence and disseminating investigative leads throughout neighboring areas. The report states that Strike Force members are colocated in offices separate from their parent agencies and interact with each other on a daily basis using the resources and support of their parent agencies. According to OCEDTF’s report, Strike Force efforts help further counternarcotics investigations by combining the resources and expertise of all OCDETF participating investigators and prosecutors. The report also states that, in recognition of the nationwide heroin threat, OCDETF adjusted its resources to target heroin investigations and that when heroin use was rising in 2014 and 2015, the percentage of indictments with heroin charges likewise increased over the same time frame. According to OCDETF’s report, Strike Force effectiveness is reflected in the caseload of active investigations linked to OCDETF’s Consolidated Priority Organization Targets. OCDETF reported that, in fiscal year 2015, 45 percent of Strike Forces’ active investigations were linked to OCDETF Consolidated Priority Organization Targets; in contrast, 22 percent of all OCDETF investigations addressing transnational organized crime were linked to these targets. Interagency Policy Committees The National Security Council has a number of interagency policy committees that prioritize counternarcotics, including changing conditions, in the Western Hemisphere. National Security interagency policy committees are the primary day-to-day forums for interagency coordination of national security policy, according to Presidential Decision Directive 1. National Security Presidential Directive 25 directs U.S. government agencies to attack the vulnerabilities of drug-trafficking organizations and disrupt key business sectors and weaken the economic basis of the drug trade. For example, the Transborder Security and Western Hemisphere Directorates interagency policy committee on Mexico Security Priorities directed ONDCP to establish the National Heroin Coordination Group. The agencies represented on the interagency policy committees vary, but the core group involved in addressing heroin and fentanyl include ONDCP, State, DOJ, DOD, DHS, the Department of Health and Human Services, the Office of the Director of National Intelligence, the U.S. Postal Inspection Service (as appropriate), and the Office of Management and Budget. Several interagency policy committees related to addressing heroin include (1) Transborder Security and Western Hemisphere, (2) Fentanyl Surge, and (3) the Heroin Availability Reduction Plan. Among the topics discussed at the committee meetings were the formation of the National Heroin Coordination Group, which created the Heroin Availability Reduction Plan, as well as approval of the plan, and deliberate and tangible actions the interagency policy committees could take under the Heroin Availability Reduction Plan to visibly disrupt the fentanyl supply chain coming into the United States. There were also various efforts set up to address common issues related to illicit opioids among the United States, Mexico, and Canada, which were addressed in forums such as the North American Drug Dialogue or the U.S.-Mexico Security Cooperation Group. Subinteragency policy committees include the U.S.- Mexico Security Group; North American Drug Dialogue; and Fentanyl- Asia, Fentanyl-Cyber, Fentanyl Screening, and Fentanyl Sub-Interagency Policy Committees. Among the topics discussed were the fentanyl threat and sources of supply into the United States, tangible actions to disrupt the fentanyl supply chain, Asia’s role in the fentanyl supply and actions that could be taken to address it, and an examination of the purchase and sale of fentanyl over the Internet for shipment through the mail services and actions taken to detect such shipments. The interagency policy committees that address cocaine and methamphetamine generally involve the same agencies that are involved in the interagency policy committees addressing heroin. Agency Comments We are not making recommendations in this report. We provided a draft of this report to the DOD, DHS, DOJ, ONDCP, State, and USAID for review and comment. We received technical comments from DHS, DOJ, ONDCP, and State, which we incorporated as appropriate. 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Appendix I: Objectives, Scope, and Methodology This report examines (1) U.S. agencies’ spending for counternarcotics efforts in the Western Hemisphere in fiscal years 2010 through 2015, (2) agencies’ efforts to gather and share best practices and lessons learned from their counternarcotics efforts both domestically and internationally, and (3) mechanisms that agencies have used to address changing drug threats. To examine U.S. agencies’ spending for counternarcotics efforts in the Western Hemisphere in fiscal years 2010 through 2015—our first objective—we selected eight U.S. departments and components (collectively, in this report, “agencies”) that implement aspects of the National Drug Control Strategy and conduct counternarcotics activities in the Western Hemisphere: (1) the Department of Defense (DOD); the Department of Homeland Security’s (2) Customs and Border Protection (CBP), (3) Immigration and Customs Enforcement (ICE), and (4) Coast Guard; the Department of Justice’s (DOJ) (5) Drug Enforcement Administration (DEA) and (6) Organized Crime Drug Enforcement Task Forces (OCDETF); the Department of State’s (7) Bureau of International Narcotics and Law Enforcement Affairs (INL); and (8) the U.S. Agency for International Development (USAID). To select these eight agencies, we used the following two criteria: 1. Agencies that have international counternarcotics efforts in one or more of the areas that the Western Hemisphere Drug Policy Commission has been asked to review. The Office of National Drug Control Policy (ONDCP), which coordinates the National Drug Control Program, requires all National Drug Control Program agencies to submit an annual drug budget identifying the amounts the agencies plan to spend on counternarcotics efforts for the upcoming fiscal year. The agencies report spending for such efforts in 10 program areas: Corrections, Intelligence, Interdiction, International, Investigations, Prevention, Prosecution, Research and Development, State and Local and Tribal Law Enforcement Assistance, and Treatment. On the basis of ONDCP’s definitions of these program areas, we determined that four of these areas—Intelligence, Interdiction, International, and Investigations—were relevant to the areas that the Western Hemisphere Drug Policy Commission has been directed to examine. 2. Agencies that allocated a combined total of at least $50 million for their counternarcotics efforts for the Intelligence, Interdiction, International, and Investigations program areas in fiscal year 2015. The following summarizes ONDCP’s definitions of these four program areas: Intelligence. Intelligence efforts encompass several drug control intelligence support, including the collection, analysis, and membership, finances, communications, and activities of drug- areas. Such efforts include providing strategic drug‐related dissemination of drug‐related information regarding structure, trafficking organizations and the identification of drug‐related threats. Other activities facilitate the sharing among U.S. agencies of domestic and foreign intelligence information on the production and trafficking of drugs in the United States and foreign countries; analysis of the willingness and ability of partner nation governments to carry out drug control programs; federal, state, local, and tribal law enforcement initiatives to gather, analyze, and disseminate information among domestic law enforcement agencies; and all other activities that provide intelligence and other information for use by national policy makers, strategic planners, and local law enforcement. Interdiction. Interdiction activities are intended to reduce the availability of illegal drugs in the United States or abroad by targeting transportation links. Interdiction efforts encompass the interception of shipments of illegal drugs and their precursors and the disruption of trafficking networks and their proceeds; such efforts may include air and maritime seizures and deterring transport via air, sea, and land routes. Other efforts involve accurate assessment and monitoring of interdiction programs; enhancing the ability of nations that are drug sources to interdict drugs; interdicting the flow of drugs, weapons, and bulk currency along borders; and other air and maritime activities that disrupt illegal drug-trafficking operations. International. International activities are primarily focused on areas outside the United States and are intended to reduce illegal drug availability in the United States or abroad. Activities may include source-country programs designed to help international partners manage the consequences of drug production, trafficking, and consumption in their own societies, including programs to train and equip security forces; efforts to raise awareness of science-based practices and programs to prevent, treat, and provide recovery from substance abuse; and support for economic development programs to help reduce the production or trafficking of illicit drugs. These efforts may also include assessment and monitoring of international drug production programs and policies; coordination and promotion of compliance with international treaties, including those directed at the eradication of illegal drugs and the production and transportation of illegal drugs; involvement of other nations in international law enforcement programs and policies to reduce the supply of drugs; and all other overseas drug law enforcement efforts to disrupt the flow of illicit drugs into the United States. Investigations. Investigations activities are designed to develop a prosecutable case against individuals and organizations responsible for the production and distribution of illegal drugs, including identifying seize them; identifying the leaders of illegal drug and other criminal profits and assets from drug‐related criminal enterprises in order to organizations; gathering information about drug‐related criminal activity; ensuring that legitimate controlled substances are handled, manufactured, and distributed in accordance with federal laws and regulations; and all other drug law investigative efforts to identify, disrupt, and dismantle drug smuggling in the United States. We requested and obtained data on spending for counternarcotics activities from these eight agencies and the Federal Bureau of Investigation (FBI), which OCDETF reimburses for international counternarcotics investigations. We also reviewed each agency’s annual accounting for its counternarcotics budget. In addition, we interviewed agency officials to understand their counternarcotics budgets as they are reported in the annual ONDCP budget and performance summary reports and to determine the extent to which the agencies could identify the funding they had obligated for counternarcotics activities in the Western Hemisphere. Our methodology for identifying counternarcotics spending varied by agency, since some of the agencies—DOD, ICE, INL, and USAID—track such spending by region, while other agencies—the Coast Guard, CBP, OCDETF, and DEA—do not. Moreover, with the exception of DEA’s and OCDETF’s counternarcotics activities, the agencies’ counternarcotics activities represent only one aspect of their larger missions. On the basis of our review of the data, our review of each agency’s annual accounting of its drug budget, and interviews with agency officials, we determined that the data were sufficiently reliable for our reporting purposes. The following summarizes the Western Hemisphere counternarcotics activities reflected in the funding data we present for each agency. (The data we present for OCDETF include its reimbursements to the FBI.) DOD. All DOD counternarcotics activities under U.S. Northern Command and U.S. Southern Command. CBP. All CBP counternarcotics spending. Given that the agency’s jurisdiction is triggered by the illegal movement of criminal goods across national borders, the agency considers all of its efforts to be specific to the Western Hemisphere. However, the agency’s spending also includes interdictions and intelligence gathering to support these interdictions of drugs coming from all locations outside the United States. ICE. The portion of ICE’s Homeland Security Investigations’ spending for investigation of Western Hemisphere drug organizations. Coast Guard. All Coast Guard counternarcotics spending. Given that the Coast Guard’s interdictions occur in Western Hemisphere waters, the agency considers all of its counternarcotics efforts to be specific to the Western Hemisphere. DEA. DEA obligations for Investigations, Intelligence, and International program areas for domestic and international enforcement activities. DEA was also able to provide its obligations for salaries and expenses for investigations and intelligence-gathering activities conducted by agents posted in overseas locations in the Western Hemisphere (see app. III). OCDETF. OCDETF reimbursements for drug investigations conducted by DEA, the FBI, and ICE as well as OCDETF contributions to the OCDETF fusion center. FBI. OCDETF reimbursements for investigations of transnational crime organizations with a drug nexus. (App. III details the FBI’s expenditure of OCDETF funds). INL. International Narcotics Control and Law Enforcement funds for counternarcotics activities for Western Hemisphere countries. USAID. Economic Support Funds and Development Assistance funds for alternative development activities in Western Hemisphere countries. To examine how agencies gather and share best practices and lessons learned from their counternarcotics efforts both domestically and internationally—our second objective—we reviewed the National Drug Control Strategy and companion strategies for examples of best practices as well as other agency documents that identify best practices and lessons learned. We also sent the eight selected agencies, the FBI, and ONDCP a standard set of questions. These questions addressed how the agencies collected and identified best practices and lessons, whether they had formal definitions of best practices and lessons learned, whether their efforts to identify and collect this information were routine, whether they had review processes to assess the information, and whether they shared these practices with other agencies and with international partners. In addition, we asked the agencies to identify best practices related to counternarcotics efforts in the Western Hemisphere. Further, we conducted interviews with agency officials, seeking clarification to written responses as appropriate and asking whether the agencies had any policies or strategies regarding best practices, and we reviewed the documents that were provided to us in response. To identify the mechanisms U.S. agencies have used to address changing drug threats—our third objective—we reviewed key U.S. government-wide and agency-specific documents pertaining to U.S. counternarcotics efforts in the Western Hemisphere, including those that encompass counternarcotics efforts as part of broader national security areas. These documents include the National Drug Control Strategies, Southwest Border Counternarcotics Strategies, Northern Border Counternarcotics Strategies, the Caribbean Border Counternarcotics Strategy, the Strategy to Combat Transnational Organized Crime, and the National Interdiction Command and Control Plan. Agency-specific strategic plans included CBP’s Vision and Strategy 2020, Homeland Security Investigations’ Strategic Plan, ICE’s Strategic Plan, DOJ’s Strategic Plan, DEA’s Strategic Plan, OCDETF’s Strategic Plan, the Department of State’s Functional Bureau Strategies and the Western Hemisphere Affairs and Latin America and the Caribbean Joint Regional Strategy, and USAID’s Country Development Cooperation Strategies for Colombia and Peru. We also interviewed ONDCP and agency officials about the development of these strategies. We interviewed ONDCP officials about, and obtained documentation describing, the roles of the National Heroin Coordination Group and the Cocaine Coordination Group, and we identified the roles of other working groups through agency interviews and documents. To understand how agencies coordinated efforts and cooperate with foreign partners, we visited the U.S. Southern Command and the Joint Interagency Task Force South in Miami and Key West, Florida, and interviewed officials at both locations. Additionally, in discussions with officials from the other agencies we reviewed, we asked whether the agencies cooperated with foreign partners. We conducted this performance audit from August 2016 to October 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings based on our audit objectives. Appendix II: U.S. Agencies That Conduct Western Hemisphere Counternarcotics Activities The Office of National Drug Control Policy coordinates the National Drug Control Program and develops the National Drug Control Strategy, which is implemented by a number of U.S. government agencies. The following summarizes the Western Hemisphere counternarcotics activities of key National Drug Control Program agencies and their components as well as the Federal Bureau of Investigation (FBI). The Department of Defense (DOD) maintains the lead role in detecting and monitoring aerial and maritime transit of illegal drugs into the United States and plays a key role in collecting, analyzing, and sharing intelligence on illegal drugs with U.S. law enforcement and international security counterparts. DOD supports other interdiction activities with the use of its assets. DOD also provides counternarcotics foreign assistance to train, equip, and improve the counternarcotics capabilities of relevant agencies of foreign governments. The Department of Homeland Security (DHS) is responsible for U.S. policies related to interdiction of illegal drugs entering the United States from abroad. Key agencies within DHS that participate in counterdrug activities include the following: Customs and Border Protection (CBP) is the lead agency for border security and is responsible for, among other things, keeping terrorists and their weapons; criminals and their contraband, including drugs; and inadmissible aliens out of the country. CBP is responsible for border security at ports of entry; the 6,000 miles of land borders between ports of entry; and nearly 2,700 miles of coastal waters surrounding the Florida Peninsula and Puerto Rico. Immigration and Customs Enforcement’s (ICE) primary mission is to promote homeland security and public safety through the enforcement of federal laws governing border control, customs, trade, and immigration. ICE’s office of Homeland Security Investigations investigates immigration crime; human rights violations and human smuggling; smuggling of narcotics, weapons, and other types of contraband; financial crimes; cybercrime; and export enforcement issues. The Coast Guard is the lead federal agency for maritime drug interdiction in the Transit Zone. The Coast Guard provides resources to the Joint Interagency Task Force South, generally including major cutters, maritime patrol aircraft, and helicopters capable of deploying airborne use of force. The Department of Justice (DOJ) is responsible for federal law enforcement and to ensure public safety against foreign and domestic threats, including illegal drug trafficking. The following are DOJ’s primary agencies that focus on international drug control activities: The Drug Enforcement Administration (DEA) is the nation’s federal agency dedicated to drug law enforcement and, accordingly, works to disrupt and dismantle the leadership, command, control, and financial infrastructure of major drug- trafficking organizations. DEA operates around the world to disrupt drug-trafficking operations; dismantle criminal organizations; enforce the drug-related laws of the United States; and bring to justice those organizations and individuals involved in the growing, manufacture, or distribution of illicit drugs destined for the United States. The Federal Bureau of Investigation (FBI) conducts its counternarcotics activities under the agency’s broader strategy to counter transnational criminal organizations by targeting their command-and-control structures as well as the support networks that facilitate the smuggling of illicit goods, including drugs, into the United States. The Organized Crime and Drug Enforcement Task Forces’ (OCDETF) primary goal is to identify, investigate, and prosecute the transnational, national, and regional criminal organizations most responsible for the illegal drug supply in the United States, the diversion of pharmaceutical drugs, and the violence associated with the drug trade. It effectively leverages the resources and expertise of its seven federal agency members. The Department of State’s Bureau of International Narcotics and Law Enforcement Affairs develops, funds, and manages counternarcotics and law enforcement assistance programs to help reduce the entry of illicit drugs into the United States and minimize the impact of international crime on the United States. The U.S. Agency for International Development supports the U.S. counternarcotics effort through alternative development programs that help farmers find legal sources of income through licit crops such as cacao and coffee and that provide technical assistance, such as training in modern farming techniques and access to capital for investment in equipment. Appendix III: Selected Agencies’ Obligations for Counternarcotics Activities in Fiscal Years 2010-2015 The Department of Defense (DOD), the Department of Homeland Security’s Immigration and Customs Enforcement (ICE), the Department of Justice’s Federal Bureau of Investigation (FBI), the Department of State’s Bureau of International Narcotics and Law Enforcement Affairs (INL), and the U.S. Agency for International Development (USAID) provided data showing their obligations for counternarcotics activities in the Western Hemisphere. The Drug Enforcement Administration (DEA) provided data showing a portion of its counternarcotics obligations for salaries and expenses associated with DEA agents posted overseas. DOD data show obligations for counternarcotics activities by the U.S. Northern Command and the U.S. Southern Command, which have responsibility over the Western Hemisphere. Table 4 contains the commands’ counternarcotics obligations for fiscal years 2010 through 2015. Table 5 shows the U.S Northern Command’s and U.S. Southern Command’s counternarcotics obligations in support of foreign partners in the Western Hemisphere, by country, for fiscal years 2013 through 2015. Table 6 shows ICE expenditures for counternarcotics investigations and intelligence activities conducted by ICE agents for Western Hemisphere drug cases, by country, during fiscal years 2010 through 2015. Table 7 shows DEA obligations for salaries, expenses, and administrative costs for DEA personnel located in 30 Western Hemisphere countries during fiscal years 2010 through 2015. Table 8 shows OCDETF reimbursements to the FBI for expenditures related to its investigations of transnational Central American, South American, Mexican, and Caribbean crime organizations; drug-smuggling and money-laundering organizations; alien-smuggling organizations; and drug-related public corruption cases in the Western Hemisphere, as well as headquarters administration expenses, for fiscal years 2010 through 2015. Table 9 shows INL obligations for counternarcotics activities in 13 Western Hemisphere countries and for two regional programs in the Western Hemisphere, the Central America Regional Security Initiative, and the Caribbean Basin Security Initiative, during fiscal years 2010 through 2015. Table 10 lists USAID’s obligations for alternative development projects in four countries in the Western Hemisphere during fiscal years 2010 through 2015. Appendix IV: U.S. Agencies’ Planning for Western Hemisphere Counternarcotics Efforts National Drug Control Program agencies’ planning for counternarcotics efforts in the Western Hemisphere is represented in a variety of strategic documents, which may be broad or targeted, depending on their mission. For example, the Department of Defense’s (DOD) 2011 Counternarcotics and Global Threats Strategy focuses primarily on the department’s efforts to combat narcotics trafficking and transnational organized crime. DOD officials indicated that they are currently updating the strategy. Similarly, the Coast Guard’s 2014 Western Hemisphere Strategy includes counternarcotics as part of the agency’s broader regional mission. According to Coast Guard officials, the Coast Guard does not plan to update its strategy. The Department of Homeland Security (DHS) has several strategic documents that relate to its components’ counternarcotics activities, as described below: Customs and Border Protection’s Vision and Strategy 2020 incorporates counternarcotics efforts as part of its mission to facilitate legitimate trade and safeguard land, air, and maritime borders. Immigration and Customs Enforcement also has a specific goal, protecting the homeland against illicit trade, travel, and finance, including an objective targeting drug-trafficking organizations in its Homeland Security Investigations’ Strategic Plan Fiscal Years 2012- 2016. The Department of Justice’s (DOJ) Fiscal Years 2014-2018 Strategic Plan includes the Drug Enforcement Administration’s (DEA) goal of disrupting and dismantling major drug-trafficking organizations within a much broader set of law enforcement missions. DEA’s Fiscal Years 2009-2014 Strategic Plan indicates the agency has focused on international and domestic drug-trafficking and money-laundering organizations identified as having the most significant impacts internationally and domestically, known as “Consolidated Priority Organization Targets” and “Priority Targeted Organizations.” In addition, DEA’s Drug Flow Attack Strategy, developed in 2009, identifies vulnerable chokepoints to disrupt the flow of drugs. DEA officials indicated they are updating the strategy. DOJ also released a Strategy for Combating the Mexican Cartels in January 2010, which was designed to be consistent with the National Drug Control Strategy and the National Southwest Border Counternarcotics Strategy. The DOJ strategy’s 10 objectives include (1) reduce the flow of narcotics and other contraband entering the United States, (2) strengthen Mexico’s operational capacities and enhance its law enforcement institutions, (3) increase bilateral cooperation between Mexico and the United States on fugitive capture and extradition activities, and (4) increase intelligence and information sharing among law enforcement agencies in the United States and Mexico to achieve focused targeting of the most significant criminal organizations. DOJ’s Organized Crime Drug Enforcement Task Forces (OCDETF) has a long-term drug enforcement strategy for using its prosecutor- led, multiagency task forces in the field to conduct intelligence-driven, coordinated, multijurisdictional prosecutions and investigations. Specifically, OCDETF member agencies focus on Consolidated Priority Organization Targets—that is, “command and control” organizations representing the most significant drug-trafficking and money-laundering organizations threatening the United States. OCDETF member agencies also pursue organizations identified as regional priorities because they have a significant impact on the illicit drug supply within a specific region. Officials in the Department of State’s (State) Bureau of International Narcotics and Law Enforcement Affairs (INL) stated that the bureau uses a variety of strategic planning documents in its efforts to address counternarcotics in the Western Hemisphere. INL’s Functional Bureau Strategy includes the broad objective of reducing illicit drug production and drug demand, along with other activities such as working with the United Nations Office of Drug and Crime. The Western Hemisphere Affairs and Latin America and the Caribbean Joint Regional Strategy, which focuses on a goal of a secure and democratic future for all citizens in Latin America and the Caribbean, includes interdiction goals for specific drugs such as opium gum (used for producing heroin) and cocaine. Integrated Country Strategies at posts and INL Country Plans are focused strategies, targeting, for example, the eradication of a specific number of hectares of coca or the seizure of a certain number of metric tons of illicit drugs and precursor chemicals. The U.S. Agency for International Development (USAID) does not have a specific strategy related to counternarcotics and instead relies on the Office of National Drug Control Policy’s National Drug Control Strategy to help guide its alternative development activities in countries confronting illicit drug production and trafficking, according to USAID officials. USAID’s targeted efforts are described in its Country Development Cooperation Strategies for Colombia and Peru, where alternative development efforts are currently underway. The Colombia strategy describes the U.S. government’s development assistance in support of Colombian efforts to continue its transition out of conflict. According to the Colombia strategy, investments under several of its development objectives would help create conditions for alternative livelihoods and legal behaviors, contributing to broader U.S. and Colombian efforts to address drug trafficking. The Peru strategy includes alternatives to illicit coca cultivation as a development objective in specific regions, supporting the overall goal of strengthening stability and democracy through increased social and economic inclusion, reductions in illicit coca cultivation, and the illegal exploitation of natural resources. USAID conducted operations focused on alternative development in Bolivia until May 2013, when the mission closed. Appendix V: U.S. Agencies’ Cooperation with Foreign Partners to Reduce Drug Trafficking in the Western Hemisphere Cooperation with foreign partners is a crucial element in addressing changing narcotics conditions in the Western Hemisphere. For example, the Department of State’s (State) Bureau of International Narcotics and Law Enforcement Affairs (INL), the U.S. Agency for International Development (USAID); the Department of Homeland Security’s (DHS) Coast Guard and Customs and Border Protection (CBP); and the Department of Justice’s (DOJ) Drug Enforcement Administration (DEA) and Federal Bureau of Investigation (FBI) work with host nation counterparts on a variety of counternarcotics efforts. U.S. assistance programs to disrupt the flow of cocaine and other harmful products are designed to build capacity of judicial, law enforcement, and treatment institutions in partner countries, according to INL’s 2017 International Narcotics Control Strategy Report. These programs are carried out through the Central America Regional Security Initiative, the Caribbean Basin Security Initiative, and the Mérida Initiative. Key activities of these programs include drug interdiction cooperation, especially maritime-based efforts in Central America and the Caribbean; law enforcement capacity building; anticorruption initiatives and support; and enhanced prosecution and judicial reform strengthening efforts. For example: In Mexico, as of September 2016, Mérida Initiative funding had supported 238,000 federal, state, and municipal police officers’ standardized training in their role as first responders in the country’s new criminal justice system, according to INL’s report. The report also stated that as of 2016, Mexico had seized over 230 metric tons of illegal drugs and over $50 million in illegal currency with Mérida- funded equipment and training. In Central America, State has provided targeted assistance to help enhance the ability of local partners to interdict drug shipments, disrupt trafficking networks, and control domestic production, according to State officials. For example, State officials reported that State had partnered with DEA to support local vetted police units to interdict drug shipments and investigate traffickers. According to the officials, the 20-officer Maritime Interdiction Vetted Unit in Costa Rica interdicted 1,151 kilograms of cocaine in April 2017, and similar units in Guatemala seized 2,532 kilograms of cocaine in June 2017. In addition, according to State officials, INL assisted the Guatemalan counternarcotics police in developing an opium poppy eradication program that resulted in the destruction of 1,000 acres of poppy cultivation in a 2-month period in the spring of 2017. Moreover, State officials reported that a State-provided wiretapping system and associated training allowed Costa Rican prosecutors to convict seven Sinaloa cartel members in May 2017, shutting down an operation that, according to State officials, had been sending 14 metric tons of cocaine per year to the United States. USAID also relies on international partnerships to implement its alternative development activities. For example, USAID reported that it plans to continue its mitigation of drug-related security threats in Peru by replicating successes it had in the country’s San Martin region and in other coca-growing regions in collaboration with the government of Peru and other U.S. government agencies, in its Peru Country Development Cooperation Strategy for 2012 through 2016. Results from the Monzon Valley in Peru also demonstrate how foreign partnerships can impact the illicit drugs trade. USAID focused its alternative development assistance on the coca stronghold of the Monzon Valley, which once supported about 10,000 hectares of coca, from 2013 to 2015. The average income was about $1.89 per day per person, well below the national extreme poverty line of $2.20 per day per person in 2013. Households that remained under assistance during the strategy period saw a 53-percent increase in income. Moreover, the percentage of assisted families in extreme poverty dropped by 25 percent, from 55 percent to 30 percent. Coca cultivation dropped by more than 91 percent in all areas where recent coca eradication was followed by sustained alternative development assistance, according to the United Nations Office on Drugs and Crime. The Central Intelligence Agency’s Crime and Narcotics Center recorded a less robust, but still impressive, reduction of 64 percent over the same period, according to USAID officials. Furthermore, USAID officials noted that while its resources for alternative development in Peru diminished, the budget for the National Commission for Development and Life without Drugs, Peru’s development organization, grew from $15 million in 2011 to $38 million during 2014 and 2015. In Colombia, USAID reported in its 2014-2018 Country Development Cooperation Strategy that it is trying to address the need for licit economic opportunities by supporting cocoa, specialty coffee, rubber, and dairy sectors in former coca-growing areas, which would help create the conditions for alternative livelihoods and legal behaviors for small producers in areas vulnerable to coca cultivation and drug production, contributing to broad U.S. government and Colombian efforts to address drug trafficking. This alternative development work increased under Plan Colombia, with USAID and the government of Colombia working together on several large-scale rural development projects. Three programs evolved that incorporate public and private partnerships to facilitate economic growth from 2006 to 2017. The first program reportedly generated 250,000 new jobs by investing in agricultural sectors such as rubber, cacao, and African palm enterprises as well as hotels and tourism. The second program supported the provision of grant subsidies to agricultural value-chains, linking small farmer associations with national and international private-sector buyers. In the 2013 selection round, for example, more than 30 selected projects included crops and products such as cacao, rubber, fruits, dairy, and meat. In the third program, USAID carried sustainable development by encouraging private-sector investment in target areas. For example, USAID focused on developing alliances with key private-sector leaders in the coffee and cacao sectors in the former sector by raising yields and quality and addressing infrastructure needs especially in conflict-prone zones. Today, Colombia is the world’s largest producer of premium-quality Arabica beans, according to USAID. Likewise, fine cocoa is a successful crop in Colombia, with a growing world demand, according to USAID. The Colombian cocoa industry is relatively small, with 25,000 farmers producing about 42,000 tons, or 0.2 percent of the global market. However, about 85 percent of Colombian cocoa is from “fine” species, giving Colombia a 3-percent share of global fine cocoa exports. USAID also developed a private investment equity fund, providing capital to small- and medium-sized enterprises in Colombia. The fund is now an independent, for-profit enterprise providing small- and medium-sized Colombian enterprises with capital and operational support. The Coast Guard’s efforts to support foreign partners include its Multilateral Maritime Counter Drug Summits, where U.S. and foreign partners meet to discuss operational and legal issues. The summits are attended by U.S. agencies including, among others, DEA, CBP, the Department of Defense’s Joint Interagency Task Force South, State, and DOJ. Representatives from Western Hemisphere countries, including Belize, Brazil, Canada, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, and Peru, among others, also attend the summits. For example, at a summit held in May 2016, Mexico briefed about its judicial system’s transition to an adversarial system, and Honduras briefed about its successes using increased penalties for money-laundering violations, when it is proven that the money is from drug trafficking, according to a Coast Guard document. On the operational side, Panama made presentations on regional operations, and the U.S. Coast Guard presented on capacity building for counterdrug operations, among other efforts. Other issues—such as how to leverage increased maritime awareness regionally resulting from investments by partner nations in radar and the linking of vessel-tracking technologies along their coastlines with the Joint Interagency Task Force South’s Cooperative Situational Information Integration system—are discussed at these meetings. DHS cooperates with foreign partners in variety of ways to target emerging counternarcotics threats, as follows: ICE’s Homeland Security Investigations works with foreign partners to (1) coordinate criminal investigations, including those related to counternarcotics; (2) disrupt criminal efforts to smuggle people and material, including drugs into the United States; and (3) build international partnerships through outreach and training. In ONDCP’s fiscal year 2017 Budget and Performance Summary report, ICE established a target of 29 percent of transnational drug investigations resulting in the disruption or dismantlement of high-threat, transnational drug-trafficking organizations or individuals for fiscal year 2015. According to the report, ICE fell short at 15 percent but indicated there were several reasons, including a methodology that allowed double counting; as a result, the methodology was revised. CBP also has a network of attachés and advisors, who serve in U.S. diplomatic missions and act as liaisons between law enforcement components such as DEA; the FBI; and DOJ’s Bureau of Alcohol, Tobacco, Firearms and Explosives. Attachés and advisors also work with foreign partners building capacity and provide training, technical assistance, and mentoring on border security, according to CBP officials. For example, CBP has trained over 1,000 Panamanian customs and law enforcement officers since 2014. Also, since February 2017, CBP helped vet, train, and mentor a unit of Peruvian intelligence analysts. Twenty tons of cocaine have been seized since the unit was created, according to CBP officials. CBP’s National Targeting Center hosts representatives from participating foreign agencies and works with these international liaisons and other U.S. government agencies to detect and disrupt narcotic-smuggling operations, drug-trafficking organizations, and their associates. According to agency officials, in fiscal years 2015 and 2016, the center’s efforts with foreign partners led to results in the Western Hemisphere such as discovery and seizure of over 100 kilograms of cocaine, identification of a previously unknown foreign company suspected of narcotics involvement, and seizure of counterfeit identification documents destined to the United States with links for possible bank fraud and the illicit money laundering. DOJ works with foreign country counterparts to conduct bilateral investigations and support joint counterdrug operations, among other things, such as the following: DEA’s special agents, who work at embassies or consulates overseas, conduct bilateral investigations with their foreign counterparts. These special agents also carry out institution-building activities with their counterparts. DEA reported that it provides investigative equipment and training, in large part through its Sensitive Investigative Units in selected countries, including Mexico and Colombia. The Sensitive Investigative Units seek to create focused, well-trained, and vetted drug investigative and intelligence units, targeting the most significant drug- trafficking organizations affecting the United States. DEA sees the program’s impact as building international cooperation, facilitating institution building and professional development, and improving judicial processes. DEA’s International Drug Enforcement Conference is another venue for cooperation with foreign partners. The conference brings senior international drug law enforcement officials together, in regional and bilateral meetings where, according to DEA, topics such as cross- border coordination of operations, intelligence sharing, and joint training activities are addressed. According to INL’s 2017 International Narcotics Control Strategy Report, at a meeting in Peru, in April 2016, geographical regional and multiregional working groups identified collective targets, agreed upon multilateral counterdrug enforcement and interdiction operations, and assessed the progress and evaluated intelligence on existing and emerging targets. The 2015 Caribbean Border Counternarcotics Strategy noted that the DEA-led International Drug Enforcement Conference is a forum for building coalitions between U.S. federal law enforcement and foreign counterparts and that within the Caribbean, law enforcement officials from over 20 nations participate in the annual meetings to discuss regional investigative targeting efforts. One measure DEA tracks as contributing to ONDCP’s National Drug Strategy is the number of international, domestic, and diversion priority targets linked to consolidated priority organization targets it disrupts or dismantles. In ONDCP’s fiscal year 2017 Budget and Performance Summary, DEA reported that in fiscal year 2015, it set a goal of disrupting or dismantling 440 targets linked to consolidated priority organization targets and achieved 356 of these targets. DEA indicated that it did not achieve its goal due to budgetary constraints. FBI legal attachés carry out capacity-building programs, providing equipment and training to enhance foreign partners’ ability to combat criminal activity connected to transnational criminal organizations, according to FBI officials. These officials stated that FBI-trained and - vetted investigative units in Colombia and the Dominican Republic target the most significant criminal organizations affecting the United States. The FBI conducts multiple trainings with Mexican law enforcement as a means of developing contacts and fostering cooperative relationships with its law enforcement counterparts in Mexico, according to FBI officials. These officials noted that the FBI’s ability to advance investigations with a nexus south of the border is greatly enhanced through these contacts. According to these officials, the FBI also sponsors numerous trainings throughout Latin America to enhance its foreign partners’ ability to deal with the increasing transnational organized crime threat. Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Juan Gobel (Assistant Director), Julie Hirshen (Analyst-in-Charge), Lynn Cothern, Martin De Alteriis, Neil Doherty, Mark Dowling, Reid Lowe, and Shirley Min made key contributions to this report. Dawn Locke and Diana Maurer provided technical support.

Western Hemisphere nations such as Mexico and Colombia are major sources of illicit drugs such as cocaine, heroin, methamphetamine, and marijuana. Precursor chemicals used in the production of illicit fentanyl and other dangerous synthetic drugs often originate in China but typically enter the United States through Canada and Mexico. U.S. agencies implementing the National Drug Control Strategy conduct several activities to disrupt the flow of illicit drugs and dismantle the organizations that control them (see fig.). In December 2016, Congress established the Western Hemisphere Drug Policy Commission to, among other things, evaluate the U.S.-funded counternarcotics programs in the Western Hemisphere. In this context, GAO was asked to review key issues related to U.S. counternarcotics efforts in the Western Hemisphere. This report examines (1) U.S. agencies' spending for counternarcotic efforts in the Western Hemisphere during fiscal years 2010-2015, the most recent data available; (2) how agencies are gathering and sharing best practices and lessons learned from their counternarcotics efforts domestically and internationally; and (3) mechanisms U.S. agencies have used to address changing drug threats. GAO analyzed agencies' data and documents, interviewed agency officials, and conducted fieldwork at the U.S. Southern Command and Joint Interagency Task Force South in Florida. GAO is not making any recommendations in this report. Several agencies provided technical comments on a draft of this report which we incorporated as appropriate. U.S. agencies implementing the National Drug Control Strategy identified billions in spending for Western Hemisphere counternarcotics efforts in fiscal years 2010 through 2015. Agencies that track their counternarcotics spending regionally—the Department of Defense (DOD), the Department of Homeland Security's (DHS) Immigration and Customs Enforcement, the Department of State, and the U.S. Agency for International Development—reported spending nearly $5 billion for such activities in the region during this period. Agencies that do not track counternarcotics spending regionally—DHS's Customs and Border Protection and Coast Guard; and the Department of Justice's Drug Enforcement Administration and Organized Crime Drug Enforcement Task Forces—reported spending about $34 billion for counternarcotics activities in fiscal years 2010 through 2015. According to officials of these four agencies, most of their counternarcotics activities are in the Western Hemisphere. We are not reporting Federal Bureau of Investigation counternarcotics spending separately, since it is included as part of Organized Crime Drug Enforcement Task Forces. The Office of National Drug Control Policy (ONDCP), which coordinates the National Drug Control Program, facilitates the sharing of best practices and lessons learned at meetings such as the North American Drug Dialogue workshop, including Canada, Mexico, and the United States. In addition, 7 of the 10 agencies GAO reviewed described processes they have in place for identifying and collecting best practices or lessons learned from counternarcotics efforts in the Western Hemisphere. For example, DOD reported using a process, known as the Joint Lessons Learned Program, that consists of five phases: discovery, validation, resolution, evaluation, and dissemination. U.S. agencies use a variety of mechanisms to address changing narcotics conditions in the Western Hemisphere. ONDCP collaborates with agencies working directly on regional counternarcotics efforts to address emerging threats, as reflected in the annually updated National Drug Control Strategy and the Southwest Border Counternarcotics Strategy. In addition, documentary evidence GAO reviewed showed that a variety of interagency groups, task forces, and committees have been created to coordinate the U.S. government's responses to counternarcotics threats. For example, the National Heroin Coordination Group was established to provide guidance aimed at reducing the growing supply of heroin and illicit fentanyl in the U.S. market.

CRS_R45727

Introduction In FY2019 and FY2020, more than 90% of federal highway assistance is being distributed to the states by formula. Highway funding formulas have been in use to apportion federal highway authorizations among the states since the passage of the first federal-aid highway act more than a century ago. The resulting apportionments are widely used to evaluate how individual states benefit from federal highway assistance relative to other states. Although the procedure currently used to distribute federal highway funds is written into law and programs receiving funds in this manner are frequently referred to as "formula programs," the statutory language does not describe any formula in a straightforward way. In consequence, it can be difficult to understand how the apportionment of funds is determined, and whether that apportionment adequately reflects considerations that may be of concern to Members of Congress. This report describes the origins and development of highway formula funding, and then discusses how the use of various formula factors gave way to the current apportionment mechanism. A series of tables compares individual states' shares of the FY2018 apportionment with their shares of some factors relevant to highway needs. The Early Years of Formula Funding The Federal Aid Road Act of 1916 (39 Stat. 355), which created the first ongoing federal program to fund road construction, used three factors to apportion federal highway funds among the states. After setting some funds aside to cover administrative costs, the law apportioned the remaining authorization to the states according to three factors. These factors were selected, in part, because they were not difficult to compile and seemed relevant to individual states' costs to build and maintain a highway system. The three factors, which were weighted equally, were 1. land area: the ratio which the area of each state bore to the total area of all states; 2. population: the ratio which the population of each state bore to the total population of all the states, as shown by the latest available census; and 3. postal road mileage: the ratio which the mileage of rural free delivery routes and star routes in each state bore to the total mileage of such in all the states at the close of the preceding year. The selection of these factors had much to do with disagreement between urban and rural interests about the goals of the road program and with constitutional concerns regarding the appropriateness of federal spending on road construction. The population and land area factors were proxies for the rural and urban state interests. The population factor was seen as protecting the interests of the more densely populated eastern states and the land area factor as protecting the interests of large but less populated western states. The use of a postal road mileage factor helped allay any constitutional qualms, as Article I, Section 7 of the Constitution specifically grants Congress the power "To establish…post roads," but the factor also garnered favor from less populous states. The 1916 act also set the maximum federal share of the cost of any highway project at 50%. The 1916 act supported the construction of rural roads and excluded streets and roads in places having a population of 2,500 or more. The formula factors enacted in 1916 remained in place, with only temporary changes made in Depression-era emergency legislation and war legislation, until passage of the Federal-Aid Highway Act of 1944 (58 Stat. 838). The 1944 act began to shift the federal highway program away from construction of rural roads. It created three separate highway systems: a Primary System, a Secondary System, and an Urban System. Each system was authorized a percentage of the total funds provided, which were then apportioned among the states by formula. The Federal Highway Act of 1921 (42 Stat 22) retained the three formula factors adopted in 1916, but increased federal control over the use of funds by requiring the designation of a system of highways, limited to 7% of each state's total highway mileage, on which the federal funds could be spent. The 1921 act also guaranteed that each state would receive at least one-half percent of the total appropriation in any year. With this law, the three main characteristics of today's federal highway program were in place: funds were apportioned to the states by formula and implementation was left primarily to state governments; the states were required to provide matching funds; and the funds could be spent only on designated federal-aid highways. The Post-War Highway Program The Primary System funds were apportioned using the three formula factors established in 1916: each state's share of the national land area, population, and rural post road mileage, with each factor weighted equally. Funds for the Secondary System were apportioned based on each state's share of the national land area, rural population, and rural postal route mileage. The Urban System formula apportioned funds to the states based on one formula factor: each state's share of the national population living in urban areas of 5,000 or more residents. Although the act still favored rural areas, it was the first significant programmatic shift away from what had been essentially a rural road program. During the 1970s and 1980s, as Congress created many narrowly targeted programs within the Federal-Aid Highway Program, it frequently adopted formula factors specific to those programs. By FY1977, there were 35 separate authorized programs. Of those, 13, including all the larger programs, apportioned funds by a variety of statutory formulas. Examples of programs receiving more narrowly targeted funding were the new highway safety and hazard elimination programs, for which funds were apportioned based on both total state population and public road mileage. With the aging of the Interstate Highway System, a new Interstate Resurfacing, Restoration, Rehabilitation, and Reconstruction Program (Interstate 4R) was created, with funding apportioned based on each state's Interstate Highway lane miles and vehicle miles traveled on the Interstate System, as shares of the respective national totals. A 1986 report from the General Accounting Office (GAO) criticized the use of land area, decennial population, and postal road mileage in the distribution of highway funding. It recommended instead the use of vehicle miles traveled (on and off the Interstate System), lane miles, motor fuel consumption, annualized population statistics, and road deterioration. Although the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA; P.L. 102-240 ) substantially reorganized the highway programs, it apportioned the funds of the four largest apportioned programs (accounting for roughly 70% of all apportioned funds) according to each state's share of apportionments during the FY1987-FY1991 period rather than according to specific factors. According to a 1995 GAO report, this procedure, to a significant extent, made "the underlying data and factors… not meaningful because the funding outcome is largely predetermined." Under ISTEA, the apportionments from FY1992 through FY1998 were fixed for six years by the factors used in the FY1987-1991 apportionments. Significantly, they did not reflect the new 1990 census data. An exception was a new program, the Congestion Mitigation and Air Quality Improvement Program (CMAQ), which was apportioned according to population in each state's air quality non-attainment areas relative to the national population living in non-attainment areas. In 1998, the Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 ) reestablished apportionment formula factors for individual programs within the Federal-Aid Highway Program, often using new factors designed to act as proxies for the needs a program was intended to address. For example, the formula for the National Highway System program, one of several large programs, used four factors to apportion the annual authorization: 1. 25% based on the ratio of each state's lane miles on principal arterial routes (excluding the Interstate System) to the national total; 2. 35% based on the ratio of each state's vehicle miles traveled on principal arterial routes (excluding the Interstate System) to the national total; 3. 30% based on the ratio of each state's diesel fuel use on highways within each state to the national total; 4. 10% based on the ratio of each state's per capita lane miles of principal arterial highways to the national total. The Surface Transportation Program, the federal-aid program that the states had the greatest discretion in spending, was apportioned by a formula that used three weighted factors: 1. 25% based on the ratio of each state's total lane miles of federal-aid highways to the national total; 2. 40% based on the ratio of each state's vehicle miles on federal-aid highways to the national total; 3. 35% based on the ratio of each state's estimated tax payments attributable to highway users paid into the highway account of the Highway Trust Fund—the source of federal funding for highways—to the national total. The last surface transportation reauthorization that used formula factors to apportion individual program authorizations was the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users (SAFETEA-LU; P.L. 109-59 ), enacted in 2005. That law apportioned 13 programs using funding formulas. For example, funds under the Highway Safety Improvement Program were apportioned according to three equally weighted factors: (1) each state's share of lane miles of federal-aid-highways; (2) vehicle miles traveled on federal-aid highways; and (3) number of fatalities on the federal-aid system. In contrast, the Railway-Highway Crossings Program used the share of public railway-highway crossings in each state. The factors of land area and postal route mileage were no longer used for distributing any highway funds. Population figures were used for only two of the 13 formula programs authorized in SAFETEA-LU. Equity Programs Between 1982 and 2005, the formulas embedded in surface transportation authorization acts were not always decisive in determining how funds were apportioned. After some states objected that their residents paid more of the motor fuel and truck taxes that flowed into the highway account of the Highway Trust Fund than they received in federal highway funding, Congress enacted "equity" programs that generally did three things. First, each act included a guarantee that each state would receive federal funding at least equal to a specific percentage of the federal highway taxes its residents paid. Second, all or nearly all states were given an increase in funding from the equity program. Third, the program size was calculated in a way to assure that the states receiving less than their residents paid in highway taxes could be made whole up to their guaranteed percentage and most other states could get more funding as well. In the 1982 act, 5% of highway funding was distributed through the equity program, but in SAFETEA in 2005 the equity program received over 20% of the funds. The equity program distribution determined the total apportionment amount for each state and reduced the impact of the formula factors when it came to calculating each state's apportionments under the individual formula programs. Formulas in Recent Highway Legislation The Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ), enacted in 2012, eliminated or consolidated two-thirds of the federal highway programs. It also made major changes in the way funds were apportioned among the states. Prior to MAP-21, Congress wrote authorizations for each individual apportioned program into law, and specified the formula factors that were used to determine each state's share of the authorization for that program. Beginning with MAP-21, all the large formula programs shared a single authorization amount, and the states' apportioned shares of the total authorization were determined before their amounts were divided among the specific programs. MAP-21 did not specify any formula factors that were to be used to apportion funds among the states. Instead, the apportionment was based primarily on each state's share of total apportionments in FY2012, the last year of SAFETEA, as extended. In practice, this meant that the main determinants of the totals apportioned among the states under MAP-21 were the relative distributions under the equity bonus program established in SAFETEA. In the MAP-21 formula, Congress addressed concerns about fairness from two different perspectives. On the one hand, it guaranteed that each state received an apportionment equal to at least 95 cents of every dollar the state's highway users paid in highway taxes. This represented an increase from the 92% return guaranteed in 2012, the final year of SAFETEA. On the other hand, by effectively fixing the apportionment shares at the FY2012 level Congress ensured that most states receiving more from the Federal-Aid Highway Program than their residents paid in federal highway taxes would still get increases in funding. As was true under the SAFETEA and earlier equity programs, some states could receive larger amounts without substantially reducing the amounts provided to other states only because of the large amounts of funding provided. This was possible because the bill transferred $18 billion from other Treasury accounts to the highway account of the Highway Trust Fund. Apportionment of Highway Funds Under Current Law The Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ), enacted in 2015, is the current authorization of federal highway programs. It made only modest changes to the MAP-21 apportionment mechanism. As was true with MAP-21, the FAST Act authorizes a single amount for each year for all the apportioned highway programs combined. It retained the basic MAP-21 formula and the basic MAP-21 programmatic structure. This means that while apportionments are still based primarily on each state's share of total apportionments in FY2012, the final year of SAFETEA, each state is guaranteed an apportionment equal to at least 95% of the amount its residents pay into the highway account of the Highway Trust Fund. Calculating Each State's Apportionment Under the FAST Act, the authorization that funds six programs within the Federal-Aid Highway Program is apportioned among the states by formula. The programs are the National Highway Performance Program (NHPP), the Surface Transportation Block Grant program (STBG), the Highway Safety Improvement Program (HSIP), the Congestion Mitigation and Air Quality Improvement Program (CMAQ), Metropolitan Planning (MP), and the National Highway Freight Program (NHFP). As summary of the process follows. Prior to calculating states' apportionments for FY2020, the Federal Highway Administration is to reserve two amounts, $67 million for NHPP and $1.020 billion for STBG. These reserve funds will later supplement these programs. The remaining amount, net of these two amounts, is the "base apportionment amount." Each state's initial apportionment amounts are calculated for the three components (the base apportionment, supplemental NHPP, and supplemental STBG) by multiplying the base apportionment and two supplemental amounts by the ratio that each state's FY2015 apportionments bear to the nationwide total for FY2015. Next, the three initial amounts are adjusted, if necessary, to assure that each state's total base apportionment plus reserve funds is no less than 95 cents for every dollar the state contributed to the highway account of the Highway Trust Fund in the most recent fiscal year for which data are available. Any necessary upward adjustments for some states are offset by proportional decreases to the amounts of other states. However, basing initial apportionment amounts on FY2015 apportionment shares and guaranteeing a 95-cents-on-the-dollar return to all states without major reductions in some states' funding requires a larger program than the existing Highway Trust Fund taxes can fund. As was true under MAP-21, large transfers from the Treasury general fund to the highway account of the Highway Trust Fund authorized in the FAST Act made it possible to fund the Federal-Aid Highway Program in a way that would fulfill the 95% guarantee without having to reduce other states' apportionments significantly. Division of Each State's Apportionment Among the Programs Each state's base apportionment amount is used as the starting point in determining the division of the state's apportionment among the six apportioned programs. First, the amount determined for the NHFP is set aside from each state's base apportionment. Second, from the remaining amounts an amount is distributed for CMAQ (according to the state's FY2009 CMAQ apportionment share). Third, the state's MP program gets a distribution (based on the state's FY2009 apportionment share). Fourth, the remainder of the state's apportionment is divided among the three remaining core programs as follows: 63.7% is apportioned to the NHPP, 29.3% to the STBG, and 7% to the HSIP. Fifth, the STBG (each year FY2016-FY2020) and NHPP (for FY2019-FY2020 only) reserve funds are added to supplement each state's STBG and NHPP amounts calculated from the state's base apportionments. Evaluating States' Highway Apportionments As described above, the procedure currently used to apportion federal highway funds among the states is not based on any particular policy objectives other than ensuring the stability of state shares based on the apportionment shares in the last year of MAP-21, FY2015. In addition, each state is guaranteed an amount at least equal to 95 cents on the dollar of the taxes paid by its residents into the highway account of the Highway Trust Fund. Some policy-related factors used to distribute highway funds in the past are no longer in use, while other possible factors sometimes mentioned in policy discussions, such as states' rates of population growth and projected increases in truck traffic, have never been used as formula factors. The following tables compare each state's share of highway apportionments under current law to that state's proportion of various factors that have been used in the past in the distribution of federal highway funds. Table 5 provides a ranking of individual states' apportionment amounts as judged by these factors.

More than 90% of federal highway assistance is distributed to the states by formula. Between 1916, when Congress created the first ongoing program to fund road construction, and 2012, various formula factors specified in law were used to apportion highway funds among the states. After 1982, these factors were partially overridden by provisions to guarantee that each state received federal funding at least equal to a specific percentage of the federal highway taxes its residents paid. Since enactment of the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141) in 2012, formula factors such as population and highway lane mileage have ceased to have a significant role in determining the distribution of funds. The apportionment among the states under the current surface transportation law, the Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94), passed in 2015, is not based on any particular policy objectives other than ensuring the stability of states' shares of total funding based on their shares in the last year of MAP-21, In addition, each state is guaranteed an amount at least equal to 95 cents on the dollar of the taxes paid by its residents into the highway account of the Highway Trust Fund. Some policy-related factors used to distribute highway funds in the past are no longer in use, while other possible factors sometimes mentioned in policy discussions, such as states' rates of population growth and projected increases in truck traffic, have never been used as formula factors. This report describes mechanism by which Federal-Aid Highway Program funds are distributed today, and includes tables comparing individual states' shares of the FY2018 apportionment with their shares of some factors relevant to highway needs. Table 5 ranks states' apportionments based on the apportionment amount per resident, per square mile of land area, per federal-aid highway lane mile, and per million vehicle miles traveled on federal-aid highways.

GAO_GAO-18-482

Background Job Corps Eligibility Criteria and Program Services To be eligible for the Job Corps program, an individual must generally be 16 to 24 years old at the time of enrollment; be low income; and have an additional barrier to education and employment, such as being homeless, a high school dropout, or in foster care. See table 1 for characteristics of students served by Job Corps during program year 2016. Once enrolled in the program, youth are assigned to a specific Job Corps center, usually one located nearest their home and which offers a job training program of interest. The vast majority of students live at Job Corps centers in a residential setting, while the remaining students commute daily from their homes to their respective centers. This residential structure is unique among federal youth programs and enables Job Corps to provide a comprehensive array of services, including housing, meals, clothing, academic instruction, and job training. In program year 2016, about 16,000 students received a high school equivalency and about 28,000 students completed a career technical training program, according to ETA officials. Job Corps Structure and Operations ETA administers Job Corps’ 123 centers through its national Office of Job Corps under the leadership of a national director and a field network of six regional offices located in Atlanta, Boston, Chicago, Dallas, Philadelphia, and San Francisco (see fig. 1). Job Corps is operated primarily through contracts, which according to ETA officials, is unique among ETA’s employment and training programs (other such programs are generally operated through grants to states). Among the 123 centers, 98 are operated under contracts with large and small businesses, nonprofit organizations, and Native American tribes. The remaining 25 centers (called Civilian Conservation Centers) are operated by the U.S. Department of Agriculture’s (USDA) Forest Service through an interagency agreement with DOL. Job Corps center contractors and the USDA Forest Service employ center staff who provide program services to students. The President’s fiscal year 2019 budget seeks to end USDA’s role in the program, thereby unifying responsibility under DOL. The Administration reported that it was proposing this action because workforce development is not a core mission of USDA, and the 25 centers it operates are overrepresented in the lowest performing cohort of centers. According to ETA officials, the Office of Job Corps has oversight and monitoring responsibility to ensure that center operators follow Job Corps’ Policy and Requirements Handbook, including the safety and security provisions. Job Corps regional office staff are largely responsible for these duties. Requirements for Job Corps Centers Related to Incident Reporting Job Corps’ Policy and Requirements Handbook requires centers to report certain significant incidents to the national Office of Job Corps and to regional offices using SIRS. Centers are required to report numerous categories of incidents, including assaults, alcohol and drug-related incidents, and serious illnesses and injuries (see appendix II for definitions of these categories of incidents). Within the Policy and Requirements Handbook, ETA establishes student standards of conduct that specify actions centers must take in response to certain incidents. In some cases, the incident categories in SIRS are related to the specific infractions defined in the Policy and Requirements Handbook, which are classified according to their level of severity. Level I infractions are the most serious, and includes infractions such as arrest for a felony or violent misdemeanor or possession of a weapon, and are required to be reported in SIRS. Level II includes infractions such as possession of a potentially dangerous item like a box cutter, or arrest for a non-violent misdemeanor. The majority of these infractions are required to be reported in SIRS. Minor infractions—the lowest level—include failure to follow center rules, and are not required to be reported in SIRS. Centers must report incidents involving both Job Corps students and staff, and incidents that occur onsite at centers as well as those that occur at offsite locations. According to ETA officials, the agency and its center operators must take steps to protect the safety and security of Job Corps students when students are under Job Corps supervision. Students are under Job Corps supervision when they are onsite at Job Corps centers and when they are offsite and engaged in center-sponsored activities, such as work-based learning or community service. According to ETA officials, the agency and its contractors are not responsible for protecting the safety and security of Job Corps students when students are offsite and not under Job Corps supervision, such as when students are at home on leave. However, when offsite safety and security incidents of any type occur, Job Corps center operators are responsible for enforcing the student conduct policy. For example, if a student is arrested for a felony offsite while not under Job Corps supervision, the arrest may result in a Level I infraction and dismissal from the program. Job Corps Student Satisfaction Survey Since 2002, ETA used its student satisfaction survey to periodically obtain views from enrolled Job Corps students on various aspects of the program, including career development services, interactions between students and staff, access to alcohol and drugs, and overall satisfaction with the program. The survey of 49 questions has remained the same over time and included 12 questions on students’ perceptions of safety and security at centers. ETA used the responses to the 12 safety-related survey questions to calculate a center safety rating, which represented the percentage of Job Corps students who reported feeling safe at each center, as well as a national safety rating, which represented the percentage of Job Corps students who reported feeling safe nationwide. ETA officials said they used these ratings to assess students’ perceptions of safety at individual centers and nationwide, to monitor and evaluate center operators, and to determine whether ETA needed to take action to better address students’ safety and security concerns. In 2018, ETA will pilot a stand-alone survey for safety related topics and remove the safety questions from the student satisfaction survey. Job Corps Centers Reported Nearly 14,000 Incidents of Various Types during Program Year 2016, Which Mainly Occurred Onsite and Involved Recently Enrolled Males under Age 20 Almost Half of the Reported Onsite and Offsite Incidents Involved Drugs or Assaults Our analysis of ETA’s data from the Significant Incident Reporting System (SIRS) showed that Job Corps centers reported 13,673 safety and security incidents involving students, including those that occurred both onsite and offsite, in program year 2016. During this time period (July 1, 2016, through June 30, 2017), approximately 79,000 students were served by the program, according to ETA officials. Drug-related incidents (29 percent) and assaults (19 percent) accounted for 48 percent of all reported incidents involving students. The remaining 52 percent of reported incidents involving students included breaches of security and safety (12 percent), alcohol-related incidents (6 percent), serious illness and injury (6 percent), theft or damage to property (5 percent), danger to self or others (5 percent), and all other types of incidents (18 percent) (see fig. 2). According to ETA officials, about half of the 3,926 drug- related incidents are due to positive drug test results among students that are administered drug tests about 40 days after entering the program. We found that about 20 percent of reported onsite and offsite incidents in program year 2016 were of a violent nature, which we define as homicides, sexual assaults, and assaults. There were two reported homicide incidents in program year 2016 and both occurred while students were offsite and not under Job Corps supervision. Also, centers reported 177 sexual assaults and 2,593 assaults involving students during program year 2016. For each reported sexual assault and assault, SIRS provides an additional description of the incident (see table 2). In our June 2017 testimony, we stated that 49,836 onsite and offsite safety and security incidents of various types were reported by Job Corps centers between January 1, 2007, and June 30, 2016, based on our preliminary analysis of ETA’s SIRS data. We cannot compare our analysis of safety and security incidents in our June 2017 testimony to the analysis contained in this report for program year 2016 due to a policy change by ETA beginning July 1, 2016, which affected the categorization and number of reportable incidents. Specifically, ETA changed the way some incidents are defined, and required that some incidents be reported in SIRS that previously had no such requirement. Anecdotally, officials from one ETA regional office and two Job Corps centers that we visited said that the number of reported incidents has increased since July 1, 2016, due to these changes. In its December 2017 report, the DOL OIG compared the number of safety and security incidents reported to the OIG for the same 8-month periods in 2016 and 2017 and found an increase of 134 percent. According to the DOL OIG, this increase is likely due to more accurate incident reporting as a result of the recent policy change. In addition, the DOL OIG said an actual increase in incidents is also possible. Most Reported Incidents Occurred Onsite, but Arrests and Deaths Most Frequently Occurred Offsite While Students Were Not Under Job Corps Supervision Our analysis of SIRS data found that in program year 2016, 90 percent of the 13,673 reported safety and security incidents involving students occurred onsite at Job Corps centers, and 10 percent occurred at offsite locations (see fig. 3). For example, 99 percent of drug-related incidents, 96 percent of assault incidents, and 84 percent of alcohol-related incidents occurred onsite. While most reported incidents occurred onsite, our analysis showed that the majority of reported arrests, deaths, and motor vehicle accidents occurred offsite. For example, of the 21 student deaths,18 occurred at offsite locations and 3 occurred onsite. In our June 2017 testimony, we reported that from January 1, 2007, through June 30, 2016, 76 percent of the reported safety and security incidents occurred onsite at Job Corps centers, and 24 percent occurred at offsite locations based on our preliminary analysis of ETA’s SIRS data. However, as previously noted, that analysis is not comparable to the analysis in this report for program year 2016 due to ETA’s July 1, 2016, policy change that impacted the categorization and number of reportable incidents. We analyzed the 1,406 incidents of 13,673 total reported incidents that were reported to have taken place offsite in program year 2016 to determine if the students involved were on duty (i.e., under Job Corps supervision) or off duty (i.e., not under Job Corps supervision). We found that for offsite incidents, similar percentages of student victims and perpetrators were on duty and off duty. Specifically, we found that 50 percent of student victims were on duty, 44 percent were off duty, and we were unable to determine the duty status of 6 percent. For student perpetrators, we found that 45 percent of students were on duty, 45 percent were off duty, and we were unable to determine the duty status of 10 percent. Some types of reported incidents occurred more frequently when students were offsite and off duty. For example, of the reported arrest incidents that occurred offsite, 76 percent of student perpetrators were off duty. Of the reported death-related incidents that occurred offsite, student duty status was reported as off duty for 16 of 18 incidents. We were unable to determine the duty status for all students involved in offsite incidents due to inconsistencies in ETA’s data. Of the 1,406 offsite incidents reported in SIRS, there were 178 instances in which a student’s duty status location conflicted with the incident location. For example, the student’s duty status was listed as onsite and on duty, but the incident location was listed as offsite. We asked ETA officials why these inconsistencies existed and they were unable to explain all instances in which these inconsistencies occurred. ETA officials did state, however, that these inconsistences can sometimes occur when centers enter information in SIRS based on the student’s duty status at the time the incident report is completed instead of the student’s duty status at the time the incident occurred. Due to this data limitation, we were unable to determine if the 178 students involved in those incidents were on duty or off duty. Student Victims and Perpetrators Most Often Were Recently Enrolled Males under Age 20, Reflective of the Job Corps Population We analyzed SIRS data to determine the characteristics of students involved in reported safety and security incidents and found that about 17,000 students were reported as victims or perpetrators of all onsite and offsite incidents in program year 2016. The total number of students reported as victims or perpetrators is 22 percent of the students served in program year 2016. The number of student victims and perpetrators varied across incident types (see fig. 4). In program year 2016, we found that about 5,000 students (6 percent of students served) were reported as victims of various types of onsite and offsite incidents. We separately examined the gender, age, and enrollment time of reported student victims and found that for all reported incidents the majority of student victims were male, under age 20, and enrolled in Job Corps for less than 4 months (see fig. 5). These characteristics are somewhat similar to the overall Job Corps student population, which is primarily male and under age 20, as previously noted. For example, 65 percent of reported assault victims and 73 percent of reported theft victims were male. However, the number of female victims exceeded the number of male victims within some reported incident categories, such as sexual assault, inappropriate sexual behavior, and missing persons. Students under age 20 were victims of 67 percent of reported assault incidents and 63 percent of danger to self or others incidents. According to ETA officials, 18 percent of students served in program year 2016 were enrolled for less than 4 months; however, across all reported incidents 56 percent of student victims were enrolled for less than 4 months. For example, about 60 percent of student victims of reported assault and danger to self or other incidents were enrolled in Job Corps for less than 4 months. Our analysis of SIRS data shows that about 13,000 students (17 percent of students served) were reported as perpetrators of various types of onsite and offsite incidents in program year 2016. The most commonly reported incidents—drug-related and assaults—also had the highest numbers of student perpetrators. We found that 6 percent and 5 percent of students served in program year 2016 were perpetrators of reported drug-related and assault incidents, respectively. Similar to our analysis of student victims, we separately examined student characteristics and found that the majority of reported student perpetrators of all reported incidents were male, under age 20, and enrolled in Job Corps for less than 4 months (see fig. 6). Students Generally Reported Feeling Safe; ETA Plans to Create a New, Expanded Survey Most Students Reported Feeling Safe, but Fewer Reported Feeling Safe on Selected Questions Our analysis of ETA’s student satisfaction survey data from program year 2016 showed that while students generally reported feeling safe at Job Corps centers, a smaller proportion reported feeling safe in certain situations. ETA considers students to feel safe if they provide certain responses to each of the 12 safety-related survey questions, some of which are phrased as statements. For example, if a student provided a response of “mostly false” or “very false” to the statement “I thought about leaving Job Corps because of a personal safety concern,” that student would be counted as feeling safe on that survey question. On 6 of the 12 safety-related survey questions in program year 2016, at least 70 percent of responding students indicated that they felt safe (see table 3). For example, 74 percent of students responded that they did not ever or in the last month carry a weapon, and 83 percent of students responded that it was very or mostly true that a student would be terminated from Job Corps for having a weapon at the center. These are responses that ETA considered to indicate feeling safe. At the two centers we visited, students that we interviewed said that they felt safe onsite at their center. For example, students at one center said that they felt safe because absolutely no weapons, fighting, or drugs were allowed at the center. A smaller number of students reported feeling safe on questions that dealt with hearing threats or hearing things from other students that made them feel unimportant. For example, 36 percent of students reported they had not ever or in the last month heard a student threaten another student at the center, which is considered safe according to ETA policy. Meanwhile, 49 percent reported that they had heard a student threaten another student at least once in the last month, and ETA considered these responses to indicate that students felt unsafe. Another 15 percent chose “don’t know / does not apply.” On another question, 53 percent of students reported that other students had not ever or in the last month said things that made them feel like they were not important, which ETA considered as feeling safe. Yet 30 percent reported that others made them feel unimportant at least once in the last month—which ETA considered as feeling unsafe—and 17 percent chose “don’t know / does not apply.” In response to a question about the student conduct policy, 35 percent of students indicated that the policy was not applied equally to all students. At the two centers we visited, students that we interviewed had varying views on applying the student conduct policy. Students from one center said that staff have applied the policy in a fair way. Yet at another center, students told us that they have occasionally perceived that staff have not applied the student conduct policy fairly. They mentioned that they were aware of favoritism in a few recent incidents when staff applied the policy’s disciplinary consequences for certain students but not others. For example, they said that a student they perceived as the perpetrator remained in Job Corps while a student they perceived as innocent was dismissed. Our June 2017 testimony contained similar observations about students’ perceptions of their safety, with students generally reporting that they felt safe at their Job Corps centers. For example, most students reported feeling safe because a student found with a weapon at the center would be terminated. In that testimony, we also noted that students reported feeling less safe on such questions as hearing threats or applying the student conduct policy. In addition to the 12 safety-related questions, we examined data on the 2 questions about access to alcohol or drugs, and found that almost two- thirds of survey respondents said that it was mostly or very false that they could access alcohol or drugs at their Job Corps center. Although a large number of reported incidents in program year 2016 involved drugs or alcohol, less than 15 percent of survey respondents said that it was mostly or very true that they could access alcohol or drugs at their Job Corps center. National Measures of Safety and Security Have Been Developed Based on students’ responses to the 12 safety-related questions, ETA determined that 88 percent of students indicated that they felt safe in program year 2016. ETA calculated its national measure of safety— referred to as a safety rating—to summarize and track students’ perceptions of their safety and to determine the need for additional action, as noted previously. Similarly, it calculated a safety measure for each center. However, we calculated a national measure differently and found that an average of 73 percent of students reported feeling safe in program year 2016. Our national measure reflected the average of how safe each student felt on the 12 safety-related survey questions. We estimated that one key difference accounted for about 11 of the 15 percentage points between our and ETA’s measure. (See table 7 in appendix I.) Specifically, we calculated our measure based on a numeric average for each student without rounding. For example, if a student answered all 12 safety questions with 6 responses that he felt safe and another 6 that he felt unsafe, we counted this student as half safe (0.5). Meanwhile, ETA rounded the average to either safe or unsafe, so that ETA counted a student with 6 safe responses and 6 unsafe responses as feeling safe. In addition to differences in calculations, we developed our own national measure of safety because it is important to assess and track students’ perceptions for the program as a whole, as ETA has noted. Also, a national measure facilitates analysis of groups of students, such as male or female students or younger or older students, as described below. We examined whether our national measure differed by age, gender, time in program, center size, or operator type and found statistically significant and meaningful differences in our national measure by students’ length of time in the program. In particular, an average of 78 percent of students in the program for less than 4 months responded that they felt safe, compared to an average of 71 percent for students in the program for at least 4 months. According to ETA officials, differences in responses based on length of time in the program may relate to new students being less aware about life at the center because they begin the program with other newly arrived students for up to 2 months. For example, ETA officials said that new students may live in a dormitory specifically for new students. Thus, they are not yet fully integrated into the larger student body. Although differences were also statistically significant between age groups, center size, and operator type, such differences were not meaningful in a practical manner (i.e., around 3 percentage points or less). Differences in our national measure by gender were not statistically significant. When we analyzed the survey’s separate question about overall satisfaction with Job Corps, we found that students who reported they were satisfied with the Job Corps program responded that they felt safer than students who were not satisfied. In program year 2016, about two- thirds of students said it was very or mostly true that they would recommend Job Corps to a friend, which ETA uses to gauge overall satisfaction with the program. Of the 65 percent of students who would recommend Job Corps to a friend, 79 percent said they felt safe. Of the 11 percent of students who would not recommend Job Corps to a friend, 52 percent felt safe. ETA’s New Web-based Survey Is Designed to Be More Timely and Detailed ETA officials said that the agency is creating a new expanded safety survey to improve upon the prior survey. With Job Corps’ heightened attention to safety and security, the new survey—the Student Safety Assessment—is focused solely on safety and security issues and is designed to provide more timely and more detailed information. More timely information. ETA plans to administer the new safety survey monthly to a random sample of students rather than twice per year to all enrolled students. Also, it will be web-based, rather than the current paper-based survey. As a result, ETA officials said that they will receive more timely information from students because it will take less time to administer the survey and analyze the responses. More detailed information. The number of questions about center safety will increase from 12 to about 50—pending finalization of the survey—which is about the same number of questions on the current student satisfaction survey. For example, the new questions will ask about sexual assaults and harassment or the types of drugs bought or used at the center, which were not topics covered by the prior survey. ETA continues to work with its contractor with survey expertise to develop, test, and administer the new survey in 2018, according to ETA officials. To develop the new survey, ETA and its contractor have considered, incorporated, and revised questions from other existing surveys. For example, they have drawn from safety surveys of teenage students and postsecondary students. ETA plans to continue developing and refining the survey and its administration in 2018, including conducting monthly pilots from January to June 2018, assessing response rates, and developing a new way to calculate national and center-level safety measures. Additionally, ETA officials said that, in 2018, they will seek to obtain comments and approval on the survey from the Office of Management and Budget. ETA officials told us that they plan to administer the new survey nationally by January 2019. As ETA refines and administers this new survey, officials told us they plan to develop a new way to measure student safety based on the more detailed survey. ETA Initiated Multiple Actions to Improve Center Safety and Security, but the New Monitoring Strategy Was Implemented Inconsistently and ETA Lacks a Comprehensive Plan ETA Initiated Multiple Actions to Improve Center Safety and Security In 2014, ETA launched multiple actions to improve safety and security at Job Corps centers in response to DOL OIG recommendations (see table 4). For example, in 2015 the DOL OIG found ETA’s oversight of Job Corps centers ineffective, in part, because ETA’s student conduct policy excluded some violent offenses. As a result, ETA revised its student conduct policy by elevating several infractions previously classified as Level II to Level I (the most severe) and by adding several new categories of reportable incidents. Under the revised student conduct policy, assault, a Level I infraction, now includes fighting, which was previously a Level II infraction. In addition, the DOL OIG found that ETA did not monitor centers regularly enough to ensure center consistency in administering Job Corps disciplinary policies. In response, ETA implemented a risk- based monitoring strategy that identifies potential safety and security issues before they occur. Staff from five ETA regional offices and at one Job Corps center we visited said that ETA’s actions overall helped to improve center safety and security. For example, staff from five regional offices said that the changes to the student conduct policy that were implemented in July 2016 clearly describe the penalties for infractions and eliminate grey areas that previously allowed center staff to use their professional judgement. Staff from four regional offices also said these changes resulted in tradeoffs that reduced center staff discretion in imposing penalties. In addition, at one center we visited, the Director of Safety and Security told us he updated the center’s security-related standard operating procedures in response to ETA’s guidance. ETA’s guidance was part of the 2017 updates to the Policy and Requirements Handbook in response to DOL OIG concerns about reporting potentially serious criminal misconduct to law enforcement. ETA Officials Reported That Some New Actions Improved Center Monitoring, but That Actions Were Inconsistently Implemented and May Create Reporting Overlaps ETA national officials said that the new risk-based monitoring strategy has improved center monitoring because it has allowed them to more effectively direct resources to areas of greatest need. Officials in five ETA regional offices agreed that the new strategy improved their ability to monitor centers. The new monitoring strategy shifted the focus from addressing problems after they have occurred to a data-driven strategy that tracks center performance and identifies emerging problems. This strategy provides ETA and center operators an opportunity to address problems before they occur, according to ETA national officials. For example, the new monitoring strategy features new tools, including the Risk Management Dashboard. The dashboard is a summary analysis tool that conducts trend analysis using center data and allows regional staff to engage in targeted interventions at centers with potential safety and security concerns. In addition, under the new monitoring strategy, instead of only conducting scheduled monitoring visits to a center at set times, regional staff conduct unannounced visits based on data indicating a decline in center performance or other triggers. See appendix VI for additional information on the new monitoring strategy. Although the new risk-based monitoring strategy has improved center monitoring, it is not consistently implemented across regional offices, according to ETA national officials. They told us that similar problems identified at centers may be treated with different levels of focus or intensity from one region to another. In addition, national and regional officials told us that regional office staff have relied on professional judgment to determine the appropriate response to centers that may be at risk of noncompliance with safety and security policies, which could lead to inconsistencies. For example, when problems are identified at centers, the type of assessment to conduct is left to regional office staff discretion. As a result, staff in one region may decide that the most comprehensive assessment, the Regional Office Center Assessment, is needed, while another region’s staff would select a targeted assessment, which is more limited in scope. ETA national officials said that although each determination could be justified based on resource constraints and competing priorities, they would like to increase implementation consistency in this area. To address regional inconsistencies, ETA national and regional office staff said that guidance in the form of standard operating procedures (SOP) would be helpful. These procedures would promote consistency in how policies are interpreted and applied and would help ensure that centers are held to the same standards, according to ETA national officials. For example, SOPs could specify which type of assessment to conduct in response to specific problems identified at centers. Internal control standards state that managers should document in policies each unit’s responsibility for an operational process. Regional office staff said that they previously had a helpful tool, the Program Assessment Guide, that linked policies in the Policy and Requirements Handbook to the monitoring assessment process. Regional office staff said they used the Program Assessment Guide to prepare for center monitoring visits and it was a helpful training tool for new staff. Our review of ETA documentation found that the Program Assessment Guide included specific questions to ask center staff about how they meet safety and security requirements and suggested where to look for information to determine center compliance with policies. However, the Program Assessment Guide, which has not been updated since 2013, does not include recent changes to the Policy and Requirements Handbook, such as the updated student conduct policy. ETA national officials told us that limited staffing has made it difficult to update the Program Assessment Guide as frequently as changes are made to the Policy and Requirements Handbook. In February 2018, ETA national officials told us they plan to issue a variety of SOPs related to monitoring center safety and security issues (see table 5). ETA officials initially said these SOPs would be completed in August or November 2018 and later revised its plans with a goal of completing all SOPs by August 2018. However, in August 2017, ETA officials had told the DOL OIG that these SOPs would be completed in the March to July 2018 timeframe. ETA officials said that a staffing shortage in the Office of Job Corps’ Division of Regional Operations and Program Integrity delayed development of the SOPs. This Division— established in 2015 to coordinate regional operations and strengthen communications and quality assurance—includes eight staff positions; however, as of January 2018, the Division has two staff members on board. ETA officials said that they have not yet received departmental approval to fill the six vacant positions in the Division. Given this uncertainty, it is questionable whether ETA’s revised timeframes will be met. Without SOPs or other relevant guidance, ETA cannot ensure that monitoring for center safety and security will be carried out uniformly across the program. As a result, centers may be held to different standards, and the program may not achieve its center safety and security goals. In addition to inconsistencies in monitoring and a lack of sufficient guidance, staff in all six regional offices told us that components of ETA’s risk-based monitoring strategy created reporting overlaps. As part of the new monitoring strategy, regional staff have additional reports that they complete—such as the Risk Management Dashboard Action report and Corrective Action Tracker—about potential safety and security problems or actual violations found at centers. Some regional staff said the desk monitoring report includes similar information to the Risk Management Dashboard and Corrective Action Tracker reports, which regional offices submit to the ETA national office. Staff in one regional office said that they enter the same information about the status of center safety and security violations multiple times on the Corrective Action Tracker because the time between reporting periods is too short to allow for meaningful action to be taken. Staff from four regional offices said completing duplicative reports reduces time that could be used to conduct additional center monitoring, such as onsite visits, or to perform other key duties. ETA national officials disagreed that overlap exists among monitoring reports. They said that although reports may appear to overlap, the reports are complementary and not duplicative, and are used at different points in the monitoring process (see fig. 7 for an overview of ETA’s monitoring process). For example, ETA national staff told us that desk monitoring reports are primarily used by regional staff at the beginning of the monitoring process to identify potential problems and are not substantially reviewed by the national office. ETA national officials also said that the Risk Management Dashboard report is used at the beginning of the monitoring process to identify problems, whereas the Corrective Action Tracker is used later in the process after violations have been identified and corrective actions have been planned to bring the center back into compliance. In addition, ETA national officials also noted that regional staff are not asked to complete all reports every month. For example, regional staff complete a Risk Management Dashboard Action report only for those centers with potential safety and security concerns. We compared the information included in five monitoring reports—the Center Culture and Safety Assessment, Corrective Action Tracker, Desk Audit, Regional Office Center Assessment, and Risk Management Dashboard Action report—and found opportunities for streamlining. For example, we found that the Center Culture and Safety Assessment, Corrective Action Tracker, and Regional Office Center Assessment, all include a narrative description of the violations identified by regional staff categorized according to the corresponding requirement in the Policy and Requirements Handbook. In addition, ETA regional office staff said the Corrective Action Tracker, a Microsoft Excel spreadsheet, is cumbersome to use and within the spreadsheet they attach and submit additional documentation. ETA national officials agreed that streamlining or automating monitoring tools would be helpful for its regional staff, along with additional training to help staff understand the different reports and how to write the required narratives. ETA national officials also told us that they did not systematically review existing reports before creating additional ones for the new risk-based monitoring process. Officials said they have lacked the resources to make some improvements that could reduce the time regional office staff spend on reporting. Standards for internal control state that managers should identify the organizational level at which the information is needed, the degree of specificity needed, and state that managers should review information needs as an on-going process. Streamlining or automating reporting requirements can help centralize documentation relevant to monitoring center safety and security, possibly eliminate seemingly duplicative reporting requirements, and help regional staff manage their workloads. ETA Lacks a Comprehensive Plan to Link Its Various Efforts to Improve Center Safety and Security While ETA initiated multiple actions to address various safety and security issues, the agency does not have a comprehensive plan to improve center safety and security. A comprehensive plan describes the organization’s long-term goals, its strategy and timelines for achieving those goals, and the measures that will be used to assess its performance in relationship to its goals. It can also guide decision-making to achieve desired outcomes, including the priority with which to implement these efforts. ETA officials told us that although they do not have a single document that reflects a formal comprehensive plan, they have employed a comprehensive approach to improve center safety and security. However, in prior work, GAO established the importance of comprehensive planning to ensure agencies effectively execute their missions and are accountable for results. GAO has also identified leading practices that help ensure organizations achieve their objectives. These leading practices include developing goals, strategies to achieve goals, plans to assess progress toward goals, and leadership and stakeholder involvement in plan development (see table 6). ETA officials agreed that a comprehensive plan is needed, but told us that limited staff capacity and lack of expertise have hindered their ability to produce a comprehensive plan. In particular, the Division of Regional Operations and Program Integrity would have a role in developing the agency’s comprehensive plan. As previously mentioned, ETA officials told us that they did not have approval to fill the six vacant positions in the Division. With only two of the eight positions filled, ETA officials said that they prioritized correcting the deficiencies identified by the DOL OIG and responding to immediate safety and security concerns. ETA officials told us they plan to produce a comprehensive plan when they have secured the staff to do so. However, at this time, ETA does not have a specific timeframe for producing such a plan. When the agency begins developing a comprehensive plan, it could consider using the leading practices outlined above and drawing on the expertise of the government-wide Performance Improvement Council. In the absence of a comprehensive plan for safety and security, ETA risks the success of its new initiatives because they are not linked in an overall framework that demonstrates how they are aligned or contribute to goals for improving center safety and security. Conclusions It is important that Job Corps students be provided with a safe and secure learning environment. For the last several years, however, numerous incidents have threatened the safety and security of students. ETA has taken steps to improve center safety and security, but its efforts could be strengthened by ensuring regional office staff responsible for monitoring Job Corps centers are better supported with additional guidance and streamlined reporting requirements. Without providing regional staff with this additional support, the full potential of the new monitoring strategy may not be realized. While ETA has implemented several actions to address safety and security concerns, it does not have a comprehensive plan to guide all of its efforts. Without a comprehensive plan, ETA will not be able to assess its overall effectiveness in addressing center safety and security. Recommendations for Executive Action We are making the following three recommendations to ETA: The Assistant Secretary of ETA should ensure the Office of Job Corps expeditiously develops additional guidance, such as SOPs or updates to the Program Assessment Guide, to ensure regional offices consistently implement the risk-based monitoring strategy. (Recommendation 1) The Assistant Secretary of ETA should ensure the Office of Job Corps streamlines the monitoring reports completed by regional office staff. This streamlining could include automating monitoring tools, consolidating monitoring reports, or taking other appropriate action. (Recommendation 2) The Assistant Secretary of ETA should ensure the Office of Job Corps commits to a deadline for developing a comprehensive plan for Job Corps center safety and security that aligns with leading planning practices, such as including a mission statement with goals, timelines, and performance measures. This could also include developing the planning expertise within the Office of Job Corps, leveraging planning experts within other agencies in DOL, or seeking out external experts, such as the government-wide Performance Improvement Council. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to DOL for review and comment. We received written comments from DOL, which are reprinted in appendix VII. DOL concurred with our three recommendations. The department stated that it will move forward to develop standard operating procedures for its risk-based monitoring strategy, review and streamline existing monitoring reports, and provide additional training for its regional office staff. The department also plans to develop a formal written comprehensive plan for Job Corps safety and security. DOL also provided technical comments that we have incorporated in the report as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of Labor. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VIII. Appendix I: Additional Information about Our Methodology The objectives of this review were to examine (1) what is known about the number and types of reported incidents involving the safety and security of Job Corps students in program year 2016; (2) what is known about student perceptions of safety and security at Job Corps centers, and what steps, if any, is the Employment and Training Administration (ETA) taking to improve the survey used to collect this information; and (3) the extent to which ETA has taken steps to address safety and security at Job Corps centers. To address all three objectives, we reviewed agency policies and procedures, such as the Job Corps Policy and Requirements Handbook and guidance issued to center operators and ETA staff. In addition, we interviewed ETA officials, including Office of Job Corps national staff, Office of Job Corps regional directors, and staff in all six regional offices. We also conducted site visits at the Woodstock Job Corps Center in Woodstock, Maryland, and the Potomac Job Corps Center in Washington, D.C. We selected these two centers because they were within geographical proximity to Washington, D.C., operated by different contractors, and had over 100 reported safety and security incidents each in program year 2016. At each center, we interviewed the Center Director, Head of Safety and Security, a group of staff members, and a group of students. The staff and students we spoke with were selected by the centers. While these two site visits are not generalizable to all Job Corps centers, they provide examples of student and staff experiences with safety and security. Analysis of Safety and Security Incidents at Job Corps Centers To determine the number and types of safety and security incidents reported by Job Corps centers, we analyzed ETA’s incident data for program year 2016 (July 1, 2016 to June 30, 2017). This was the most recent year of Job Corps data available at the time of our review. ETA captures these data in its Significant Incident Reporting System (SIRS). Centers must report incidents involving both Job Corps students and staff, and incidents that occur at onsite and offsite locations. ETA has 20 categories of incidents in SIRS. See appendix II for incident category definitions. The incident categories and definitions in this report are taken directly from ETA documents and represent how ETA categorizes these incidents. We did not assess these categories and definitions. In this report, we present information on reported safety and security incidents in program year 2016 involving at least one student victim or perpetrator. There were 13,673 reported incidents involving students; additional incidents are reported in SIRS that did not involve students. When these additional incidents are included, a total of 14,704 safety and security incidents were reported in program year 2016. See appendix III for further information on the total number of incidents reported. To calculate the number and types of reported incidents, we analyzed the primary incident type that was assigned to each incident reported in SIRS. To provide additional information on reported assaults and sexual assaults, we also analyzed the secondary incident type that was assigned to each reported assault and sexual assault in SIRS. To calculate the total number and types of reported deaths, we analyzed both primary incident types and secondary incident types. In SIRS, deaths can be reported under three different primary incident types (“death”, “assault”, and “danger to self or others”). When an incident is assigned to any of these primary incident types, it may also be assigned a secondary incident type of “homicide,” among other secondary incident types. In addition, we analyzed the duty status for student victims and perpetrators of offsite incidents. In SIRS, students are described as being either (1) on duty, which means that they are onsite at a center or in a Job Corps supervised offsite activity; or (2) off duty, which means they are offsite and not under Job Corps supervision. For the 1,406 offsite incidents, we were unable to determine student duty status in 178 instances due to inconsistencies in ETA’s data. This report focuses on reported safety and security incidents in program year 2016, which was from July 1, 2016, to June 30, 2017. On July 1, 2016, ETA implemented policy changes that impacted the categorization and number of reportable safety and security incidents. Accordingly, incident data after July 1, 2016, are not comparable with earlier incident data, including incident data we reported in a June 2017 testimony. We assessed the reliability of SIRS data by reviewing relevant agency documentation about the data and the system that produced them and interviewing ETA and Department of Labor Office of Inspector General (DOL OIG) officials knowledgeable about the data. We determined the data were sufficiently reliable to report the minimum number of incidents that occurred in program year 2016. It is likely that the actual number of incidents was greater than the number reported in SIRS because the information is reported by Job Corps centers and the DOL OIG previously found instances of underreporting by a non-generalizable sample of center operators. In its March 2017 report, DOL OIG found that 12 of 125 Job Corps centers did not report 34 percent of significant incidents in SIRS from January 1, 2014, through June 30, 2015. ETA has recently taken steps to improve center reporting of significant incidents, such as revising the student conduct policy to more clearly define behavior infractions and conducting system-wide training to ensure uniform understanding and enforcement of student conduct policies. However, DOL OIG officials told us in January 2018 that it is too early to determine if these steps have resolved the DOL OIG’s concerns regarding center underreporting. Analysis of Student Perceptions of Safety Survey Response Rate and Reliability To examine what is known about student perceptions of their safety and security at Job Corps centers, we analyzed students’ responses to the student satisfaction survey administered during program year 2016: September 2016 and March 2017. We analyzed responses from both of these surveys in program year 2016, which was the most recent year for which data were available. ETA provided centers with the standardized paper-based survey to administer to students in-person on designated weeks. The survey of 49 close-ended questions contained 12 questions that ETA used to assess students’ safety. In addition to questions on student safety, the survey includes questions on other topics, including student demographics, overall satisfaction with Job Corps, and access to drugs and alcohol on center. According to data from ETA, the response rate for each survey was approximately 90 percent of all enrolled students. ETA calculated the response rate by dividing the number of students who responded to the survey by the number of enrolled students during the week of survey administration. Students responded anonymously to the survey. Because about 90 percent of students provided responses and about 10 percent did not, we analyzed the potential for non-response biases based on several student characteristics. If the responses of those who did not respond would have differed from the responses of those who did on relevant safety questions, the results calculated solely from those who responded may be biased from excluding parts of the population with different characteristics or views. We compared age, time in program, race, and gender—key characteristics available for the population of enrollees and respondents—to determine areas for potential bias. We determined that the potential for non-response biases existed for particular groups of students: younger students and those enrolled in the program for at least 6 months. For race, the potential for non-response bias was unclear. We found no potential bias for gender. Specifically, we found the following: Age. Younger students were under-represented, and older students were over-represented among survey respondents. Thus, to the extent that non-responding younger students would have answered safety questions differently than responding younger students, the potential for bias existed in the survey results we analyzed. When we asked ETA officials about such a potential bias, they responded that they did not have evidence or documentation suggesting that age is a predictor of students’ level of perceived safety in the program. Length of time in the program. Students in the program less than 6 months were over-represented among survey respondents, and students enrolled in the program over 6 months were under- represented in the survey. To the extent that non-responding students would have answered safety questions differently based on length of time enrolled, the potential for bias existed in the survey results we analyzed. When we asked ETA officials about such a potential bias, they noted that new students may be less aware about life at the center because they begin the program with other newly arrived students for up to 2 months. Thus, they are not yet fully integrated into the larger student body. Otherwise, they did not have evidence or documentation suggesting that length of time in the program correlates with students’ level of perceived safety. Race. It is unclear whether the distribution of race for respondents differs from that in the population. Specifically, ignoring item non- response, about 7 percent of respondents selected “Other,” and if those respondents were Black/African American, the distributions between the respondents and sample would be similar since this would result in the respondent race percentage being close to 50 percent, like the population of enrollees. If respondents who selected “Other” were actually distributed across the race categories, this would result in a difference between the respondent and population race/ethnicity characteristics, and to the extent that students’ responses to safety questions differ by race, this could result in a potential bias of respondent survey results we analyzed. We analyzed race for purposes of potential non-response bias, and not as part of statistical tests of survey results described below. Gender. We found no potential non-response bias for gender because the distribution of gender for respondents was similar to that in the population of students enrolled in the program. In addition to our non-response bias analysis, we assessed the reliability of the survey data by reviewing relevant agency documentation about the data and the system that produced them, testing data electronically, and interviewing ETA officials knowledgeable about the data. We determined that the student survey data were sufficiently reliable for our purposes. Calculations of Safety for Individual Survey Questions and for National Measures For the 12 safety-related survey questions, Job Corps policy specified responses that the agency counted as safe or unsafe, which we followed. As noted previously, ETA considers students to feel safe if they provided certain responses to each of the 12 safety-related survey questions, some of which are phrased as statements. For example, if a student provided a response of “mostly false” or “very false” to the statement “I thought about leaving Job Corps because of a personal safety concern,” that student would be counted as feeling safe on that survey question (see table 3). The percentages that we calculated are not comparable to prior publications, including ETA reports, because, for example, ETA revised (i.e., recoded) students’ responses in certain circumstances, as explained below in table 7. Meanwhile, we used the original responses that students provided and did not revise them. Also, ETA excluded responses of “don’t know / does not apply” from its percentages. As a result, our percentages are not comparable with those reported by ETA. We also calculated national measures of safety for the program and for particular demographic groups of students (e.g., male, female). Our calculation was similar to ETA’s national safety rating in certain respects. For example, as ETA did, we determined how safe each individual student felt as the unit of analysis. Therefore, the national measures of GAO and ETA may not equal the average of the 12 questions because, for example, not all students answered every safety question. However, in other respects, we produced our national measure differently than ETA. Table 7 explains the three ways that our calculation differed from ETA’s. Although the student safety surveys were an attempt to survey a census of the population of participants, we treated the survey as a sample in certain respects due to the non-response of about 10 percent of students as well as the ongoing nature of the regularly repeated survey. Therefore, we considered these data as a random sample from a theoretical population of students in this program and used statistical tests to assess any differences. Treating the data as a statistical sample, we carried out statistical tests of differences in safety measures for student characteristics (e.g., age, gender, length of time in the program). Because of the large sample size, smaller differences may be detected as statistically significant. This is because statistical significance is a function of the magnitude of the true difference (statistical tests are more likely to detect differences when the true values are very different) as well as the sample size (larger samples can detect statistical significance of smaller magnitudes, when compared to smaller sample sizes, when all else is equal). However, we used statistical significance in conjunction with whether the detected differences are meaningful or important, in a practical sense. In particular, we used a series of f-tests to statistically test, at the alpha = 0.05 level, for difference in average safety measure, across categories of age, gender, time in program, center size, and operator type. Appendix II: Categories of Incidents in the Significant Incident Reporting System (SIRS) Appendix II: Categories of Incidents in the Significant Incident Reporting System (SIRS) Appendix III: All Significant Incidents Reported by Job Corps Centers in Program Year 2016 Our analysis of the Employment and Training Administration’s (ETA) Significant Incident Reporting System (SIRS) data showed that there were 14,704 reported safety and security incidents at Job Corps centers in program year 2016, which include incidents involving students, staff, and non-Job Corps individuals. See table 9. Appendix IV: Reported Safety and Security Incidents Involving Students by Job Corps Center, Program Year 2016 Job Corps centers reported 13,673 safety and security incidents involving students, including those that occurred both onsite and offsite, in program year 2016. See table 10 for information on each Job Corps center, including the number of incidents involving students reported in program year 2016. Appendix V: GAO Safety Measure for Job Corps Centers, March 2017 We calculated safety measures for each Job Corps center, based on student responses to the safety-related questions on the student satisfaction survey (see table 11). We used the methodology described in appendix I to calculate safety measures for the centers. Results in table 11 are from the March 2017 survey, the most recent for program year 2016. The percentages in this table are not comparable and should not be analyzed with the numbers of reported incidents at each center because they are distinct measures that cover different periods of time. Appendix VI: ETA’s Monitoring of Job Corps Centers The Employment and Training Administration’s (ETA) risk-based monitoring strategy is designed to identify emerging problems that place a Job Corps center at-risk for safety and security problems. The strategy is largely implemented by regional office staff, which work with the Office of Job Corps’ newly formed Division of Regional Operations and Program Integrity and use a variety of tools to assess, track, and report on center performance (see table 12). Appendix VII: Comments from the Department of Labor Appendix VIII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Mary Crenshaw (Assistant Director), Andrea Dawson (Analyst-in-Charge), Sandra Baxter, and Matthew Saradjian made key contributions to this report. Additional assistance was provided by Alex Galuten, Gretta Goodwin, Benjamin Licht, Grant Mallie, Mimi Nguyen, Nhi Nguyen, Monica Savoy, Almeta Spencer, Manuel Valverde, Kathleen van Gelder, and Sonya Vartivarian.

Deficiencies identified in multiple DOL Inspector General audits since 2009 and two student deaths in 2015 have raised concerns regarding the safety and security of Job Corps students. GAO was asked to review safety and security of students in the Job Corps program. GAO's June 2017 testimony summarized preliminary observations. This report further examines (1) the number and types of reported safety and security incidents involving Job Corps students; (2) student perceptions of their safety at Job Corps centers; and (3) the extent to which ETA has taken steps to address safety and security at Job Corps centers. GAO analyzed ETA's reported incident data for Job Corps centers from July 1, 2016, through June 30, 2017. GAO also analyzed ETA's student survey data from the same period, reviewed relevant documentation, and interviewed ETA officials at its national office and all six regions. GAO also visited two Job Corps centers that had different operators and at least 100 recent incidents. These two centers are not generalizable to all centers. Job Corps centers reported 13,673 safety and security incidents involving students from July 2016 to June 2017, according to GAO's analysis of the Department of Labor's (DOL) Employment and Training Administration's (ETA) data. Most reported incidents occurred onsite and involved recently enrolled male students under age 20. During that time, the program served about 79,000 students at 125 Job Corps centers, according to ETA officials. ETA's Office of Job Corps administers the program, which is the nation's largest residential, educational, and career and technical training program for low-income youth generally between the ages of 16 and 24. Drug-related incidents and assaults accounted for 48 percent of all reported incidents (see fig.). Students generally felt safe at Job Corps centers, yet fewer felt safe in some situations, based on GAO's analysis of ETA's September 2016 and March 2017 Job Corps student satisfaction surveys. At least 70 percent of students reported that they felt safe on half of the 12 safety-related questions in the 49 question survey about their experiences in the Job Corps program; but fewer students reported feeling safe when asked if they were made to feel unimportant or if they heard students threaten each other. ETA plans to administer a new survey nationally by January 2019 that focuses solely on safety and security issues. ETA has initiated several actions to improve safety and security at Job Corps centers, but insufficient guidance for its monitoring staff and absence of a comprehensive plan for safety and security may put the success of these actions at risk. Among its actions, ETA adopted a new risk-based monitoring strategy to identify emerging problems at the centers. Officials GAO spoke with in five of ETA's regional offices said that the new strategy has improved monitoring, but that more guidance on how to interpret and apply safety and security policies is needed to promote consistency across centers. Also, ETA lacks a comprehensive plan linking its new efforts to an overall safety and security framework. ETA officials told GAO that limited staff capacity and lack of expertise have hindered their efforts in developing such a plan. Without a comprehensive plan, ETA runs the risk that its new efforts will not be successful.

GAO_GAO-18-103

Background Medicaid is jointly financed by the federal government and the states. States administer their Medicaid programs within broad federal rules and according to a state plan approved for each state by CMS. CMS issues program requirements in the form of regulations and guidance, approves changes to states’ Medicaid programs, provides technical assistance to states, and conducts other oversight activities. States are responsible for establishing state policies and procedures in accordance with federal requirements. Each state must designate a single state agency to administer its Medicaid program. That agency can delegate programs or functions—such as enrollment in HCBS programs—to other state and local agencies, but is responsible for their supervision. States may provide certain types of HCBS under their state plans. In addition, states may seek permission from CMS to provide HCBS under waivers of traditional Medicaid requirements; for example, in order to provide services to a targeted population or to a limited number of beneficiaries. Both state plans and waivers are developed and proposed by states and must be approved by CMS in order for states to receive federal matching funds for medical expenditures. Types of Medicaid HCBS Programs and Delivery Systems Medicaid HCBS cover a wide range of services and supports to help individuals remain in their homes or live in a community setting, such as personal assistance with daily activities, assistive devices, and case management services to coordinate services and supports that may be provided from multiple sources. With approval from CMS, states can provide Medicaid HCBS under one or more types of programs authorized under different sections of the Social Security Act, including several state plan and waiver authorities. (See table 1.) States can have multiple HCBS programs operating under different authorities, and these authorities have distinct features such as different functional eligibility criteria. For example, some types of Medicaid HCBS programs only serve beneficiaries who are functionally eligible for an institutional level of care; that is, beneficiaries must have needs that rise to the level of care usually provided in a nursing facility, hospital, or other institution. Under some types of HCBS programs, states can tailor their programs to the needs of specific beneficiary populations they choose to target. Common populations that states target with their HCBS programs include: older adults and people with physical disabilities, people with intellectual or developmental disabilities, people with addictions or mental illness, and other populations with specific conditions such as traumatic brain injury or Alzheimer’s disease. States use different delivery systems to provide Medicaid HCBS, and these may vary across distinct HCBS programs within a state. Historically, states have predominantly provided HCBS using fee-for- service delivery systems in which states pay providers for HCBS rendered to beneficiaries and billed to the state. Alternatively, under managed care long-term services and supports delivery systems, states contract with managed care plans to provide HCBS to beneficiaries and typically reimburse the plans through capitation payments, which are periodic payments for each beneficiary enrolled under the contract. Managed care plans may contract with HCBS providers to provide services to beneficiaries or may provide services directly. A state may use a combination of fee-for-service and managed care delivery systems within or among its HCBS programs. Estimated expenditures on HCBS provided under managed care have grown from $8 billion in fiscal year 2012 to $19 billion in fiscal year 2015. Assessments of Individuals’ Needs for Medicaid HCBS Individuals require HCBS because they are limited in their ability to care for themselves due to physical, developmental, or intellectual disabilities, or to chronic conditions. These services can assist beneficiaries with activities of daily living—basic, personal, everyday activities such as bathing, dressing, and eating—or with instrumental activities of daily living, which are other activities that allow individuals to live independently in the community, such as meal preparation or managing finances. States generally assess a beneficiary’s needs for HCBS based on designated assessment tools—or sets of questions—that assessors use to collect information from sources such as beneficiaries, caregivers, and health records. Examples of this information include the following: Functional support needs: The need for assistance with activities of daily living or instrumental activities of daily living. Clinical care needs or medical health concerns: Information on an individual’s health history, active diagnoses, medications, and clinical services (e.g., wound care or dialysis). Cognitive and behavioral support needs: The loss of memory function, behaviors that pose risks, or adaptive and maladaptive behaviors. Beneficiaries’ strengths, preferences, and goals. The needs assessment processes may vary across states and distinct HCBS programs within a state, but typically involves the following key steps: States direct potentially eligible individuals to entities that conduct Medicaid HCBS needs assessments. An assessor conducts a needs assessment, generally in a face-to- face setting, using a designated assessment tool to collect information based on methods such as interviews with beneficiaries and caregivers, observation, and review of other sources of information needed to determine functional eligibility for services. Additional information relevant for service planning purposes may be included in this needs assessment, or collected in additional assessments that may occur after an individual is determined eligible for HCBS. Needs assessment results are used to inform determinations of whether an individual meets particular HCBS programs’ functional eligibility requirements. Needs assessment results for eligible individuals inform the development of a service plan. The service plan includes the type and amount of services to be provided to the beneficiary within state- specified limits. States may use distinct needs assessments for service planning to collect more detailed information or may use the same assessment that was used to determine functional eligibility. (See fig. 1.) CMS’s goals for HCBS and other Medicaid long-term services and supports include achieving a sustainable and efficient system that provides appropriate services to beneficiaries. Effective needs assessments can help beneficiaries to receive appropriate services to help them live independently and help states manage utilization of services, and therefore costs. An effective assessment process would facilitate efficient use of services and beneficiaries’ access to available services appropriate to their needs by accurately and consistently estimating beneficiaries’ needs. Assessment processes that overestimate needs, underestimate needs, or both, may result in HCBS programs that offer more services than needed or deny eligible beneficiaries access to needed services. (See fig. 2.) There are varied reasons why HCBS needs assessments may not accurately and consistently estimate beneficiaries’ needs. HCBS needs assessments cover complex subject matter and may require assessors to make observations and judgments about beneficiaries’ needs. For example, needs assessments typically address numerous and varied tasks necessary for a beneficiary to live independently, which can be difficult to measure and subject to interpretation—such as a beneficiary’s ability to manage finances. Furthermore, CMS has stated that assessors’ conflicts of interest can influence decisions even without individual assessors realizing this. Conflicts of interest can arise when an assessor has an incentive for a beneficiary to either over- or under-utilize HCBS, or an incentive to put the needs of assessors ahead of program goals, such as promoting certain HCBS when others may be more beneficial or cost effective. As examples to further illustrate these points, incentives that could result in over- or under-utilization of HCBS include the following, respectively. On one hand, an assessor may be a provider of the services for which the beneficiary may be eligible or a managed care plan that covers these services, and thus have an incentive to find that individuals need the services or coverage they offer. Conversely, a managed care plan may have incentives to reduce enrollees’ service utilization in order to reduce costs below the capitation payments that the plan receives to provide care to its enrollees and thus to maximize its profits, which could influence needs assessments used for service planning. Selected States Used Multiple Tools and Entities to Conduct Needs Assessments across Distinct HCBS Programs Selected States Varied in the Extent to Which Needs Assessment Tools Were Tailored to Distinct HCBS Programs and Assessment Purposes Each of the six selected states we reviewed used varied needs assessment tools across their distinct Medicaid HCBS programs, for which both functional eligibility criteria and amount of services available to beneficiaries can differ widely. The selected states varied in the extent to which their needs assessment tools were either tailored to a single Medicaid HCBS program or used across multiple, though not necessarily all, HCBS programs in the state. The selected states also varied in the extent to which the same or different needs assessment tools were used for different purposes, such as determining functional eligibility and developing a service plan: Connecticut. State officials reported that the state was in the process of piloting a uniform needs assessment tool that it planned to use for all but one of the Medicaid HCBS programs in the state. This needs assessment tool was used both to determine functional eligibility and to develop beneficiary service plans. Kentucky. State officials reported that the state had implemented a new needs assessment tool for one Medicaid HCBS Waiver program while continuing to use previous tools for other Medicaid HCBS Waiver programs. The same assessment was used for determining functional eligibility and for developing the service plan. In selecting and adapting the new tool, officials said that they considered the assessment needs of the other Medicaid HCBS waiver programs, because they would ultimately like to use only one assessment tool across all HCBS Waiver programs. Minnesota. State officials reported that the state had designed a uniform needs assessment tool for use across all HCBS programs in the state and had implemented it for most programs. The uniform assessment tool was used to determine functional eligibility for all HCBS programs in the state for which it was implemented and was also used to inform the development of service plans. New York. State officials reported that the state had implemented a set of needs assessment tools, referred to as a uniform assessment system, for use across multiple HCBS programs. The same uniform assessment system was used to both determine functional eligibility and to inform development of beneficiary service plans. North Carolina. At the time of our review, officials described generally using different assessment tools for the separate HCBS programs in the state. State officials reported that the state had developed a new needs assessment tool for one Medicaid HCBS Waiver program, and that they planned to expand use of this tool to another program in the future. The state used different needs assessments to determine functional eligibility and for service planning in its HCBS Waiver programs. Washington. State officials reported that a uniform assessment system was used across HCBS programs in the state. The system was composed of multiple needs assessment components. One version of the assessment was used for HCBS programs serving individuals with intellectual and developmental disabilities, and a different version was used for all other programs. For all HCBS programs, the same needs assessment system was used to determine functional eligibility and to develop the service plan. Selected States Used Different Types of Entities to Conduct Needs Assessments, Including State Agencies, Local Public Agencies, Contractors, HCBS Providers, and Managed Care Plans All six states we studied reported using more than one type of entity to conduct needs assessments for HCBS programs. For example, New York used five different types of entities, North Carolina used four different types of entities, and the remaining four states used two or three types of entities to conduct needs assessments. State agencies, local public agencies, and independent contractors were used by four states to conduct needs assessments for at least one HCBS program. All states but one, Washington, used HCBS providers or managed care plans to conduct needs assessments (see table 2). The types of entities that conduct needs assessments in the selected states varied across distinct HCBS programs, or for distinct needs assessment purposes within a single HCBS program. States may use multiple types of entities to conduct needs assessments because of differences in how particular HCBS programs were delivered. For example, the entities used in Minnesota varied by delivery system—the state reported that it used local public agencies to conduct needs assessments for all Medicaid HCBS programs other than its managed care HCBS program, for which managed care plans conducted needs assessments. In other states, different entities conducted needs assessments within the same HCBS programs depending on the purpose of the assessment. For example, because managed care plans may have a financial interest in eligibility determinations, New York began by July 2015 to use an independent contractor exclusively to conduct needs assessments to determine functional eligibility for HCBS for new enrollees in its managed care HCBS program. Once individuals were determined eligible for managed care HCBS, the managed care plans conducted the same assessment a second time in order to develop beneficiary service plans. Selected States Varied in Whether Formulas Were Used to Inform Functional Eligibility Determinations and Service Planning Decisions The six selected states also varied in whether they used formulas based on information collected using Medicaid HCBS needs assessment tools to inform key functional eligibility and service planning decisions. States may use such formulas as a means of meeting goals of consistent treatment of individuals based on needs. In making functional eligibility determinations, five of the six selected states—Connecticut, Minnesota, New York, North Carolina, and Washington—reported using a formula to compare the results of completed needs assessments to eligibility criteria for at least one of the HCBS programs in the state. For example, for specific HCBS programs, the assessment tool may compile results of certain assessment questions into a score that indicates whether or not the beneficiary is considered to have a need for an institutional level of care, which is required in order to be functionally eligible for some types of HCBS programs. For service planning purposes, four states— Connecticut, Minnesota, North Carolina, and Washington—reported that in at least one of these states’ distinct HCBS programs, the assessment tools included formulas. These formulas specified a particular amount of services or guided a potential range of service amounts for beneficiaries based on the results of particular assessment questions. (See table 3.) Professional judgment may also be used in conjunction with formulas. For example, when formulas are used to specify particular service levels based on the needs assessment results, they may specify a number of service hours or service budget. In either case, other factors may also be considered in some circumstances. State officials in one state described the use of formulas to allocate services as an initial step prior to the detailed person-centered service planning process. For example, in Minnesota a state formula specifies a certain number of hours of personal care services partly based on the level of need for assistance with activities of daily living such as eating, bathing, and toileting. However, the beneficiary and the entity responsible for the service planning process determine the specific services to prioritize within the overall number of hours available, and they may decide to use the authorized hours toward covered services that were not necessarily part of the formula, such as instrumental activities of daily living. In contrast, in states or HCBS programs that did not utilize formulas to specify or guide a particular amount of services based on assessment results, the amount of services may be determined—within the scope of service limits applicable to the particular HCBS program—by the entity responsible for working with the beneficiary on the service planning process. Selected States Took Steps to Unify Needs Assessment Processes and Increase Consistency Selected States Made Efforts to Make Needs Assessment Processes More Uniform across Distinct HCBS Programs and Noted Benefits and Challenges The six selected states reported taking steps to unify needs assessment processes across Medicaid HCBS programs as a means of meeting goals such as improving the efficiency and effectiveness of assessments. Specifically, states reported taking steps to implement assessment tools for use across multiple Medicaid HCBS programs in the state. Four states—Connecticut, New York, Minnesota, and Washington—had adopted or were piloting needs assessment tools that were used across multiple state Medicaid HCBS programs (though not necessarily all such programs in the state) rather than completing separate needs assessments for each separate program. In addition, Kentucky and North Carolina had recently implemented new tools for specific Medicaid HCBS programs that would be considered for use in additional HCBS programs in the future. Important benefits to beneficiaries and HCBS programs have resulted from efforts to coordinate needs assessment processes by using a uniform assessment across distinct HCBS programs, according to state officials and advocates. For example: State officials and advocates described that using a uniform assessment tool to determine functional eligibility for multiple state HCBS programs resulted in benefits and efficiencies for beneficiaries. Officials and advocates in Minnesota said that the uniform assessment process allowed beneficiaries to connect with the program best suited to their needs, even if they may not have otherwise been aware of it when initially seeking assistance. For example, officials said that families of children with autism may apply for personal care services, but may benefit more from being connected to another HCBS program that is available and designed to support the children’s specific needs. Similarly, officials in Connecticut said that uniform assessment across HCBS programs allows beneficiaries to access the services that are most appropriate without multiple assessments. For example, if an individual applies for a particular HCBS program but a separate program would be more appropriate, a second assessment is not necessary. Connecticut, Washington, and New York officials described how uniform assessment tools allowed consistent information to be shared with care providers or when beneficiaries transitioned between care settings. This, in turn, could allow care providers to better manage beneficiary care. State officials reported uniform assessment tools can result in better informed program management and policy decisions because they allow for the ability to collect consistent information across HCBS programs. For example, officials from Connecticut and Washington described how comparable assessment information could inform equitable policies for allocating services. Washington officials described using information about the extent of beneficiary needs to inform decisions about how many program staff were needed. Kentucky officials described how a more uniform assessment process helped them become aware of when beneficiaries were receiving services from multiple different non-Medicaid HCBS programs that were state-funded. States and advocates also reported challenges, including inefficiencies, to using uniform assessments under certain circumstances, such as when states have different criteria for functional eligibility across their different HCBS programs, or when different beneficiary populations have different assessment needs. For example: Minnesota officials reported that beneficiaries may need to address multiple versions of similar eligibility-related questions in its uniform assessment tool. This was due to the decision to incorporate each HCBS program’s previously separate functional eligibility questions into its tool to avoid changes in the information they used to determine eligibility. Beneficiary advocates in three states expressed concerns with the use of assessments designed for a particular population on a different population, such as using assessments designed for adults to assess the needs of children. Officials from Kentucky also noted concerns about using assessments across distinct populations as part of the reason the state was not using a single assessment tool. State officials and advocates also reported that uniform assessments resulted in lengthier assessment question sets that take longer to complete for both the assessor and the beneficiary. Selected States Reported Efforts to Increase Consistency in How Needs Assessments Were Conducted and Used, but Balancing Consistency with Flexibility Was a Concern Selected states reported making efforts to improve their assessment processes to increase consistency in how assessors conduct HCBS needs assessments. These efforts included using structured questions and emphasizing training to ensure individual assessors approached the assessment questions consistently and according to policy, and addressing potential conflicts of interest by using independent assessors rather than HCBS providers and managed care plans to conduct certain needs assessments. States’ improvement efforts included the following: Structured questions. Officials from five states described that structured approaches to assessment questions could improve the consistency of the assessment results, which are used to make functional eligibility and service planning decisions. Examples of structured questions that state officials described included questions that limited responses to a specific time period—such as the past 7 days—when assessing needs, and questions that used a standard scale for responses. Assessor training. Officials from four states reported focusing on assessor training to improve consistency. For example, North Carolina officials reported that determinations of need for personal care services were improved after training. In the training, assessors were taught to comply with a state policy to ask that beneficiaries demonstrate need for assistance with activities of daily living, such as mobility, rather than solely asking them questions about their needs. Independent needs assessments. Officials from three of the selected states—New York, North Carolina, and Kentucky—reported that needs assessments were improved by removing entities that had a financial interest in assessment results from conducting certain assessments. For example, Kentucky officials reported that using independent assessors rather than HCBS providers enhanced consistency because HCBS providers may skew beneficiaries’ assessment results to generate demand for their services. They noted that providers had resisted their removal from the process. Three of the six selected states reported that using a formula to summarize assessment results increased the consistency with which functional eligibility determinations or decisions about the amount of services to provide were made based on each individual’s assessment results. For example, officials from Washington reported that after implementing a formula to generate an overall classification of need, the amount of service hours authorized for beneficiaries was distributed more equitably and evenly across a continuum from minimum to maximum, rather than beneficiaries mainly always receiving the maximum number of hours allowed under program limits. This could allow for limited resources to be allocated more consistently across beneficiaries with similar levels of need. Officials from Connecticut similarly reported that during testing of a formula that was planned for use to specify the amount of service to provide, they had identified beneficiaries receiving more services than would be indicated by the formula based on their assessed needs. While officials reported that these efforts enhanced consistency of eligibility determinations and service authorization decisions, state officials and advocates also acknowledged challenges related to balancing consistency with flexibility in arriving at decisions—particularly with respect to the use of formulas for service allocation. The different approaches of relying on a formula or relying on the judgement of individual entities each presented its own challenges: In two states where there was a formula to specify or guide the amount of services to provide, advocates raised concerns that the indicated amount did not adequately address needs for some individuals. For example, advocates noted that the results of a lengthy and nuanced assessment tool were ultimately reduced to a single score in order to inform a particular budget for services. While this score might reflect the average needs of beneficiaries with similar assessment results, it did not adequately convey individualized needs of some beneficiaries, according to the advocates. On the other hand, there were concerns that relying on entities’ judgment resulted in inconsistency across beneficiaries. Advocates in three states raised concerns about inconsistent decisions across managed care plans or geographic areas, or over time, when determinations of functional eligibility or amount of services to provide were not based on state-determined formulas. In one state, state officials and advocates noted that these concerns were addressed by using formulas to allocate services but allowing beneficiaries to use an alternative assessment process in certain circumstances or receive “exceptions” to the amount of service authorized by the state’s formula based on individual circumstances. Beneficiary advocates also emphasized that the amount of services that are authorized for beneficiaries may reflect the scope of available services rather than the needs of an individual beneficiary. To the extent that a given HCBS program has limited resources for providing services, assessment results may be used to allocate resources within those limitations rather than to estimate the amount of services that would fully meet needs. For example, an assessment formula in Washington is designed to specify service amounts based on beneficiaries’ identified levels of need and the amounts that are available for particular levels of need may increase or decrease based on the state budget. State officials in Connecticut also said that because funding can vary for different HCBS programs within a single state, moving to a consistent formula for analyzing assessment results may shed light on the extent that beneficiaries with similar levels of need receive different levels of services depending on available program resources. CMS Has Taken Steps to Make HCBS Needs Assessment Processes More Effective, Uniform, and Free from Conflict of Interest, but Some Concerns Remain Unaddressed Two CMS Programs Have Sought to Make Assessment Processes More Effective and Uniform within and across States CMS has implemented two key programs that facilitate state efforts to make their HCBS needs assessment processes more uniform, among other goals. One of these is called Testing Experience and Functional Tools (TEFT) and is designed, in part, to test the effectiveness of a set of specific questions that states can use to conduct needs assessments. CMS designed the TEFT assessment questions for use across multiple HCBS beneficiary populations, including beneficiaries (1) of advanced age, or with (2) intellectual or developmental disabilities, (3) physical disabilities, (4) serious mental illnesses, or (5) traumatic brain injuries. The assessment questions being tested are limited to needs that may be relevant among these populations and do not assess needs that may apply to only certain populations; for example, questions to assess cognitive status that may apply to those with intellectual or developmental disabilities or other conditions but that do not apply to those with physical disabilities only. CMS announced TEFT in 2012 and six states received grants to test needs assessment questions for their effectiveness, which includes their validity (defined as accuracy in measuring individuals’ functional abilities) and reliability (defined as the consistency of results across assessors). Three of these six states were among those we selected for this review: Connecticut, Kentucky, and Minnesota. Officials in these states told us that they had not completed field testing the TEFT questions, and officials in two of these states (Connecticut and Minnesota) said they would consider the option of using TEFT questions in their assessments in the future. CMS officials told us that CMS plans to make the assessment questions they determine to be valid and reliable available to all states in the spring of 2018. Another key program that CMS has implemented is the Balancing Incentive Program, which was authorized by the Patient Protection and Affordable Care Act in 2010, to provide incentives for eligible states to rebalance their long-term services and supports systems towards more home- and community-based care. Among other things, this program required participating states to collect information on specific topics related to beneficiaries’ needs, but allowed states to choose the needs assessment questions. Under this program, states could use different assessment tools to gather information for HCBS programs serving different populations as long as the states used tools that collected information on 26 key topics that spanned five broad areas, or domains. The five domains were (1) activities of daily living, (2) instrumental activities of daily living, (3) medical conditions/diagnoses, (4) cognitive functioning, memory, and learning, and (5) behavior concerns (e.g., injurious, uncooperative, or destructive behavior). The requirement to collect information from these five domains for each beneficiary population was designed to promote consistency in determining beneficiaries’ needs across HCBS programs, while allowing states to tailor their assessment processes to specific beneficiary populations, according to CMS officials. For example, New York reported collecting information on the required topics using a suite of six assessment tools that varied to reflect differences in beneficiaries’ age, population, and other factors. The Balancing Incentive Program ended in 2015, although some states were provided extensions to carry out planned activities. Of 20 participating states evaluated, 18 successfully carried out the requirement to incorporate the 26 key topics in their needs assessments, according to a program evaluation prepared for the HHS Assistant Secretary for Planning and Evaluation. In addition, CMS has provided information and lessons learned from the Balancing Incentive Program to all states via its website and, according to CMS officials, has done several related presentations. While CMS does not have plans to conduct additional evaluations of assessment tools used by participating states, CMS officials told us that there would be some value to doing so and they may consider it in the future. CMS Has Taken Steps to Improve Effectiveness by Addressing the Potential for Conflicts of Interest, but These Steps Do Not Address All Types of Programs or Conflicts CMS has sought to improve HCBS needs assessments by addressing concerns about the potential for conflicts of interest that HCBS providers and managed care plans may have in conducting assessments. As previously noted, HCBS providers may have a financial interest in providing services that could potentially lead to over-utilization of services, while managed care plans may have a financial interest in increasing enrollments and reducing enrollees’ service utilization. Addressing HCBS Providers’ Potential for Conflicts of Interest CMS has taken steps to address conflicts of interest that may occur when HCBS providers conduct needs assessments, but gaps remain. The Balancing Incentive Program, which ended in 2015, required the 21 participating states to either separate HCBS provision from needs assessment processes or to take steps to mitigate the potential for conflicts of interest that occur when HCBS providers conduct assessments. In addition, CMS implemented regulations requiring all states to establish standards for conducting needs assessments that address certain potential conflicts for particular types of HCBS programs. The specific requirements may differ by program and whether the assessment is used to determine functional eligibility or develop service plans: For example, for State Plan HCBS—a relatively small program that accounted for less than 1 percent of estimated Medicaid HCBS expenditures in fiscal year 2015—states are required to establish conflict-of-interest standards that address both (1) evaluation of eligibility, and (2) needs assessments used to develop service plans. These standards must prohibit HCBS providers from conducting eligibility evaluations and needs assessments for this program, with certain exceptions in which the potential for conflict of interest must be mitigated. Under the HCBS Waiver, Community First Choice, and Self-Directed Personal Assistant Services programs—which collectively accounted for 60 percent of estimated expenditures for Medicaid HCBS in fiscal year 2015—states are required to establish standards that generally prohibit HCBS providers from conducting assessments of need used to develop service plans, but this requirement does not apply to assessments that states may use to determine functional eligibility. In addition, for State Plan Personal Care Services programs and other HCBS authorized under Section 1905(a) of the Social Security Act— which collectively accounted for 29 percent of estimated Medicaid HCBS expenditures in fiscal year 2015—regulations do not specifically limit HCBS providers from conducting assessments that states may use to determine eligibility or develop service plans. As a result of these differences in requirements across HCBS authorities, there are gaps in federal conflict-of-interest requirements applicable to entities that may conduct needs assessments. For example, several types of HCBS programs have specific requirements for states to establish standards to address potential conflicts of interest when HCBS providers conduct needs assessments that are used for service planning, but there are no equivalent requirements for State Plan Personal Care Services programs. (See table 4). In addition, HCBS providers may conduct certain needs assessments that inform HCBS functional eligibility determinations, but specific conflict of interest requirements are generally not in place for such assessments. With respect to gaps in requirements specific to needs assessments that are used to inform functional eligibility determinations, CMS officials suggested that state agencies’ responsibility for making final eligibility determinations addresses conflict- of-interest concerns. Specifically, officials noted that CMS regulations require state agencies to determine eligibility, and that, in doing so, states may consider needs assessments conducted by assessor entities as well as information from other sources. However, states may vary in the extent to which they consider information from other sources. In addition, it is unclear how the requirement that the state maintain responsibility for eligibility determinations addresses potential conflicts of interest when an HCBS provider conducts a needs assessment upon which a determination of eligibility for HCBS may be based. Gaps in requirements to address the potential for conflicts of interest when HCBS needs assessments are conducted by HCBS providers are not consistent with federal internal control standards, which require federal agencies to identify, analyze, and respond to risks related to achieving defined objectives. While CMS has a goal of achieving an effective long-term services and supports system that provides appropriate services to beneficiaries, because the agency does not require states to address the potential for HCBS providers’ conflicts of interest in conducting needs assessments under all HCBS authorities, there is a risk that some states may rely on HCBS providers to conduct assessments without addressing HCBS providers’ financial incentives, which can lead to over-utilization of HCBS. Examples among our case study states include: North Carolina: A program integrity review conducted by CMS in North Carolina found that the state’s transition to the use of an independent entity to conduct needs assessments for the State Plan Personal Care Services Program—rather than relying on HCBS providers to assess beneficiary needs—was followed by a reduction in both the number of beneficiaries using the program and a 30 percent reduction in average monthly expenditures. This suggests the program may have been over-utilized before the independent entity was used to conduct needs assessments. CMS highlighted this use of an independent entity as a practice that merits consideration from other states. Kentucky: State officials told us that when they transitioned to the use of independent assessors they also identified apparent instances of over-utilization that were occurring before they implemented independent assessments and other program changes. For example, officials said that when testing a new assessment tool using independent assessors, they identified individuals who had a low level of needs, and who did not appear to require an institutional level of care, as required for program eligibility, but who had been assessed at that level in the past. Addressing Managed Care Plans’ Potential for Conflicts of Interest Conflict-of-interest concerns also exist for states with managed care HCBS programs where managed care plans conduct assessments. CMS has taken separate steps to address these concerns, including issuing guidance and new regulatory requirements. CMS issued guidance in May 2013 that addressed best practices and CMS’s expectations of new and existing managed long-term services and supports programs, which include managed care HCBS. The guidance stated that managed care plans may not be involved in any HCBS functional eligibility determinations or needs assessment processes prior to a beneficiary’s enrollment in the plan. CMS officials told us that allowing managed care plans to assess individuals before enrollment without proper oversight by the state may provide an opportunity for plans to selectively enroll individuals who require less HCBS. Despite this risk, we found that CMS does not always take steps to ensure that states have procedures in place to guard against this practice prior to approving their programs. CMS officials told us that they evaluate state programs individually and may not apply all of the detailed concepts in its guidance when developing state-specific requirements for managed care HCBS programs. CMS’s application of the guidance in the three states selected for this review varied across types of HCBS programs. Examples from 1115 Demonstration and HCBS Waiver programs for our case study states include the following: 1115 Demonstration programs: Of the six states we selected for this review, one—New York—operated a managed care HCBS program authorized by an 1115 demonstration. Prior to July 2015, New York used managed care plans to assess and determine individuals’ functional eligibility for certain HCBS programs. One managed care plan admitted to enrolling 1,740 individuals in managed care HCBS whose needs did not qualify them for the program from January 2011 to September 2013, and it resolved allegations that it had submitted false claims for Medicaid HCBS in a $35 million settlement with the U.S. Department of Justice. In 2013, CMS amended the terms and conditions of New York’s demonstration to require the state to use an independent assessor entity to both conduct needs assessments and determine eligibility for managed care HCBS, and New York has contracted with an independent assessor to carry out these functions. While this requirement applied specifically to New York, it does not necessarily apply to other states, as CMS’s terms and conditions for 1115 demonstrations can vary across states. According to CMS, an additional 11 states had managed care HCBS programs approved under 1115 demonstrations as of July 2017. However, CMS officials told us that they did not have information on whether or not these 11 states were using managed care plans to conduct needs assessments for the purpose of determining individuals’ functional eligibility. HCBS Waiver programs: Two of our six selected states—Minnesota and North Carolina—used managed care plans to deliver services for HCBS Waiver programs. In these states, CMS approved HCBS Waiver applications that proposed to use managed care plans to conduct or evaluate needs assessments used to determine functional eligibility for the programs, contrary to CMS’s May 2013 guidance. CMS officials said that when states allow managed care plans to be involved in these assessments, CMS would expect states to provide oversight as part of their quality improvement strategies required under HCBS Waivers. However, CMS does not require states to provide assurances or evidence of oversight directly related to managed care plans’ potential for conflicts of interest when plans are involved in needs assessments that states use to determine functional eligibility. CMS officials told us that states that do allow managed care plans to conduct assessments used to determine eligibility for HCBS should be aware of the potential for conflicts of interest in order to provide adequate oversight. CMS officials also told us that they engage in a conversation with states related to oversight of the assessment process when CMS learns of such states. However, CMS does not collect complete information on which states use managed care plans for needs assessments prior to enrollment, and states may not implement precautions absent a specific CMS requirement to address the potential for these conflicts of interest. The absence of requirements for states to address acknowledged risks is not consistent with federal internal control standards that require federal agencies to identify, analyze, and respond to risks related to achieving defined objectives. Developing Service Plans and Determining the Amount of HCBS to Provide Separate concerns pertain to managed care plans’ involvement in HCBS needs assessments for service planning purposes that are conducted by plans after enrollment. Advocates in two of the three selected states with managed care HCBS programs, New York and North Carolina, expressed concerns about managed care plans’ incentives to reduce their costs by reducing enrollees’ HCBS service levels, leading to reduced access to needed HCBS. For example, advocates in New York highlighted the growth in fair hearings that enrollees initiated to dispute reductions in HCBS they receive, which can result from inaccurate needs assessments. In May 2016, in the preamble to a final rule that amended managed care regulations, CMS responded to concerns from commenters about managed care plans’ involvement in the needs assessments used to develop service plans by stating that managed care plans’ HCBS needs assessments of enrollees are a critical component of the plans’ efforts to manage enrollees’ care. CMS also noted that existing appeals processes, which are similar to fair hearings, provide adequate safeguards to address instances when enrollees believe their needs assessments do not reflect their true needs. However, according to CMS, beneficiaries enrolled in managed long-term services and supports are among the most vulnerable and often require enhanced protections to assure their health and welfare. To implement additional beneficiary protections, the May 2016 managed care regulations require states with managed care HCBS programs to implement a beneficiary support system. A beneficiary support system generally provides individuals with education and assistance related to appeals, grievances, and fair hearings, and assists states with the identification and resolution of systemic issues through review and oversight of program data. These regulations also require states to report annually on the activities and performance of these systems in order to drive continual improvements. CMS stated that reporting requirements of this nature would help the agency address fragmented program information about state managed care programs and help improve oversight efforts. However, as of September 2017, CMS had not issued guidance to states on the content and form of this reporting, and under the regulations, states are not required to submit reports until CMS issues such guidance. CMS officials told us they were unsure whether they would issue this guidance, and thus it is unclear whether and when the reporting requirement will take effect. We previously made a recommendation to CMS that pertains to this issue. Specifically, in a report published in August 2017, we identified similar concerns with the lack of requirements for state managed long- term services and supports programs to report information that CMS needs to adequately oversee states’ programs for ensuring beneficiary access to services. We found that existing state reporting did not always include key elements necessary for CMS to monitor certain key aspects of beneficiaries’ access and quality of care, including data related to appeals and grievances. We recommended that CMS improve its oversight of managed long-term services and supports by taking steps to identify and obtain key information needed to oversee states’ efforts to monitor beneficiary access to quality services. HHS concurred with this recommendation and stated that the agency will take this recommendation into account as part of an ongoing review of the 2016 managed care regulations. This action could help to address the concerns discussed above regarding managed care plans’ potential for conflicts of interest in conducting needs assessments for service planning purposes. Conclusions HCBS needs assessments can directly affect whether individuals are eligible to receive HCBS and the amount of services they receive. Given the growth in spending for Medicaid HCBS and the potential vulnerability of individuals seeking HCBS, it is critical that needs assessments are effective in ensuring that beneficiaries receive the help they need to live independently while at the same time reducing the risk of over-utilization of HCBS. CMS plays an important role in ensuring that states appropriately assess the needs of those seeking HCBS, including addressing the potential for entities that conduct needs assessments to have conflicts of interest. Conflicts of interest can result in inaccurate assessments, potentially leading to provision of unnecessary services or restricting other beneficiaries’ access to needed services. CMS has required states to take actions to avoid or mitigate the potential for conflicts of interest for some HCBS programs, and states that have taken steps to protect against conflicts of interest in HCBS programs have reported improvements; however, we found gaps in federal requirements for such safeguards. These gaps in requirements are inconsistent with federal control standards that require federal agencies to identify, analyze, and respond to risks related to achieving defined objectives. CMS could improve the efficiency and effectiveness of Medicaid HCBS programs by taking additional steps to consistently require all types of states’ programs to avoid or mitigate the potential for conflicts of interest in conducting needs assessments, as appropriate. Recommendation for Executive Action The Administrator of CMS should ensure that all types of Medicaid HCBS programs have requirements for states to avoid or mitigate potential conflicts of interest on the part of entities that conduct needs assessments that are used to determine eligibility for HCBS and to develop HCBS plans of service. These requirements should address both service providers and managed care plans conducting such assessments. (Recommendation 1) Agency Comments and our Evaluation We provided a draft of this report to HHS for review and comment, and HHS provided written comments, which are reprinted in appendix I. HHS also provided technical comments, which we incorporated as appropriate. HHS concurred with our recommendation to ensure that all types of Medicaid HCBS programs have requirements for states to avoid or mitigate potential conflicts of interest on the part of entities that conduct needs assessments. HHS stated that it has a regulatory structure in place to protect against potential conflicts of interest on the part of entities responsible for determining eligibility for HCBS and developing service plans. As described in our report, however, there are gaps in required conflict of interest standards applicable to entities that conduct needs assessments that inform HCBS eligibility determinations. Further, the conflict of interest requirements related to service plans do not apply to all programs, such as State Plan Personal Care Services programs. Developing additional requirements in response to such gaps would further improve efficiency and effectiveness. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the Department of Health and Human Services Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Tim Bushfield (Assistant Director), Emily Beller Holland, Anne Hopewell, Laurie Pachter, Chris Piccione, Vikki Porter, Russell Voth, and Jennifer Whitworth made key contributions to this report.

With approval from CMS, the federal agency responsible for overseeing state Medicaid programs, states can provide long-term care services and supports for disabled and aged individuals under one or more types of HCBS programs. State and federal Medicaid HCBS spending was about $87 billion in 2015. Effective needs assessments help states ensure appropriate access to, and manage utilization of, services and therefore costs. States' processes vary, and challenges include the potential for assessors to have conflicts of interest leading to over- or under-estimating of beneficiaries' needs for HCBS. GAO was asked to examine states' needs assessment processes for provision of long-term services and supports. This report addresses (1) how selected states assess needs for HCBS, and (2) steps CMS has taken to improve coordination and effectiveness of needs assessments, among other objectives. GAO studied six states that varied in terms of assessment tools in use, participation in federal initiatives, HCBS delivery systems, and geographic location; reviewed federal requirements and documents; and interviewed CMS officials and stakeholders. The six selected states that GAO reviewed used multiple approaches to assess individuals' needs for Medicaid home- and community-based services (HCBS). Each state may have multiple HCBS programs authorized under different sections of the Social Security Act. These programs serve beneficiaries who generally need assistance with daily activities, such as bathing or dressing. States establish needs assessment processes to collect data on functional needs, health status, and other areas that they use to determine individuals' eligibility for HCBS and to plan services, such as the amount of services needed. The selected states varied in the extent to which they used different assessments across HCBS programs and used multiple types of entities—such as state or government agencies, contractors, or providers—to conduct them. The Centers for Medicare & Medicaid Services (CMS) has taken steps to improve needs assessments but concerns about conflict of interest remain in regard to HCBS providers and managed care plans. HCBS providers may have a financial interest in the outcome of needs assessments, which could lead to overstating needs and overprovision of services. CMS has addressed risks associated with HCBS provider conflicts, such as by requiring states to establish standards for conducting certain needs assessments, but these requirements do not cover all types of HCBS programs. For example, specific conflict of interest requirements are generally not in place for needs assessments that are used to inform HCBS eligibility determinations. In addition, requirements for states to establish standards to address HCBS providers' potential for conflict of interest in conducting needs assessments that are used for service planning do not apply across all programs. Similarly, managed care plans may have a financial interest in the outcome of HCBS assessments used for both determining eligibility and service amounts. Managed care plans could have an incentive to enroll beneficiaries with few needs, as plans typically receive a fixed payment per enrollee. For example, a plan in one state admitted in a settlement with the federal government to enrolling 1,740 individuals, from 2011 through 2013, whose needs did not qualify them. In 2013, CMS issued guidance that managed care plans may not be involved in assessments used to determine eligibility for HCBS, but CMS has not consistently required states to prevent this involvement. Among three states GAO reviewed with managed care HCBS programs, CMS required one to stop allowing plans to conduct such assessments but allowed plan involvement in two states. The absence of conflict-of-interest requirements across all types of HCBS programs and states is not consistent with federal internal control standards, which require agencies to respond to risks to program objectives.

CRS_RL33003

Historical Background Since 1952, when a cabal of Egyptian Army officers, known as the Free Officers Movement, ousted the British-backed king, Egypt's military has produced four presidents; Gamal Abdel Nasser (1954-1970), Anwar Sadat (1970-1981), Hosni Mubarak (1981-2011), and Abdel Fattah el Sisi (2013-present). In general, these four men have ruled Egypt with strong backing from the country's security establishment. The only significant and abiding opposition has come from the Egyptian Muslim Brotherhood, an organization that has opposed single party military-backed rule and advocated for a state governed by a vaguely articulated combination of civil and Shariah (Islamic) law. Egypt's sole departure from this general formula took place between 2011 and 2013, after popular demonstrations sparked by the "Arab Spring," which had started in neighboring Tunisia, compelled the military to force the resignation of former President Hosni Mubarak in February 2011. During this period, Egypt experienced tremendous political tumult, culminating in the one-year presidency of the Muslim Brotherhood's Muhammad Morsi. When Morsi took office on June 30, 2012, after winning Egypt's first truly competitive presidential election, his ascension to the presidency was supposed to mark the end of a rocky 16-month transition period. Proposed time lines for elections, the constitutional drafting process, and the military's relinquishing of power to a civilian government had been constantly changed, contested, and sometimes even overruled by the courts. Instead of consolidating democratic or civilian rule, Morsi's rule exposed the deep divisions in Egyptian politics, pitting a broad cross-section of Egypt's public and private sectors, the Coptic Church, and the military against the Brotherhood and its Islamist supporters. The atmosphere of mutual distrust, political gridlock, and public dissatisfaction that permeated Morsi's presidency provided Egypt's military, led by then-Defense Minister Sisi, with an opportunity to reassert political control. On July 3, 2013, following several days of mass demonstrations against Morsi's rule, the military unilaterally dissolved Morsi's government, suspended the constitution that had been passed during his rule, and installed an interim president. The Muslim Brotherhood and its supporters declared the military's actions a coup d'etat and protested in the streets. Weeks later, Egypt's military and national police launched a violent crackdown against the Muslim Brotherhood, resulting in police and army soldiers firing live ammunition against demonstrators encamped in several public squares and the killing of at least 1,150 demonstrators. The Egyptian military justified these actions by decrying the encampments as a threat to national security. Overview As Egyptian President Abdel Fattah al Sisi consolidates his power amid a continuing macroeconomic recovery, Egypt is poised to play an increasingly active role in the region, albeit from a more independent position vis-a-vis the United States than in the past. Although Egyptian relations with the Trump Administration are solid, and Egypt has relied on the International Monetary Fund (IMF) program to guide its economic recovery, Egypt seems committed to broadening its international base of support. The United States plays a key role in that international base, but Egypt also has other significant partners, including the Arab Gulf states, Israel, Russia, and France. The Egyptian government blames American criticism of its human rights record for preventing closer U.S.-Egyptian ties. From the U.S. perspective, some Members of Congress, U.S. media outlets, and advocacy groups document how Egyptian authorities have widened the scope of a crackdown against dissent, which initially was aimed at the Muslim Brotherhood but has evolved to encompass a broader range of political speech. Egypt's parliament is currently considering whether to adopt a package of draft constitutional amendments that would extend presidential term limits and executive branch control over the judiciary. If Egypt's 2019 constitutional amendments are approved, President Sisi will attain unprecedented power in the political system over the military and the judiciary and, if reelected, will have the potential to remain in office until 2034. He has inserted his older brother and oldest son into key security and intelligence positions while stymying all opposition to his rule and criticism of his government. This consolidation of power and crackdown against dissent has taken place during a period of steady economic growth, which has not benefitted wide swaths of the population. The state has enacted a series of austerity measures to reduce debt in compliance with IMF-mandated reforms. In the year ahead, economists anticipate gross domestic product (GDP) growth of 5.3%, driven by an expansion in tourism and natural gas production. Nevertheless, Egyptians continue to endure double-digit inflation stemming in part from the 2016 flotation of the currency, tax increases, and reductions in food and fuel subsidies. While it is difficult to ascertain how dissatisfied the public is with rising prices, President Sisi has responded to criticisms of his economic policies, stating: "The path of real reform is difficult and cruel and causes a lot of suffering.... But there is no doubt that the suffering resulting from the lack of reform is much worse." The IMF has praised the Egyptian government's record of reform implementation, while also highlighting the need for private sector growth "that will absorb the rapidly growing labor force and ensure that the benefits are perceived more widely." After several years of observers seeing Egypt as more inwardly focused, several recent developments suggest an increasingly active foreign policy. In January 2019, Egypt hosted an international forum on Mediterranean gas which included European and Arab countries together with Israel. A month later, President Sisi was elected head of the African Union for a year-long term. In February 2019, Egypt hosted the first-ever European Union- Arab summit in Sharm el Sheikh, where officials discussed terrorism, migration, and the need for greater European-Arab cooperation to counter a perceived growing Chinese and Russian interest in the Middle East. Domestic Developments Personnel moves and other developments in Egypt highlight apparent efforts by President Sisi to consolidate power with the help of political allies, including colleagues from Egypt's security establishment. In June 2018, Sisi reshuffled his cabinet, making key changes to the defense and interior ministries, among other appointments. Sisi appointed Mohamed Ahmed Zaki, former head of the Republican Guard, as defense minister and Mahmoud Tawfik, former head of the National Security Service, as interior minister. According to one account, Sisi may have been rewarding Zaki for his role in arresting former Egyptian President Mohamed Morsi in 2013. In July 2018, parliament passed Law 161 of 2018, providing judicial immunity to senior military commanders for military acts committed during the two-and-a-half-year period beginning with the military coup of July 2013. The new law grants immunity to senior commanders while potentially keeping high-ranking officers on reserve duty for life, making them ineligible to run for president. In order for a senior commander to be prosecuted under this new law, a case would have to be first authorized by the Supreme Council of the Armed Forces (SCAF), which President Sisi appoints. According to one analysis, the law deters senior officers from challenging President Sisi (for example, some challenges occurred during the run-up to the 2018 presidential election), thereby acting "as a guarantor of President Sisi's authoritarian rule, setting the stage for him to remain president for life." Per the 2014 Egyptian constitution (article 140), President Sisi, who was reelected in April 2018, may only serve two four-year terms in office (current term ends in 2022). However, his supporters have proposed a set of amendments to the constitution which, if approved by parliament and public referendum, have the potential to make President Sisi eligible for an additional two six-year terms when his current term ends in 2022. Other proposed changes to the constitution include granting the president the authority to appoint all chief justices of Egyptian judicial bodies, and the public prosecutor; requiring that at least one-quarter of the seats in the parliament be allocated to women and reducing the number of the seats in the House of Representatives from 596 to 450; and establishing an upper house of parliament (Senate) consisting of 250 members, two-thirds of whom would be elected and one-third of whom would be appointed by the president. Democracy, Human Rights, and Religious Freedom President Sisi has come under repeated international criticism for an ongoing government crackdown against various forms of political dissent and freedom of expression. Certain practices of Sisi's government, the parliament, and the security apparatus have been contentious. According to the U.S. State Department's report on human rights conditions in Egypt in 2017: The most significant human rights issues included arbitrary or unlawful killings by the government or its agents; major terrorist attacks; disappearances; torture; harsh or potentially life-threatening prison conditions; arbitrary arrest and detention; including the use of military courts to try civilians; political prisoners and detainees; unlawful interference in privacy; limits on freedom of expression, including criminal "defamation of religion" laws; restrictions on the press, internet, and academic freedom; and restrictions on freedoms of assembly and association, including government control over registration and financing of NGOs [nongovernmental organizations]. LGBTI persons faced arrests, imprisonment, and degrading treatment. The government did not effectively respond to violence against women, and there were reports of child labor. Select international human rights, democracy, and development monitoring organizations provide the following rankings for Egypt globally: Other human rights issues of potential interest to Congress may include the 2013 convictions of American, European, and Egyptian civil society representatives; the controversial 2017 NGO law; the detention of American citizens in Egypt; and the treatment of Coptic Christians, discussed in the following sections. "Case 173" In 2013, an Egyptian court convicted and sentenced 43 individuals from the United States, Egypt, and Europe, including the Egypt country directors of the National Democratic Institute (NDI) and the International Republican Institute (IRI), for spending money from organizations that were operating in Egypt without a license and for receiving foreign funds (known as Case 173 or the "foreign funding case"). Some lawmakers had protested that those individuals were wrongfully convicted and had requested that the Egyptian government and judiciary resolve the matter. In 2018, a retrial began and, on December 20, 2018, the individuals were acquitted of all charges. In January 2019, U.S. Secretary of State Michael R. Pompeo traveled to Cairo, where he remarked: "I was happy to see our citizens, wrongly convicted of improperly operating NGOs here, finally be acquitted. And we strongly support President Sisi's initiative to amend Egyptian law so that this does not happen again. More work certainly needs to be done to maximize the potential of the Egyptian nation and its people. I'm glad that America will be a partner in those efforts." However, Case 173 remains active, as the judiciary has imposed asset freezes and travel bans on several Egyptian civil society activists. NGO Law In May 2017, President Sisi signed Law 70 of 2017 on Associations and Other Foundations Working in the Field of Civil Work. The parliament had passed this bill six months earlier, and both the passage and signing drew widespread international condemnation. The new law (which replaced a 2002 NGO law) requires NGOs to receive prior approval from internal security before accepting foreign funding. It also restricts the scope of permitted NGO activities and increases penalties for violations, including possible imprisonment for up to five years. However, the government did not issue implementing regulations for the new NGO law. At Egypt's November 2018 World Youth Forum in Sharm el Sheikh, President Sisi announced plans to amend Law 70. According to Sisi, "I want to reassure those who are listening to me inside Egypt and outside of Egypt, that in Egypt, we are keen that the law becomes balanced and achieves what is required of it to regulate the work of these groups in a good way. This is not just political talk." Since then, Egypt's Ministry of Social Solidarity has held multiple rounds of talks with local NGOs aimed at determining which articles of the law need to be amended. A draft proposal is expected to be ready in the spring of 2019, when it will be sent to parliament for consideration. Detention of American Citizens in Egypt The detention of American citizens in Egypt has continued to strain U.S.-Egyptian relations. Some Members of Congress are concerned about the case of 53-year-old New York resident Mustafa Kassem, who was detained by authorities in 2013 and sentenced to 15 years in prison in a mass trial in September 2018. These lawmakers insist that Kassem, who has been on a limited hunger strike, was wrongfully arrested and convicted, and they have sought Trump Administration support in securing his release from the government of Egypt. In January 2018, Vice President Pence raised Kassem's case directly with President Sisi in a meeting in Cairo, saying "I told him we'd like to see those American citizens restored to their families and restored to our country." Coptic Christians Since taking office, President Sisi has publicly called for greater Muslim-Christian coexistence and national unity. In January 2019, he inaugurated Egypt's Coptic Cathedral of Nativity in the new administrative capital east of Cairo saying, "This is an important moment in our history.... We are one and we will remain one." Despite these public calls for improved interfaith relations in Egypt, the minority Coptic Christian community continues to claim that they face professional and social discrimination, along with occasional sectarian attacks by terrorists and vigilantes. Coptic Christians have also voiced concern about state regulation of church construction. They have long demanded that the government reform long-standing laws (with two dating back to 1856 and 1934, respectively) on building codes for Christian places of worship. Article 235 of Egypt's 2014 constitution mandates that parliament reform these building code regulations. In 2016, parliament approved a church construction law (Law 80 of 2016) that expedited the government approval process for the construction and restoration of Coptic churches, among other structures. Although Coptic Pope Tawadros II welcomed the law, others claim that it continues to be discriminatory. According to Human Rights Watch , "the new law allows governors to deny church-building permits with no stated way to appeal, requires that churches be built 'commensurate with' the number of Christians in the area, and contains security provisions that risk subjecting decisions on whether to allow church construction to the whims of violent mobs." The Economy For 2019, the IMF projects 5.3% GDP growth for the Egyptian economy, noting that the outlook remains "favorable, supported by strong policy implementation." In 2016, the IMF and Egypt reached a three-year, $12 billion loan agreement, $10 billion of which has been disbursed as of March 2019. Key sources of foreign exchange (tourism and remittances) are up and unemployment is at its lowest level since 2011. In line with IMF recommendations, the government has taken several steps to reform the economy, including depreciating the currency, reducing fuel subsidies, enacting a value-added tax (VAT), and providing cash payments to the poor in lieu of subsidizing household goods (though many food subsidies continue). Egypt's energy sector also is contributing to the economy's rebound. Egypt is the largest oil producer in Africa outside of the Organization of the Petroleum Exporting Countries (OPEC) and the third-largest natural gas producer on the continent following Algeria and Nigeria. In December 2017, an Egyptian and Italian partnership began commercial output from the Zohr natural gas field (est. 30 trillion cubic feet of gas), the largest ever natural gas field discovered in the Mediterranean Sea (see Figure 3 ). The Egyptian government also has repaid debts owed to foreign energy companies, allowing for new investments from BP and BG Group. Egypt is attempting to position itself as a regional gas hub, whereby its own gas fields meet domestic demand while imported gas from Israel and Cyprus can be liquefied in Egypt and reexported. Israeli and Egyptian companies have bought significant shares of an unused undersea pipeline connecting Israel to the northern Sinai Peninsula (see Figure 4 ). The pipeline will be used to transport natural gas from Israel to Egypt for possible reexport, as part of an earlier 10-year, $15 billion gas deal between the U.S. Company Noble Energy, its Israeli partner Delek, and the Egyptian company Dolphinus Holdings. In January 2019, Egypt convened the first ever Eastern Mediterranean Gas Forum (EMGF), a regional consortium consisting of Egypt, Israel, Jordan, the Palestinian Authority, Cyprus, Greece, and Italy, intended to consolidate regional energy policies and reduce costs. Despite Egypt's positive economic outlook, significant challenges remain. Inflation remains over 11%, making the cost of goods high for many Egyptians. In addition, while the fiscal deficit may be decreasing, Egypt's overall public and foreign debt have grown significantly in recent years and remain high, leading the government to allocate resources (nearly 38% of Egypt's budget) toward debt-service payments and away from spending on health and education. Economists forecast that total public debt will reach 84.8% of GDP and external debt 32% of GDP ($101.7 billion) in 2019. Some observers assert that Egypt's recent economic reforms, while successful in the short term, have not addressed deeper structural impediments to growth. For example, Egypt's industrial sector is heavily dependent upon imports and, as the economy expands, the demand for foreign currency increases. According to Bloomberg , "this means, the more the economy grows, the greater the pressure on dollar reserves. It doesn't help that these were built up almost entirely through foreign borrowing, pushing Egypt's foreign debt from $55 billion in 2016 to $92 billion in late 2018. It won't be long before the country's finances are once again in crisis." Many experts argue that to sustain growth over the long term, Egypt requires dramatic expansion of the nonhydrocarbon private sector. For decades, Egypt's military has played a key role in the nation's economy as a food producer and low-cost domestic manufacturer of consumable products; however, due to political sensitivities, the extent of its economic power is rarely quantified. Egypt's military is largely economically self-sufficient. It produces what it consumes (food and clothes) and then sells surplus goods for additional revenue. Egyptian military companies have been the main beneficiaries of the massive infrastructure contracts Sisi has commissioned. Moreover, military-owned manufacturing companies have expanded into new markets, producing goods (appliances, solar panels, some electronics, and some medical equipment) that are cheaper than either foreign imports or domestically produced goods made by the private sector. Terrorism and Islamist Militancy in Egypt President Sisi, who led the 2013 military intervention and was elected president in mid-2014, came to power promising not only to defeat violent Salafi-Jihadi terrorist groups militarily, but also to counter their foundational ideology, which President Sisi and his supporters often attribute to the Muslim Brotherhood. President Sisi has outlawed the Muslim Brotherhood while launching a more general crackdown against a broad spectrum of opponents, both secular and Islamist. While Egypt is no longer beset by the kind of large-scale civil unrest and public protest it faced during the immediate post-Mubarak era, it continues to face terrorist and insurgent violence, both in the Sinai Peninsula and in the rest of Egypt. Sinai Peninsula Terrorists based in the Sinai Peninsula (the Sinai) have been waging an insurgency against the Egyptian government since 2011. While the terrorist landscape in Egypt is evolving and encompasses several groups, the Islamic State's Sinai Province affiliate (IS-SP) is known as the most lethal. Since its affiliation with the Islamic State in 2014, IS-SP has attacked the Egyptian military continually, targeted Coptic Christian individuals and places of worship, and occasionally fired rockets into Israel. In October 2015, IS-SP targeted Russian tourists departing the Sinai by planting a bomb aboard Metrojet Flight 9268, which exploded midair, killing all 224 passengers and crew aboard. Two years later, on November 24, 2017, IS-SP gunmen launched an attack against the Al Rawdah mosque in the town of Bir al Abed in northern Sinai. That attack killed at least 305 people, making it the deadliest terrorist attack in Egypt's modern history. Combating terrorism in the Sinai is particularly challenging due to an array of factors, including the following: Geograph y : The peninsula's interior is mountainous and sparsely populated, providing militants with ample freedom of movement. Demograph y and Culture : The Sinai's northern population is a mix of Palestinians and Bedouin Arab tribes whose relationship to the state is filled with distrust. Sinai Bedouin have faced discrimination and exclusion from full citizenship and access to the economy. In the absence of development, a black market economy based primarily on smuggling has thrived, further contributing to the popular portrayal of Bedouin as outlaws. State authorities charge that the Sinai Bedouin seek autonomy from the central government, while residents insist on obtaining basic rights, such as property rights, full citizenship, and access to government services such as education and health care. Econom ics : Bedouins claim that Egypt has underinvested in northern Sinai, channeling development toward southern tourist destinations that cater to foreign visitors. Northern Sinai consists of mostly flat desert terrain inhospitable to large-scale agriculture without significant investment in irrigation. For decades, the Egyptian state has claimed to follow successive Sinai development plans. However, Egyptian governance and development of the Sinai has been hampered by corruption. Diploma cy : The 1979 Israeli-Egyptian peace treaty limits the number of soldiers that Egypt can deploy in the Sinai, subject to the parties' ability to negotiate changes as circumstances necessitate. Egypt and Israel mutually agree upon any short-term increase of Egypt's military presence in the Sinai. Since Israel returned control over the Sinai to Egypt in 1982, the area has been partially demilitarized, and the Sinai has served as an effective buffer zone between the two countries. The Multinational Force and Observers, or MFO, are deployed in the Sinai to monitor the terms of the Israeli-Egyptian peace treaty (see Figure 5 ). Egypt and Israel reportedly continue to cooperate in countering terrorism in the Sinai. In a televised interview, President Sisi responded to a question on whether Egyptian-Israeli military cooperation was the closest it has ever been, saying "That is correct. The [Egyptian] Air Force sometimes needs to cross to the Israeli side. And that's why we have a wide range of coordination with the Israelis." One news account suggests that Israel, with Egypt's approval, has used its own drones, helicopters, and aircraft to carry out more than 100 covert airstrikes inside Egypt against militant targets. In order to counter IS-SP in northern Sinai, the Egyptian armed forces and police have declared a state of emergency, imposed curfews and travel restrictions, and erected police checkpoints along main roads. Authorities also have limited domestic and foreign media access to the northern Sinai, declaring it an active combat zone and unsafe for journalists. According to Jane's Defence Weekly , Egypt may be upgrading an old air base in the Sinai (Bir Gifgafa), where it could deploy Apache attack helicopters and unmanned aerial vehicles for use in counterterrorism operations. While an increased Egyptian military presence in the Sinai may be necessary to stabilize the area, many observers have argued that military means alone are insufficient. These critics say that force should be accompanied by policies to reduce the appeal of antigovernment militancy by addressing local political and economic grievances. According to one account: Sinai residents are prohibited from joining any senior post in the state. They cannot work in the army, police, judiciary, or in diplomacy. Meanwhile, no development projects have been undertaken in North Sinai the past 40 years. The villages of Rafah and Sheikh Zuwayed have no schools or hospitals and no modern system to receive potable water. They depend on rainwater and wells, as if it were the Middle Ages. Egyptian counterterrorism efforts in the Sinai appear to have reduced the frequency of terrorist attacks somewhat. In February 2018, the military launched an offensive campaign, dubbed "Operation Sinai 2018." During the campaign, the military deployed tens of thousands of troops to the peninsula and was able to eliminate several senior IS-SP leaders. One report suggests that unlike previous military operations against militants in the Sinai, this time the Egyptian military armed progovernment tribesmen to assist conventional forces in combating IS-SP. According to one analysis, the military's recent campaign has "to some degree, restricted the militants' movements, destroyed a number of hideouts, and most importantly eliminated several trained and influential elements." However, as in previous major operations, once the military reduces its presence in northern Sinai, terrorist groups may reconstitute themselves. In March 2019, CENTCOM Commander General Joseph L. Votel testified before Congress, stating that the "Egyptian Armed Forces have more effectively fought ISIS in the Sinai and are now taking active measures to address the underlying issues that give life to—to these violent extremist groups and are helping to contain the threat." Beyond the Sinai: Other Egyptian Insurgent Groups Outside of the Sinai, either in the western desert near the Libya border or other areas (Cairo, Nile Delta, Upper Egypt), small nationalist insurgent groups, such as Liwa al Thawra (The Revolution Brigade) and Harakat Sawaed Misr (Arms of Egypt Movement, referred to by its Arabic acronym HASM), have carried out high-level assassinations of military/police officials and bombings of infrastructure. According to one expert, these insurgent groups are comprised mainly of former Muslim Brotherhood activists who have splintered off from the main organization to wage an insurgency against the government. On January 31, 2018, the U.S. State Department designated Liwa al Thawra and HASM as Specially Designated Global Terrorists (SDGTs) under Section 1(b) of Executive Order (E.O.) 13224. The State Department noted that some of the leaders of both groups "were previously associated with the Egyptian Muslim Brotherhood." Terrorist attacks against key sectors of the economy continue. In December 2018, a bus carrying a group of Vietnamese tourists to the pyramids in Giza hit a roadside bomb killing 4 people and injuring 11 others. No group claimed responsibility for the attack. In February 2019, a terrorist detonated a suicide bomb he was carrying while being pursued by police, killing himself and two officers near Cairo's popular Khan el Khalili market and famous Al Azhar Mosque. Egypt's Foreign Policy Israel and the Palestinians Egypt and Israel have continued to find specific areas in which they can cooperate. In 2018, Israeli and Egyptian companies entered into a decade-long agreement by reaching a $15 billion natural gas deal, according to which Israeli off-shore natural gas will be exported to Egypt for liquefaction before being exported elsewhere (see " The Economy " above). While people-to-people relations remain cold, Israel and Egypt continue to cooperate against Hamas in the Gaza Strip. In mid-November 2018, Egyptian mediation between Israel and Hamas helped calm tensions after an Israeli raid inside Gaza escalated tensions. Egypt reportedly continues to broker indirect Israel-Hamas talks aimed at establishing a long-term cease-fire. Egypt is opposed to Islamist groups wielding political power across the Middle East, and opposes Turkish and Qatari support for Hamas. On the Egyptian-Gaza border, Egypt has tried to thwart arms tunnel smuggling into Gaza and has accused Palestinian militants in Gaza of aiding terrorist groups in the Sinai. In order to weaken Hamas's rule in Gaza, Egypt has sought to restore a Palestinian Authority (PA) presence in Gaza by reconciling it with the PA. Though Egypt has helped broker several agreements aimed at ending the West Bank-Gaza split, Hamas still effectively controls Gaza. Egypt controls the Rafah border crossing into Gaza, the only non-Israeli-controlled entryway into the Strip, which it periodically closes for security reasons. Control over the Rafah border crossing provides Egypt with some leverage over Hamas, though Egyptian authorities use it carefully in order not to spark a humanitarian crisis on their border. Gulf Arab Monarchies Egypt's relations with most Gulf Arab monarchies are strong. Saudi Arabia, the United Arab Emirates (UAE), and Kuwait have provided billions of dollars in financial assistance to Egypt's military-backed government since 2013. Saudi Arabia also hosts nearly 3 million Egyptian expatriates who work in the kingdom, providing a valuable source of remittances for Egyptians back home. From 2013 onward, Emirati companies have made significant investments in the Egyptian economy. Egypt transferred sovereignty to Saudi Arabia over two islands at the entrance to the Gulf of Aqaba—Tiran and Sanafir—that had been under Egyptian control since 1950, in a move that sparked rare public criticism of President Sisi. In June 2017, Egypt joined other Gulf Arab monarchies in boycotting Qatar. In Yemen, Egypt is officially part of the Saudi-led coalition against Houthi forces, though its contribution to the war effort has been minimal. Libya The Egyptian government supports Field Marshal Khalifa Haftar and the Libyan National Army (LNA) movement, which controls most of eastern Libya. Haftar's politics closely align with President Sisi's, as both figures hail from the military and broadly oppose Islamist political forces. From a security standpoint, Egypt seeks the restoration of order on its western border, which has experienced occasional terrorist attacks and arms smuggling. From an economic standpoint, thousands of Egyptian guest workers were employed in Libya's energy sector prior to unrest in Libya in 2011, and Egypt seeks their return to Libya and a resumption of the vital remittances those workers provided the Egyptian economy. Diplomatically, Egypt has tried to leverage its close ties to Haftar and the LNA in order to play the role of mediator between the LNA and Fayez al Sarraj, the Chairman of the Presidential Council of Libya and Prime Minister of the U.N.-backed Government of National Accord. Egypt's policy toward Libya also is closely aligned with other foreign backers of the LNA, including France and the United Arab Emirates (UAE). Reportedly, the three countries are working in concert to strengthen the position of Haftar in order to facilitate the eventual reunification of the Libyan army. A 2019 LNA offensive into southern Libya has placed additional pressure on the Government of National Accord and may complicate U.S.-backed efforts by the United Nations to facilitate a national dialogue, constitutional referendum, and elections in 2019. Egypt and the Nile Basin Countries To Egypt's south, the government is embroiled in regional disputes with Nile Basin countries, such as Ethiopia, which is nearing completion of the $4.2 billion Grand Ethiopian Renaissance Dam, a major hydroelectric project. Egypt argues that the dam, once filled, will limit the flow of the Nile River below Egypt's agreed share. However, many analysts expect that Egypt will address the dispute by increasing water-use efficiency and investing in desalination, rather than using its military to bomb the dam. Reduced Nile flow into Egypt may exacerbate existing water shortages and cause short-term political problems for the Egyptian government, which faces extensive domestic water needs. In February 2019, President Sisi assumed the one-year chairmanship of the African Union, during which he is expected to promote closer relations with fellow African states. Egypt and Russia Egypt and Russia, close allies in early years of the Cold War, have again strengthened bilateral ties under President Sisi, who has promised to restore Egyptian stability and international prestige. His relationship with Russian President Vladimir Putin has rekindled, in the words of one observer, "a romanticized memory of relations with Russia during the Nasser era." President Sisi first turned to Russia during the Obama Administration, when U.S.-Egyptian ties were strained, and Egypt seemed intent on signaling its displeasure with U.S. policy. Since 2014, Egypt and Russia have improved ties in a number of ways, including through arms deals. Reportedly, Egypt is upgrading its aging fleet of legacy Soviet MiG-21 aircraft to a fourth generation MiG-29M variant with additional deliveries to Egypt in 2018 (first delivered in April 2017). Egypt also has purchased 46 standard Ka-52 Russian attack helicopters for its air force. Egypt reportedly also has purchased the naval version of the Ka-52 for use on Egypt's two French-procured Mistral-class helicopter dock vessels (see below), and the S-300VM surface-to-air missile defense system from Russia. In August 2018, Egyptian Defense Minister Mohamed Zaki visited Russia, where he attended a Russian arms exhibition. Additionally, Egypt and Russia reportedly have expanded their cooperation on nuclear energy. In 2015, Egypt reached a deal with Russian state energy firm Rosatom to construct a 4,800-megawatt nuclear power plant in the Egyptian Mediterranean coastal town of Daba'a, 80 miles northwest of Cairo. Russia is lending Egypt $25 billion over 35 years to finance the construction and operation of the nuclear power plant (this will cover 85% of the project's total costs). The contract also commits Russia to supply the plant's nuclear fuel for 60 years and transfer and store depleted nuclear fuel from the reactors. As Egyptian and Russian foreign policies have become more closely aligned in conflict zones such as eastern Libya, bilateral military cooperation has expanded. One report suggests that Russian Special Forces based out of an airbase in Egypt's western desert (Sidi Barrani) may be aiding General Haftar. In November 2017, Egypt and Russia signed a draft agreement governing the use of each other's air space. While Egyptian-Russian ties have grown warmer in recent years, they are not without complications. In the aftermath of an October 2015 terrorist attack against a Russian passenger jet departing from Sharm El Sheikh, visits to Egypt by Russian tourists, previously the country's largest source of tourists, dropped significantly. Russian commercial aircraft have resumed direct flights to Cairo but not to Sharm El Sheikh. Egypt and Russia also engaged in a trade dispute in 2016 over Russian wheat imports. Egypt is the largest global importer of wheat, and the largest export market for Russian wheat. France Aside from Russia, France stands out as a non-U.S. country with which President Sisi has sought to build a diplomatic and military procurement relationship. In the last five years, as French-Egyptian ties have improved, Egypt has purchased major air and naval defense systems from French defense contractors, including the following: Four Gowind Corvettes (produced by Naval Group)—This deal was signed in July 2014. As part of the French-Egyptian arrangement, some of the Corvette construction has taken place at the Alexandria Shipyard in Egypt. One FREMM multi-mission Frigate (produced by Naval Group)—Named the Tahya Misr (Long Live Egypt), this vessel was delivered to Egypt in 2015. This ship has participated in an annual joint French-Egyptian naval exercise, known as Cleopatra. In February 2015, Egypt purchased 24 Rafale multirole fighters (produced by Dassault Aviation). Under the initial agreement, Egypt and France may enter into a new procurement agreement for 12 additional Rafale fighters. According to the manufacturer, the Rafale has flown in combat in Afghanistan, Libya, Mali, Iraq, and Syria and is used by Egypt, Qatar, and India. In 2018, French officials said that the United States would not permit France to export the SCALP air-launched land-attack cruise missile used on the Rafale to Egypt under the International Trade in Arms Regulation (ITAR) agreement. The United States may have been concerned over the transfer of sensitive technology to Egypt. Two Mistral-class Helicopter Carriers (produced by Naval Group)—In the fall of 2015, France announced that it would sell Egypt two Mistral-class Landing Helicopter Dock (LHD) vessels (each carrier can carry 16 helicopters, 4 landing craft, and 13 tanks) for $1 billion. The LHDs (ENS Anwar El Sadat and ENS Gamal Abdel Nasser ) were delivered in 2016. In 2017, Egypt announced that it would purchase Russian 46 Ka-52 Alligator helicopters, which can operate on the LHDs. In January 2019, French President Emmanuel Macron paid a three-day visit to Egypt, where he raised human rights issues in public and with Egyptian authorities and civil society representatives. According to Macron, "I can't see how you can pretend to ensure long-term stability in this country, which was at the heart of the Arab Spring and showed its taste for freedom, and think you can continue to harden beyond what's acceptable or justified for security reasons." Trump Administration Policy toward Egypt President Trump has praised the Egyptian government's counterterrorism efforts while his Administration has worked to restore high-level diplomatic engagement, joint military exercises, and arms sales. Many commentators initially expected President Trump to bring the United States and Egypt closer together, and that largely has been the case. The Administration has withheld some foreign assistance for policy reasons on at least one occasion, however, and the United States has not had an ambassador in Cairo since June 30, 2017. As evidence of improved bilateral ties, the U.S. Defense Department notified Congress in November 2018 of a major $1 billion sale of defense equipment to Egypt, consisting of 10 AH-64E Apache Attack Helicopters, among other things. The Egyptian Air Force already possesses 45 less advanced versions of the Apache that were acquired between 2000 and 2014. In January 2019, U.S. Secretary of State Michael Pompeo delivered a major policy speech at the American University in Cairo, where he stated: "And as we seek an even stronger partnership with Egypt, we encourage President Sisi to unleash the creative energy of Egypt's people, unfetter the economy, and promote a free and open exchange of ideas. The progress made to date can continue." U.S. officials have not yet publicly criticized efforts by supporters of President Sisi to advance amendments to the constitution (see above) to extend the possibility of Sisi's continued presidency. Human rights advocates have called for Western governments to withhold assistance to Egypt if the amendments are approved. According to Human Rights Watch , "Al-Sisi's government is encouraged by the continued silence of its allies, and if the US, UK, and France want to avoid the destabilizing consequences of entrenching authoritarian rule in Egypt, they should act now." On February 22, 2019, a bipartisan group of national security experts called on U.S. officials to "express strong concern about the amendments to the Egyptian constitution now moving through a rapid approval process." Egypt's poor record on human rights and democratization has sparked regular criticism from U.S. officials and some Members of Congress. Since FY2012, Members have passed appropriations legislation that withholds the obligation of FMF to Egypt until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights. With the exception of FY2014, lawmakers have included a national security waiver to allow the Administration to waive these congressionally mandated certification requirements under certain conditions. Over the last year, the Administration has obligated several tranches of FMF to Egypt, including the following: In September 2018, the Administration obligated $1 billion in FY2018 FMF. Per Section 7041(a)(3)(A) of P.L. 115-141 , the Consolidated Appropriations Act, FY2018, $300 million in FMF remains withheld from obligation until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights. In previous acts, the amount withheld had been $195 million. FY2018 FMF for Egypt remains available to be expended until September 30, 2019. In August 2018, the Administration waived the certification requirement in Section 7041(a)(3)(B) of P.L. 115-31 , the Consolidated Appropriations Act, FY2017, allowing for the obligation of $195 million in FY2017 FMF, which occurred in September 2018. However, according to one report, Senator Patrick Leahy has placed a hold on $105 million in FY2017 FMF and is seeking more information on the plight of detained Egyptian-American Moustafa Kassem. In January 2018, the Administration notified Congress of its intent to obligate $1.039 billion in FY2017 FMF out of a total of $1.3 billion appropriated for FY2017. It chose not to obligate $65.7 million in FY2017 FMF. The remaining $195 million had been withheld until a national security waiver was issued in August 2018 (see above). For FY2019, the President requested a total of $1.381 billion in foreign assistance for Egypt, the same amount requested for the previous year. Nearly all of the requested funds for Egypt are for the FMF account. For FY2020, the request is nearly identical from previous years, as the President is seeking a total of $1.382 billion in bilateral assistance for Egypt. The FY2019 Omnibus ( P.L. 116-6 ) provides the following for Egypt: a total of $1.419 billion in bilateral U.S. foreign assistance for Egypt, of which $1.3 billion is in FMF, $112.5 million in ESF, $3 million in NADR, $2 million in INCLE, and $1.8 million in IMET; and a reauthorization of ESF to support future loan guarantees to Egypt; P.L. 116-6 sets the following conditions for Egypt: As in previous years, it requires that funds may only be made available when the Secretary of State certifies that the government of Egypt is sustaining the strategic relationship with the United States and meeting its obligations under the 1979 Egypt-Israel Peace Treaty. As in previous years, the act withholds ESF that "the Secretary determines to be equivalent to that expended by the United States Government for bail, and by nongovernmental organizations for legal and court fees, associated with democracy-related trials in Egypt until the Secretary certifies and reports to the Committees on Appropriations that the Government of Egypt has dismissed the convictions issued by the Cairo Criminal Court on June 4, 2013, in Public Prosecution Case No. 1110 for the Year 2012 and has not subjected the defendants to further prosecution or if convicted they have been granted full pardons ." This last condition (bolded) was added in 2019 to account for the acquittal of the 43 foreign defendants in Case 173 (see above). As in previous years, the FY2019 Omnibus also includes a limitation on ESF, stating that no FY2018 ESF or prior-year ESF "may be made available for a contribution, voluntary or otherwise, to the Civil Associations and Foundations Support Fund, or any similar fund, established pursuant to Law 70 on Associations and Other Foundations Working in the Field of Civil Work [informally known as the NGO law]." As in previous years, the act also includes a provision that withholds $300 million of FMF funds until the Secretary of State certifies that the Government of Egypt is taking effective steps to advance, among other things, democracy and human rights in Egypt. The Secretary of State may waive this certification requirement, though any waiver must be accompanied by, among other things, an assessment of the Government of Egypt's compliance with United Nations Security Council Resolution 2270 and other such resolutions regarding North Korea. There has been some concern in the Administration and Congress over Egypt's alleged weapons procurement from North Korea in recent years. P.L. 115-245 , the Department of Defense (DOD) and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019, specifies that the Secretary of Defense may provide Egypt with funds from the Counter-ISIS Train and Equip Fund (CTEF) to enhance its border security. To date, Egypt has not received security assistance from DOD-managed accounts. Appendix. Background on U.S. Foreign Assistance to Egypt Overview Between 1946 and 2016, the United States provided Egypt with $78.3 billion in bilateral foreign aid (calculated in historical dollars—not adjusted for inflation). The 1979 Peace Treaty between Israel and Egypt ushered in the current era of U.S. financial support for peace between Israel and its Arab neighbors. In two separate memoranda accompanying the treaty, the United States outlined commitments to Israel and Egypt, respectively. In its letter to Israel, the Carter Administration pledged to "endeavor to take into account and will endeavor to be responsive to military and economic assistance requirements of Israel." In his letter to Egypt, former U.S. Secretary of Defense Harold Brown wrote the following: In the context of the peace treaty between Egypt and Israel, the United States is prepared to enter into an expanded security relationship with Egypt with regard to the sales of military equipment and services and the financing of, at least a portion of those sales, subject to such Congressional review and approvals as may be required. All U.S. foreign aid to Egypt (or any foreign recipient) is appropriated and authorized by Congress . The 1979 Egypt-Israel Peace Treaty is a bilateral peace agreement between Egypt and Israel, and the United States is not a legal party to the treaty. The treaty itself does not include any U.S. aid obligations, and any assistance commitments to Israel and Egypt that could be potentially construed in conjunction with the treaty were through ancillary documents or other communications and were—by their terms—subject to congressional approval (see above). However, as the peace broker between Israel and Egypt, the United States has traditionally provided foreign aid to both countries to ensure a regional balance of power and sustain security cooperation with both countries. In some cases, an Administration may sign a bilateral "Memorandum of Understanding" (MOU) with a foreign country pledging a specific amount of foreign aid to be provided over a selected time period subject to the approval of Congress. In the Middle East, the United States has signed foreign assistance MOUs with Israel and Jordan. Currently, there is no U.S.-Egyptian MOU specifying a specific amount of total U.S. aid pledged to Egypt over a certain time period. Congress typically specifies a precise allocation of most foreign assistance for Egypt in the foreign operations appropriations bill. Egypt receives the bulk of foreign aid funds from three primary accounts: Foreign Military Financing (FMF), Economic Support Funds (ESF), and International Military Education and Training (IMET). The United States offers IMET training to Egyptian officers in order to facilitate U.S.-Egyptian military cooperation over the long term. Military Aid and Arms Sales Overview Since the 1979 Israeli-Egyptian Peace Treaty, the United States has provided Egypt with large amounts of military assistance. U.S. policymakers have routinely justified this aid to Egypt as an investment in regional stability, built primarily on long-running military cooperation and sustaining the treaty—principles that are supposed to be mutually reinforcing. Egypt has used U.S. military aid through the FMF to (among other things) purchase major U.S. defense systems, such as the F-16 fighter aircraft, the M1A1 Abrams battle tank, and the AH-64 Apache attack helicopter. Realigning Military Aid from Conventional to Counterterrorism Equipment For decades, FMF grants have supported Egypt's purchases of large-scale conventional military equipment from U.S. suppliers. However, as mentioned above, the Obama Administration announced that future FMF grants may only be used to purchase equipment specifically for "counterterrorism, border security, Sinai security, and maritime security" (and for sustainment of weapons systems already in Egypt's arsenal). It is not yet clear how the Trump Administration will determine which U.S.-supplied military equipment would help the Egyptian military counter terrorism and secure its land and maritime borders. Overall, some defense experts continue to view the Egyptian military as inadequately prepared, both doctrinally and tactically, to face the threat posed by terrorist/insurgent groups such as Sinai Province. According to a former U.S. National Security Council official, "they [the Egyptian military] understand they have got a problem in Sinai, but they have been unprepared to invest in the capabilities to deal with it." To reorient the military toward unconventional warfare, the Egyptian military needs, according to one assessment, "heavy investment into rapid reaction forces equipped with sophisticated infantry weapons, optics and communication gear ... backed by enhanced intelligence, surveillance and reconnaissance platforms. In order to transport them, Egypt would also need numerous modern aviation assets." Special Military Assistance Benefits for Egypt In addition to substantial amounts of annual U.S. military assistance, Egypt has benefited from certain aid provisions that have been available to only a few other countries. For example Early Disbursal and Interest - Bearing Account : Between FY2001 and FY2011, Congress granted Egypt early disbursement of FMF funds (within 30 days of the enactment of appropriations legislation) to an interest-bearing account at the Federal Reserve Bank of New York. Interest accrued from the rapid disbursement of aid has allowed Egypt to receive additional funding for the purchase of U.S.-origin equipment. In FY2012, Congress began to condition the obligation of FMF, requiring the Administration to certify certain conditions had been met before releasing FMF funds, thereby eliminating their automatic early disbursal. However, Congress has permitted Egypt to continue to earn interest on FMF funds already deposited in the Federal Reserve Bank of New York. The Excess Defense Articles (EDA) program provides one means by which the United States can advance foreign policy objectives—assisting friendly and allied nations through provision of equipment in excess of the requirements of its own defense forces. The Defense Security Cooperation Agency (DSCA) manages the EDA program, which enables the United States to reduce its inventory of outdated equipment by providing friendly countries with necessary supplies at either reduced rates or no charge. As a designated "major non-NATO ally," Egypt is eligible to receive EDA under Section 516 of the Foreign Assistance Act and Section 23(a) of the Arms Export Control Act. Economic Aid Overview Over the past two decades, U.S. economic aid to Egypt has been reduced by over 90%, from $833 million in FY1998 to a request of $75 million for FY2019. Beginning in the mid to late 1990s, as Egypt moved from an impoverished country to a lower-middle-income economy, the United States and Egypt began to rethink the assistance relationship, emphasizing "trade not aid." Congress began to scale back economic aid both to Egypt and Israel due to a 10-year agreement reached between the United States and Israel in the late 1990s known as the "Glide Path Agreement," which gradually reduced U.S. economic aid to Egypt to $400 million by 2008. U.S. economic aid to Egypt stood at $200 million per year by the end of the George W. Bush Administration, whose relations with then-President Hosni Mubarak suffered over the latter's reaction to the Administration's democracy agenda in the Arab world. During the final years of the Obama Administration, distrust of U.S. democracy promotion assistance led the Egyptian government to obstruct many U.S.-funded economic assistance programs. According to the Government Accountability Office (GAO), the Department of State and the U.S. Agency for International Development (USAID) reported hundreds of millions of dollars ($460 million as of 2015) in unobligated prior year ESF funding. As these unobligated balances grew, it created pressure on the Obama Administration to reobligate ESF funds for other purposes. In 2016, the Obama Administration notified Congress that it was reprogramming $108 million of ESF that had been appropriated for Egypt in FY2015 but remained unobligated for other purposes. The Administration claimed that its actions were due to "continued government of Egypt process delays that have impeded the effective implementation of several programs." In 2017, the Trump Administration also reprogrammed FY2016 ESF for Egypt. U.S. economic aid to Egypt is divided into two components: (1) USAID-managed programs (public health, education, economic development, democracy and governance); and (2) the U.S.-Egyptian Enterprise Fund. Both are funded primarily through the Economic Support Fund (ESF) appropriations account.

Historically, Egypt has been an important country for U.S. national security interests based on its geography, demography, and diplomatic posture. Egypt controls the Suez Canal, which is one of the world's most well-known maritime chokepoints, linking the Mediterranean and Red Seas. Egypt, with its population of more than 100 million people, is by far the most populous Arabic-speaking country. Although it may not play the same type of leading political or military role in the Arab world as it has in the past, Egypt may retain some "soft power" by virtue of its history, media, and culture. Cairo plays host both to the 22-member Arab League and Al Azhar University, which claims to be the oldest continuously operating university in the world and has symbolic importance as a leading source of Islamic scholarship. Additionally, Egypt's 1979 peace treaty with Israel remains one of the most significant diplomatic achievements for the promotion of Arab-Israeli peace. While people-to-people relations remain cold, the Israeli and Egyptian governments have increased their cooperation against Islamist militants and instability in the Sinai Peninsula and Gaza Strip. Personnel moves and possible amendments to the Egyptian constitution highlight apparent efforts by President Sisi to consolidate power with the help of political allies, including colleagues from Egypt's security establishment. President Sisi has come under repeated international criticism for an ongoing government crackdown against various forms of political dissent and freedom of expression. The Egyptian government has defended its human rights record, asserting that the country is under pressure from terrorist groups seeking to destabilize Arab nation-states. The Trump Administration has tried to normalize ties with the Sisi government that were generally perceived as strained under President Obama. In January 2019, U.S. Secretary of State Michael Pompeo delivered a major policy speech at the American University in Cairo, where he stated, "And as we seek an even stronger partnership with Egypt, we encourage President Sisi to unleash the creative energy of Egypt's people, unfetter the economy, and promote a free and open exchange of ideas." The United States has provided significant military and economic assistance to Egypt since the late 1970s. Successive U.S. Administrations have justified aid to Egypt as an investment in regional stability, built primarily on long-running cooperation with the Egyptian military and on sustaining the 1979 Egyptian-Israeli peace treaty. All U.S. foreign aid to Egypt (or any recipient) is appropriated and authorized by Congress. Since 1946, the United States has provided Egypt with over $83 billion in bilateral foreign aid (calculated in historical dollars—not adjusted for inflation). Annual appropriations legislation includes several conditions governing the release of these funds. All U.S. military aid to Egypt finances the procurement of weapons systems and services from U.S. defense contractors. For FY2019, Congress has appropriated $1.4 billion in total bilateral assistance for Egypt, the same amount it provided in FY2018. For FY2020, the President is requesting a total of $1.382 billion in bilateral assistance for Egypt. Nearly all of the U.S. funds for Egypt come from the FMF account (military aid). In November 2018, the U.S. Defense Department notified Congress of a major $1 billion sale of defense equipment to Egypt, consisting of 10 AH-64E Apache Attack Helicopters, among other things. Beyond the United States, President Sisi has broadened Egypt's international base of support to include several key partners, including the Arab Gulf states, Israel, Russia, and France. In the last five years, as French-Egyptian ties have improved, Egypt has purchased major air and naval defense systems from French defense companies.

GAO_GAO-18-33

Background DOD Definitions of Unwanted Sexual Behaviors DOD has defined various types of unwanted sexual behaviors, including sexual assault, sexual harassment, and domestic violence. Sexual assault: DOD defines sexual assault as intentional sexual contact, characterized by use of force, threats, intimidation, abuse of authority, or when the victim does not or cannot consent. The term includes a broad category of sexual offenses consisting of the following specific Uniform Code of Military Justice offenses: rape, sexual assault, aggravated sexual contact, abusive sexual contact, forcible sodomy (forced oral or anal sex), or attempts to commit these acts. Sexual harassment: DOD defines sexual harassment as a form of sex discrimination that involves unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when (1) submission to such conduct is made either explicitly or implicitly a term or condition of a person’s job, pay, or career; (2) submission to or rejection of such conduct by a person is used as a basis for career or employment decisions affecting that person; or (3) such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creates an intimidating, hostile, or offensive working environment. However, as noted earlier, a provision of the NDAA for FY 2017 changed the definition of sexual harassment for the military for purposes of investigations by commanding officers so that it is no longer defined solely as a form of sex discrimination, but is recognized as an adverse behavior on the spectrum of behavior that can contribute to an increase in the incidence of sexual assault. We discuss this changed definition of sexual harassment later in this report. Domestic violence: DOD defines domestic violence as an offense under the United States Code, the Uniform Code of Military Justice, or state law involving the use, attempted use, or threatened use of force or violence against a person, or a violation of a lawful order issued for the protection of a person who is a current or former spouse, a person with whom the abuser shares a child in common or a current or former intimate partner with whom the abuser shares or has shared a common domicile. Sexual assault of spouses and intimate partners is a subset of domestic violence. DOD Entities with Key Roles and Responsibilities in Addressing Unwanted Sexual Behaviors Various offices and organizations within DOD play a role in addressing unwanted sexual behaviors in the military. The Under Secretary of Defense for Personnel and Readiness is responsible for developing the overall policy and guidance for the department’s efforts to prevent and respond to instances of sexual assault, except for criminal investigative policy matters assigned to the DOD Inspector General and legal processes in the Uniform Code of Military Justice. DOD’s Sexual Assault Prevention and Response Program The Under Secretary of Defense for Personnel and Readiness oversees the Sexual Assault Prevention and Response Office (SAPRO), which serves as the department’s single point of authority, accountability, and oversight for its sexual assault prevention and response program. The responsibilities of the Under Secretary of Defense for Personnel and Readiness and SAPRO with regard to sexual assault prevention and response include providing the military services with guidance and technical support and facilitating the identification and resolution of issues; developing programs, policies, and training standards for the prevention of, reporting of, and response to sexual assault; developing strategic program guidance and joint planning objectives; overseeing the department’s collection and maintenance of data on reported alleged sexual assaults involving servicemembers; establishing mechanisms to measure the effectiveness of the department’s sexual assault prevention and response program; and preparing the department’s mandated annual reports to Congress on sexual assaults involving servicemembers. The Secretaries of the military departments are responsible for establishing policies for preventing and responding to sexual assault within their respective military service, and for ensuring compliance with DOD’s policy. Further, they are responsible for establishing policies that ensure commander accountability for program implementation and execution. Each military service has established an office that is responsible for overseeing and managing the military service’s sexual assault prevention and response program. Each military service also maintains a primary policy document on its sexual assault prevention and response program. Much like DOD’s directive and instruction on sexual assault prevention and response, the military service policies outline responsibilities of relevant stakeholders, including commanders, sexual assault response coordinators, and victim advocates and training requirements for all personnel. DOD’s Military Equal Opportunity Program The Under Secretary of Defense for Personnel and Readiness has responsibility for developing the overall policy for DOD’s military equal opportunity program and monitoring compliance with the department’s policy. According to the policy, all servicemembers are afforded equal opportunity in an environment free from harassment, including sexual harassment, and unlawful discrimination on the basis of race, color, national origin, religion, sex (including gender), and sexual orientation. The chain of command is used as the primary and preferred channel to (1) identify and correct unlawful discrimination practices, (2) process and resolve complaints of unlawful discrimination or harassment, to include sexual, and (3) ensure that military equal opportunity matters are taken seriously and acted on as necessary. The Office of Diversity Management and Equal Opportunity (ODMEO) oversees the department’s efforts to promote equal opportunity, diversity, and inclusion management, and to help prevent unlawful discrimination and harassment throughout DOD. The Defense Equal Opportunity Management Institute develops training and studies on equal opportunity. Behaviors under the purview of the military equal opportunity program include unlawful discrimination on the basis of color, national origin, race, religion, or sex. The Secretaries of the military departments are responsible for developing policies to prevent unlawful discrimination and harassment, (including sexual harassment), ensuring compliance with DOD’s policy, and establishing both formal and informal means of resolving complaints. The chain of command is the primary and preferred channel for identifying and correcting discriminatory practices and resolving servicemembers’ complaints of sexual harassment. The military services encourage servicemembers to resolve any complaints of sexual harassment they may have at the lowest possible level first. For servicemembers who wish to report a complaint of sexual harassment, DOD provides two complaint options—formal and informal. A formal complaint is an allegation of sexual harassment that a complainant submits in writing to the authority designated for the receipt of such complaints in military service implementing guidance. Formal complaints require specific actions to be taken, are subject to timelines, and require documentation of the actions taken, in accordance with federal law. In contrast, an informal complaint is an allegation of sexual harassment, made either orally or in writing, which is not submitted as a formal complaint. Informal complaints may be resolved directly by the complainant, such as by confronting the individual or by involving another individual or the chain of command. Servicemembers who elect to resolve their complaints informally may submit a formal complaint if they are dissatisfied with the outcome of the informal process. In 2014, DOD directed the military services to develop implementing instructions and mechanisms for reporting instances of sexual harassment anonymously. DOD’s Family Advocacy Program The Deputy Assistant Secretary of Defense for Military Community and Family Policy under the Under Secretary of Defense for Personnel and Readiness is responsible for the development and oversight of policy for the military departments to implement a coordinated community response approach to addressing domestic abuse. The DOD Family Advocacy Program (FAP) office provides guidance and technical assistance to the military departments and DOD components to support their efforts to address, among other things, domestic abuse. The Secretaries of the military departments are responsible for developing military service-wide policies, supplementary standards, and instructions to provide for the requirements within their respective installations FAPs. Each military service has established a FAP that is responsible for overseeing and managing, among other things, the installation-level FAPs and the military service’s domestic violence and domestic abuse prevention and response programs. When domestic abuse does occur, the military service installation FAP conducts a risk assessment and works to ensure the safety of the victims and help military families overcome the effects as well as change destructive patterns. CDC and Its Sexual Violence Prevention Efforts CDC is one of the major operating components of the Department of Health and Human Services, which serves as the federal government’s principal agency for protecting the health of U.S. citizens. As part of its health-related mission, CDC serves as the national focal point for developing and applying disease prevention and control, environmental health, and health promotion and education activities. CDC, among other things, conducts research to enhance prevention, develops and advocates public health policies, implements prevention strategies, promotes healthy behaviors, fosters safe and healthful environments, and provides associated training. In 1992, CDC established the National Center for Injury Prevention and Control as the lead federal organization for violence prevention. The center’s Division of Violence Prevention focuses on stopping violence, including sexual violence, before it begins and works to achieve this by conducting research on the factors that put people at risk for violence, examining the effective adoption and dissemination of prevention strategies, and evaluating the effectiveness of violence prevention programs. In 2004, CDC published a framework for effective sexual violence prevention strategies. This framework includes prevention concepts and strategies, such as identifying risk and protective factors (i.e., factors that may put a person at risk for committing sexual assault or that, alternatively, may prevent harm). CDC’s framework defines sexual violence as including non-contact unwanted sexual behaviors, sexual harassment, and physical sexual assault. Continuum of Harm DOD has acknowledged that connections exist across the continuum of unwanted sexual behaviors including sexual harassment and sexual assault and that this continuum of harm is reflected in key documents that guide prevention and response activities. For example, SAPRO has also reported that certain behavior and activities, such as hazing, can lead to sexual assault. Additionally, DOD’s Prevention Roundtable and 2014- 2016 Sexual Assault Prevention Strategy have both adopted CDC’s definition of “prevention” as it applies to sexual violence. CDC defines sexual violence to include sexual harassment and sexual assault. In 2014 and 2017, DOD contracted with RAND to conduct independent assessments of behaviors across the continuum of harm, including sexual assault and sexual harassment. In its 2014 report, RAND found that (1) 34 percent of male servicemembers who were surveyed reported that the sexual assault was part of a hazing incident, (2) servicemembers who experienced sexual harassment or gender discrimination in the past year also experienced higher rates of sexual assault, and (3) approximately one-third of servicemembers who are sexually assaulted stated the offender sexually harassed them before the assault. In its 2017 report, RAND found that (1) people are more likely to engage in problematic behaviors, such as sexual harassment, if that person perceives that peers and leaders condone those actions and (2) some organizations responsible for addressing unlawful discrimination and sexual harassment lack adequate policies, plans, information systems, and resources needed to establish a departmental approach to certain behavioral issues, inform senior leadership about these problems, and ensure that leadership’s decisions about problematic behaviors are uniformly enforced. CDC research revealed that behaviors such as bullying and homophobic teasing in early adolescence are significant predictors of sexual harassment over time. According to the CDC, these youth are at an increased potential to perpetrate sexual violence and engage in sexually harassing behavior. In response, CDC recommends that communities work to prevent all types of violence from occurring and coordinate and integrate responses to violence in a way that recognizes these connections. CDC’s research has also established that survivors of one form of violence are more likely to be victims of other forms of violence, that survivors of violence are at higher risk for behaving violently, and that people who behave violently are more likely to commit other forms of violence. Further, CDC states that violence prevention and intervention efforts that focus on only one form of violence can be broadened to address multiple, connected forms of violence to increase the public health impact. DOD’s Policies on Sexual Harassment Include Some but Not All of CDC’s Principles and Most Relevant Legislative Elements DOD’s policies on sexual harassment include some but not all of CDC’s principles and most relevant legislative elements. OSD and military service-specific sexual harassment policies generally include prevention strategies that CDC has identified in its principles for sexual violence prevention but leave out risk and protective factors, as well as risk domains. Additionally, DOD’s sexual harassment policies include most elements identified in section 579 of the NDAA for FY 2013, but do not consistently include mechanisms for anonymous reporting. ODMEO officials stated that they plan to issue a new policy that is intended to focus on sexual harassment and other forms of harassment, but it is too early to know whether that policy will include all the CDC principles or mechanisms for anonymous reporting. We also noted during our review that most existing policies have not yet been updated to reflect a provision in the fiscal year 2017 NDAA that redefined sexual harassment for certain purposes so it is no longer defined solely as a form of sex discrimination but is recognized also as an adverse behavior on the spectrum of behaviors that can contribute to an increase in the incidence of sexual assault. DOD’s Sexual Harassment Policies Include Some of CDC’s Principles for Preventing Sexual Violence but Not Others DOD’s sexual harassment policies include some of the principles that have been developed by CDC as part of a framework for preventing sexual violence, but other principles are not included. OSD includes sexual harassment as part of its broader military equal opportunity policy. It addresses, among other things, processes for preventing and responding to cases of discrimination, including sexual harassment; education and training in equal opportunity; and complaints processing. The military services’ policies on sexual harassment cover similar topics, such as chain of command responsibilities, complaint processing, and definitions for sexual harassment; however, they have some differences. For example, while all policies include provisions on sexual harassment prevention training, the Army’s and the Navy’s policies include specific characteristics of effective training. Both policies also specify what should be included in trainings for different levels of the chain of command. The Marine Corps and Air Force policies simply state that commanders must conduct sexual harassment prevention training. CDC’s framework defines sexual violence as including non-contact unwanted sexual behaviors, sexual harassment, and physical sexual assault. We applied six principles for sexual violence prevention from CDC’s framework to DOD’s sexual harassment policies. These principles are: Risk factors: Factors that may put people at risk for sexual violence perpetration or victimization, such as an organizational climate that either explicitly or implicitly condones sexual harassment. Protective factors: Factors that may protect high-risk people from harm, such as an organizational climate that promotes respect amongst personnel at all levels. Primary strategies for prevention: Strategies that occur before sexual violence takes place to prevent initial perpetration, such as sexual harassment prevention training. Secondary strategies for prevention: Immediate responses after sexual violence has occurred to address the early identification of victims and the short-term consequences of violence, such as mechanisms for reporting instances of sexual harassment and immediate interventions. Tertiary strategies for prevention: Long-term responses after sexual violence has occurred to address the lasting consequences of violence and sex-offender treatment interventions, such as long-term treatment of the victim and perpetrator. Risk domains: Levels at which risk and protective factors should be categorized, including: individual, relationship, community, and societal. In its sexual assault prevention strategy, DOD adapted risk domains to the military population, using the levels of: individual, relationship, leaders at all levels, military community, and society. Our comparison of DOD sexual harassment policies with CDC’s framework for preventing sexual violence showed that the policies include some of the principles in the framework but not others (see table 1.) Our analysis showed that the OSD and the Air Force policies each include two of the six principles in CDC’s framework, and the Army, the Navy, and the Marine Corps policies include three principles. Specifically, the policies generally identify sexual harassment prevention training for the armed forces, a primary strategy for prevention. In addition, the policies generally outline mechanisms for reporting and responding to sexual harassment, considered a secondary strategy for prevention. The Army, the Navy, and the Marine Corps policies outline counseling support and referral services, as well as specifying the options available for administrative or judicial punishment, including discharge from service for perpetrators, which can be considered to be tertiary strategies for prevention. Common elements missing from DOD’s sexual harassment policies are risk factors and protective factors, which identify conditions or behaviors that might heighten or lower the risk of sexual harassment victimization or perpetration, respectively. Examples of risk factors for sexual violence identified by the CDC include, but are not limited to, alcohol and drug use, hypermasculinity, emotionally unsupportive family environments, general tolerance of sexual violence within the community, and societal norms that support male superiority and sexual entitlement. Examples of protective factors from the CDC include emotional health and connectedness, and empathy and concern for how one’s actions affect others. Additionally, RAND identified an organizational climate that is oppositional to sexual violence as a protective factor. The policies also did not include risk domains, which would categorize risk and protective factors at the individual, relationship, community, and society levels. ODMEO officials told us that they are familiar with the CDC framework and are considering using it as a source of best practices for a new sexual harassment prevention strategy. DOD has previously used CDC’s sexual violence prevention framework to guide its sexual assault prevention strategy. In the absence of more comprehensive policies on sexual harassment that fully include principles in the CDC framework for sexual violence prevention, DOD may be missing opportunities to address and potentially reduce incidents of sexual harassment in the military population based on risk and protective factors and effective, tested strategies. Specifically, DOD may be missing the opportunity to identify risk factors, which would help to recognize situations where individuals and populations may be at a higher risk of sexual harassment perpetration or victimization; identify protective factors to lower the risk of sexual harassment; develop mechanisms to address sexual harassment across risk domains—at the individual, relationship, community, and society levels; and develop tertiary strategies, or long-term responses after sexual violence has occurred to address the lasting consequences of violence and sex- offender treatment interventions. DOD’s Sexual Harassment Policies Include Most Elements Mandated in the NDAA for FY 2013, but Some Do Not Include Mechanisms for Anonymous Reporting DOD’s sexual harassment policies include three elements required by section 579 of the NDAA for FY 2013 but some do not include one element involving the anonymous reporting of incidents. Section 579 mandated that DOD, among other things, develop a comprehensive sexual harassment policy that includes the following elements: (1) prevention training for members of the armed forces; (2) mechanisms for reporting sexual harassment, including mechanisms for anonymous reporting; and (3) mechanisms for resolving sexual harassment that include the prosecution of perpetrators. In 2014, the Office of the Undersecretary of Defense for Personnel and Readiness issued a policy memorandum addressing the provisions of Section 579 and directed the military services to develop implementing instructions that include mechanisms for anonymous reporting. We compared DOD’s policies with the required elements in section 579 and found that OSD and military service policies generally include required elements except for the element focused on DOD including anonymous reporting in its policies for sexual harassment. The OSD, Army, and Marine Corps policies do not include anonymous reporting, while the Air Force policy and a new Navy policy do. Officials from ODMEO said that providing an option for anonymous reporting is important because it increases the odds that incidents will be reported. ODMEO officials also told us that the services have hotlines that servicemembers can use to anonymously report complaints of sexual harassment, and the Air Force and Navy policies note that their respective military servicemembers have options for anonymous reporting. While the military services may have mechanisms in place for anonymous reporting of sexual harassment, these mechanisms are not included in OSD’s policy—as required by section 579—or the policies of two of the Services, those of the Army and the Marine Corps. Without including anonymous reporting of sexual harassment complaints in DOD’s sexual harassment policies, the statutory requirement for anonymous reporting may be interpreted and applied inconsistently throughout the military services, or left unmet. Development of New OSD Harassment Policy May Provide Opportunities for Enhanced Oversight and More Consistent Approaches OSD is developing a new policy—planned to be issued in fiscal year 2018—that will specifically focus on various forms of harassment, including sexual harassment, hazing, and bullying. ODMEO officials who are developing the new policy stated that it is intended, among other things, to enhance oversight of sexual harassment prevention and response within the department. However, because the policy is under development, it is too early to determine how the policy will address the CDC principles and anonymous reporting, as discussed earlier. Further, it is unclear how OSD plans to improve oversight and whether it intends to include performance goals, objectives, milestones, and metrics as we previously recommended in 2011. Although OSD in 2014 directed the military services to improve their oversight of sexual harassment, none of the military services were able to demonstrate that they had implemented all the required elements. Specifically, DOD’s 2014 policy memorandum addressing the provisions of section 579 also directs the military services to develop a sexual harassment oversight framework to be reviewed quarterly by a senior leadership forum that includes long-term goals, objectives, and milestones; criteria for measuring progress; results-oriented performance measures to assess effectiveness of service sexual harassment policies and programs; standards for holding leaders accountable for promoting, supporting, and enforcing policies, plans and programs; and strategies to implement the oversight framework. While some of the military services have included elements of the oversight framework directive from the 2014 policy memorandum, none of them were able to provide information that demonstrated that they had fulfilled all requirements set forth by that policy memorandum. For instance, when asked, none of the military services were able to provide details that they have senior leader forums that review their oversight efforts on a quarterly basis. Officials from the Air Force told us that they were waiting for ODMEO to release a new sexual harassment policy before establishing the oversight framework. Officials from the Navy referred us to their July 2017 sexual harassment policy, which instructs the Navy Sexual Harassment Prevention and Equal Opportunity Office to develop and implement standards for holding leaders accountable for promoting, supporting, and enforcing sexual harassment prevention and response policies, plans, and programs, and to develop results-oriented performance measures to assess the effectiveness of sexual harassment prevention and response policies and programs. Officials from the Army referred us to their SHARP Campaign Plan, which outlines methods to hold leaders accountable for taking appropriate action to address sexual harassment; goals and objectives for the program; and ways to measure program effectiveness. The Marine Corps did not respond to our request for information regarding an oversight framework for sexual harassment. A new department-wide policy on sexual harassment could be helpful to the military services as they review and update their respective policies. As noted earlier, military service policies have some differences in how they address aspects of sexual harassment. The Marine Corps told us that they have been waiting for additional guidance from OSD before updating their sexual harassment policies. However, following publicized incidents of Marines posting inappropriate photos on line of female servicemembers without their consent, the Marine Corps updated its guidance in May 2017 adding “the distribution or broadcasting of an intimate image, without consent” to its list of sexual harassment incidents that mandate separation processing. Additionally, in May 2017, a Marine Corps official said the service was revising its sexual harassment policy. The Navy updated its sexual harassment policy in July 2017 without additional guidance from OSD. We also noted during our review that most existing policies have not yet been updated to reflect a provision in the fiscal year 2017 NDAA that redefined sexual harassment for certain purposes so it is no longer defined solely as a form of sex discrimination but is recognized also as an adverse behavior on the spectrum of behavior that can contribute to an increase in the incidence of sexual assault. We asked DOD officials from several offices about the implications of this change. They identified some actions they will take, but the full implications, if any, of the change are unclear. Officials from the Assistant Secretary of Defense for Readiness said that there are no significant implications of the sexual harassment definition change beyond making conforming revisions to policy documents and guidance. ODMEO officials said that adjusting to the new definition of sexual harassment would not significantly affect their work at the OSD level, since they are already updating their sexual harassment policy to reflect this change and since sexual harassment is expected to remain within the responsibilities of ODMEO. They added that the military services will likely have to adjust to the new definition of sexual harassment, but did not offer details in how they would have to adjust. The Navy’s new policy dated July 2017 reflects the new definition, but the other military services have yet to incorporate the change. Officials from SAPRO said that they are working with ODMEO to revise surveys on unwanted sexual behaviors to reflect the new definition. SAPRO officials further stated that sexual harassment should remain under ODMEO’s purview since ODMEO personnel are trained specifically in sexual harassment response. Officials from the Army’s SHARP program said that the new definition means that sexual harassment will more often be considered misconduct, and taken more seriously. Since OSD is in the process of updating its policy, we are not making any recommendations. However, it will be important for OSD and the military services to address our prior recommendation regarding improving the oversight framework as well as incorporating the new definition of sexual harassment required by the fiscal year 2017 NDAA while updating their policies. DOD Has Processes for Maintaining and Reporting Consistent Data on Incidents of Sexual Assault and Domestic Abuse That Involves Sexual Assault, but Does Not Have Reasonable Assurance of Consistent Data on Sexual Harassment DOD has processes for maintaining and reporting consistent data on sexual assault incidents and domestic violence incidents that involve sexual assault, but the department does not have similar assurance of consistent data on incidents of sexual harassment. SAPRO and FAP each use centralized databases that enable them to maintain and report consistent data on those incidents that fall under their purview. In contrast, DOD relies on military service-specific databases on sexual harassment incidents and does not have assurance of consistent data from these databases because it has not established standard data elements and definitions to guide the military services in maintaining and reporting these data. DOD Has Developed and Plans to Further Improve Centralized Databases That Enable It to Maintain and Report Consistent Data on Sexual Assault Incidents and Domestic Violence Incidents That Involve Sexual Assault DOD uses centralized databases to maintain and report data on sexual assault incidents in the military and domestic violence incidents involving sexual assault. Specifically, SAPRO and the military services use the Defense Sexual Assault Incident Database (DSAID), and FAP uses the DOD Central Registry. These databases maintain data on incidents that are included in statutorily required annual reports to Congress on sexual assaults in the military. In 2011, Congress mandated that DOD provide annual reports that include: the number of sexual assaults committed against and by members of the armed forces that were reported to military officials, including unsubstantiated and substantiated reports with a synopsis of each substantiated case organized by offense and the action taken, including disciplinary actions; the policies, processes, and procedures implemented by the Secretary concerned during the year covered by the report in response to incidents of sexual assaults; the number of substantiated sexual assault cases in which the victim is deployed where the assailant is a foreign national; and a description of the implementation of the accessibility plan, including a description of the steps taken to ensure that trained personnel, appropriate supplies, and transportation resources are available to deployed units. The most recent DOD annual report on sexual assault was issued in May 2017 and covered fiscal year 2016. The report includes data on the number of both restricted and unrestricted reports of sexual assault involving servicemembers. The report also contains separate enclosures for the Army, the Navy (including the Marine Corps), the Air Force, and the National Guard, as well as annexes on the Workplace and Gender Relations Survey of Active Duty Members (WGRA) and the Military Investigation and Justice Experience Survey (MIJES). The WGRA annex discusses topics including the continuum of harm and the MIJES annex contains information on closed cases of sexual assault. SAPRO and FAP both contributed sexual assault incident data to the fiscal year 2016 report, and our review of the underlying databases found that data elements and definitions were defined and management was able to process the data into consistent information. Specifically, the two databases used are the: DSAID Data on Sexual Assault Incidents: DSAID captures DOD-wide data on certain incidents of sexual assault that involve a servicemember or in some cases, when a sexual assault involves a servicemember’s spouse or adult family member or a DOD civilian or contractor. However, FAP-related sexual assault incidents are not captured in DSAID. Using information generated by DSAID, SAPRO includes both substantiated and unsubstantiated reports of sexual assault in its annual report. In 2017, we reviewed DSAID and found that DOD had taken steps to ensure the quality and consistency of data in DSAID as well as to monitor the data entered into the system. In addition, OSD had provided the military services with definitions for required data elements in the database, which include details on the incident, victim, and alleged offender. In addition, we identified several technical challenges with the system, including issues with the system’s speed and ease of use; interfaces with other external DOD databases; and users’ ability to query data and generate reports. At the time of the report’s release, DOD had plans to modify DSAID. As of July 2017, DOD officials told us that they are still in the process of making modifications to DSAID to resolve or alleviate the technical challenges for users. DOD Central Registry Data on Domestic Abuse Incidents Involving Sexual Assault: The DOD Central Registry captures DOD-wide data on reports of domestic abuse on populations within FAP’s purview, including on family members of servicemembers as well as on their intimate partners. The DOD Central Registry includes details of each case such as the status of cases, the demographics of the perpetrator and victim, the specific type of abuse, and other details surrounding the incident. FAP officials explained that they do not use the “substantiated” and “unsubstantiated” terminology like SAPRO does. Rather, FAP, which is not responsible for determining criminal or legal disposition, uses the terms “met criteria” and “not met criteria” for maltreatment. This difference in terminology has to do with FAP’s process for determining if an incident meets the clinical criteria to be classified as abuse for the purpose of developing an intervention/treatment plan for both the victim and the offenders involved in the allegations of domestic violence. Incidents that are determined as having met criteria are entered into the DOD Central Registry. We reviewed the DOD Central Registry and found that it includes well defined data elements and descriptions for collecting data on cases of domestic violence including those that involve sexual assault. The data in the DOD Central Registry includes 46 discrete data elements, including the relationship between the victim and perpetrator, the timeline of the case, and actions taken and treatments administered in response to the incident. The elements are defined and described in an OSD policy. In its annual reporting to Congress, FAP provides the number of domestic violence incidents involving sexual assault that met criteria and the total number of instances of domestic violence that did not meet criteria. However, FAP does not maintain or report data on the total number of reported domestic violence incidents that specifically involve sexual assault. That is because only the details of cases that meet criteria are recorded in the DOD Central Registry. A FAP official said that the military services likely have more detailed information about cases that did not meet the criteria, but it does not collect these data in the DOD Central Registry. A provision in the NDAA for FY 2017 requires DOD to submit an annual report on child abuse and domestic abuse incident data, including the number of incidents reported during the year involving the physical or sexual abuse of a spouse, intimate partner, or child. This report is to be submitted simultaneously with submission of DOD’s annual sexual assault report to Congress. FAP officials told us that they are currently working with SAPRO to ensure that all reported incidents of domestic violence involving sexual assault, including those that did not meet the criteria, are included in the annual sexual assault report. DOD Reports Annually on Sexual Harassment, but Does Not Have Reasonable Assurance That the Military Services Maintain Consistent Data on Sexual Harassment Incidents Though not required to do so, DOD has included sexual harassment incident data in an appendix of its annual report on sexual assault in the military. The appendix provides information on the total number of sexual harassment reports over the fiscal year and the total number of substantiated sexual harassment reports. It also breaks down complaints by sex, service, and pay grade. ODMEO generates the reported data through annual data calls to each military service; however, it does not have assurance that the services maintain consistent data on sexual harassment incidents consistent with federal standards of internal control. The military services maintain sexual harassment incident data in military service-specific databases, and there is no centralized database similar to DSAID or the Central Registry. The military service databases are intended to collect data on formal complaints. According to the military services, the Army, the Air Force, and the Marine Corps use web-based systems, and the Navy tracks data using an Excel spreadsheet. Each service has a discrete process for entering and performing quality checks on sexual harassment incident data in its respective database, as shown in table 2. Although the military services perform some data quality checks as shown in table 2, ODMEO does not have assurance the military services are maintaining consistent data because it has not defined standard data elements and definitions for the information in their databases. Rather, the individual military services have established their own data elements and definitions. We compared data elements and definitions from each of the military services and found that there are several data elements that remain consistent throughout the services. For example, each military service records whether the complainant and offender are in the same unit, what their relationship is to each other, and the disposition of cases. However, we also found inconsistencies in data fields and their definitions across the military services, and some of the military services have data fields and definitions that do not exist in other databases. For example, the Marine Corps records whether or not the incident involves alcohol or drug use, which the rest of the military services do not record, and the military services record dates differently between their respective databases. For example, the Air Force records an initial date, the date the complaint form was signed, the date the general court martial was sent, the date the legal review was completed, and the final review date. The Marine Corps records the date the incident was reported, the date the incident occurred and whether the incident occurred over multiple dates; the dates associated with notifications and status updates to general courts martial proceedings; the dates associated with steps in the investigation, including any extensions; the dates associated with dispositions; and the dates associated with appeals. Additionally, the military services have different ways of categorizing sexual harassment incidents, as shown in table 3. As shown in table 3, while some data descriptions are similar—for instance, each of the military services include crude/offensive behavior, unwanted sexual attention, and sexual coercion—there are differences as well. The Air Force also categorizes sexual harassment into verbal, nonverbal, physical, and other, for example, whereas the other military services’ top-level categories are different. The Navy has a “not applicable” category that it describes as sexual harassment complaints that do not fall under sexual harassment, and only the Air Force has an “other” category. Because the military services have different descriptors for similar data fields, DOD cannot ensure that the services are categorizing similar types of sexual harassment in the same way. In addition, we found that the Army is more detailed in characterizing different types of sexual harassment. Specifically, as shown in table 4, the Army has an additional data field that provides more detailed descriptions of three types of sexual harassment; the other military services’ respective databases do not have this level of detail. Because the Army has this additional data field, it can capture information on multiple types of harassment that may occur in a single incident. The other military services, in contrast, do not have this capability in their respective databases. To illustrate, if one case of sexual harassment involved both verbal and nonverbal forms of sexual harassment, the Army could choose a more specific characterization to describe the incident, while the other military services would characterize the incident in more general terms. ODMEO officials are considering adapting an existing system to track instances of sexual harassment department-wide. That system, called Force Risk Reduction (FR2), is currently used to track safety issues like military injuries, civilian workers’ compensation claims, and casualty notifications at DOD. ODMEO recently completed a pilot of the system with the Marine Corps, the Navy, and the Army to test whether it would be useable for adaptation for sexual harassment data, and is planning a second pilot to include the Air Force and the National Guard Bureau. According to ODMEO officials, their adaptation of FR2 is intended to collect aggregate-level sexual harassment data from the military services, and the military services will continue to operate and rely on their individual databases to maintain more detailed case-level information on incidents. For example, ODMEO’s adaptation of FR2 would not have details such as descriptions of specific incidents, or information on dates associated with investigations or appeals. These types of data will continue to be maintained in the service systems. ODMEO officials told us that their new data system, if implemented, is not designed to collect case-level details in order to avoid personally identifiable information. Federal internal control standards state that management should define the identified information requirements at the relevant level and requisite specificity for appropriate personnel. Management should also process the obtained data into quality information. Consistency of information meets the identified information requirements when relevant data from reliable sources are used. While DOD is exploring implementing a system to track instances of sexual harassment department-wide, as currently planned this system will not collect case-level details and individual military service systems will continue to be relied upon for this type of information. Inconsistencies in data elements and definitions among the military services generally mean that one military service may be maintaining sexual harassment data that are more or less detailed than sexual harassment data maintained by other military services, or that is simply different from the data maintained by other military services. Additionally, inconsistent data elements and definitions may create difficulties in reporting sexual harassment data from the military services to OSD for a department-wide report, since ODMEO has to adapt data from the services to fit reporting requirements. Without standard data elements and definitions for sexual harassment data, DOD will continue to lack assurance about the consistency of these data across the military services. DOD Has Several Overarching Efforts to Address Unwanted Sexual Behaviors across the Continuum of Harm DOD has several overarching efforts to address unwanted sexual behaviors across the continuum of harm. Specifically, the department established an office to oversee the integration and coordination of unwanted sexual behaviors in 2015 and is in the process of developing an overarching prevention strategy. However, because the strategy is under development, it is unclear whether it will contain key elements for long-term and results-oriented strategic planning. DOD also has ongoing collaborative efforts to address unwanted sexual behaviors along the continuum of harm. Specifically, we identified 15 collaborative efforts, including regular meetings, Integrated Product Teams, and working groups that involve multiple entities that address unwanted sexual behaviors. DOD Is Developing an Overarching Prevention Strategy to Address the Continuum of Harm, but It Is Unclear Whether DOD Will Include Key Elements of a Long-Term, Results- Oriented Strategy DOD has taken steps to integrate activities related to the continuum of harm and is in the process of developing an overarching prevention strategy. Based on its research, DOD has sought to understand and define the continuum of harm, including the shared characteristics that contribute to increased unwanted sexual behaviors along the continuum and implications for prevention and response efforts. Also, in November 2015, DOD established a new entity—the Office of the Executive Director for Force Resiliency, within the Office of the Assistant Secretary of Defense for Readiness—to oversee policies and initiatives related to the continuum of harm. Specifically, the Executive Director for Force Resiliency was expected to provide senior leader policy guidance and oversight on high visibility departments that include SAPRO and ODMEO. In November 2016, the Office of the Executive Director for Force Resiliency was absorbed under the Assistant Secretary of Defense for Readiness. According to the Assistant Secretary of Defense for Readiness, the functions of the Office of the Executive Director for Force Resiliency remain and coordination of the efforts of several offices that address the continuum of harm continues. Officials from the Assistant Secretary of Defense for Readiness and SAPRO told us that they are drafting an overarching prevention strategy to encompass behaviors along the continuum of harm. However, because the strategy is still under development, its contents and timelines are unclear. We have previously identified six elements of strategic management planning that are key for establishing a long-term, results- oriented strategic planning framework: (1) a mission statement, (2) long- term goals, (3) strategies to achieve goals, (4) external factors that could affect goals, (5) the use of metrics to gauge progress, and (6) evaluations of the plan to monitor goals and objectives. By incorporating the elements of a comprehensive and results-oriented strategy into its overarching prevention strategy, the department will be better positioned to effectively coordinate and integrate prevention activities and reduce unwanted sexual behaviors. A mission statement, along with long-term goals and strategies to achieve those goals, should help to focus efforts in integrating prevention activities, and metrics and evaluations will allow the department to gauge progress and make changes as necessary, while also accounting for external factors that may impact progress towards goals. DOD Has Ongoing Collaborative Efforts to Address Behaviors along the Continuum of Harm Our review identified 15 collaborative efforts that DOD has used to address behaviors along the continuum of harm, including sexual harassment, sexual assault, and domestic violence involving sexual assault. Three of these efforts are cross-cutting between all three of the key OSD stakeholders—ODMEO, FAP, and SAPRO—and five involve cross-cutting efforts by at least two of the key stakeholders. Figure 1 lists DOD’s 15 collaborative efforts. Regarding the three cross-cutting efforts involving all three of the key stakeholders, The Sexual Assault Prevention and Response Integrated Product Team provides a forum for OSD, the military departments, and the National Guard Bureau to address sexual assault prevention efforts. The team meets bimonthly and serves as the implementation and oversight arm for DOD’s Sexual Assault Prevention and Response (SAPR) program. The team also coordinates new policies; reviews existing SAPR policies and programs to ensure they are consistent with applicable instructions; and monitors the progress of program elements including DOD’s SAPR strategic plan tasks, DOD’s sexual assault prevention strategy tasks, and implementation of NDAA- related sexual assault issues. SAPRO leads this effort. The Prevention Collaboration Forum and working group develops coordinated prevention approaches that address factors impacting personnel readiness such as sexual harassment, sexual assault, and domestic violence involving sexual assault. According to its proposed charter, the focus of the forum is on enhancing the health of military unit and family climates as well as strengthening and promoting the resiliency and readiness of the total force through a coordinated effort around integrated policies, collaborative direction of research, alignment of resources, analysis of gaps, and synchronization of activities. The Assistant Secretary of Defense for Readiness leads this effort with SAPRO providing administrative and facilitation support. The Victim Assistance Leadership Council advises the Under Secretary of Defense for Personnel and Readiness on policies and practices related to victim assistance across DOD. According to its charter, the council provides a forum for senior leaders to exchange information and collaborate on issues affecting victims of all forms of crime and harassment within DOD, including but not limited to victims of sexual harassment, sexual assault, and domestic violence involving sexual abuse. Leadership rotates between SAPRO, FAP, and ODMEO and other offices. Regarding the cross-cutting efforts involving two of the three key stakeholders, the Sexual Harassment Prevention and Response Working Group is led by ODMEO and includes SAPRO. The group was established to evaluate how to best position sexual harassment prevention and response policy and oversight and to leverage technology to automate annual reporting requirements. The four other cross-cutting efforts are (1) the hazing and bullying working group, (2) retaliation working groups created under the SAPR Integrated Process Team, (3) domestic abuse rapid improvement events, and (4) ODMEO and SHARP meetings. The remaining collaborative efforts we identified are specific to FAP, SAPRO, and ODMEO. For example, the Sexual Assault Prevention Roundtable is a forum for representatives from OSD, the military departments, and the National Guard Bureau to share information on sexual assault prevention efforts and requirements. According to its charter, the roundtable’s activities include, among other things, sharing promising practices and prevention updates; discussing challenges in prevention program implementation, including servicemember training, and identifying approaches to address them; identifying metrics to assess the impact and effectiveness of prevention efforts, and opportunities to collaborate on research projects; and tracking the implementation of prevention tasks identified in the DOD SAPR strategy. SAPRO leads this effort. The Defense Diversity Working Group is an ODMEO-specific group that collaborates with various OSD and military service offices on military and civilian diversity and inclusion issues and implements mandated diversity plans and programs. Conclusions Studies by DOD and others have shown that unwanted sexual behaviors do not exist in isolation but are part of a range of interconnected, inappropriate behaviors that are connected to the occurrence of a sexual assault. While DOD has policies and procedures to prevent and respond to these types of unwanted behaviors, some of the policies do not include key elements like anonymous reporting of sexual harassment and principles in the CDC framework for sexual violence prevention. Fully including these elements in the department’s policies can help ensure that the military services are interpreting and applying prevention and response efforts consistently and may also decrease the risk of perpetration or victimization related to instances on unwanted sexual behaviors. Further, DOD has developed reliable data systems for collecting and reporting data on some of the unwanted sexual behaviors including sexual assault and instances of domestic violence with sexual assault. However, inconsistencies in sexual harassment data elements and definitions may be creating difficulties in developing department-wide reports on unwanted sexual behaviors. Improving and standardizing data collection efforts will not only improve the quality of data that DOD and the military services collect but may also increase the ability for DOD to further develop its understanding of the connection between unwanted sexual behaviors. Finally, DOD officials have stated that they are in the early stages of developing an overarching strategy to address the interconnected nature of the range of unwanted sexual behaviors. To ensure that the department is appropriately concentrating its efforts to prevent and respond to the full range of unwanted behaviors, it is important that DOD include elements of a long-term, results-oriented strategy into its overarching prevention strategy. In doing so, DOD will be in a better position to effectively coordinate and integrate prevention activities and ultimately reduce instances of unwanted sexual behaviors. Recommendations for Executive Action We are making the following four recommendations to DOD: The Under Secretary of Defense for Personnel and Readiness should fully include in the new policy for sexual harassment the principles in the Centers for Disease Control’s framework for sexual violence prevention, including risk and protective factors, risk domains, and tertiary strategies. (Recommendation 1) The Under Secretary of Defense for Personnel and Readiness should include in the new policy for sexual harassment mechanisms for anonymous reporting of incidents consistent with section 579 of the National Defense Authorization Act for FY 2013. (Recommendation 2) The Under Secretary of Defense for Personnel and Readiness should (1) direct the Office of Diversity Management and Equal Opportunity to develop standard data elements and definitions for maintaining and reporting information on sexual harassment incidents at the military service level, and (2) direct the military services to incorporate these data elements and definitions into their military service-specific databases. (Recommendation 3) The Under Secretary of Defense for Personnel and Readiness should direct the Assistant Secretary of Defense for Readiness to incorporate in its continuum of harm prevention strategy all the elements that are key for establishing a long-term, results-oriented strategic planning framework. The elements are (1) a mission statement, (2) long-term goals, (3) strategies to achieve goals, (4) external factors that could affect goals, (5) use of metrics to gauge progress, and (6) evaluations of the plan to monitor goals and objectives. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to DOD and CDC for review and comment. In its written comments, DOD concurred with three recommendations and partially concurred with one, noting planned actions to address this recommendation. DOD’s comments are reprinted in their entirety in appendix II. DOD and CDC also provided technical comments, which we incorporated into the report as appropriate. DOD concurred with our three recommendations that DOD fully include in the new policy for sexual harassment the principles in the CDC's framework for sexual violence prevention, that DOD also include in the new sexual harassment policy mechanisms for anonymous reporting, and that DOD incorporate in its continuum of harm strategy all the elements that are key for establishing a long-term, results-oriented strategic planning framework. With regard to our recommendation that DOD develop standard data elements and definitions for maintaining and reporting information on sexual harassment incidents and direct the military services to incorporate these into their databases, DOD partially concurred and stated that while a 2013 policy memorandum provides standard data elements and definitions, the services collect other data elements based on their unique needs. DOD stated that ODMEO will conduct a review to determine compliance with DOD reporting requirements and identify emerging policy modifications or changes/additions to standard definitions. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, and the Director, Centers for Disease Control and Prevention. In addition, the report is available at no charge on the GAO website http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3604 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Scope and Methodology To determine the extent to which the Department of Defense (DOD) has policies on sexual harassment that include Centers for Disease Control and Prevention (CDC) principles and relevant legislative elements, we obtained and reviewed Office of the Secretary of Defense (OSD) and service-level sexual harassment policies. We compared the policies with a framework developed by the CDC for preventing sexual violence, which CDC defines as including non-contact unwanted sexual behaviors, sexual harassment, and physical sexual assault. CDC’s model is based on the concept of addressing the health of a given population based on common risk and protective factors and effective, tested strategies. We reviewed CDC’s framework for preventing sexual violence as well as our report on DOD’s sexual assault prevention strategy to identify six principles that an organization can include in a sexual violence prevention strategy or policy: Risk factors: Factors that may put people at risk for sexual violence perpetration or victimization, such as an organizational climate that either explicitly or implicitly condones sexual harassment; Protective factors: Factors that may protect high-risk people from harm, such as an organizational climate that promotes respect among personnel at all levels; Primary strategies for prevention: Strategies that occur before sexual violence takes place to prevent initial perpetration, such as sexual harassment prevention training; Secondary strategies for prevention: Immediate responses after sexual violence has occurred to address the early identification of victims and the short-term consequences of violence, such as reporting mechanisms and immediate interventions; Tertiary strategies for prevention: Long-term responses after sexual violence has occurred to address the lasting consequences of violence and sex-offender treatment interventions, such as the long- term treatment of the victim and perpetrator; and Risk domains: Levels at which risk and protective factors should be categorized, including: individual, relationship, community, and society. DOD has previously adapted risk domains to the military population, using the levels of: individual, relationship, leaders at all levels, military community, and society. DOD previously used CDC’s framework for preventing sexual violence in the department’s 2014-2016 Sexual Assault Prevention Strategy. In addition, we reviewed the OSD and service-level sexual harassment policies to determine the extent to which they included three elements identified in the National Defense Authorization Act (NDAA) for FY 2013, which directed DOD to develop a comprehensive policy that includes sexual harassment prevention training for the armed forces; mechanisms for reporting incidents, including mechanisms for anonymous reporting; and mechanisms for responding to and resolving instances of sexual harassment, including for the prosecution of perpetrators. Two GAO analysts independently reviewed the policies and determined whether or not each element was included. Any discrepancies were resolved through discussion and consultation with a third analyst. We interviewed officials in the Under Secretary of Defense for Personnel and Readiness’ Office of Diversity Management and Equal Opportunity, who oversee department- wide policy on sexual harassment, to obtain an understanding of their roles and processes regarding sexual harassment as well as the status of policy development in that area. We also interviewed officials from military equal opportunity offices in the Air Force, the Navy, and the Marine Corps, as well as officials from the Army’s Sexual Harassment/Assault Response and Prevention Office to obtain an understanding of the service sexual harassment offices and roles, as well as the status of updates to their respective policies. To determine the extent to which DOD has processes for maintaining and reporting consistent data on incidents of unwanted sexual behaviors, we reviewed DOD reports to Congress that provide incident data regarding unwanted sexual behaviors, including DOD’s most recent annual report on sexual assault in the military. We identified the databases that generate the reported data and evaluated the processes for assuring the quality and consistency of data in those databases—including the Defense Sexual Assault Incident Database, which maintains sexual assault data; the Central Registry database, which maintains data on domestic violence involving sexual assault; and various military service- level databases that maintain sexual harassment data. To evaluate DOD’s reported data we reviewed pertinent statutory provisions, DOD guidance, and the Standards for Internal Control in the Federal Government that address agencies’ use of quality data and our prior reports evaluating sexual assault data. In evaluating the reported data, we obtained and reviewed statutory provisions with reporting requirements, as well as DOD guidance on data collection for sexual harassment, sexual assault, and domestic violence involving sexual abuse. With regard to DOD efforts to collect and maintain sexual assault data, we met with OSD, Navy, Air Force, and Marine Corps officials in their respective Sexual Assault Prevention and Response offices as well as officials in the Army’s Sexual Harassment/Assault Response and Prevention office. We also reviewed our prior report on DOD’s Defense Sexual Assault Incident Database and our prior report that evaluated sexual assault data across agencies. To determine whether DOD has processes for collecting and maintaining consistent data for domestic violence with sexual assault, we obtained and compared data elements and processes from DOD’s Central Registry database, which contains data for domestic violence throughout the department. We also obtained and reviewed policies that outline processes for collecting and reporting domestic violence involving sexual abuse data, and interviewed officials from Family Advocacy Program offices in OSD and the Army, Navy, Marine Corps, and Air Force to determine data reliability and comprehensiveness. To determine the extent to which reports of sexual assault, including reports of sexual assault among servicemembers and reports of domestic abuse involving sexual assault, meet statutory requirements for reporting, we reviewed DOD reports to Congress that provide sexual assault incident data, including DOD’s most recent annual report on sexual assault in the military and compared those reports with requirements in the NDAA for FY 2011, which directs DOD to report the total number of substantiated and unsubstantiated sexual assault incidents, among other things. With regard to sexual harassment data, we interviewed officials in the Under Secretary of Defense for Personnel and Readiness’ Office of Diversity Management and Equal Opportunity, as well as officials from the Military Equal Opportunity offices in the Air Force, Marine Corps, and Navy, and officials from the Army Sexual Harassment/Assault Response and Prevention office. We collected and compared data fields and data definitions from the Army, Navy, Marine Corps, and Air Force offices that address sexual harassment. We compared the data elements to determine whether the data elements and definitions across the services are consistent. To identify the extent to which DOD has overarching efforts, including a prevention strategy, to address unwanted sexual behaviors across the continuum of harm, we met with officials in the Office of the Assistant Secretary of Defense for Readiness and DOD’s Sexual Assault Prevention and Response office. We reviewed our prior work and provisions from the Government Performance and Results Act to identify key elements that should be included in strategic plans as well as standards for coordinating within agencies. Key elements include (1) mission statement, (2) long-term goals, (3) strategies to achieve goals, (4) external factors that could affect goals, (5) use of metrics to gauge progress, and (6) evaluations of the plan to monitor goals and objectives. We identified and reviewed coordinating mechanisms used by OSD and the service offices that guide and oversee efforts to address unwanted sexual behaviors. We reviewed DOD, RAND Corporation, and CDC reports that addressed the continuum of harm and the relationship between the various forms of unwanted sexual behaviors. We interviewed officials from OSD and service-level Sexual Assault Prevention and Response, Family Advocacy, and Military Equal Opportunity offices and the Army’s Sexual Harassment/Assault Response and Prevention to identify the various efforts in which they participate. We also collected and reviewed charters and meeting notes for integrated product teams and working groups to identify their intended purposes, their activities, their membership, and whether they involved multiple offices addressing unwanted sexual behaviors. In identifying DOD’s collaborative efforts, we also reviewed our prior work on collaboration among federal agencies but we did not assess the effectiveness of department’s collaborative efforts. We conducted this performance audit from August 2016 to December 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the staff named above, key contributors to this report include Thomas Gosling (Assistant Director); Isabel Band; Matthew Bond; Vincent Buquicchio; Caroline DeCelles; Mae Jones; Kirsten Lauber; and Brian Pegram. Related GAO Products Sexual Assault: Better Resource Management Needed to Improve Prevention and Response in the Army National Guard and Army Reserve. GAO-17-217. Washington, D.C.: February 27, 2017. Military Personnel: DOD Has Processes for Operating and Managing Its Sexual Assault Incident Database. GAO-17-99. Washington, D.C.: January 10, 2017. Sexual Violence Data: Actions Needed to Improve Clarity and Address Differences Across Federal Data Collection Efforts. GAO-16-546. Washington, D.C.: July 19, 2016. DOD and Coast Guard: Actions Needed to Increase Oversight and Management Information on Hazing Incidents Involving Servicemembers. GAO-16-226. Washington, D.C.: February 9, 2016. Sexual Assault: Actions Needed to Improve DOD’s Prevention Strategy and to Help Ensure It Is Effectively Implemented. GAO-16-61. Washington, D.C.: November 4, 2015. Military Personnel: Actions Needed to Address Sexual Assaults of Male Servicemembers. GAO-15-284. Washington, D.C.: March 19, 2015. Military Personnel: DOD Needs to Take Further Actions to Prevent Sexual Assault during Initial Military Training. GAO-14-806. Washington, D.C.: September 9, 2014. Military Personnel: DOD Has Taken Steps to Meet the Health Needs of Deployed Servicewomen, but Actions Are Needed to Enhance Care for Sexual Assault Victims. GAO-13-182. Washington, D.C.: January 29, 2013. Preventing Sexual Harassment: DOD Needs Greater Leadership Commitment and an Oversight Framework. GAO-11-809. Washington, D.C.: September 21, 2011. Military Justice: Oversight and Better Collaboration Needed for Sexual Assault Investigations and Adjudications. GAO-11-579. Washington, D.C.: June 22, 2011. Military Personnel: DOD’s and the Coast Guard’s Sexual Assault Prevention and Response Programs Need to Be Further Strengthened. GAO-10-405T. Washington, D.C.: February 24, 2010. Military Personnel: Additional Actions Are Needed to Strengthen DOD’s and the Coast Guard’s Sexual Assault Prevention and Response Programs. GAO-10-215. Washington, D.C.: February 3, 2010. Military Personnel: DOD’s and the Coast Guard’s Sexual Assault Prevention and Response Programs Face Implementation and Oversight Challenges. GAO-08-924. Washington, D.C.: August 29, 2008. Military Personnel: The DOD and Coast Guard Academies Have Taken Steps to Address Incidents of Sexual Harassment and Assault, but Greater Federal Oversight Is Needed. GAO-08-296. Washington, D.C.: January 17, 2008.

Unwanted sexual behaviors in the military—including sexual harassment, sexual assault, and domestic violence involving sexual assault—undermine core values, unit cohesion, combat readiness, and public goodwill. Recent studies suggest that these behaviors are part of a “continuum of harm,” which DOD defines as a range of interconnected, inappropriate behaviors that are connected to the occurrence of sexual assault and that support an environment that tolerates these behaviors. Senate Report 114-255 included a provision for GAO to review efforts by DOD to prevent unwanted sexual behaviors in the military. GAO assessed the extent to which DOD has (1) policies on sexual harassment that include CDC principles and relevant legislative elements; (2) processes for maintaining and reporting consistent data on incidents of unwanted sexual behaviors; and (3) overarching efforts, including a prevention strategy, to address unwanted sexual behaviors across the continuum of harm. GAO reviewed DOD policies and pertinent databases, and interviewed agency officials. The Department of Defense's (DOD) policies on sexual harassment include some but not all of the Centers for Disease Control's (CDC) principles for preventing sexual violence and include most relevant legislative elements. GAO identified six principles from CDC's framework for preventing sexual violence, which CDC defines as including sexual harassment. GAO found that Office of the Secretary of Defense (OSD) and military service policies generally include CDC's principles regarding prevention strategies, but none address risk and protective factors, which identify conditions or behaviors that might heighten or lower the risk of sexual harassment victimization or perpetration, respectively. Additionally, a statutory provision in fiscal year 2013 mandated that DOD, among other things, develop a comprehensive sexual harassment policy that includes prevention training, mechanisms for anonymous reporting, and mechanisms for resolving incidents of sexual harassment. OSD and service policies are generally consistent with those required elements except for the inclusion of anonymous reporting. DOD is developing a new department-wide policy that will address sexual harassment, but it is too early to determine how the policy will address these issues. Without policies that include CDC's principles and mechanisms for anonymous reporting, DOD may miss opportunities to address and potentially reduce incidents of unwanted sexual behaviors. Finally, a statutory change in fiscal year 2017 redefined sexual harassment for certain purposes so it is no longer defined solely as a form of sex discrimination but is recognized also as an adverse behavior on the spectrum of behavior that can contribute to an increase in the incidence of sexual assault. While officials indicated a need to update policies, they were unclear on the full implications, if any, of this change. DOD has processes for maintaining and reporting consistent data on incidents of unwanted sexual behaviors including sexual assault and incidents of domestic violence that involve sexual assault, but does not have similar processes for maintaining and reporting data on incidents of sexual harassment. Specifically, DOD uses centralized databases to maintain and report data on incidents of sexual assault and domestic violence that involve sexual assault, but relies on military service-specific databases for information on incidents of sexual harassment. DOD has not established standard data elements and definitions to guide the services in maintaining and reporting data on sexual harassment. Inconsistencies in data elements and definitions generally mean that one service may be maintaining data that is more or less detailed than, or that differs from, the data maintained by other services. Such inconsistencies may create difficulties in reporting department-wide sexual harassment data, since the individual service data must be adapted to fit reporting requirements. DOD has several overarching efforts to address unwanted sexual behaviors across the continuum of harm, including developing an overarching prevention strategy. However, it is unclear whether the strategy under development will contain key elements for long-term and results-oriented strategic planning such as long-term goals, strategies to achieve goals, and metrics to gauge progress. Without incorporating these elements into its overarching prevention strategy, DOD may not be in a position to effectively coordinate and integrate prevention activities and reduce instances of unwanted sexual behaviors.

GAO_GAO-19-199

Background History of the CMO Position DOD first took steps to establish a CMO role in May 2007, when it designated the Deputy Secretary of Defense as the department’s CMO. Subsequently, Congress included a provision in the NDAA for Fiscal Year 2008 to codify the Deputy Secretary of Defense as the DOD CMO, establish a new position known as the Deputy Chief Management Officer (DCMO) to assist the Deputy Secretary, and name the Under Secretaries of the military departments as CMOs of their respective organizations. The military departments also established DCMO positions to assist the CMOs with overseeing their business operations. In addition, the NDAA for Fiscal Year 2009 required the secretary of each military department to establish an office of business transformation and develop business transformation plans, with measurable performance goals and objectives, to achieve an integrated management system for the business operations of each military department. Further, DOD’s guidance states that the DOD DCMO should coordinate with the military department CMOs to identify and exchange information necessary to facilitate the execution of the Deputy Secretary of Defense’s responsibilities in his role as the DOD CMO. In October 2008, DOD issued Department of Defense Directive 5105.82 to assign the authorities and responsibilities of the DCMO. Among other duties, the DCMO was responsible for recommending methodologies and measurement criteria to better synchronize, integrate, and coordinate the business operations of the department and advising the Secretary of Defense on performance goals and measures and assessing progress against those goals. For a full list of the DCMO authorities and responsibilities identified in DOD Directive 5105.82, see appendix II. CMO Statutory Authorities and Responsibilities In December 2016, Congress initially established the standalone CMO position to be effective on February 1, 2018 in section 901(c) of the NDAA for Fiscal Year 2017. In December 2017, Congress repealed and replaced this provision in the NDAA for Fiscal Year 2018 and later added additional responsibilities and functions in the John S. McCain NDAA for Fiscal Year 2019. Table 1 summarizes key CMO statutory authorities and responsibilities, and appendix II provides a more detailed comparison of these authorities and responsibilities. Key Strategies for Implementing CMO Positions In November 2007, we reported on key strategies for implementing CMO positions. We developed these strategies based on our work, in which we (1) gathered information on the experiences and views of officials at four organizations that rely on chief management officials and (2) convened a forum to gather insights from individuals with experience and expertise in business transformation, federal and private sector management, and change management. The forum brought together former and current government executives and officials from private business and nonprofit organizations to discuss when and how a CMO or similar position might effectively provide the continuing, focused attention essential for integrating key management functions and undertaking multiyear organizational transformations. Our work identified the following six key strategies: Define the specific roles and responsibilities of the CMO position. Ensure that the CMO has a high level of authority and clearly delineated reporting relationships. Foster good executive-level working relationships for maximum effectiveness. Establish integration and transformation structures and processes in addition to the CMO position. Promote individual accountability and performance through specific job qualifications and effective performance management. Provide for continuity of leadership in the CMO position. DOD Has Taken Some Steps to Implement the CMO Position, but Key Issues Related to Authorities and Responsibilities Remain Unresolved DOD Has Begun to Implement Its CMO Position and Restructure the OCMO, with a Focus on Data Responsibilities In February 2018, DOD formally established the position of the CMO and an office in support of the CMO (OCMO). In establishing the office, the Secretary of Defense stated that all resources and personnel (military, civilian, and contractor) assigned within the existing DCMO office were to transfer to the OCMO. Generally, the department has been focused on updating organizational structures and strengthening the OCMO’s data capabilities, as described below. DOD Has Not Resolved Three Key Issues Related to the CMO’s Authorities and Responsibilities Despite its efforts to establish and restructure the OCMO, DOD has not fully addressed three key issues related to the CMO’s statutory authorities and responsibilities, including: (1) how the CMO will exercise the authority to direct the military departments; (2) how the CMO will exercise oversight of the DAFAs; and (3) which responsibilities, if any, will transfer from the CIO to the CMO. Unresolved Issue #1: The CMO’s Authority to Direct the Military Departments on Business Reform Issues The Secretary of Defense has charged the CMO with leading DOD’s enterprise business operations and with unifying business management efforts across the department and other responsibilities as set forth in section 132a of title 10, United States Code. Moreover, the NDAA for Fiscal Year 2019 directed the Secretary of Defense, acting through the CMO, to reform DOD’s enterprise business operations across all organizations and elements of the department with respect to any activity relating to civilian resources management, logistics management, services contracting, or real estate management. Fulfilling these responsibilities depends, in part, on the CMO’s visibility into the business operations of all components of the department, including the military departments, as well as the ability to identify and execute DOD-wide business reforms, including those that may affect the military departments. Congress addressed the issue of the CMO’s relationship to the military departments in section 132a, which authorizes the CMO, subject to the authority, direction, and control of the Secretary of Defense and Deputy Secretary of Defense, to direct the secretaries of the military departments and the heads of all other elements of DOD on matters for which the CMO has responsibility under the statute. DOD leadership has provided some guidance regarding the CMO’s responsibilities for efforts that are department-wide and therefore involve the military departments. For example: In a May 2017 memorandum, the Deputy Secretary of Defense directed all DOD components to conduct a thorough review of business operations throughout the department and to propose initiatives that drive increased effectiveness in pursuit of greater efficiency. The memorandum identified the DCMO as the lead for this effort and tasked the DCMO with integrating all initiatives. All responsibilities and authorities assigned to the DCMO were transferred to the CMO on February 1, 2018. More recently, in May 2018, DOD issued its FY 2018-FY 2020 National Defense Business Operations Plan (Plan), which states that the CMO is personally responsible for overseeing implementation of business reforms. The Plan further establishes, and gives the CMO responsibility for carrying out, a strategic objective to improve and strengthen business operations through a move to DOD-enterprise or shared services and reduce administrative and regulatory burden. However, DOD leadership has not determined how the CMO will exercise this authority in instances where the military departments have concerns or disagree with decisions that the CMO makes. In our discussions with the Army, Navy, and Air Force’s CMO offices, officials from each military department explained that they frequently met with the CMO and were involved in discussing business operation initiatives with potential for implementation across multiple military departments. According to these officials, these discussions were collaborative and the CMO did not have to exercise his authority to direct the services. However, we found two instances in which the lack of a determination as to how the CMO is to direct the business-related activities of the military departments led to questions about the respective roles and authorities of the CMO and the military departments as they relate to business reform. In one case, officials from the military departments questioned the CMO’s authority to make binding decisions; in the other, the military departments sought to pursue reform activities without CMO involvement and oversight, even though the CMO has responsibility for leading DOD’s enterprise business reform efforts. First, officials told us that in a July 2018 meeting of the Reform Management Group (RMG) the CMO approved a decision to consolidate DOD’s contract writing systems into a single system. According to OCMO officials, the effort to move to a single contract writing system would increase data visibility, lessen or eliminate redundant contracting needs, provide for greater management insight, and increase the buying power of the department. However, officials told us the military departments, which had voiced concerns about moving to one consolidated system in a previous RMG meeting, expressed reservations. Specifically, a DOD official who participated in the RMG meetings told us the military departments cited a concern about loss of individual authorities and requirements, among other issues. Several DOD officials we spoke with described the RMG meeting as the first time the question of the CMO’s authority to make decisions for enterprise-wide business reform and to direct the military departments had been raised at an RMG meeting. According to officials who were present at the meeting, participants discussed whether the RMG is a voting body and what authority the CMO has to make unilateral decisions for the RMG. When we spoke with officials about this matter in January 2019, they said this question was still unresolved. Second, the Secretaries of the Army, Navy, and Air Force, in a December 10, 2018 memorandum to the Secretary of Defense, requested the Secretary direct the military departments to jointly review organizations, activities, processes, and procedures that might be reformed or restructured to enhance lethality and readiness or reduce cost. While the departments asked for support the Secretary deemed appropriate from the Joint Staff, the Office of the Secretary of Defense, and others, it did not request support or involvement from the CMO. Further, the memorandum stated that the military department secretaries envision a process where they would make recommendations directly to the Secretary. However, the memorandum made no mention of CMO involvement in the review, notwithstanding Congressional, Secretary of Defense, and Deputy Secretary of Defense direction that calls for the CMO to oversee DOD’s business reform efforts. Without a determination by the Secretary or Deputy Secretary of Defense about how the CMO is to direct the business-related activities of the military departments, the CMO’s ability to lead DOD’s reform of its enterprise business operations and to direct the military departments may be limited, potentially leading to fragmented business reform efforts. Unresolved Issue #2: The CMO’s Oversight Responsibilities for the Defense Agencies and DOD Field Activities (DAFA) DOD’s 19 defense agencies and eight DOD field activities are intended to perform many of DOD’s business operations, including consolidated supply and service functions such as human resources services, on a department-wide basis. We have previously identified numerous instances of fragmentation, overlap, and duplication and have recommended actions to increase coordination or consolidation to address related inefficiencies that affect the DAFAs. For example, in September 2018, we reported that there is fragmentation and overlap within the DAFAs that provide human resources services to other defense agencies or organizations within DOD. Our September 2018 report on the DAFAs also found that DOD does not comprehensively or routinely assess the continuing need for its DAFAs. GAO-18-592. DOD was statutorily required to periodically review the services and supplies each DAFA provides to ensure there is a continuing need for each, and that the provision of services and supplies by each DAFA, rather than by the military departments, is more effective, economical, or efficient (See 10 U.S.C. § 192 (c)). Since 2012, DOD has relied on existing processes, such as its annual budget process, to fulfill this review requirement. However, DOD did not provide sufficient evidence that these processes satisfy the statute. For example, while DOD reviews the DAFAs during the budget process, it does not specifically review the provision of services by the DAFAs rather than the military departments. that provide shared business services for the department, as designated by the Secretary or Deputy Secretary of Defense. In January 2018, the Deputy Secretary reported to Congress that the Secretary of Defense formally identified the Pentagon Force Protection Agency and Washington Headquarters Services (WHS) as the DAFAs that provide shared business services, and directed that they would fall under the authority, direction, and control of the CMO. However, both of these organizations had already been identified as providing shared business services and aligned under the previous DCMO. In addition, the Deputy Secretary’s January 2018 report to Congress did not explain why these two DAFAs, but not others, were designated as providing shared business services. In the January 2018 report to Congress, the Deputy Secretary of Defense also stated that, under his direction, the DCMO and Director of CAPE were leading defense reform work that would result in recommendations on, among other things, any required organizational changes. According to DOD’s report, such changes would include the designation of, and oversight arrangements for, other DAFAs providing shared business services that require CMO oversight. The recommendations were expected in late summer 2018. However, when we asked OCMO officials for a status update in November 2018, they acknowledged that they had not yet conducted the review. In November 2018, OCMO officials told us they had recently begun a review of the DAFAs but had not designated any additional DAFAs as providing shared business services. OCMO officials explained that the DAFAs were prioritized for review, with WHS being selected to be the first reviewed. The review will assess what role WHS performs and how efficiently it is performing that role, and will compare WHS performance to commercial benchmarks, according to OCMO officials. As of January 2019, officials said they expected to complete the review of WHS on February 16, 2019. According to officials, the next DAFAs to be reviewed will be DLA, the Defense Finance and Accounting Service, and the Defense Information Systems Agency. In addition, OCMO officials said that they plan to conduct a review of business functions performed in multiple DAFAs to identify opportunities to consolidate shared services for greater efficiency. For example, because WHS performs some human resource functions, as do certain other DAFAs, the OCMO is assessing how human resources management can be improved across the department. OCMO officials indicated they expect additional DAFAs to be identified as shared business services as a result of this review. Additionally, officials said they expect that the review will be completed in January 2020, but have not determined when or how the Secretary of Defense will designate additional DAFAs as providing shared business services. They have also not determined what those decisions would mean for the OCMO’s management of its responsibility to provide direct authority, control, and direction over those DAFAs. In section 921 of the John S. McCain NDAA for Fiscal Year 2019, Congress also expanded and codified the CMO’s authority over the DAFAs by requiring the Secretary of Defense, acting through the Under Secretary of Defense, Comptroller, to direct the head of each DAFA specified by the Secretary for the purpose of section 921, to transmit its proposed budget for enterprise business operations for a fiscal year to the CMO for review, beginning in fiscal year 2020. Section 921 further provides that the CMO shall submit a report to the Secretary containing the CMO’s comments and certification of whether each proposed budget achieves a required level of efficiency and effectiveness for enterprise business operations, consistent with guidance for budget review established by the CMO. Under section 921, the Secretary of Defense has discretion to determine which DAFAs’ proposed budgets are subject to CMO review. In November 2018, OCMO officials told us that the Secretary of Defense had not yet designated any DAFAs as required to submit their budgets for review. However, they stated that the OCMO is working with the DOD Comptroller to determine how the DAFA budget review will be conducted. They also said that they have hired consultants under an existing blanket purchase agreement contract to assist with developing a methodology for this review. OCMO officials told us they believed they would be ready to conduct the required review by fiscal year 2020, as required by the statute. However, it is unclear whether this review will result in a determination of which DAFAs are required to submit their proposed budgets for review. Until the Secretary of Defense makes a determination regarding the CMO’s relationship to the DAFAs, including whether additional DAFAs should be identified as providing shared business services and which DAFAs will be required to submit their proposed budgets for CMO review, the CMO’s ability to effectively oversee and streamline the DAFAs’ business operations may be limited. Unresolved Issue #3: The Transfer of Responsibilities from the Chief Information Officer to the CMO As described in table 1 of this report, section 910 of the NDAA for Fiscal Year 2018 provided that, effective January 1, 2019, the CMO would assume certain responsibilities for business systems and management that were formerly performed by the CIO. Section 903 of the John S. McCain NDAA for Fiscal Year 2019 clarified this provision by amending the statute (10 U.S.C. § 142) which established and provides responsibilities for the DOD CIO. However, in July 2018, DOD officials told us no formal action had been taken to determine which, if any, responsibilities would transition or to assess the resource impact this would have on both offices because they had concerns about the statutory requirement and how it would affect IT management at the department. For example, CMO officials expressed the belief that all IT roles and responsibilities should be consolidated under one position. We have previously found that having department-level CIO responsibilities performed by multiple officials could make the integration of various information and technology management areas, as envisioned by law, more difficult to achieve. The CMO told us in July 2018 that he had begun engaging informally with Congress to discuss the department’s concerns about the transition of certain responsibilities from the CIO to the CMO, and that he would engage further once the newly confirmed CIO felt prepared to join those discussions. However, in November 2018, the Acting CMO told us that the OCMO was still exploring all of the authorities that Congress had provided, and, as such, felt that further engagement with Congress was premature at this point. The Acting CMO added that she and the CIO had worked out an informal agreement regarding which areas they would each manage, but did not identify specific tasks that would transfer to the CMO or provide any details of this agreement. At the same time, OCMO officials acknowledged in November 2018 that the OCMO had not conducted an analysis to determine which responsibilities should formally transfer or what resource ramifications, if any, this transfer would have on both offices. Without an analysis to help DOD determine which duties should transfer from the CIO to the CMO, including identifying any associated resource impacts, DOD will remain reliant on this informal agreement. Such reliance could cause confusion within the department about who is responsible for key IT functions. Moreover, section 3506 of title 44, United States Code states that in similar circumstances, where a CIO is designated for DOD and for each military department, the respective duties of the CIOs shall be clearly delineated. DOD Lacks Guidance That Institutionalizes All of the CMO’s Authorities and Responsibilities In part because the issues identified above have not been resolved, DOD agreed that it does not have department-wide guidance, such as a chartering directive, that fully and clearly institutionalizes the CMO position by articulating how all of the CMO’s authorities and responsibilities are to be operationalized. The department has issued several documents that refer to some of the CMO’s authorities and responsibilities, but these documents were issued as the CMO’s role under the statute was evolving, and none of them, either individually or collectively, encompass all of the CMO’s current authorities and responsibilities. For example: DOD Directive 5105.82 (Oct. 17, 2008) established the responsibilities and authorities of the DCMO. These responsibilities included, among others, advising the Secretary of Defense on performance goals and measures and assessing progress against those goals; and ensuring that strategic plans, performance goals, and measures were aligned with, and assured accountability to, DOD strategic goals. However, this document is now outdated—for example, it assigns the DCMO responsibilities related to the Defense Business Transformation Agency, which an OCMO official agreed no longer exists. Moreover, the directive does not reflect the additional authorities and responsibilities for the CMO position that are delineated in section 132a of title 10, United States Code, as amended. Table 3 at appendix II summarizes all authorities and responsibilities included in this directive. Secretary of Defense Memorandum (Feb. 1, 2018) established the CMO position and outlined its authorities and responsibilities consistent with section 132a of title 10, United States Code. The authorities and responsibilities outlined in this memorandum align closely with those specified for the CMO in the statute, but the memorandum does not explain how these authorities and responsibilities are to be operationalized. For example, this memorandum does not address how the CMO will interact with other DOD organizations, such as the military departments, as DOD traditionally has done through its chartering directives. Table 4 at appendix II summarizes authorities and responsibilities included in Secretary of Defense memorandums. Secretary of Defense Memorandum (July 12, 2018) addressed the CMO’s role in supporting the Deputy Secretary of Defense on enterprise management and performance accountability. According to this memorandum, the CMO supports the Chief Operating Officer to ensure all DOD leaders are unified and aligned across all assigned responsibilities and functions, through strong management practices, integrated processes, and best value business investments, and to support the Deputy Secretary of Defense in his capacity as the department’s Chief Operating Officer. However, the CMO’s responsibilities in supporting the Deputy Secretary of Defense as the Chief Operating Officer outlined in this memorandum are not specified by any other relevant guidance documents. CMO Action Memorandum (July 27, 2018) responded to the Secretary’s February 1, 2018 memorandum and restated several of the CMO’s authorities and responsibilities, consistent with 132a of title 10, United States Code, and provided information on the plans to restructure the OCMO and to establish the CMO Action Group. The Secretary of Defense’s July 12, 2018 Memorandum directed the Deputy Secretary of Defense to provide amplifying guidance on CMO responsibilities and authorities emanating from statute as well as delegating additional discretionary authorities or responsibilities to the CMO. Issuance of this amplifying guidance would be consistent with one of the key strategies we identified for implementation of a CMO position— clearly defining roles and responsibilities of the position and communicating them throughout the organization. In November 2018, however, officials told us that they expected the CMO vacancy to delay progress on codifying any decisions on the CMO’s statutory and discretionary authorities in a chartering directive. Additionally, in November 2018, a senior OCMO official stated that the office needed to complete its reorganization prior to the department issuing updated guidance. Until the Deputy Secretary of Defense resolves the issues previously discussed and issues guidance (such as a chartering directive) to codify the CMO’s authorities and responsibilities and specify how those are to be operationalized, questions regarding the extent of the CMO’s authority and responsibility are likely to persist, preventing a shared understanding across the department of the CMO’s role. Further, the lack of guidance could affect the ability of the department to make progress in conducting necessary business reforms—one of three key priorities identified in the 2018 National Defense Strategy. Conclusion DOD has made progress in implementing some of the authorities and responsibilities Congress has provided the CMO. However, DOD has not resolved several key issues that limit its ability to implement all statutory authorities and responsibilities. Specifically, DOD has yet to resolve key issues, such as how the CMO will exercise authority to direct the military departments and exercise direction and control over DAFAs that provide shared business services. Additionally, without analyzing the authorities and responsibilities that will transfer from the CIO to the CMO and the resource impact, if any, those new responsibilities will have on the OCMO, DOD risks creating confusion within the department about which official is responsible for key information technology functions. While DOD has issued several documents delineating some of the CMO’s authorities and responsibilities, the department does not currently have formal and current guidance, such as a DOD chartering directive, that institutionalizes all the CMO’s authorities and responsibilities. Considering the evolution of the CMO’s authorities and responsibilities since the position was created, guidance that fully encompasses all CMO authorities and responsibilities and explains how they are to be operationalized could help to institutionalize and sustain the position beyond the tenure of the current acting CMO. Recommendations for Executive Action We are making the following four recommendations to the Secretary of Defense: The Secretary of Defense should ensure that the Deputy Secretary of Defense makes a determination as to how the CMO is to direct the business-related activities of the military departments. (Recommendation 1) The Secretary of Defense should ensure that the Deputy Secretary of Defense makes a determination regarding the CMO’s relationship with the DAFAs, including whether additional DAFAs should be identified as providing shared business services and which DAFAs will be required to submit their proposed budgets for enterprise business operations to the CMO for review. (Recommendation 2) The Secretary of Defense should ensure that the CMO and CIO conduct an analysis to determine which responsibilities should transfer from the CIO to the CMO, including identifying any associated resource impacts, and share the results of that analysis with the Congress. (Recommendation 3) The Secretary of Defense should ensure that the Deputy Secretary of Defense, on the basis of the determinations regarding the CMO’s statutory and discretionary authorities, codify those authorities and how they are to be operationalized in formal department-wide guidance. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. In its written comments, which are reproduced in Appendix III, DOD concurred with our recommendations and described ongoing and planned actions to address them. We are sending copies of this report to the Acting Secretary and Acting Deputy Secretary of Defense, the Acting DOD Chief Management Officer, the DOD Chief Information Officer, the Director, Cost Assessment and Program Evaluation, and appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2775 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. Appendix I: Scope and Methodology To examine the extent to which DOD has implemented the authorities and responsibilities of its Chief Management Officer (CMO) position and issued guidance communicating within the department the authorities and responsibilities of the position, we reviewed related laws and key documents such as memorandums issued by the Secretary of Defense that outline some of the CMO’s authorities and responsibilities. To understand the authorities and responsibilities that Congress and DOD have assigned to this position, we reviewed section 901 of the National Defense Authorization Act (NDAA) for Fiscal Year 2017, which initially created the CMO position effective February 1, 2018; section 910 of the NDAA for Fiscal Year 2018, which codified and expanded the CMO’s authorities and responsibilities; and section 921 of the John S. McCain NDAA for Fiscal Year 2019, which further expanded the CMO’s authorities and responsibilities. We reviewed DOD’s August 2017 Report to Congress and its April 2018 National Defense Business Operations Plan. We also reviewed our November 2007 report on key strategies for implementing CMO positions. To understand ongoing actions to implement the authorities and responsibilities given to the CMO position, we interviewed DOD’s former CMO, who served from February to November 2018, as well as the current acting CMO and the chiefs of the five directorates or their representatives within the Office of the CMO (OCMO) in July 2018, to understand the responsibilities of these directorates. We also met with the nine reform teams charged with implementing initiatives to, among other things, move DOD toward an enterprise-wide, shared-service model. Additionally, we reviewed documentation from the reform teams to understand what business operation reform initiatives the CMO has prioritized and what progress has been made to implement and monitor these initiatives. To understand key initiatives DOD is pursuing to improve its business operations and how it monitors implementation of those initiatives, we attended demonstrations of DOD’s cost management framework and its reform team portal. We also met with an official from DOD’s Cost Assessment and Program Evaluation (CAPE) Office to gain additional insights on oversight of the reform teams from one of the co- chairs on the Reform Management Group. Additionally, we reviewed documentation from the OCMO containing personnel numbers and funding levels to determine the level and type of resources available to the CMO to assist in carrying out his responsibilities. To understand how the CMO collaborates with other DOD entities to lead business operation reform and how the responsibilities of the CMO and Chief Information Officer (CIO) may change, we met with officials from the Office of the DOD CIO. To understand how the CMO is interacting with and influencing the military departments’ business operations, we met with officials from the Army, Air Force, and Navy CMO and CIO offices. We performed our work under the authority of the Comptroller General to conduct evaluations to assist Congress with its oversight responsibilities. We conducted this performance audit from February 2018 to March 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Summary of Key Authorities and Responsibilities for the Department of Defense Chief Management Officer Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Elizabeth A. Field, (202) 512-2775 or [email protected]. Staff Acknowledgments In addition to the contact named above, Sally Newman (Assistant Director), Tracy Barnes, Margaret Best, Arkelga Braxton, William Carpluk, Timothy DiNapoli, Michael Holland, Chad Johnson, Kristi Karls, William Lamping, Ned Malone, Jared Sippel, Susan Tindall, Sarah Veale, and Lillian Yob made key contributions to this report.

DOD spends billions of dollars each year to maintain key enterprise business operations intended to support the warfighter, including systems and processes related to the management of contracts, finances, the supply chain, and support infrastructure. The 2018 National Defense Strategy identified reform of DOD's business practices as one of DOD's three strategic goals. GAO has previously reported that weaknesses in these business operations have resulted in inefficiencies and billions of dollars wasted. GAO has also identified the need for a CMO with significant authority and experience to focus concerted attention on DOD's long-term business transformation efforts. Congress initially established such a position in the National Defense Authorization Act for Fiscal Year 2017. This report evaluates the extent to which DOD has implemented its CMO position and issued guidance to communicate within the department the authorities and responsibilities of the position. GAO analyzed the statutory authorities and responsibilities assigned to the CMO position and evaluated DOD's actions to implement them. The Department of Defense (DOD) has taken steps to implement its Chief Management Officer (CMO) position which has been given the responsibility for managing DOD's business operations; however, unresolved issues remain for DOD to fully institutionalize the CMO's authorities and responsibilities. DOD has restructured the Office of the CMO (OCMO) to more closely align with the CMO's statutory authorities and responsibilities. Further, the OCMO is working to strengthen its data capabilities and has hired a Chief Data Officer and formed a Data Management and Analytics Steering Committee. Additionally, OCMO officials told us they are establishing cost baselines for each of DOD's major business functions. However, DOD has not fully addressed three key issues related to the CMO's authorities and responsibilities: The CMO's authority to direct the military departments on business reform issues . The law gave the CMO authority to direct the secretaries of the military departments on matters over which the CMO has responsibility. However, DOD has not determined how the CMO will exercise this authority, particularly when there is disagreement between the departments and the CMO. The CMO's oversight responsibilities of the Defense Agencies and DOD Field Activities (DAFAs) . The CMO is responsible for exercising authority, direction, and control over the designated DAFAs that provide shared business services—those business functions, such as supply chain and logistics and human resources operations, that are provided across more than one DOD organization. However, DOD has not determined how the CMO will exercise this authority, such as which DAFAs will submit their proposed budgets for CMO review. Transfer of responsibilities from the Chief Information Officer to the CMO. Under the law, the CMO will exercise responsibilities relating to business systems and management that previously belonged to the Chief Information Officer. However, DOD has not determined which, if any, responsibilities will transition from the Chief Information Officer to the CMO or assessed the impact of such a transition on associated resources. In part because these issues remain unresolved, DOD agreed that it does not have department-wide guidance that fully and clearly articulates how the CMO's authorities and responsibilities should be operationalized. Making determinations on the three unresolved issues and issuing guidance would help ensure a shared understanding throughout the department of the CMO's role in leading DOD's enterprise-wide business reform efforts.

CRS_95-563

Introduction A complicated body of rules, precedents, and practices governs the legislative process on the floor of the House of Representatives. The official manual of House rules is more than 1,000 pages long and is supplemented by 30 volumes of precedents, with more volumes to be published in coming years. Yet there are two reasons why gaining a fundamental understanding of the House's legislative procedures is not as difficult as the sheer number and size of these documents might suggest. First, the ways in which the House applies its rules are largely predictable, at least in comparison with the Senate. Some rules are certainly more complex and more difficult to interpret than others, but the House tends to follow similar procedures under similar circumstances. Even the ways in which the House frequently waives, supplants, or supplements its standing rules with special, temporary procedures generally fall into a limited number of recognizable patterns. Second, underlying most of the rules that Representatives may invoke and the procedures the House may follow is a fundamentally important premise—that a majority of Members should ultimately be able to work their will on the floor. Although House rules generally recognize the importance of permitting any minority—partisan or bipartisan—to present its views and sometimes propose its alternatives, the rules do not enable that minority to filibuster or use other parliamentary devices to prevent the majority from prevailing without undue delay. This principle provides an underlying coherence to the various specific procedures discussed in this report. The Nature of the Rules Article I of the Constitution imposes a few restrictions on House (and Senate) procedures—for example, requirements affecting quorums and roll-call votes—but otherwise the Constitution authorizes each house of Congress to determine for itself the "Rules of its Proceedings" (Article 1, Section 5). This liberal grant of authority has several important implications. First, the House can amend its rules unilaterally; it need not consult with either the Senate or the President. Second, the House is free to suspend, waive, or ignore its rules whenever it chooses to do so. By and large, the Speaker or whatever Representative is presiding usually does not enforce the rules at his or her own initiative. Instead, Members must protect their own rights by affirmatively making points of order whenever they believe the rules are about to be violated. In addition, House rules include several formal procedures for waiving or suspending certain other rules, and almost any rule can be waived by unanimous consent. Thus, the requirements and restrictions discussed in this report generally apply only if the House chooses to enforce them. Limits on Debate If for no other reason than the size of its membership, the House has found it necessary to limit the opportunities for each Representative to participate in floor deliberations. Whenever a Member is recognized to speak on the floor, there is always a time limit on his or her right to debate. The rules of the House never permit a Representative to hold the floor for more than one hour. Under some parliamentary circumstances, there are more stringent limits, with Members being allowed to speak for no more than 5 minutes, 20 minutes, or 30 minutes. Furthermore, House rules sometimes impose a limit on how long the entire membership of the House may debate a motion or measure. Most bills and resolutions, for instance, are considered under a set of procedures called "suspension of the rules" (discussed later in this report) that limits all debate on a measure to a maximum of 40 minutes. Under other conditions, when there is no such time limit imposed by the rules, the House (and to some extent, the Committee of the Whole as well) can impose one by simple majority vote. These debate limitations and debate-limiting devices generally prevent a minority of the House from thwarting the will of the majority. House rules also limit debate in other important respects. First, all debate on the floor must be germane to whatever legislative business the House is conducting. Representatives may speak on other subjects only in one-minute speeches most often made at the beginning of each day's session, special order speeches occurring after the House has completed its legislative business for the day, and during morning hour debates that are scheduled on certain days of the week. Second, all debate on the floor must be consistent with certain rules of courtesy and decorum. For example, a Member should not question or criticize the motives of a colleague. The Calendars and the Order of Business When a House committee reports a public bill or resolution that had been referred to it, the measure is placed on the House Calendar or the Union Calendar. In general, tax, authorization, and appropriations bills are placed on the Union Calendar; all others go to the House Calendar. In effect, the calendars are catalogues of measures that have been approved, with or without proposed amendments, by one or more House committees and are now available for consideration on the floor. Placement on a calendar does not guarantee that a measure will receive floor consideration at a specified time or at all. Because it would be impractical or undesirable for the House to take up measures in the chronological order in which they are reported and placed on one of the calendars, there must be some procedures for deciding the order in which measures are to be brought from the calendars to the House floor—in other words, procedures for determining the order of business. Clause 1 of Rule XIV lists the daily order of business on the floor, beginning with the opening prayer, the approval of the Journal (the official record of House proceedings required by the Constitution), and the Pledge of Allegiance. Apart from these routine matters, however, the House never follows the order of business laid out in this rule. Instead, certain measures and actions are privileged, meaning they may interrupt the regular order of business. In practice, all the legislative business that the House conducts comes to the floor by interrupting the order of business under Rule XIV, either by unanimous consent or under the provisions of another House rule. Every bill and resolution that cannot be considered by unanimous consent must become privileged business if it is going to reach the floor at all. Modes of Floor Consideration There is no one single set of procedures that the House always follows when it considers a public bill or resolution on the floor. Instead, there are several modes of consideration, or different sets of procedural rules, that the House uses. In some cases, House rules require that certain kinds of bills be considered in certain ways. By various means, however, the House chooses to use whichever mode of consideration is most appropriate for a given bill. Which of these modes the House uses depends on such factors as the importance and potential cost of the bill and the amount of controversy the bill has generated among Members. The differences among these sets of procedures rest largely on the balance that each strikes between the opportunities for Members to debate and propose amendments, on the one hand, and the ability of the House to act promptly, on the other. Regardless of which procedure the House uses to consider legislation, the House majority party leadership generally tries to post the text of measures coming to the chamber floor in advance on an internet website created for that purpose. Under Suspension of the Rules The House most frequently resorts to a set of procedures that enables it to act quickly on bills that enjoy overwhelming but not unanimous support. Although this set is called "suspension of the rules," clause 1 of Rule XV provides for these procedures as an alternative to the other modes of consideration. The essential components of suspension of the rules are (1) a 40-minute limit on debate, (2) a prohibition against floor amendments, and (3) a two-thirds vote of those present and voting for passage. On every Monday, Tuesday, and Wednesday—and at other times by special arrangement—the Speaker may recognize Members to move to suspend the rules and pass a particular bill (or take some other action, such as agreeing to the Senate's amendments to a House bill). Once such a motion is made, the motion and the bill itself together are debatable for a maximum of 40 minutes. Half of the time is controlled by the Representative making the motion, often the chair of the committee with jurisdiction over the bill; the other half is usually controlled by the ranking minority member of the committee (or sometimes the subcommittee) of jurisdiction, especially when he or she opposes the motion. The suspension motion itself may propose to pass the bill with certain amendments, but no Member may propose an amendment from the floor. During the debate, the two Members who control the time yield parts of it to other Members who wish to speak. Once the 40 minutes is either used or yielded back, a single vote occurs on suspending the rules and simultaneously passing the bill. If two-thirds of the Members present vote "Aye," the motion is agreed to and the bill is passed. If the motion fails, the House may debate the bill again at another time, perhaps under another mode of consideration that permits floor amendments and more debate and requires only a simple majority vote for passage. The House frequently considers several suspension motions on the same day, which could result in a series of electronically recorded votes taking place at 40-minute intervals if such votes are requested. For the convenience of the House, therefore, clause 8 of Rule XX permits the Speaker to postpone electronic votes that Members have demanded on motions to suspend the rules until a later time on the same day or the following day. When the votes do take place, they are clustered together, occurring one after the other without intervening debate. In the House Under the Hour Rule One of the ironies of the legislative process on the House floor is that the House does relatively little business under the basic rules of the House. Instead, most of the debate and votes on amendments to major bills occur in Committee of the Whole (discussed below). This is largely because of the rule that generally governs debate in the House itself. The rule controlling debate during meetings of the House (as opposed to meetings of the Committee of the Whole) is clause 2 of Rule XVII, which states in part that a "Member, Delegate, or Resident Commissioner may not occupy more than one hour in debate on a question in the House." In theory, this rule permits each Representative to speak for as much as an hour on each bill, on each amendment to each bill, and on each of the countless debatable motions that Members could offer. Thus, there could be more than four hundred hours of debate on each such question, a situation that would make it virtually impossible for the House to function effectively. In practice, however, this "hour rule" usually means that each measure considered "in the House" is debated by all Members for no more than a total of only one hour before the House votes on passing it. The reason for this dramatic difference between the rule in theory and the rule in practice lies in the consequences of a parliamentary motion to order what is called the "previous question." When a bill or resolution is called up for consideration in the House—and, therefore, under the hour rule—the Speaker recognizes the majority floor manager to control the first hour of debate. The majority floor manager is usually the chair of the committee or subcommittee with jurisdiction over the measure and most often supports its passage without amendment. This Member will yield part of his or her time to other Members and may allocate control of half of the hour to the minority floor manager (usually the ranking minority member of the committee or subcommittee). However, the majority floor manager almost always yields to other Representatives "for purposes of debate only." Thus, no other Member may propose an amendment or make any motion during that hour. During the first hour of debate, or at its conclusion, the majority floor manager invariably "moves the previous question." This nondebatable motion asks the House if it is ready to vote on passing the bill. If a majority votes for the motion, no more debate on the bill is in order, nor can any amendments to it be offered; after disposing of the motion, the House usually votes immediately on whether to pass the bill. If the House defeats the previous question, however, opponents of the bill would then be recognized to control the second hour of debate, and might use that time to try to amend the measure. Because of this, it is unusual for the House not to vote for the previous question—the House disposes of most measures considered in the House, under the hour rule, after no more than one hour of debate and with no opportunity for amendment from the floor. These are not very flexible and accommodating procedural ground rules for the House to follow in considering most legislation. Debate on a bill is usually limited to one hour, and only one or two Members control this time. Before an amendment to the bill can even be considered, the House must first vote against a motion to order the previous question. For these reasons, most major bills are not considered in the House under the hour rule. In current practice, the most common type of legislation considered under the hour rule in the House are procedural resolutions reported by the House Committee on Rules that are commonly referred to as "special rules" (discussed below). In Committee of the Whole and the House Much of the legislative process on the floor occurs not "in the House" but in a committee of the House known as the Committee of the Whole (formally, the Committee of the Whole House on the State of the Union). Every Representative is a member of the Committee of the Whole, and it is in this committee, meeting in the House chamber, that many major bills are debated and amended before being passed or defeated by the House itself. Most bills are first referred to, considered in, and reported by a standing legislative committee of the House before coming to the floor. In much the same way, once bills do reach the floor, many of them then are referred to a second committee, the Committee of the Whole, for further debate and for the consideration of amendments. The Speaker presides over meetings of the House but not over meetings of the Committee of the Whole. Instead, the Speaker appoints another Member of the majority party to serve as the chair of the Committee of the Whole during the time the committee is considering a particular bill or resolution. In addition, the rules that apply in Committee of the Whole are somewhat different from those that govern meetings of the House itself. The major differences are discussed in the following sections of this report. In general, the combined effect of these differences is to make the procedures in Committee of the Whole—especially the procedures for offering and debating amendments—considerably more flexible than those of the House. Clause 3 of Rule XVIII requires that most bills affecting federal taxes and spending be considered in Committee of the Whole before the House votes on passing them. Most other major bills are also considered in this way. Most commonly, the House adopts a resolution, reported by the Rules Committee, that authorizes the Speaker to declare the House "resolved" into Committee of the Whole to consider a particular bill. General Debate There are two distinct stages to consideration in Committee of the Whole. First, there is a period for general debate, which is routinely limited to an hour. Each of the floor managers usually controls half the time, yielding parts of it to other Members who want to participate in the debate. During general debate, the two floor managers and other Members discuss the bill, the conditions prompting the committee to recommend it, and the merits of its provisions. Members may describe and explain the reasons for the amendments that they intend to offer, but no amendments can actually be proposed at this time. During or after general debate, the majority floor manager may move that the committee "rise"—in other words, that the committee transform itself back into the House. When the House agrees to this motion, it may resolve into Committee of the Whole again at another time to resume consideration of the bill. Alternatively, the Committee of the Whole may proceed immediately from general debate to the next stage of consideration: the amending process. Amending Process The Committee of the Whole may consider a bill for amendment section by section or, in the case of appropriations measures, paragraph by paragraph. Amendments to each section or of the bill are in order after the part they would amend has been read or designated and before the next section is read or designated. Alternatively, the bill may be open to amendment at any point, usually by unanimous consent. The first amendments considered to each part of the bill are those (if any) recommended by the committee that reported it. Thereafter, members of the committee are usually recognized before other Representatives to offer their own amendments. All amendments must be germane to the text they would amend. Germaneness is a subject matter standard more stringent than one of relevancy and reflects a complex set of criteria that have developed by precedent over the years. The Committee of the Whole votes only on amendments; it does not vote directly on the bill as a whole. And like the standing committees of the House, the Committee of the Whole does not actually amend the bill; it only votes to recommend amendments to the House. The motion to order the previous question may not be made in Committee of the Whole, so, under a purely open amendment process, Members may offer whatever germane amendments they wish. After voting on the last amendment to the last portion of the bill, the committee rises and reports the bill back to the House with whatever amendments it has agreed to. Purely open amendment processes have been rare in recent Congresses; the amendment process is far more frequently structured by the terms of a special rule reported by the Rules Committee and adopted by the House. This process is discussed in the next section of this report. An amendment to a bill is a first-degree amendment. After such an amendment is offered, but before the committee votes on it, another Member may offer a perfecting amendment to make some change in the first degree amendment. In current floor practice, this is rare. A perfecting amendment to a first-degree amendment is a second-degree amendment. After debate, the committee first votes on the second-degree perfecting amendment and then on the first-degree amendment as it may have been amended. Clause 6 of Rule XVI also provides that a Member may offer a substitute for the first-degree amendment before or after a perfecting amendment is offered, and this substitute may also be amended. Although a full discussion of these possibilities is beyond the scope of this report, it is important to note that the amending process can become complicated, with Members proposing several competing policy choices before the Committee of the Whole votes on any of them. Debate on amendments in Committee of the Whole is governed by the five-minute rule, not the hour rule that regulates debate in the House. The Member offering each amendment (or the majority floor manager, in the case of a committee amendment) is first recognized to speak for five minutes. Then a Member opposed to the amendment may claim five minutes for debate. Other Members may also speak for five minutes each by offering a motion "to strike the last word." Technically, this motion is an amendment that proposes to strike out the last word of the amendment being debated. But it is a "pro forma amendment" that is offered merely to secure time for debate and so is not voted on when the five minutes expire. In this way, each Representative may speak for five minutes on each amendment. However, a majority of the Members can vote (or agree by unanimous consent) to end the debate on an amendment immediately or at some specified time. Also, as mentioned, if the amendment process is governed by a special rule reported by the Rules Committee and adopted by the House, that resolution will limit the number, order, and form of amendments that can be considered. Final Passage When the committee finally rises and reports the bill back to the House, the House proceeds to vote on the amendments the committee has adopted. It usually approves all these amendments by one voice vote, though Members can demand separate votes on any or all of them as a matter of right. After a formal and routine stage called "third reading and engrossment" (when only the title of the bill is read), there is then an opportunity for a Member, virtually always from the minority party, to offer a motion to recommit the bill to committee. If the House agrees to a "simple" or "straight" motion to recommit, which only proposes to return the bill to committee, the bill is taken from the floor and returned to committee. Although the committee technically has the power to re-report the bill, in practice, the adoption of a straight motion to recommit is often characterized as effectively "killing" the measure. "Straight" motions to recommit are rare. Alternatively, motions to recommit far more frequently include instructions that the committee report the bill back to the House "forthwith" with an amendment that is stated in the motion. If the House agrees to such a motion, which is debatable for 10 minutes, evenly divided, it then immediately votes on the amendment itself, so a motion to recommit with instructions is really a final opportunity for the minority party to amend the bill before the House votes on whether to pass it. Thus, this complicated mode of consideration, which the House uses to consider most major bills, begins in the House with a decision to resolve into Committee of the Whole to consider a particular bill. General debate and the amending process take place in Committee of the Whole, but ultimately it is the House that formally amends and then passes or rejects the bill. Under a Special Rule Reported by the Committee on Rules Clause 1(m) of Rule X authorizes the Rules Committee to report resolutions affecting the order of business. Such a resolution—called a "rule" or "special rule"—usually proposes to make a bill in order for floor consideration so that it can be debated, amended, and passed or defeated by a simple majority vote. In effect, each special rule recommends to the House that it take from the Union or House Calendar a measure that is not otherwise privileged business and bring it to the floor out of its order on that calendar. Typically, such a resolution begins by providing that, at any time after its adoption, the Speaker may declare the House resolved into Committee of the Whole for the consideration of that bill. Because the special rule is itself privileged, under clause 5(a) of Rule XIII, the House can debate and vote on it promptly. If the House accepts the Rules Committee's recommendation, it proceeds to consider the bill itself. One fundamental purpose of most special rules, therefore, is to make another bill or resolution privileged so that it may interrupt the regular order of business. Their other fundamental purpose is to set special procedural ground rules for considering that measure; these ground rules may either supplement or supplant the standing rules of the House. For example, the special rule typically sets the length of time for general debate in Committee of the Whole and specifies which Members are to control that time. In addition, the special rule normally includes provisions that expedite final House action on the bill after the amending process in Committee of the Whole has been completed. Special rules may also waive points of order that Members could otherwise make against consideration of the bill, against one of its provisions, or against an amendment to be offered to it. The most controversial provisions of special rules affect the amendments that Members can offer to the bill that the resolution makes in order. As noted above, an "open rule" permits Representatives to propose any amendment that meets the normal requirements of House rules and precedents—for example, the requirement that each amendment must be germane. A "modified open rule" permits amendments to be offered that otherwise comply with House rules but imposes a time limit on the consideration of amendments or requires them to be preprinted in the Congressional Record . At the other extreme, a "closed rule" prohibits all amendments except perhaps for committee amendments and pro forma amendments ("to strike the last word") offered only for purposes of debate. A "structured" rule, which is the most common type of rule, permits only certain specific amendments to be considered on the floor. These provisions are very important because they can prevent Representatives from offering amendments as alternatives to provisions of the bill, thereby limiting the policy choices that the House can make. Open rules have been rare in recent Congresses. However, like other committees, the Rules Committee only makes recommendations to the House. As noted above, Members debate each of its procedural resolutions in the House under the hour rule and then vote to adopt or reject it. If the House votes against ordering the previous question on a special rule, a Member could offer an amendment to it, proposing to change the conditions under which the bill itself is to be considered. Because the adoption of a special rule is often viewed as a "party loyalty" vote, however, such a development is exceedingly rare. All the same, it is important to remember that while the Rules Committee is instrumental in helping the majority party leadership formulate its order of business and in setting appropriate ground rules for considering each bill, the House retains ultimate control over what it does, when, and how. Unanimous Consent Legislation is sometimes brought before the House of Representatives for consideration by the unanimous consent of its Members. Long-standing policies announced by the Speaker regulate unanimous consent requests for this purpose. Among other things, the Speaker will recognize a Member to propound a unanimous consent request to call up an unreported bill or resolution only if that request has been cleared in advance with both party floor leaders and with the bipartisan leadership of the committee of jurisdiction. Senate Amendments and Conference Reports Before any bill can become law, both the House and the Senate must pass it, and the two houses must agree on each and every one of its provisions. This basic constitutional requirement means that the House must have procedures to respond when the House and Senate pass different versions of the same bill. For example, the House may pass a Senate bill with House amendments, or the Senate may pass a House bill with Senate amendments and then send its amendments to the House. In either case, the two houses must resolve their differences over these amendments before the legislative process is completed. There are essentially two ways to approach this stage of the process: (1) by dealing with the amendments individually through a process of exchanging amendments between the chambers, with the bill being sent back and forth between the House and Senate, or (2) by dealing with the amendments collectively through a conference committee of Representatives and Senators who negotiate a series of compromises and concessions that are compiled in a conference report that the two houses can vote to accept. Because the process of resolving differences between the houses can be quite complicated, only some of its basic elements are summarized here. The House normally considers Senate amendments to a House bill by unanimous consent or by suspension of the rules; the House may accept the amendments (concur in them) or amend them (concur in them with House amendments). Alternatively, the committee with jurisdiction over the bill may authorize its chair to move that the House disagree to the Senate's amendments and send them to a conference committee. When the House amends and passes a Senate bill, it may request a conference with the Senate immediately, or it may simply send its amendments to the Senate in the hope that the Senate will accept them. If the Senate refuses to do so, it may request a conference with the House instead. On the other hand, if the House and Senate can reach agreement by proposing amendments to each other's positions, the bill can be sent to the President for his signature or veto without the need to create a conference committee. This method of resolving differences is sometimes colloquially called "ping-pong," because each chamber acts in turn, shuttling the legislation back and forth as each proposes amendments to the position of the other. If the House and Senate agree to send their versions of the bill to a conference committee, the Speaker appoints the House conferees. These conferees are usually drawn from the standing committee (or committees) with jurisdiction over the bill, although the Speaker may appoint some other Representatives as well. When the House and Senate conferees meet, they are to deal only with provisions of the bill on which the two houses disagree. They should not insert new provisions or change provisions that both houses have already approved. Furthermore, as the conferees resolve each provision or amendment in disagreement, they accept the House position, the Senate position, or a compromise between them. Like almost all other House rules, the rules limiting the authority of conferees are enforced only if Members make points of order at the appropriate time. The House may also adopt a special rule, reported by the Rules Committee, waiving points of order against a conference report. To complete their work successfully, a majority of the House conferees and a majority of the Senate conferees must sign a report that recommends all the agreements they have reached. The conferees also sign a "joint explanatory statement" that describes the original House and Senate positions and the conferees' recommendations and is the functional equivalent of a legislative committee report. After Representatives have had three days to examine a conference report, it is privileged for floor consideration; it may be called up at any time that the House is not already considering something else. The report may be debated in the House under the hour rule, so the vote almost always occurs after no more than one hour of debate. No amendments to the report are in order. In practice, however, the House almost always considers conference reports under the terms of a special rule from the Rules Committee that waives all points of order against the report and its consideration. The conference report is a proposed package settlement of a number of disagreements, so the House and Senate may accept it or reject it, but they may not change it. If the two houses agree to the report by simple majority vote, all their differences have been resolved and the bill is then "enrolled," or reprinted, for formal presentation to the President. In rare instances, conferees cannot reach agreement on one or more of the amendments in conference, or they may reach an agreement that they cannot include in their conference report because their proposal exceeds the scope of the differences between the House and Senate positions (and thus violates the rules governing the content of conference reports). In either case, the conferees may report back to the two houses with an amendment (or amendments) in disagreement. After acting on the conference report and dealing collectively with all the other amendments that were sent to conference, the House acts on each of the amendments in disagreement by considering motions such as a motion to accept the Senate's amendment or a motion to amend it with a new House amendment. The Senate takes similar action until the disagreements on these amendments are resolved or until the two houses agree to create a new conference committee only to address the remaining amendments that are still in disagreement. The bill cannot become law until the two houses resolve all the differences between their positions. Voting and Quorum Procedures Whenever Representatives vote on the floor, there is almost always first a "voice vote," in which the Members in favor of the bill, amendment, or motion vote "Aye" in unison, followed by those voting "No." Before the Speaker (or the chair of the Committee of the Whole) announces the result, any Representative can demand a "division vote," in which the Members in favor stand up to be counted, again followed by those opposed. But before the result of either a voice vote or a division vote is announced, a Member may try to require another vote in which everyone's position is recorded publicly. This recorded vote is taken by using the House's electronic voting system. In Committee of the Whole, an electronic vote is ordered when 25 Members request it. In the House, such a vote occurs when demanded by at least one-fifth of the Members present. Alternatively, any Member can demand an electronically recorded vote in the House if a quorum of the membership is not present on the floor when the voice or division vote takes place. The Constitution requires that a quorum must be present on the floor when the House is conducting business. In the House, a quorum is a majority of the Representatives; in Committee of the Whole, it is only 100 Members. However, the House has traditionally assumed that a quorum is always present unless a Member makes a point of order that it is not. The rules restrict when Members can make such points of order, and they occur most often when the House or the Committee of the Whole is voting. In the House, for example, a Representative can object to a voice or division vote on the grounds that a quorum is not present and make that point of order. If a quorum is not present, the Speaker automatically orders an electronically recorded vote during which Members record their presence on the floor by casting their votes. The issue is decided and a quorum is established at the same time. A voice or division vote is valid even if less than a quorum participates in the vote so long as no one makes a point of order that a quorum is not present. For this reason, Members can continue to meet in their committees or fulfill their other responsibilities off the floor when the House is doing business that does not involve publicly recorded votes. Bringing It All Together: A Typical Day on the House Floor On most days, the House will meet two hours prior to scheduled legislative business for Morning Hour Debate, a period in which Members can make speeches of up to five minutes on subjects of their choosing. Later, the House will meet for legislative session. After the opening prayer on each day by the House chaplain (or perhaps by a guest chaplain), the Speaker announces approval of the Journal of the previous day's proceedings. A Member may require a recorded vote on agreeing to the Speaker's approval of the Journal. Following the Pledge of Allegiance, some Members may then ask unanimous consent to address the House for one minute each on whatever subjects they wish, including subjects unrelated to the scheduled legislative business of the day. The ability to set the House's floor schedule is one of the primary powers and responsibilities of the majority party leaders, and in doing so they often consult with minority party leaders. Generally speaking, to the extent possible, majority party leaders and the committee chairmen arrange the legislative schedule for each week in advance. During the last floor session of the week, the majority leader normally announces the expected schedule for the coming week in a traditional "wrap-up" colloquy with a minority party leader. Changes in the schedule may be announced as they are made. On a Monday, Tuesday, or Wednesday, the House will commonly consider multiple measures under the "suspension of the rules" procedure. Typically, recorded votes on such measures, if requested, are clustered together and taken at the end of the day. On other days of the week, the House will usually consider a major bill pursuant to a special rule reported by the House Committee on Rules. Such a special rule would be debated in the House under the hour rule, at the end of which the majority manager of the special rule would "move the previous question," which, when adopted, brings the resolution to a vote. Once adopted, the House would ordinarily consider a measure in Committee of the Whole pursuant to the terms for general debate and amendment established by the special rule. Following consideration in the Committee of the Whole, the House would take the final votes on the measure after voting on the amendments recommended by the committee and on a minority motion to recommit, which would likely be made with amendatory instructions. As each item of business is completed, the Speaker anticipates which Member should be seeking recognition to call up the next bill or resolution. If another Representative requests to be recognized instead, t he Speaker may ask, "For what purpose does the gentleman seek recognition?" The Speaker may decline to recognize that Member if the Speaker wants the House to consider another privileged measure, motion, or report. At the end of legislative business on most days, some Members address the House for as much as an hour each on subjects of their choice. These "special order" speeches are arranged in advance and organized by the party leadership. In this way, Representatives can comment at length on current national and international issues and discuss bills that have not yet reached the House floor. The House often adjourns by early evening, although it may remain in session later when the need arises or when the end of the annual session or some other deadline approaches. Sources of Additional Information The House rules for each Congress are published in a volume often called the House manual but officially entitled Constitution, Jefferson's Manual and Rules of the House of Representatives . A new edition of this collection is published each Congress. The precedents of the House established through 1935 have been compiled in the 11-volume set of Hinds' and Cannon's Precedents of the House of Representatives . More recent precedents are published as Deschler's or Deschler-Brown -Johnson Precedents of the U.S. House of Representatives ; 18 volumes of this set now are available. Volume 1 of a fourth series of House precedents, Precedents of the United States House of Representatives , was initiated in 2017, and additional volumes are expected in the future. The House's procedures are summarized in House Practice: A Guide to the Rules, Precedents and Procedures of the House , by Charles W. Johnson, John V. Sullivan, and Thomas J. Wickham Jr., Parliamentarians of the House. The most recent version of House Practice was published in 2017. The Parliamentarian and his assistants welcome inquiries about House procedures and offer expert assistance compatible with their other responsibilities. CRS Reports CRS Report 98-995, The Amending Process in the House of Representatives , by Christopher M. Davis. CRS Report RL32200, Debate, Motions, and Other Actions in the Committee of the Whole , by Bill Heniff Jr. and Elizabeth Rybicki. CRS Report 97-552, The Discharge Rule in the House: Principal Features and Uses , by Richard S. Beth. CRS Report RL30787, Parliamentary Reference Sources: House of Representatives , by Richard S. Beth and Megan S. Lynch. CRS Report 98-696, Resolving Legislative Differences in Congress: Conference Committees and Amendments Between the Houses , by Elizabeth Rybicki. CRS Report 97-780, The Speaker of the House: House Officer, Party Leader, and Representative , by Valerie Heitshusen. CRS Report 98-314, Suspension of the Rules in the House: Principal Features , by Elizabeth Rybicki. CRS Report 98-870, Quorum Requirements in the House: Committee and Chamber , by Christopher M. Davis.

The daily order of business on the floor of the House of Representatives is governed by standing rules that make certain matters and actions privileged for consideration. On a day-to-day basis, however, the House can also decide to grant individual bills privileged access to the floor, using one of several parliamentary mechanisms. The standing rules of the House include several different parliamentary mechanisms that the body may use to act on bills and resolutions. Which of these will be employed in a given instance usually depends on the extent to which Members want to debate and amend the legislation. In general, all of the procedures of the House permit a majority of Members to work their will without excessive delay. The House considers most legislation by motions to suspend the rules, with limited debate and no floor amendments, with the support of at least two-thirds of the Members voting. Occasionally, the House will choose to consider a measure on the floor by the unanimous consent of Members. The Rules Committee is instrumental in recommending procedures for considering major bills and may propose restrictions on the floor amendments that Members can offer or bar them altogether. Many major bills are first considered in Committee of the Whole before being passed by a simple majority vote of the House. The Committee of the Whole is governed by more flexible procedures than the basic rules of the House, under which a majority can vote to pass a bill after only one hour of debate and with no floor amendments. Although a quorum is supposed to be present on the floor when the House is conducting business, the House assumes a quorum is present unless a quorum call or electronically recorded vote demonstrates that it is not. However, the standing rules preclude quorum calls at most times other than when the House is voting. Questions are first decided by voice vote, although any Member may then demand a division vote. Before the final result of a voice or division vote is announced, Members can secure an electronically recorded vote instead if enough Members desire it or if a quorum is not present in the House. The constitutional requirements for making law mean that each chamber must pass the same measure with the identical text before transmitting it to the President for his consideration. When the second chamber of Congress amends a measure sent to it by the first chamber, the two chambers must resolve legislative differences to meet this requirement. This can be accomplished by shuttling the bill back and forth between the House and Senate, with each chamber proposing amendments to the position of the other, or by establishing a conference committee to try to negotiate a compromise version of the legislation.

GAO_GAO-19-139

Background In Federal courts, civil actions, such as lawsuits, begin with the filing of a complaint with the court. On or after filing a complaint, a plaintiff obtains a summons to the defendant from the court. The summons, among other things, names the court and the parties, states the time within which the defendant must appear before the court to defend against the complaint, and notifies the defendant that a failure to appear and defend will result in a default judgment against the defendant for the relief demanded in the complaint. Plaintiffs are responsible for providing defendants both the summons and a copy of the complaint. This procedure, known as service of process, gives parties formal notice of the initiation of court proceedings. In the event of a default judgment against a foreign state in which the defendant has not responded to a summons or complaint and the court has ruled in favor of the plaintiff, FSIA requires that service of a copy of the judgment be completed. The FSIA prescribes a sequential process for completing service on foreign governments that plaintiffs must follow before requesting that State complete service through the diplomatic channel. Federal regulations require State to complete service “promptly” although neither the regulations nor State guidance further define the term. Pursuant to these regulations, where there are no diplomatic or consular relations between the United States and the defendant foreign government or where the United States has suspended diplomatic or consular operations, service may be accomplished pursuant to the arrangement the United States has with a friendly government known as a protecting power arrangement. The protecting power arrangement specifies the consular services that the friendly government will provide in assisting the United States. As of November 2018, the United States had protecting power arrangements with the governments of the Czech Republic, France, Sweden, and Switzerland. Each of the arrangements with the Czech Republic and Switzerland contains a provision for service respectively on Syria and Iran. Based on our analysis of State and U.S. court data, from 2007 through 2017, State received 289 service requests to 33 countries. Iran alone accounted for over 60 percent of all service requests, followed by Syria with about 7 percent, and Sudan with about 5 percent. Because Switzerland and the Czech Republic serve as protecting powers for the United States in Iran and Syria, respectively, about two-thirds of all service requests were accounted for by the U.S. Embassies in Bern and Prague. Figure 1 shows the breakdown of FSIA service requests by defendant country from 2007 through 2017. Over the last 2 years, 2016 and 2017, State completed 31 and 48 cases respectively. The 48 cases represent the highest number of cases in any year for the 11-year period we reviewed (see App. II for further data on State’s provision of service since 2007.) Service requests to State were made through at least 31 federal, state, and county courts. The vast majority of service requests were made through federal district courts. One court—the U.S. District Court for the District of Columbia—was the venue for 73 percent of all completed service requests, followed by 8 percent for the U.S. District Court for the Southern District of New York and 3 percent for the U.S. District Court for the Southern District of Florida. According to some plaintiffs’ attorneys with whom we spoke, the U.S. District Court for the District of Columbia has jurisdiction over most cases involving victims of state-sponsored terrorism. Figure 2 provides information on the service requests completed from 2007 through 2017 based on the court used to make the request. According to plaintiffs’ attorneys, victims of state-sponsored terrorism who have obtained judgments against a foreign state generally seek compensation in two ways: (1) by attaching and directly seizing assets of that state pursuant to the FSIA and other applicable provisions of law and (2) from a temporary special fund called the U.S. Victims of State Sponsored Terrorism Fund (Fund). The Fund was established by Congress in 2015 with about $1 billion in appropriations. Congress established the Fund for a period of 10 years ending in 2026 and mandated that certain forfeiture proceeds, penalties, and fines be deposited into the Fund if paid to the United States after the Fund’s establishment. The Fund can provide compensation to those, who (1) have secured final judgments in a U.S. district court against a state sponsor of terrorism for a claim arising from an act of international terrorism for which the state was not found immune from the FSIA, (2) were held hostage at the U.S. Embassy in Tehran, Iran from November 1979 to January 1981, or (3) are the personal representatives of the estate of a deceased individual in one of these two categories. Victims must file appropriate documentation with the Fund, and be found to qualify. Compensation for victims is calculated on a pro-rata basis on the amount of available funds for each distribution, and is subject to certain statutory caps. The first payments from the Fund were authorized in December 2016; the second distribution is scheduled for authorization in January 2019. After 2019, eligible claims will be paid annually out of available funds, until all eligible amounts have been paid in full or the Fund terminates in 2026. State Completes Service in Several Stages That Take 5 Months to Complete On Average State’s Process for Completing Service Has Four Stages State completes service through four stages involving the courts, the Department of State, U.S. embassies, and foreign ministries through a process that took about 5 months to complete on average for the period 2007 through 2017. State’s OCS/L within the Bureau of Consular Affairs administers the diplomatic service provisions of the FSIA. Figure 3 summarizes how State completes service in countries where a protecting power assists in the completion of service under the FSIA. The steps involved are numerous and require action by litigants, courts, and the State Department, but can be summarized in four stages: 1. Preparing and submitting a request for service to State. Plaintiffs’ attorneys compile and submit the required documentation to the relevant clerk of court, who transmits the package to State. This documentation must include two copies of the complaint, summons and a notice of suit, together with a translation of each into the official language of the foreign state, or where a plaintiff has obtained a default judgment against a foreign state, translated copies of that default judgment and a notice of default judgment, as well as a cashier’s check made out to the appropriate U.S. embassy for the applicable fee. 2. Receiving and processing the request at State. OCS/L receives the package from the clerk of the court where the suit was filed, verifies that the package is complete and the check is written for the proper fee amount, works with plaintiff’s attorney or the clerk of court to resolve any errors or issues with the package, prepares language for the diplomatic note and instructions for the embassy staff, and circulates the diplomatic note and instructions for clearances from relevant Department of State offices. OCS/L sends, via diplomatic pouch, this package to the appropriate embassy depending on the defendant. In cases involving the assistance of a protecting power for the United States to serve documents under the FSIA, OCS/L sends the package via diplomatic pouch to the U.S. embassy in the country that serves as the protecting power for U.S. interests in the defendant country. In the case of suits against the government of Syria, for example, the protecting power is the Czech Republic. In cases involving countries where the United States has diplomatic relations and an embassy the package goes to the U.S. embassy in the defendant country. 3. Receiving and processing a request at U.S. embassies and working with protecting powers. At the U.S. embassy, an American consular officer prepares a diplomatic note in accordance with OCS/L guidance that is added to the package and sends the package to the Ministry of Foreign Affairs. In cases involving the assistance of a protecting power for the United States to serve documents under the FSIA, the Ministry of Foreign Affairs prepares instructions for the consular officer at the foreign interest section of the embassy in the defendant country and sends him the package. A consular officer in the U.S. interest section of the protecting power’s embassy in the defendant country prepares a diplomatic note to add to the package and delivers the package, or arranges for its delivery, to the Ministry of Foreign Affairs of the defendant country. 4. Notifying the court that service has been completed. Once service has been completed, the package is sent back to OCS/L for delivery to the clerk of court. In the instance of protecting power assistance, the package will include certifications from the foreign interest section of the protecting power that process was served on a specific date as well as other certifications by the protecting power’s Ministry of Foreign Affairs and the U.S. embassy. From 2007 through 2017, State Completed Requests In About 5 Months On Average Our analysis of State and court data shows that for the 229 service requests that we analyzed, the average (mean) time for State to complete the requests over the past 11 years was about 158 days—or about 5 months. About 50 percent of the service requests took State between 90 and 179 days to complete, and about 28 percent took 180 days or more. Seven requests took longer than 1 year. The longest request took 695 days to complete. Figure 4 shows the completion times of service requests measured in the number of days taken for 2007 to 2017, by 30- day intervals. Our analysis shows the most time-consuming stage to complete service was the period in Washington, D.C. in which State Headquarters completes document review and clearance, as shown in table 1. Slow Service Could Adversely Affect Victims’ Ability to Obtain Compensation Although neither the FSIA, State’s implementing regulations, nor federal rules of civil procedure establish a time limit for State to complete service, the length of time State takes to complete service can affect plaintiffs’ compensation. According to plaintiffs’ attorneys we interviewed, State’s taking a long time to complete service could adversely affect victims’ ability to gain compensation for two reasons. First, slow service can lengthen the time it takes to obtain a final judgment against a foreign government, thereby delaying plaintiffs’ ability to meet the requirements necessary to satisfy judgments through asset seizures or to apply for compensation from the U.S. Victims of State Sponsored Terrorism Fund. For efforts to collect judgments through asset seizures, plaintiffs’ attorneys explained that the first plaintiff to successfully make such a claim is awarded the entire asset. Thus they are competing to be first in making such claims. Second, slow service can also reduce the total award that claimants receive from the Victims Fund. For example, slow service could result in plaintiffs being unable to provide the required documentation before the deadline of a particular round of distributions for the Fund. The deadline for the 2019 distribution was September 14, 2018. The Fund’s procedures allow victims to apply for compensation after a court has issued a default judgment that includes compensation against the defendant government in their case and following their transmittal of a request for service of the default judgment through State. Of the 10 firms that submitted requests for service to State that we interviewed, 6 expressed concern that slow service could adversely affect their clients’ compensation from the Fund for one of the reasons described. Three of the firms also cited ongoing cases where compensation could be adversely affected if they are unable to obtain a default judgment and apply for service through State by the deadline established by the Fund for the next round of distribution. According to Fund officials the Fund has allocated approximately $1.095 billion for second-round payments. The Special Master will authorize second-round payments on a pro rata basis to claimants with eligible claims by January 1, 2019. State Has Not Implemented Key Controls to Manage the Completion of Service OCS/L Did Not Maintain Complete and Accurate Records OCS/L did not maintain complete and accurate records of the status of service requests completed during calendar years 2007 through 2017. State’s record-keeping guidance stresses the importance of creating and preserving records so that documentation of an office’s activities is complete and accurate. To document and manage State’s completion of service, OCS/L officials rely primarily on two forms of documentation. The first type of documentation or record is a “case tracker” spreadsheet that OCS/L uses to document the status of service requests (cases). The second type of record OCS/L relies on is case files which include various documents related to the completion of service. We analyzed the case tracker that OCS/L provided to us in November 2017. We determined that it did not contain complete and accurate data about the service requests from 2006 through 2016 because it did not contain any fields documenting the start of the process at State—for example, the date when the court sent the request to OCS/L or the date when OCS/L received the request. Without this, OCS/L lacked any data about when it first received and began working on a request. In addition, OCS/L lacked data about the status of any service request during the initial document review and clearance stage of the process, which as previously discussed, is the most time consuming stage. In response to our request for additional data to use in analyzing the timeliness of State’s service completions, in December 2017, OCS/L provided us with an updated tracker containing three fields not in the previous tracker. The three fields were designed to capture the start of the process, but were often blank. For example, 82 percent of the cases did not contain the date when OCS/L received the request from the court. By contrast, our analysis of both the November 2017 and December 2017 case trackers showed that OCS/L almost always recorded the “end dates” in the process when service was completed and when OCS/L notified the court that service had been completed. We also reviewed the 59 case files OCS/L provided for the 2015 and 2016 service completions and determined that OCS/L did not consistently keep copies of several critical documents. We chose these years because OCS/L officials said that providing case files for the entire period under review would present a significant logistical challenge and the case files for the prior years were less complete. As table 2 summarizes, all but three files contained a copy of the memorandum providing instructions to the embassy and language for the diplomatic notes. Nine case files were missing a copy of the diplomatic note. There were also 16 case files missing the certification that service was completed on a specific date. These two documents are critical to demonstrating that service has been completed. There were also 47 case files lacking a signed copy of the notification to the court. None of the 59 case files we reviewed included a copy of an email required by State guidance providing key information on the completion of service. The Foreign Affairs Manual requires embassies to send OCS/L an email documenting when documents required for service were received by the embassy, when those documents were transmitted to a foreign ministry, and the date an executed request was sent to OCS/L for relay to a court (including invoice, registry, and pouch numbers by which the documents were returned to State headquarters), but none of the files we reviewed contained this documentation. Table 2 summarizes the results of our review of the case files. In discussing why their case tracker and case files are incomplete and sometimes inaccurate, OCS/L officials noted that State’s agency-wide record-keeping guidance does not prescribe what kind of records they must keep for service requests. Federal internal control standards state that management should implement control activities through policies such as through day-to-day procedures or guidance. Additionally, these standards state that management should design controls to achieve objectives and respond to risks. These controls could, for example, document significant events in a manner that allows the documentation to be readily available for examination or require edit checks during information processing. Further these control activities should ensure that documentation and records are properly managed and maintained. In September 2018, after reviewing our analysis, State officials said that as a matter of practice they had begun digitally scanning service documents, but still did not have a standard list of documents to be maintained in case files. They also acknowledged that the level of completeness of the “case tracker” and case files varied depending on the individual maintaining the files. Additionally, in June 2018 State launched a new case tracker using a database management application. According to OCS/L officials, the new tracker will facilitate the recording and updating of key milestone information. The new tracker allows for including some information not documented in the previous case tracker spreadsheet. However, it does not capture the date the court sent the request to OCS/L. According to OCS/L officials and our analysis, the time between when the court sent the request to OCS/L and OCS/L receives the request can vary significantly. In nine instances, it took from about 3 weeks to over a year for the service request to travel from the court to OCS/L. OCS/L officials explained the new tracker does not capture the date when the court sent the package because they believe the key information they need to use in analyzing and managing the program begins at the point where OCS/L receives the package and not before. However, without capturing this data, OCS/L will not be able to determine the extent to which service requests are delayed in CA’s mailroom before being delivered to OCS/L—one of the four key stages of the process for completing service. Further, without guidance that specifies the information OCS/L must maintain in the case tracker and case files, State officials will continue to lack complete and accurate information. OCS/L Does Not Monitor Progress in Completing Service Requests OCS/L does not continuously monitor service requests to determine their progress in moving through the four stages. State’s guidance stresses the importance of continuous monitoring to achieve office, bureau, and agency-wide goals and objectives. Among other things, the Foreign Affairs Manual states that monitoring data can help determine if implementation is on time or if any timely corrections or adjustments may be needed to improve efficiency or effectiveness. Additionally, federal standards for internal control state that management should establish monitoring activities, evaluate the results, and remediate any deficiencies. OCS/L officials indicated that they have not continuously monitored service requests because they are not required to do so. OCS/L has no specific guidance requiring monitoring of the status of service requests during any stage of the service completion process and, as of October 2018, State had not established performance standards or timeframes for completing service of process and associated tasks, as discussed later in the report. Based on our analysis of data and a sample of requests, we found that OCS/L’s lack of monitoring meant that State missed opportunities to ensure the timely processing of some requests, particularly during the document review and clearance stage. To identify the factors that affect the amount of time that State takes to process service requests, we analyzed a non-generalizable sample of 16 requests that we selected to ensure we obtained detailed information on cases that took above the average amount of time, below the average amount of time, and about the average amount of time to complete. We discussed the circumstances of each of the 16 requests with OCS/L and embassy officials, as well as with plaintiff’s attorneys. We identified several reasons that cases took longer than average to complete: Two cases took longer than average to complete because of staff turnover in the relevant Department of State offices in Washington, D.C. One case took longer than average to complete when an OCS/L contractor in Washington, D.C. failed to promptly distribute the packages received by mail. In that instance, it took OCS/L 323 days to clear and send the service request to the embassy after having received the request from the court. One case took longer than average to complete when a State official at an embassy in Africa forgot to complete the service request. The request was completed only after the official’s successor arrived and noticed that the service request had not been completed. In this instance, service took 563 days to complete, of which 475 days were spent at the embassy. One case took longer than average to complete because a State official overseas misplaced two boxes of supporting documents that accompanied the service request. According to plaintiff’s attorneys, only after they called to ask about its status did OCS/L contact the embassy to determine why the necessary documents had not been delivered to the defendant state. Two cases took longer than average to complete because State officials failed to notice that the protecting power had not recorded the date of service completion on the diplomatic note for two service requests. In one case, the missing date was noticed by the plaintiffs’ attorneys only after OCS/L had notified the court that service had been completed. Once alerted to the error by plaintiffs’ attorneys, OCS/L took prompt action by requesting an amended diplomatic note from the protecting power’s Ministry of Foreign Affairs, but it took 2 additional months to obtain the document. OCS/L’s lack of monitoring also contributed to a loss of revenue. Based on our analysis of available data and records kept by the U.S. Embassy Bern we determined that the time it took OCS/L to review and clear service requests led to OCS/L’s waiving the fees because checks for payment of services had expired by the time they reached the U.S. Embassy in Bern. In one such instance, OCS/L took 131 days to send the request to Bern. OCS/L directed consular officials to proceed with the provision of service without receiving payment. Our analysis showed that this occurred in approximately 27 percent of all available service requests handled by Bern in 2016 and 2017. The amount of revenue lost was approximately $57,000. In June 2018, OCS/L officials developed a new manual that provides a written description of the roles and responsibilities of various officials in OCS/L in completing service requests. However, the manual does not require periodic monitoring of the time spent completing service by embassies. Without monitoring by OCS/L, State cannot ensure timely processing of service requests or prevent losses in revenue. OCS/L Has Not Analyzed Data on Its Completion of Service OCS/L officials said that they had not conducted any analysis that might identify the opportunities to improve their performance. State’s guidance in the Foreign Affairs Manual stresses the importance of assessing what is and is not working well in a program. However, OCS/L officials told us that they had not conducted an assessment because they did not have good data and documentation to use in assessing what was and was not working well in their completion of service. OCS/L officials provided several reasons for some cases taking longer than average in the process, in addition to those previously discussed, but these reasons were not informed by data. These included: (1) incomplete packages provided by plaintiffs’ attorneys; (2) the time it takes to deliver diplomatic pouches to embassies, which can vary by post; (3) delays due to some foreign governments’ avoidance or delay in accepting meetings with consular staff; and (4) consular officials’ level of familiarity with service requirements as well as heavy consular workloads. Our analysis of available data showed that the document review and clearance stage in Washington, D.C. took longer than the other stages. However, we were unable to determine the extent to which the longer time taken in Washington, D.C. was due to documentation that was missing from the package that was sent by plaintiffs’ attorneys because OCS/L only recorded a handful of cases where this occurred and did not record the date when OCS/L first received the service request or the date it determined the request was complete and free of errors. Moreover, while OCS/L officials attributed most of the time it took to complete the process to the time it takes to deliver documents overseas, our analysis showed that most of the time spent processing requests was consumed by OCS/L in the document review and clearance stage in Washington, D.C. Without periodically analyzing data on service requests, as called for in the Foreign Affairs Manual, OCS/L will not have a sound basis for determining the causes for delays in completing service and how to make improvements to eliminate those delays and reduce service completion times. In September 2018, OCS/L officials told us that they planned to begin using data to, among other things, measure current and past FSIA workload and performance and identify areas for improvement. However, they could not provide details or documentation of this effort. State’s Bureau of Consular Affairs Has Not Established Performance Standards to Manage and Improve Its Provision of Service Under the FSIA Consular Affairs has not established performance standards for the full process used to complete service requests. Consular Affairs officials said they have not established performance measures for the full process because they do not have good data to do so. When we began our review, Consular Affairs did not have any time frames for completing service requests. However, in June 2018, OCS/L issued a new manual that includes timeframes for certain steps of completing service within OCS/L. For example, the manual states that once OCS/L has received a service request package, the package must be reviewed within 2 business days to determine whether it contains any errors, omissions, or other issues that must be resolved. The manual also states that if OCS/L does not get clearance to send the package to the embassy within 2 weeks, then a senior OCS/L official must be notified for further action. However, the manual does not specify a deadline for staff to contact the plaintiff’s attorney to correct any problems with the package, such as missing documents, nor does the manual establish an overall timeframe for State to complete the document reviews and clearances in Washington, D.C. and U.S. embassies. GAO’s prior work has demonstrated the importance of setting performance standards that can be used across a range of management functions to improve results. In addition, federal internal control standards state that management should design control activities—such as setting of performance standards—to achieve objectives. Setting performance standards, among other things, can provide managers with crucial information on which to base their organizational and management decisions. Consular Affairs has established performance standards for some of its other activities. For example, in fiscal year 2017 Consular Affairs established performance standards for processing passport applications within published timeframes and ensuring that visa applicants were interviewed within a 3-week period. For fiscal years 2018 and 2019, among other goals, the Bureau established a performance standard of 100 percent to activate appropriate consular crises response tools, such as travel warnings and security and emergency messages, within 6 hours after notification of a crisis event. Without performance standards for completing service requests, Consular Affairs and OCS/L managers are limited in their ability to monitor performance and perform effective program management and oversight. Conclusions Plaintiffs suing foreign states in courts of the United States including some victims of state-sponsored terrorism, sometimes rely on State to promptly serve legal documents to foreign countries to receive compensation for their losses. We found that the process of serving legal documents to foreign countries takes an average of 5 months, but that some cases take considerably longer. In analyzing cases from 2007 through 2017, we identified multiple opportunities to improve the management and oversight of the process. Despite State’s recent steps to improve how it completes service, additional actions could help to ensure that service is completed in a timely manner. For example, guidance that specifies information that OCS/L must maintain in its case tracker and case files would help ensure that State has complete and accurate information on service requests. By having better record- keeping and more accurate and complete data, State will be able to monitor its progress in completing service requests and develop performance standards to measure timeliness. Additionally, periodically analyzing the data could help identify ways to improve timeliness. Recommendations for Executive Action We are making the following five recommendations to the Department of State: The Secretary of State should ensure that the Assistant Secretary of State for Consular Affairs requires OCS/L to update guidance to specify the data to be recorded in the service request case tracker. The required data should include key dates for all four stages of the process for completing service, such as the date the court sent the request to OCS/L. (Recommendation 1) The Secretary of State should ensure that the Assistant Secretary of State for Consular Affairs requires OCS/L to update its record-keeping guidance for service requests to include a standard list of documents to maintain in service request case files. (Recommendation 2) The Secretary of State should ensure that the Assistant Secretary of State for Consular Affairs requires OCS/L to monitor the status of service requests. (Recommendation 3) The Secretary of State should ensure that the Assistant Secretary of State for Consular Affairs requires OCS/L to periodically analyze its data on service requests to identify the causes of any delays in State’s completion of service and take corrective actions as appropriate. (Recommendation 4) The Secretary of State should ensure that the Assistant Secretary of State for Consular Affairs establishes performance standards for completing service, including timeframes for completing the various processes at State and at U.S. embassies. (Recommendation 5) Agency Comments We provided a draft of this report to State, the Department of Justice (Justice), and the Administrative Office of the U.S. Courts for review and comment. We received written comments from State that are reprinted in appendix III. In its comments, State concurred with all five of our recommendations and identified actions it planned to take to address them. Justice and the Administrative Office of the U.S. Courts told us that they had no formal comments on the draft report. State, Justice, and the Administrative Office of the U.S. Courts also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Deputy Attorney General, and the Director of the Administrative Office of the U.S. Courts. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any further questions about this report, please contact me at (202) 512-6881 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. Appendix I: Objective, Scope and Methodology In this report, we examine (1) how the Department of State (State) completes service under the Foreign Sovereign Immunities Act (FSIA) and how long it takes to perform this function and (2) whether State has implemented key controls in record-keeping, monitoring, analysis and performance management for completing service requests. To describe how State completes service, we obtained and reviewed State and embassy documentation such as regulations, official guidance, and case files. We also met with officials of State’s Bureau of Consular Affairs. Consular Affair’s Directorate of Overseas Citizens Services/Office of the Legal Affairs (OCS/L) is responsible for managing State’s completion of service. Based on discussions with OCS/L and documentation, we mapped how OCS/L manages the process in Washington, D.C and confirmed the process that we mapped with State officials. We met with officials from State’s Diplomatic Pouch and Mail Office, who described how they put together and track diplomatic pouches from State to embassies overseas. Because the role of consular and other officials at embassies overseas in completing service to defendant foreign governments is crucial, we also met with consular and other officials at the U.S. Embassies in Berlin, Germany; Bern, Switzerland; and Prague, Czech Republic. We selected these embassies based on (1) the number of service requests each handled, and (2) the method each uses to complete service. The U.S. Embassies in Bern and Prague ranked first and second on the list of embassies managing service requests, while the U.S. Embassy in Berlin ranked fourth. In the Czech Republic, we met with officials of the Czech Ministry of Foreign Affairs, who described how they receive and complete service requests from the U.S. Embassy in Prague. Similarly, the Swiss Ministry of Foreign Affairs provided us with a detailed description of how it receives and completes service on the Iranian government. We cannot generalize our findings from these two countries to any other countries, and note that the majority of the other countries received five or fewer requests for the 11 years we reviewed. To describe the process used by courts and attorneys that represent plaintiffs filing lawsuits against foreign governments under FSIA to request service from State, we met with court officials and plaintiffs’ attorneys. Using a spreadsheet that State provided us in December 2017, we identified the top four federal courts that requested service from State from 2007 to 2017 (the most recent full year available) and met with officials from three of these courts. We based our description of the procedure followed by court officials and attorneys say they follow at the United States District Court for the District of Columbia because about three-fourths of all service requests were made through that court. Using a spreadsheet that State had provided, we also identified and met with 10 firms that had requested service from State. The firms that we met with had a mix of experience requesting service from State. Some firms had extensive experience and others had little experience requesting service from State. We cannot generalize the responses to these firms to all firms that requested service from State. To determine the length of time it took for State to complete service from 2007 through 2017, in December 2017 we obtained a spreadsheet that OCS/L developed. This spreadsheet documents various milestones in the completion of service requests made during this period—for example, when the court sent the request to OCS/L, when OCS/L received the request, when OCS/L sent the request to the appropriate embassy, and when OCS/L notified the court that service had been completed. Because OCS/L officials provided data that was not complete, we developed an improved spreadsheet, using the spreadsheet we received in December 2017 as our starting point and improving the spreadsheet through the use of supplemental data. To develop the improved spreadsheet, we first identified requests for service, based on our examination of the original spreadsheet, which appeared to have not been completed or were not related to FSIA service. We requested clarification from State about whether we should keep those requests in our improved spreadsheet, and where appropriate, removed some service requests. We then checked the remaining requests in the original spreadsheet against court data obtained from the Lexis-Nexis database Courtlink. After completing this process, we once again asked OCS/L officials for clarification about certain service requests and incorporated their feedback. In June 2018, State provided us with a copy of a new case tracker that OCS/L officials had created. We incorporated data from 2017 into our improved spreadsheet and once again checked the service requests in our improved spreadsheet against court records. After making the appropriate modifications, we had 289 requests for service between 2007 and 2017. We processed the data in our improved spreadsheet using data analysis software. We estimated, among other things, the mean and median lengths of time it took for State to complete service from 2007 through 2017, as well as for the three of the four key stages of the process for which State is fully responsible. We estimated the time elapsed as the difference in calendar days between the key dates that were available, for example, between the date State notified the court that service was completed and the date the court had sent to OCS/L the request for service. The three stages for which we were able to estimate timeliness were (1) the days between the date State received the request from the court and the date OCS/L sent the request to the appropriate U.S. embassy overseas and, (2) the days between the date OCS/L had sent the request to the embassy and the date when service was completed overseas and, and (3) the days between the date that service had been completed by the embassy or protecting power and the date when OCS/L notified the court that service was completed. The time taken for these stages includes the times for a number of activities that we could not precisely estimate, such as the time it took for the court’s request to reach OCS/L and the time taken for service documentation to be sent via diplomatic pouch to and from the appropriate embassy. We used the date the court sent its request to OCS/L as our start date because that was the most complete start date data among the three options available. We restricted our analysis to those cases for which State had completed service. One limitation that we had to address in our analysis was the lack of certain key dates in OCS/L’s spreadsheet for some of the requests. In particular, while the date we used as the start date (which was the date on which the court sent its request for service to OCS/L) had the most complete data of the three possible start dates, the data were missing for 59 of the 289 requests for service that we were able to document. We calculated overall time elapsed for the document review and clearance stage using that date, but then had to do some sensitivity analysis to check that the missing dates were not skewing our results. To perform the sensitivity analysis, we identified those instances when the date the court sent its request to OCS/L was missing, but an alternative start date, either the date of the request letter, or the date when OCS recorded receiving the request, was present. We were able to identify 40 instances where this happened for the 59 missing cases. Our calculations using estimations of the missing “court sent to OCS/L” dates indicated that the results we present would likely have changed minimally if we could have included them. In addition, we conducted further analysis of the characteristics of the 17 service requests that had no start date of any kind and found that these were generally similar to ones for which we had start dates. However because these simulations indicated that there would be minor changes, we present qualified rounded numbers in the main body of the report. We also used the improved spreadsheet to extract other information, and calculate timeliness by the years for which the requests were made, the courts making requests for service, the countries for service, and the date of service requested. In addition, we estimated the time elapsed for service for each case for which we had data and generated a list of service requests sorted from the ones that took the longest to those that took the least amount of time to complete. To determine whether State has implemented key controls in record- keeping, monitoring, analysis, and performance management for completing service requests, we met with OCS/L officials in Washington, D.C. to discuss how they manage the process, as well as with consular officials from the U.S. Embassies in Berlin, Bern, and Prague. We also examined the 59 service request case files for requests received in 2015 and 2016. This sample is not generalizable to all requests for service between 2007 and 2017. We determined to what extent these files were missing key documents, such as a signed copy of the notification letter or the diplomatic note. We also reviewed the December 2017 spreadsheet that we had obtained from State to determine to what extent the spreadsheet contained missing data as well as a November 2017 spreadsheet. As discussed earlier, because OCS/L officials did not provide complete data, we created a separate improved spreadsheet using court data. We analyzed the data in the improved spreadsheet we created to determine where bottlenecks were occurring. We also used the improved spreadsheet to help identify and review 16 service requests in more depth with OCS/L officials. We selected these 16 service requests to include: 6 requests that took well above the average number of days to complete, 5 that took about the average amount of time to complete, and 5 that took below the average amount of time to complete. We met with OCS/L and consular officials, as well as plaintiffs’ attorneys to discuss events related to the 16 requests we had identified for review. We obtained documentation from the U.S. Embassies in Bern and Prague for the actions taken in providing service, the controls implemented, and the records of transactions that they maintained. We met with officials from three principal courts that request service, as well as officials of the U.S. Victims of State Sponsored Terrorism Fund (Fund) to discuss how service could affect the progress of court cases and the compensation awarded. Finally, we assessed State’s implementation of key controls against applicable laws, including the FSIA and Government Performance and Results Act of 1993, as well as State guidance and federal internal control standards. To determine the reliability of the data used in the report, we manually checked State’s December 2017 spreadsheet as well as the improved spreadsheet that we developed for logical and other errors—for example, for dates that seemed out of order. We also performed electronic checks on the improved spreadsheet to identify logical and other errors. Where appropriate, we made adjustments to the improved spreadsheet. Based on the results obtained, we determined that the improved spreadsheet that we developed is sufficiently reliable for our use, though we note the limitations in terms of the start dates, which required us to conduct sensitivity analyses, as described earlier in this OSM, to increase our confidence in the overall estimates for timeliness and for the document review and clearance stage of the process (stage 2). As noted above, we are rounding our estimates to reflect this limitation and qualifying them as approximations. We conducted this performance audit from September 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Additional Data on How Long It Takes to Complete Service We identified a total of 289 verified requests for service from 2007 to 2017. Verified requests are those that remained after we compiled the lists the State Department provided, scrubbed them for duplicates and instances when the requests were subsequently withdrawn, and checked the data against court records in the Court Link database. Figure 5 shows how those cases were distributed by year over this period. The average number of days State took to complete service varied notably by year from 2007 to 2017, as Figure 6 demonstrates. The average (mean) ranged from 77 days in 2011 to 206 days in 2008. We can also see variation in the most recent years. The mean in 2015 was 130 days while in 2016 it was 205 days. We also found that cases for European and Eurasian countries, such as Switzerland and Germany, had much lower means and medians than those sent through protecting powers to Iran and Syria. While the averages for Iran and Syria were 158 and 215 days respectively, the cases for Germany, Switzerland, the Holy See, Russia, and Poland all had averages of 106 days or less. In table 3 we provide information on the length of time it took to complete service requests by country. We looked more broadly at country type, and created three groups, one for the two countries where the State Department has to rely on the protecting powers for service, namely Iran and Syria, another group for the European and Eurasian nations, and another group for all remaining countries. Service completion was fastest for the European nations. This information by country groupings is presented in table 4. Appendix III: Comments from the Department of State Appendix IV: GAO Contact and Staff Acknowledgements GAO Contact Staff Acknowledgements: In addition to the contact named above, Kim Frankena (Assistant Director), Claude Adrien, José M Peña III, Martin De Alteriis, Candace Caruthers, Mark Dowling, Chris Keblitis, Aldo Salerno and Hannah Heidrich made key contributions to this report. Travis Cady and Jeff Isaacs provided technical assistance.

While foreign states generally cannot be sued in a U.S. court, under FSIA, parties can sue governments for certain crimes such as injury or death from an act of terrorism, if certain factors are present. State is required by statute to serve notice of such suits or default judgments when other means for effecting service are not available, and charges plaintiffs a fee of $2,275 to complete this task. Plaintiffs in such cases may also qualify for compensation from a fund that Congress established called the U.S. Victims of State Sponsored Terrorism Fund. In this report, GAO examines (1) how State completes this service and the length of time it takes to complete requests, and (2) whether State has implemented key controls for executing service requests promptly. GAO reviewed State regulations, guidance, case files, and data from 2007 through 2017; and interviewed State officials in Washington, D.C., the Czech Republic, Germany, and Switzerland, which handle the vast majority of cases. GAO assessed State's controls against federal internal control standards. The Department of State (State) notifies sovereign defendants of court proceedings under the Foreign Sovereign Immunities Act (FSIA) in a four stage process that has taken on average about 5 months to complete. State headquarters has overall responsibility for delivering legal documents but U.S. embassies and foreign governments play key roles as well. From 2007 through 2017, State completed 229 requests for delivery of legal documents in an average of about 5 months, but about 28 percent of the requests took longer than 6 months and 7 requests took more than a year. Slow delivery could adversely affect a plaintiff's ability to obtain compensation from a special victims' fund that Congress set up in 2015. State's guidance and federal internal control standards require controls such as accurate and complete record-keeping, continuous monitoring, and analysis of data; however, GAO found that State lacks several key controls to manage its delivery of legal documents. First, State's records are incomplete. For example, for 82 percent of the cases, State had no information about when it received court requests. Second, State did not monitor the progress of cases, resulting in slow service. This slow service led State to waive fees of about $57,000 because checks had expired. Third, State did not analyze case data to identify factors contributing to slow service, or establish timeframes for completing service. As a result, managers lack a sound basis for making decisions on how to improve timeliness. In June 2018, State took some actions based on GAO's review to improve its performance, including preparing step-by-step guidance and developing a new record-keeping system, but further actions could fill the gaps that have impaired program performance.

GAO_GAO-18-666

Background The HUBZone Act of 1997 (which established the HUBZone program) identified HUBZones as (1) qualified census tracts, which are determined generally by area poverty rate or household income; (2) qualified nonmetropolitan counties, which are determined generally by area unemployment rate or median household income; and (3) lands meeting certain criteria within the boundaries of an Indian reservation. Congress subsequently expanded the criteria for HUBZones to add former military bases, counties in difficult development areas outside the continental United States, and certain areas affected by disasters. According to SBA officials, 5,306 firms were HUBZone certified as of July 1, 2018. As of that date, there were 20,154 HUBZone qualified census tracts, 834 HUBZone qualified non-metropolitan counties, 125 HUBZone base realignment and closure areas, 593 HUBZone Native American lands (Indian lands), and 95 HUBZone qualified disaster areas (87 qualified disaster census tracts and 8 qualified disaster non-metropolitan counties). The HUBZone program provides certified small businesses located in designated areas with contracting opportunities in the form of set-asides, sole-source awards, and price-evaluation preferences. A set-aside restricts competition for a federal contract to specified contractors. For example, competition may be restricted to SBA-certified HUBZone businesses if there is a reasonable expectation of at least two SBA- certified HUBZone bidders and a fair market price. A sole-source award is a federal contract awarded, or proposed for award, without competition. Also, in any full and open competition for a federal contract, the HUBZone price evaluation preference allows the price that a HUBZone firm offers to be deemed lower than the price of another offeror (if the HUBZone firm’s offer is not more than 10 percent higher than the other offer and the other offeror is not a small business concern). HUBZone Certification and Recertification Processes and Related GAO Recommendations To be certified to participate in the HUBZone program, a firm must meet the following criteria: when combined with its affiliates, be small by SBA size be at least 51 percent owned and controlled by U.S. citizens, or owned by an Indian Tribal Government, Alaska Native Corporation, Community Development Corporation, or small agricultural cooperative; have its principal office—the location where the greatest number of employees perform their work—in a HUBZone; and have at least 35 percent of its employees reside in a HUBZone. In a 2008 report, we found that SBA had relied on information that firms entered into an online application system called the HUBZone Certification Tracking System to indicate they met the size, ownership, location, and employee residence standards. At the time, SBA performed limited verification of the self-reported information. Although agency staff could request additional supporting documentation, SBA did not have specific guidance or criteria for such requests. Thus, we recommended that SBA develop and implement guidance to more routinely and consistently obtain supporting documentation from applicant firms. SBA agreed with the recommendation and changed its certification procedures. Since fiscal year 2009, SBA has required all firms applying for HUBZone certification to provide supporting documentation about their size, ownership, location, and employees’ residence, which the agency then is to review to verify the firm’s eligibility for the program. According to SBA officials, the current initial certification process has two components: (1) submission and review of an online application, which is processed by SBA through the HUBZone Certification Tracking System; and (2) submission of corroborative documentation, which SBA processes through a document review. The tracking system contains information on firms that apply to the HUBZone program, as well as on certified firms that apply for recertification. Firms wishing to remain in the program must recertify their continued eligibility to SBA every 3 years. The tracking system automatically identifies firms that are due for recertification and sends notifications to those firms. In 2015, we reported that SBA implemented controls for certification, but generally did not require firms seeking recertification to submit any information to verify continued eligibility. Instead, the agency relied on firms’ attestations of continued eligibility. According to SBA officials at the time, they did not believe they needed to request supporting documentation from recertifying firms because all firms in the program had undergone a full document review. We noted that SBA could apply a risk-based approach to its recertification process to review and verify information from firms that appeared to pose the most risk to the program. We concluded that recertification essentially remained a self-certification process. We recommended that SBA reassess its recertification process and add additional controls, such as developing criteria and guidance on using a risk-based approach to requesting and verifying firm information. SBA agreed with our recommendation and noted it would assess the process. In March 2017, we reported that SBA planned to address our recommendation using a technology solution. GAO’s Fraud Risk Framework and Related Legislation According to federal internal control standards and GAO’s fraud risk framework, managers in executive branch agencies are responsible for managing fraud risks and implementing practices for combating those risks. When fraud risks can be identified and mitigated, fraud may be less likely to occur. Federal internal control standards call for agency management officials to assess the internal and external risks their entities face as they seek to achieve their objectives. The standards state that management should consider the potential for fraud when identifying, analyzing, and responding to risks. Risk management is a formal and disciplined practice for addressing risk and reducing it to an acceptable level. In July 2015, we issued the fraud risk framework, which provides a comprehensive set of key components and leading practices that serve as a guide for agency managers to use when developing efforts to combat fraud in a strategic, risk-based way. The Fraud Reduction and Data Analytics Act of 2015 required the Office of Management and Budget to establish guidelines for federal agencies to create controls to identify and assess fraud risks and design and implement antifraud control activities. In July 2016, the Office of Management and Budget issued guidelines that, among other things, affirm managers should adhere to the leading practices identified in GAO’s fraud risk framework. National Defense Authorization Act for Fiscal Year 2018 The National Defense Authorization Act for Fiscal Year 2018 includes a number of provisions relating to the HUBZone program. For example, the act requires SBA (by January 1, 2020) to verify the accuracy of documentation provided by a HUBZone firm seeking recertification to determine whether the firm remains qualified for HUBZone certification. The act also requires SBA to begin conducting examinations of qualified HUBZone firms by January 1, 2020, using a risk-based analysis to select firms to be examined. According to the act, these risk-based examinations are intended to ensure that each firm examined meets the program requirements for certification. The act also specifies that any small business that SBA determines to have misrepresented its status as a qualified HUBZone firm be subject to liability for fraud. HUBZone Expansion in Puerto Rico On June 16, 2016, SBA announced it had revised the definition of qualified census tracts eligible to be designated as HUBZones to provide more opportunities for firms in Puerto Rico. Previously, in addition to poverty rate and income, SBA applied a statutory population cap that limited the number of eligible census tracts. According to the announcement, SBA had determined that the 20 percent population cap was not in keeping with the spirit and intent of the HUBZone program. On June 30, 2016, PROMESA authorized an exemption to the 20 percent cap for HUBZone designations in Puerto Rico for a limited time (10 years or until the date on which the Financial Oversight and Management Board for Puerto Rico ceased to exist, whichever came first). It also required SBA to promulgate regulations to implement the exemption. SBA promulgated the regulations, which became effective December 22, 2017. By lifting the population cap in June 2016, SBA increased the number of eligible census tracts in Puerto Rico by 516 (from 260 to 776). As a result, nearly all of Puerto Rico now qualifies as a HUBZone (see fig.1). 2017 Hurricanes In 2017, two major hurricanes (Irma and Maria) hit Puerto Rico. Hurricane Irma skirted Puerto Rico and left more than 1 million people without power. Hurricane Maria, a Category 4 hurricane, made landfall and caused catastrophic damage. For instance, Hurricane Maria wiped out the power grid, resulting in outages across Puerto Rico that continued for months after the storm. The majority of the island had its power restored by April 4, 2018, according to the Department of Energy. However, the power grid remains fragile. For example, Puerto Rico experienced an island-wide outage on April 18, 2018. SBA Adopted Criteria and Guidance for a Risk-Based Approach to HUBZone Certification and Recertification but the Extent to Which It Conducted a Risk Assessment of the Recertification Process Is Unclear SBA Adopted New Documentation Requirements for Recertifying Certain HUBZone Firms In response to the PROMESA provision to implement a risk-based approach to HUBZone certification and recertification, SBA adopted certification and recertification criteria and guidance on March 27, 2017, for requesting and verifying information. Since 2009 and in response to a prior GAO recommendation, SBA has required and reviewed documentation from all small businesses seeking initial certification to show compliance with HUBZone eligibility requirements. The criteria and guidance adopted by SBA in March 2017 did not change the HUBZone certification process. SBA’s internal guidance directs staff to review and confirm the accuracy of all documentation provided by the firms applying for HUBZone certification. However, the 2017 guidance and criteria introduced some documentation requirements to the recertification process. (Before March 2017, firms seeking HUBZone recertification were not required to submit documentation to demonstrate continued compliance with eligibility requirements.) Currently, any certified firm seeking recertification that received $1 million or more in HUBZone contract dollars since its last certification or recertification has to demonstrate compliance with the 35 percent HUBZone employee residency and principal office requirements. More specifically, under the March 2017 guidance and criteria, certified HUBZone small business concerns that have received $1 million or more in HUBZone contract dollars since their initial certification or most recent recertification must submit (1) a list of all current employees, identifying the name of the employees, their addresses, the number of hours they worked per month, and the location at which they performed their work; and (2) payroll documentation. HUBZone firms seeking recertification that have not received $1 million in HUBZone contract dollars are not required to submit documentation supporting continual eligibility for the program. Extent to Which SBA Conducted a Risk Assessment of the Recertification Process Is Unclear SBA officials stated that they had completed a risk assessment of their HUBZone recertification process to develop the March 2017 guidance and criteria. In our 2015 report, we found SBA did not require firms to submit supporting documentation as part of the recertification process—in effect, firms self-certified. We recommended that SBA conduct an assessment of the recertification process and implement additional controls, such as developing criteria and guidance on using a risk-based approach to requesting and verifying firm information. However, as of July 31, 2018, SBA had not provided documentation of when the risk assessment was performed or of what risks were identified and considered in developing the criteria and guidance. SBA officials stated that out of necessity, given their current information system and staffing resources, they chose the $1 million threshold as the only criterion for their risk-based approach. As of July 31, 2018, SBA also had not provided documentation of what analysis was performed to establish the $1 million threshold. According to SBA officials, the threshold was determined based on the belief that, when a firm received contract awards over $1 million, it increased opportunity for the firm to fall out of compliance with HUBZone requirements. SBA officials noted that they plan to review the current threshold at the end of fiscal year 2018 and that the threshold amount will likely decrease because a relatively small number of firms have exceeded the $1 million threshold. Based on our analysis of Federal Procurement Data System- Next Generation data, we estimated that from fiscal year 2015 through fiscal year 2017 about 9 percent of HUBZone firms nationally exceeded the $1 million threshold. SBA officials also noted that the agency has been developing a new information system to replace the current certification tracking system. According to SBA officials, the new system will help simplify the application process and allow firms to submit additional documentation more easily. SBA officials said the 2017 criteria and guidance will be built into the parameters of the new information system, which will allow SBA to expand the review of documentation submitted by firms seeking recertification. Officials have stated that subject to funding and resources, the HUBZone Certification Tracking System is scheduled to be decommissioned in fiscal year 2019. In the past, SBA has implemented a number of actions to better ensure that only eligible firms participate in the HUBZone program and to address internal control weaknesses that we have identified in previous GAO reports. However, in 2015, we found that SBA lacked key controls for its recertification process. Specifically, SBA did not require firms to submit supporting documentation as part of the recertification process—in effect, firms self-certified. We reported that by not routinely requiring and reviewing key supporting documentation from recertification applicants, SBA was missing an additional opportunity to reduce the risk that ineligible firms obtain HUBZone contracts. We recommended that SBA conduct an assessment of the recertification process and implement additional controls, such as developing criteria and guidance on using a risk-based approach to requesting and verifying firm information. Standards for Internal Control in the Federal Government state that management should identify, analyze, and respond to risks related to achieving the defined objectives of the program. Additionally, the standards state that management should use a risk assessment to identify and analyze risks related to achieving the defined objectives to form a basis for designing risk responses. Once identified, management can analyze the identified risks to estimate their significance and design responses to the analyzed risks. Similarly, according to GAO’s fraud risk framework, leading practices for managing fraud risk include identifying inherent fraud risks affecting the program, assessing the likelihood and impact of inherent fraud risks, and examining the suitability of existing fraud controls. The Fraud Reduction and Data Analytics Act of 2015 states that agencies shall conduct an evaluation of fraud risks using a risk-based approach, and then design and implement financial and administrative control activities to mitigate identified fraud risks. Additionally, as discussed above, the National Defense Authorization Act for Fiscal Year 2018 requires that SBA perform examinations of HUBZone firms using a risk-based selection process. As we reported in 2015, the characteristics of firms and the status of HUBZone areas—the bases for program eligibility—can often change, and need to be monitored. We continue to believe that conducting a risk assessment of the recertification process would help inform a risk-based approach to reviewing and verifying information from firms that appear to pose the most risk to the program. For example, a risk assessment could help inform SBA’s planned review of the current threshold for requesting and verifying information from firms seeking HUBZone recertification. SBA Did Not Consistently Document or Follow Its Policies and Procedures for Certification Reviews for Firms in Puerto Rico That We Reviewed SBA Had Complete Documentation for Office Location but Not Employee Residency for Firms in Puerto Rico We Reviewed and Had Not Updated Its Policies Our review of 12 case files for Puerto Rican firms that recently received HUBZone certification found incomplete documentation for certification reviews (and by extension, recertification reviews) and undocumented procedures. SBA also did not consistently follow its procedures to complete three distinct levels of review when approving the 12 firms for certification. Representatives of firms in Puerto Rico with whom we spoke said certification was generally straightforward, but identified some challenges, including with providing documentation. We found that all 12 cases we reviewed in a non-generalizable sample of Puerto Rican firms that had received HUBZone certification between March 2017 and March 2018 had complete documentation to demonstrate that the primary office was located in a HUBZone. However, we also found that documents were missing, illegible, or did not corroborate the information claimed regarding employees’ residency for 9 of 12 firms that we reviewed. We focused on the document review process for the principal office location and the employee residency requirements because, according to SBA’s March 2017 guidance for the certification and recertification processes, firms must corroborate their compliance with these requirements at both certification and recertification. In addition, SBA officials told us that the document review process is essentially the same for firms seeking certification as it is for firms seeing recertification. We also reviewed the files of two HUBZone firms in Puerto Rico that were subject to recertification between March 2017 and March 2018, but neither met the threshold to trigger a document review under the updated criteria and guidance. SBA’s guidance for the certification process requires firms to submit documentation so that SBA can verify that a firm meets the employee residency and principal location requirements. The documentation must show that each individual is an employee of the firm (payroll documentation), each individual asserted to be a HUBZone resident lives at the address they claim (proof of address, such as a driver’s license), and the address is in a HUBZone (copy of a HUBZone map indicating the employee and his or her address), and the firm’s primary office is located in a HUBZone (such as a copy of a lease or rental agreement and list of employees who work there). Additionally, SBA’s internal policy manuals describe procedures that analysts are to follow in reviewing and verifying these documents, including the types of documents that firms may submit to demonstrate eligibility, and scenarios in which analysts should request additional information or clarification from the firm (for example, if a driver’s license is expired). For 9 of 12 cases we reviewed, SBA lacked complete documentation to verify that every employee asserted to be a HUBZone resident lived in a HUBZone. That is, although SBA analysts contacted firms during the certification process to obtain additional documentation, and firms responded to the requests, SBA analysts still had incomplete information for 9 of the 12 cases at the time they approved the firms. In 5 of these 9 cases, the firm would not be eligible for HUBZone certification if the SBA analyst had not counted employees for which documentation was missing or did not corroborate the information claimed regarding an employee’s address. Specifically, in 3 cases, the address on the employee’s identification for at least one employee did not match the address at which the firm claimed the employee lived. in 3 cases, the identification for at least one employee was expired. in 1 case, the copies of the HUBZone maps did not indicate to which employees they referred. in 1 case, payroll documentation demonstrating that individuals were employees of the firm was missing. in the other 4 cases, the firm still would be eligible for HUBZone certification (would meet the 35 percent residency requirement) even if the analyst had not counted the employee for which documentation was missing or illegible (1 case) or for which identification did not match the claimed residency address (4 cases). We also identified an inconsistency when reviewing the case files for the only Puerto Rican HUBZone firm recertified between June 2017 and May 2018. Specifically, the firm reported on its application that it had zero employees, but also claimed 19 of its employees lived in a HUBZone. The firm did not provide any supporting documentation because it did not meet the threshold in the new recertification criteria to require a document review. SBA officials said this likely resulted from a display error in the online system. SBA officials said that they did not contact the recertifying firm because the firm was not required to submit corroborating documentation. However, without confirmation of the correct total number of employees, SBA analysts would not be able to determine the firm’s compliance with the employee residency requirement (35 percent living in a HUBZone) and therefore would not be able to determine the firm’s eligibility to continue HUBZone participation. SBA officials explained how they handled incomplete information provided by firms by describing other procedures that analysts followed in these cases. For example, if any employee’s address did not match across the firm’s employee list, the employee’s identification, or the HUBZone map, the analyst reviewing the firm’s application would request clarification and enter the address from the identification into the current HUBZone map. Or if the address could not be plotted, the analyst would presume the employee lived in a HUBZone if the broader geographic area on their identification (such as zip code) was clearly in a HUBZone. SBA officials said this approach is useful for applications from firms in Puerto Rico, because of difficulties with mapping addresses in the territory. SBA officials also said that if a firm did not provide documentation for an employee or SBA could not verify it, but the firm clearly met the 35 percent resident requirement, the analyst would not follow up with additional documentation requests and not count that employee as a HUBZone resident. However, these procedures are not documented in SBA’s internal written policies for certifying HUBZone firms and analysts did not document their use of these procedures in the case files we reviewed. Specifically, the policy manuals do not include certain procedures SBA officials explained to us they used for the document review process, such as assumptions of eligibility for addresses located in a broader geographic area that is clearly a HUBZone. SBA has not updated its three internal policy manuals since 2014, 2010 and 2007, respectively. According to SBA officials, analysts rely on oral direction from the HUBZone program director or deputy to review and process HUBZone certifications and recertifications to supplement outdated policy documents. Internal control standards state that management should document in policies the internal control responsibilities of the organization. Because SBA has not updated its internal policy manuals, analysts who review applications for HUBZone certification and recertification may not be consistently following applicable internal policies and procedures. As a result, management does not have reasonable assurance that analysts are following procedures correctly to obtain and review all of the required documents from firms. Without such review, SBA may not have reasonable assurance that firms meet the eligibility criteria for HUBZone participation—which increases the risk of ineligible firms participating in the program. Because SBA officials told us that firms seeking recertification that meet the threshold for additional document review undergo essentially the same reviews as firms seeking certification, the gaps in certification cases that we observed suggest that gaps are possible in recertification as well. SBA Did Not Consistently Follow Its Quality Review Procedures When Certifying Firms In Puerto Rico That We Reviewed SBA did not consistently follow its quality review procedures to complete three distinct levels of review when approving the 12 Puerto Rican firms in our non-generalizable sample for certification. In 4 of 12 cases, one person reviewed the application for two levels of review; in the other 8 cases, three different analysts reviewed the application. We found that SBA notified all 12 firms of their approval in writing, in accordance with its policy. SBA’s internal policy states that the certification process has three levels of review: (1) an analyst reviews the application documents and makes a recommendation to approve or deny the firm, (2) a senior analyst reviews the application and the first analyst’s recommendation, and (3) the program director or deputy finalizes the approval or denial and notifies the firm of the decision. The three levels of review are intended to provide quality assurance. For example, the second analyst reviews the case file and the first analyst’s recommendation for completeness, accuracy, and consistency with eligibility criteria. SBA officials told us that, in some cases, one individual’s review may count as two of the three levels of reviews in order to make the most efficient use of available analyst capacity. SBA officials said the deputy director reviewed several applications from Puerto Rican firms, including the four cases we identified, as part of work to develop an application screening tool and to engage the Puerto Rico district office when processing applications from firms in Puerto Rico. These reviews were counted as two of the three levels of review. Officials said that in these cases, the program director completes the final review and should annotate the case file notes about the quality assurance actions that were taken. In three of the four cases, the program director noted that she completed the final review and approval but not what quality assurance actions were taken; the deputy director completed both the second and final review in the other case. SBA officials described the third-level review (final approval or denial) as a high-level review to ensure no questions or unresolved matters are outstanding in order to approve or deny the application. Therefore, it is not likely that the program director would be reviewing supporting documents to identify any problems that could be identified if an additional analyst conducted a second-level, quality assurance review. Internal control standards state that management should design control activities at various levels with a segregation of duties, and periodically review its procedures and associated internal control activities for effectiveness. Management should also monitor its internal control system through ongoing monitoring to assess the quality and effectiveness of the internal control system’s performance over time. SBA provided an assurance letter prepared in response to the Federal Managers Financial Integrity Act that stated the agency evaluated the Office of HUBZone’s internal controls and concluded the controls were effective. However, it is not known to what extent SBA reviewed staff’s compliance with certification and recertification quality review procedures as part of this assessment, because the letter does not describe what steps SBA took to conduct the evaluation. Without reviewing staff compliance with certification and recertification procedures, SBA lacks reasonable assurance that analysts follow such procedures and that internal controls function effectively. This increases the risk that ineligible firms could receive HUBZone certification and thus contracting preferences to which they are not entitled. Representatives of Firms in Puerto Rico We Interviewed Said Certification Process Generally Was Straightforward, but Documentation Requests Presented Some Challenges Representatives of nine HUBZone firms we interviewed in Puerto Rico were not aware of changes made to the recertification process, but said that the certification process they followed was straightforward and generally easy. However, they reported some challenges, including with documentation. Representatives of most of the firms said that the most difficult part of the certification process was documenting the address for their primary office location and employees’ residences to show they are located in a HUBZone. They said this is time-consuming and tedious, especially for firms with many employees. Although they felt that SBA’s HUBZone mapping software had improved, they said the formatting of addresses in Puerto Rico creates a challenge, consistent with what we reported in 2017. One representative described having to pinpoint locations manually in Google Maps to obtain geographic coordinates, and then enter the coordinates into SBA’s HUBZone map instead of street addresses. Other representatives noted that some of their employees have informal living arrangements and cannot easily provide proof of address. Some representatives said that they struggled with the specific time frames that payroll documentation must cover. SBA requires firms to submit payroll documentation for the pay period that includes the date of their application and a sufficient number of preceding payrolls to cover a 4-week period, but firms said it was difficult to submit payroll reports at exactly the right time to meet this requirement. According to representatives from HUBZone firms and two economic development organizations we interviewed, some challenges with certification may be unique to firms in Puerto Rico, including the address format issue described above. Representatives from one firm and the economic development organizations said that some firms in Puerto Rico may face language barriers if Spanish is their primary language, or if they lack formal documentation required for certification, such as not having computerized records. The 2017 hurricanes also created several challenges for firms. For example, some firms did not have electricity and closed for several months. Firms that closed while trying to obtain HUBZone certification could not respond to follow-up requests from SBA immediately or provide documentation of their business operations for the time period in which they were affected. Representatives from firms we interviewed said they had little contact with SBA other than in relation to compliance. Although some have attended SBA events, representatives said they generally worked with SBA partner organizations, such as the Federal Contracting Center and Small Business and Technology Development Center to obtain assistance with gaining HUBZone certification and applying for federal contracts. Representatives from three firms we interviewed said that officials from SBA visited their offices to provide technical assistance support. According to SBA officials in Washington, D.C., they have improved their communications with firms and increased outreach for the HUBZone program in recent years. For example, the HUBZone tracking system automatically generates emails to firms, such as reminders that they are due for recertification, which according to SBA officials, has eliminated the backlog of recertifications on which we reported in February 2017. Representatives from the Puerto Rico District Office also said they increased promotion of the HUBZone program in recent years through monthly events and seminars on all SBA programs across Puerto Rico, including a seminar on obtaining HUBZone certification. Representatives from the district office said they are not involved with the certification and recertification processes, but provide support by conducting from three to six site visits to HUBZone firms annually in Puerto Rico and the U.S. Virgin Islands. HUBZone Set-Aside Contracting Was Minimal in Comparison to Other Small Business Contracting in Puerto Rico; However, Assessment of HUBZone Expansion Impacts Might Be Premature An increase in HUBZone set-aside contracts could theoretically help deliver economic impact to Puerto Rico, but it is likely too soon to assess larger-scale economic benefits resulting from HUBZone program expansion in Puerto Rico as of June 2018. From fiscal years 2006 through June 2018, the share of HUBZone set-aside contracts as a percentage of small business contracts in Puerto Rico has remained low despite sharp increases in the number of HUBZone firms and overall federal contracting in Puerto Rico. Over this period, small businesses in Puerto Rico have been winning a large and increasing percentage of total federal contracting obligations in Puerto Rico. Firms, economic development organizations, and SBA representatives said any impacts of HUBZone expansion in Puerto Rico may not yet be observable due to hurricane-related setbacks. They also identified longer-standing challenges that Puerto Rican firms have faced in obtaining HUBZone set- aside contracts consistent with those we identified in 2017. In 2018, SBA established a procurement center representative (PCR) in Puerto Rico, which the agency expects will help address some of those challenges. Economic Impacts of HUBZone Expansion in Puerto Rico Not Yet Apparent Based on our analysis as of June 30, 2018, it appears that larger-scale economic benefits from HUBZone expansion have not been realized (it may be too early to assess the impact of program expansion). While HUBZone certification alone likely would not have a direct economic impact (such as on job creation) in Puerto Rico, the expansion of HUBZones in Puerto Rico, which now cover nearly the entire island, gives opportunities to more firms to qualify for and pursue preferential contracting opportunities. The number of HUBZone firms has risen since the expansion—from 20 in September 2016 to 101 as of June 30, 2018. The program could help deliver economic impacts if HUBZone firms received contract awards as a result of contract preferences such as set- aside or sole-source contracts. For instance, employees hired to fulfill HUBZone set-aside contracts could represent jobs created in Puerto Rico (if those contracts otherwise would have been awarded to a firm outside Puerto Rico). However, if the contract otherwise would have been awarded to another Puerto Rican firm, the new jobs would represent an economic transfer, not jobs created. Our analysis of HUBZone set-aside contracts in Puerto Rico indicated that a few, newly certified HUBZone firms received set-aside contracts, which can be a source of job creation. Six of the nine firms that received HUBZone set-aside contracts in fiscal years 2017 and 2018 (through June 2018), totaling $5.1 million, were certified after the 2016 program expansion. One newly certified HUBZone firm that we interviewed said that program expansion resulted in the firm becoming HUBZone- eligible. The firm’s representative said that it obtained a 5-year HUBZone set-aside contract for $700,000, which resulted in the firm hiring six employees to fulfill the contract. But HUBZone set-aside contract obligations have remained largely unchanged in recent years, and firms face both temporary and longer- standing challenges in accessing and winning contract awards, as we discuss later in this section. For a description of contracting trends in Puerto Rico, see appendix II. Federal Contracting to Small Businesses in Puerto Rico More Than Doubled Over the Past 3 Years Based on our analysis, federal contracts to businesses in Puerto Rico increased from $355 million in fiscal year 2015 to $841 million in fiscal year 2018 (through June 2018). Similarly, federal contracts to small businesses in Puerto Rico increased from $244 million to $688 million in the same period (see fig. 2). Although HUBZone set-aside contract obligations have remained largely unchanged in recent years, small businesses in Puerto Rico also have been winning a large and increasing percentage of total federal contracting obligations in Puerto Rico. Specifically, federal contract obligations to small businesses located in Puerto Rico as a percentage of total federal contract obligations in Puerto Rico increased from 69 percent in fiscal year 2015 to 82 percent in fiscal year 2018 (through June 2018). A significant portion of the increase in overall contracting and small business contracting to Puerto Rican firms in fiscal year 2018 (through June 2018) was related to hurricane relief. Specifically, we calculated that 55 percent of total federal contracting obligations in Puerto Rico and 64 percent of obligations awarded to Puerto Rican small businesses in fiscal 2018 were associated with hurricane relief. HUBZone Set-Aside Contracts as a Share of Federal and Small Business Contracts in Puerto Rico Remained Relatively Low in Recent Years While the obligations for federal contracting to small businesses in Puerto Rico sharply increased in recent years, as did the number of HUBZone firms, the share of HUBZone set-asides as a percentage of small business contracts in Puerto Rico remained low and relatively unchanged (see fig. 3). HUBZone set-aside contract obligations increased from negative $20,881 in fiscal year 2016 to $3.8 million in fiscal year 2017 (1 percent of the total value of small business contracts in Puerto Rico). The set-aside obligations dropped to $1.7 million through June 2018 (0.2 percent of the total value of small business contracts in Puerto Rico). Representatives of two economic development organizations that we interviewed stated that continued low use of HUBZone set-aside contracts by contracting agencies could subsequently decrease firms’ willingness to participate in the HUBZone program in Puerto Rico. Representatives of firms and two economic development organizations noted that the process of monitoring, identifying, and applying for HUBZone set-aside contracts is time consuming and without the availability of set-aside contracts program participation may not be worthwhile for firms in Puerto Rico. Temporary Challenges May Hinder Use of HUBZone Set-Aside Contracts in Puerto Rico in the Short Term Representatives of firms and two economic development organizations and SBA officials in Washington D.C. and the Puerto Rico District Office told us that use of HUBZone set-aside contracts and any resulting economic impacts of HUBZone expansion in Puerto Rico may not yet be observable because of temporary challenges, such as advance contracts and outmigration due to the 2017 hurricanes. Advance Contracts One temporary challenge they cited was the use of advance contracts by agencies in response to the 2017 hurricanes. In advance contracts, an agency establishes contracts before a disaster for goods and services typically needed during a disaster response. Such contracts may prevent contracting officers from establishing a HUBZone set-aside on contracts awarded for disaster response and recovery. For example, a representative from one firm we interviewed said that in the wake of the 2017 hurricanes it had ample supplies of a vaccine in high demand on the island. The firm’s representative thought that contracting officers previously established an advance contract with a company in the continental United States to supply the vaccine. Therefore, contracting officers were unable to contract the Puerto Rican HUBZone firm to supply the vaccine to the island. However, SBA officials in the Puerto Rico District Office told us that once advance contracts are completed, the contracting agency can replace the contract with another contract to perform those services, which could be a HUBZone set-aside contract. Outmigration from 2017 Hurricanes Representatives of firms and one economic development organization and SBA officials in the Puerto Rico District Office told us that outmigration from Puerto Rico after the 2017 hurricanes reduced the amount of talent and workers available to fulfill contracts. Representatives of one firm said that contracting officers may be concerned that the defection of talent from Puerto Rico could limit firms’ abilities to complete contracts, limiting the contracting officers’ willingness to set aside contracts. However, representatives of firms and one economic development organization said that contracts can be fulfilled by multiple Puerto Rican firms if necessary. Also, representatives of firms and one economic development organization said that people who left the island have started returning and replenishing the workforce. Longer-Standing Challenges Also May Hinder Use of HUBZone Set-Aside Contracts Representatives of firms and two economic development organizations and SBA officials in Washington D.C. and the Puerto Rico District Office also identified longer-standing challenges to increased use of HUBZone set-aside contracts in Puerto Rico, including difficulty meeting procurement requirements, limited knowledge of the federal contracting process, lack of access to contracting officers, and award of contracts to firms outside Puerto Rico. These concerns are similar to those we recognized in our 2017 report on SBA contracting program in Puerto Rico. Difficulty Meeting Procurement Requirements Representatives of some firms we interviewed stated that procurement requirements for federal contracts (such as performance history for construction contracts) posed challenges for small businesses in Puerto Rico. Representatives of some firms said that as an island, Puerto Rico faces specific challenges in meeting procurement requirements. For example, one firm’s representative said that the construction of a school required a business to demonstrate experience in developing several schools in the past. According to this representative, opportunities to construct schools are limited in Puerto Rico and many Puerto Rican firms would be capable of fulfilling these contracts, but relevant experience constructing similar buildings is not considered as meeting this requirement. In 2017, we reported that the experience of construction businesses in Puerto Rico does not match procurement requirements, which are often standardized to mainland building standards and do not consider unique conditions in Puerto Rico. As a result, firms and associations that we interviewed in 2017 said that agencies’ contracting officers may not consider the experience of Puerto Rican businesses as qualifying. Representatives from four associations that we interviewed in 2017 stated that construction businesses in Puerto Rico demonstrate in their construction plans greater understanding of building requirements in Puerto Rico, such as accounting for tropical climate or the risk of seismic activity, but these factors were not incorporated into federal procurement requirements. Limited Knowledge of the Federal Contracting Process Representatives of firms and two economic development organizations and SBA officials in the Puerto Rico District Office said that limited knowledge of the federal contracting process can be a challenge for HUBZone firms in Puerto Rico. One firm’s representative explained that responding to agencies’ requests for information was important because to create a HUBZone set-aside contract a federal agency must demonstrate that at least two firms could compete for the contract. Another firm’s representative said that because it was unaware of the importance of responding to the requests for information, it had not responded to requests for information for any contract opportunities. Firms’ representatives also noted that the process of responding to requests for information and requests for proposals is time consuming and often infeasible because they lack the financial and personnel resources of larger businesses. Firms can obtain information about federal and small business contracting from several sources. Firms’ representatives we interviewed said that they generally seek assistance from SBA partner organizations, such as the Federal Contracting Center and Small Business and Technology Development Center, to gain a better understanding of the contracting process. Officials from SBA’s Puerto Rico District Office said that they hold regular training on contracting programs and how to navigate the contracting process. The District Office also holds one-on-one appointments with businesses to help them navigate the federal contracting process and has offered training on proposal writing. Lack of Access to Contracting Officers Representatives of firms we interviewed said that obtaining HUBZone set- aside contracts was difficult for small businesses in Puerto Rico partially because of a lack of access to contracting officers. Most firms’ representatives we interviewed said that, similar to obtaining assistance in navigating the contracting process, they seek assistance from SBA partner organizations, such as the Federal Contracting Center and Small Business and Technology Development Center, to identify HUBZone contract opportunities and connect with contracting officers. Firms’ representatives also said that they attend conferences and matchmaking events at which they meet contracting officers; however, they said that this approach has not yet helped them to obtain increased HUBZone set-aside contracts in Puerto Rico. One firm’s representative said that the advice at networking events is that firms should approach contracting officers, but small businesses do not have the contacts to approach contracting officers. Representatives of some firms said that SBA should act as an advocate or facilitator to provide connections between small businesses and contracting officers. Some of the firms’ representatives noted that in the absence of HUBZone set-aside contracts, they tend to pursue subcontracts with companies that have prime federal contracts. Award of Contracts to Firms Outside of Puerto Rico Representatives of two economic development organizations we interviewed said that most HUBZone set-aside contracts and most of the hurricane relief-related contracts performed in Puerto Rico were awarded to firms outside Puerto Rico. In 2017, we similarly reported that representatives from four associations stated that challenges such as lack of access to contracting officers and difficulty meeting procurement requirements led to concerns about contracts being awarded to businesses located outside of Puerto Rico for work to be performed in Puerto Rico. Representatives of firms and one economic development organization also pointed out that for some industries, work does not need to be physically performed at the contract location; therefore, Puerto Rican HUBZone firms could be competitive for contracts located in other states. According to firms and one economic development organization, this is especially true in the technology industry, which is well represented in Puerto Rico with multiple HUBZone firms. However, representatives of the Puerto Rican technology firms we contacted noted that they have experienced great difficulty obtaining HUBZone contracts. One firm’s representative suggested that this challenge might be partially due to Puerto Rican firms having less experience than firms outside of Puerto Rico in competing for HUBZone set-aside contracts. To compete for contracts, one firm said that its chief executive officer permanently moved to Washington, D.C., and another firm said its staff travels to Washington, D.C., once a month. Procurement Center Representative Based in Puerto Rico May Help Address Some Challenges Faced by HUBZone Firms in Puerto Rico In 2018, SBA established a PCR in Puerto Rico and SBA officials said the agency expects that the PCR will help address some of the challenges discussed previously. SBA PCRs work with federal agencies and small businesses to identify contracting opportunities for small businesses. The Puerto Rico PCR said that she plans to hold events for HUBZone firms to help them better understand and navigate the federal contracting process. For example, she plans to hold a Federal Acquisition Regulation “boot camp,” a 40-hour training to educate firms on the federal contracting process. She also stated that through regular interaction with other PCRs and with contracting officers, she can identify and discuss opportunities for HUBZone set-aside contracts for Puerto Rican small businesses. One economic development organization we interviewed said that it is too early to see an effect of the new Puerto Rico PCR, but that they have met with her and have been encouraged by her efforts to date. In 2017, we reported that several stakeholders identified the lack of an SBA PCR in Puerto Rico as a disadvantage for small businesses in Puerto Rico seeking contracts with the federal government. According to a representative from the Federal Contracting Center that we interviewed in 2017, having a PCR in Puerto Rico is important because the PCR can advocate for small businesses there. For example, the PCR can work with contracting officers to determine small business set-asides, make adjustments to procurement requirements, and make agency contracting officers more aware of businesses in Puerto Rico. According to one economic development organization’s representative, the PCR could assist local businesses and promote businesses located in Puerto Rico to federal agencies. Conclusions Our review of a sample of 12 case files for Puerto Rican firms certified between March 2017 and March 2018 found that SBA lacked complete documentation for one of two requirements we reviewed and did not consistently follow its own procedures for quality control reviews when approving firms. This suggests potential gaps in internal controls for both the certification and recertification processes, as SBA reviews firms’ compliance with program requirements at both certification and recertification. Although SBA policy includes documentation reviews and a quality control process, its internal policy manuals do not reflect all document review procedures, and analysts did not always follow procedures for quality control reviews. SBA has not updated its policy manuals and, it is not known to what extent it has reviewed staff compliance with the quality review procedures. Although SBA provided an assurance letter stating its internal controls are effective, the letter did not describe steps taken in the evaluation. Documenting all procedures would help ensure that analysts consistently follow policy when certifying and recertifying firms. Documented reviews of staff compliance also could serve to identify and remediate any noncompliance with certification and recertification processes. Both actions would serve to strengthen the verification function in the HUBZone program, which is necessary to help ensure that only eligible firms participate in the program. Recommendations for Executive Action We are making two recommendations to SBA. Specifically: The Administrator of SBA should update the agency’s internal policy manuals for certification and recertification reviews to reflect existing policies and procedures not currently in written guidance. (Recommendation 1) The Administrator of SBA should conduct and document reviews of staff compliance with procedures associated with HUBZone certification and recertification. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report for review and comment to SBA. In response, SBA provided written comments, which are reproduced in appendix III. SBA also provided technical comments, which we incorporated as appropriate. SBA generally agreed with both of our recommendations. However, SBA disagreed with three of our findings in the draft report. In the draft report, we stated that SBA’s guidance for the certification process requires firms to submit documentation so that SBA can verify that a firm meets the employee residency requirement, including documentation showing that each employee’s address is located in a HUBZone, for employees claimed to be HUBZone residents. We noted that documents were missing, illegible, or did not corroborate the information claimed regarding at least one employee’s residency for 9 of 12 certifying firms that we reviewed. We also stated that in 5 of these 9 cases, the firm would not be eligible for HUBZone certification if the SBA analyst had not counted such employees. In its comments, SBA stated that it is only required to verify that no fewer than 35 percent of a HUBZone firm’s employees reside in a HUBZone. SBA asserted that it had sufficient documentation to conclude that at least 35 percent of each firm’s employees resided in a HUBZone for each of the 12 firms we reviewed. While SBA analysts may have addressed insufficient documentation by following additional procedures, which are described in the report, we found that these procedures were not documented in SBA’s internal written policies for certifying HUBZone firms and analysts did not document their use of these procedures in the case files we reviewed. Therefore, we were not able to verify that SBA took such steps to verify the employees’ addresses. In the draft report, we identified an inconsistency when reviewing the case files for the only Puerto Rican HUBZone firm recertified between June 2017 and May 2018. Specifically, the firm reported on its application that it had zero employees, but also claimed 19 of its employees lived in a HUBZone. In its comments, SBA stated that these numbers came from a program examination system that is no longer used by the agency and therefore would not have been administratively correct to use in the 2017 recertification process. However, the file we received from SBA’s HUBZone Certification Tracking System asks for such information and had a response date noted as December 26, 2017. We recognize and noted that the firm was not required to submit corroborating documentation to verify employee information, because it was under the $1 million threshold. However, SBA policy states that recertifying firms must represent that the circumstances relative to their eligibility at the time of certification have not materially changed. In this instance, SBA recertified the firm when basic information obtained for the firm appeared to be erroneous and did not indicate that the firm was in compliance with the employee residency requirement. In the draft report, we stated that SBA did not consistently follow its quality review procedures to complete three distinct levels of review when approving the 12 Puerto Rican firms in our non-generalizable sample for certification. In its comments, SBA stated that while its legacy system, the HUBZone Certification Tracking System, requires three levels of review, its internal policies do not require that each level of review be performed by different staff. However, SBA internal policies that we reviewed state that the three levels of review should be conducted by different people, specifically an analyst, a senior analyst, and the program director. Furthermore, internal control standards state that management should design control activities at various levels with a segregation of duties, and periodically review its procedures and associated internal control activities for effectiveness. We are sending copies of this report to congressional committees, the Small Business Administration, and other interested parties. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology Our objectives in this report were to (1) examine the Small Business Administration’s (SBA) development of criteria and guidance on using a risk-based approach for certifying and recertifying Historically Underutilized Business Zone (HUBZone) firms, (2) examine SBA’s implementation of the revised policies and procedures for firms located in Puerto Rico, and (3) describe any economic impacts of HUBZone expansion and recent trends in federal small business contracting in Puerto Rico. To examine SBA’s development of its criteria and guidance for HUBZone certification and recertification, we reviewed SBA’s policies and procedures for certifying and monitoring HUBZone firms. To learn about SBA’s risk-based approach, we interviewed officials at the headquarters level responsible for certifying and recertifying HUBZone firms. We reviewed prior GAO and SBA Office of Inspector General reports, applicable statutes and regulations, and SBA documents. We also compared the development of SBA’s certification and recertification processes with federal internal control standards and relevant federal guidance and statutes for managing fraud risk. To examine SBA’s implementation of the revised recertification processes in Puerto Rico, we used SBA’s Dynamic Small Business Search database to identify HUBZone firms located in Puerto Rico that received HUBZone certification after March 27, 2017. We examined SBA’s document review process for Puerto Rican firms that received HUBZone certification or were due for recertification between March 2017 and March 2018. We reviewed the case files for a non-generalizable sample of 12 firms that received initial certification and two firms that were due for recertification during this time period. We reviewed documents submitted by firms to SBA as part of the initial certification process. But we were unable to examine the document review component of recertification directly. According to SBA officials, only two firms in Puerto Rico recertified between March 27, 2017, and May 30, 2018, when we received the applicant case files from SBA, and neither met the threshold of $1 million in contract awards to trigger a full document review. From SBA’s small business database, we identified 443 firms in Puerto Rico that had had HUBZone certification at any point as of March 12, 2018, and removed 350 firms that exited the program in order to review only currently certified firms (leaving 93 certified firms). From this universe, we identified 47 HUBZone-certified firms located in Puerto Rico with a certification date later than March 27, 2017, after removing duplicates. We chose a judgmental sample of 12 firms that we randomly selected from the total of 47 firms using a random number generator. We checked the city and industry of each of the 12 firms to confirm the firms provided some geographical and industry variation. Results from this sample are not generalizable to all HUBZone-certified firms. We examined the contents of the case files for each of the 12 firms, which included the application the firm submitted through SBA’s HUBZone Certification Tracking System and supporting documents that firms submitted to corroborate their eligibility, including proof of office location, payroll documentation, HUBZone maps, and employees’ identification such as driver’s licenses. We compared the case file contents to SBA’s guidance on which documents firms must submit and internal guidance for analysts reviewing applications. To determine which documents to review, we compared SBA’s list of required documents for certification to those required at recertification and identified which are similar. We reviewed SBA analysts’ notes, which are recorded in the HUBZone tracking system to verify that they reviewed the documents to determine the firms’ eligibility. We also reviewed any emails exchanged between SBA and the applicant to identify cases in which SBA requested follow-up from the firm. We reviewed the name of the SBA analyst who completed each level of review, as indicated in the tracking system file, to determine whether SBA followed its policy of completing three levels of review. We also reviewed the tracking system files to verify the final approval and whether SBA sent the certification notice to the firm. We compared these files to SBA’s internal policy manuals. To describe any economic impacts of the expansion of the HUBZone program in Puerto Rico, and to describe recent federal contracting trends, we used SBA’s small business database and federal procurement data from the Federal Procurement Data System-Next Generation. We analyzed the number of firms in designated HUBZones in Puerto Rico and the amount of federal contract obligations awarded to the firms from fiscal year 2006 through June of fiscal year 2018—that is, from the starting point for the analysis we used in our 2017 report to the most recent available data at the time of our current review. We assessed the reliability of the two databases by reviewing database guides and prior GAO work, and determined them to be reliable for the purposes of that analysis. For all of the objectives, we also interviewed SBA officials in Washington, D.C., and Puerto Rico and representatives from the Puerto Rico Chamber of Commerce and the Federal Contracting Center. In addition, we conducted a site visit to San Juan, Puerto Rico, in May 2018. There, we conducted two discussion groups and one interview with representatives from nine HUBZone firms located in Puerto Rico to obtain their perspectives on the HUBZone certification process, federal contracting opportunities, economic impacts of HUBZone expansion in Puerto Rico, and economic impacts of the 2017 hurricanes. We invited every Puerto Rican HUBZone firm to participate in the discussion groups and met with the nine firms that responded to our email. The views of representatives from these firms are not generalizable. We conducted this performance audit from February 2018 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Federal Contracting Trends and Use of Socioeconomic Set-Asides in Puerto Rico, Fiscal Years 2006–2018 This appendix provides information, based on our analysis of federal procurement data, on small business contracting in Puerto Rico, including the use of socioeconomic set-aside contracts and contracting by sector and agency. Small Business Contracting in Puerto Rico Annual federal contract obligations to small businesses in Puerto Rico more than doubled from fiscal year 2015 through June 2018. Small businesses in Puerto Rico also won a larger percentage of total federal contracting obligations in Puerto Rico. Use of Socioeconomic Set-Asides in Puerto Rico Although federal contract obligations to small businesses in Puerto Rico sharply increased in recent years, obligations through set-aside contracts for the Historically Underutilized Business Zone (HUBZone), 8(a) Business Development, Women-Owned Small Business, and Service- Disabled Veteran-Owned Small Business programs remained relatively unchanged (see fig. 4). The increases in federal contract obligations to small businesses in fiscal years 2017 and 2018 came mostly through free and open competition and awards reserved for small businesses that excluding those for the 8(a), HUBZone, Women-Owned Small Business, and Service-Disabled Veteran-Owned Small Business programs. HUBZone set-aside contract obligations increased from negative $20,881 in fiscal year 2016 to $3.8 million in fiscal year 2017 (1 percent of the total value of small business contracts in Puerto Rico), but dropped to $1.7 million through June 2018 (0.2 percent of the total value of small business contracts in Puerto Rico). Furthermore, 17.3 percent of the $21.9 million in contract obligations awarded to Puerto Rican HUBZone firms in fiscal year 2017 were through HUBZone set-aside contracts, and 3.3 percent of the $50.5 million awarded in fiscal year 2018 (see fig. 5). Other socioeconomic set-asides accounted for the highest share of obligations awarded (76.6 percent in 2017 and 80.1 percent in 2018) and free and open competition accounted for the rest (6.1 percent in 2017 and 16.6 percent in 2018). The fiscal year 2017 increase in federal contracting obligations in Puerto Rico were not substantially tied to hurricane relief since Hurricane Irma and Hurricane Maria hit Puerto Rico in September, the last month of the fiscal year. One percent of total federal contracting obligations in Puerto Rico and 1 percent of obligations awarded to Puerto Rican small businesses were associated with hurricane relief (see table 1). However, a significant portion of the increase in overall contracting and small business contracting to Puerto Rican firms in fiscal year 2018 (through June 2018) was related to hurricane relief. Specifically, 55.3 percent of total federal contracting obligations in Puerto Rico and 64.3 percent of obligation awarded to Puerto Rican small businesses were associated with hurricane relief. Furthermore, 16.1 percent of HUBZone set-aside contract obligations awarded to Puerto Rican firms were hurricane-related through June 2018. Contracting in Puerto Rico by Sector In fiscal years 2017 and 2018, overall federal prime contracting obligations in Puerto Rico and those awarded to small businesses in Puerto Rico were concentrated in the construction sector (about 25 percent in 2018), the manufacturing sector (about 20 percent in 2018), and the administrative and support and waste management sector (about 36 percent in 2018). For contracts awarded using HUBZone set-asides in Puerto Rico, the construction sector (about 52 percent in 2018), the information sector (about 11 percent in 2018), and the health care sector (about 37 percent in 2018) were most represented (see table 2). Contracting in Puerto Rico by Agency Among federal agencies, the Department of Defense has awarded the greatest percentage of overall federal prime contracting obligations, obligations to small businesses, and HUBZone set-aside contract obligations to firms located in Puerto Rico. Specifically, in fiscal year 2018, Department of Defense contract obligations represented 58 percent of total obligations, 64 percent of obligations to small businesses, and 84 percent of HUBZone set-aside obligations to Puerto Rican firms (see table 3). Although, Department of Homeland Security contract obligations in Puerto Rico typically have represented less than 3 percent of total obligations and less than 5 percent of obligations to small businesses in Puerto Rico, those percentages increased to 21 percent and 23 percent, respectively, in fiscal year 2018 due to hurricane-related contracts awarded to Puerto Rican firms. Appendix III: Comments from SBA Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact William B. Shear, (202) 512-8678 or [email protected]. Staff Acknowledgements In addition to the contact named above, Harry Medina (Assistant Director), Chris Ross (Analyst in Charge), Tarik Carter, Lilia Chaidez, Pamela Davidson, Erika Huber, Julia Kennon, John McGrail, John Mingus, Barbara Roesmann, and Jena Sinkfield made key contributions to this report.

The HUBZone program is intended to stimulate economic development in economically distressed areas. Certified HUBZone firms are eligible for federal contracting benefits, including limited competition awards such as set-aside contracts, and are required to be recertified every 3 years. The Puerto Rico Oversight, Management, and Economic Stability Act of 2016 required SBA to develop criteria and guidance for a risk-based approach to verify firm eligibility for the program and included a provision for GAO to review SBA's development and implementation of the required criteria and guidance. This report examines, among other objectives, (1) SBA's development of criteria and guidance on using a risk-based approach for certifying and recertifying HUBZone firms, and (2) SBA's implementation of the revised policies and procedures for firms located in Puerto Rico. GAO analyzed SBA documents and reviewed files of a non-generalizable sample of 12 firms located in Puerto Rico that received certification between March 2017 and March 2018. GAO also interviewed SBA officials, representatives from HUBZone-certified firms in Puerto Rico, and local economic development agencies in Puerto Rico. The Small Business Administration (SBA) adopted criteria and guidance for a risk-based approach to certifying and recertifying firms for the Historically Underutilized Business Zone (HUBZone) program in March 2017, but the extent to which it conducted a risk assessment to inform its approach is unclear. In 2009, in response to GAO's prior recommendations to address weaknesses in the HUBZone certification process, SBA increased documentation requirements for certification, but not recertification (which every 3 years determines continued program eligibility). In March 2017, SBA changed its recertification criteria and guidance to require firms with $1 million or more in HUBZone contract awards to provide documentation to support continuing eligibility. SBA officials stated they completed a risk assessment of the HUBZone recertification process, but as of July 2018, had not provided GAO with documentation on when they performed the risk assessment, which risks were identified and considered, or what analysis established the $1 million threshold. GAO previously found SBA lacked key controls for its recertification process and recommended in 2015 that SBA assess the process. GAO continues to believe that an assessment of the recertification process would help inform a risk-based approach to reviewing and verifying information from firms that appear to pose the most risk to the program. Based on GAO's review of case files for a non-generalizable sample of 12 firms in Puerto Rico that received HUBZone certification in March 2017–March 2018, SBA did not consistently document or follow its policies and procedures for certification reviews. SBA did not have complete documentation in 9 of 12 cases. SBA officials described alternative procedures they used to determine firms' eligibility, but SBA has not updated its internal policy manuals to reflect these procedures and analysts did not document use of such procedures in the files GAO reviewed. In 4 of 12 cases, SBA did not follow its policy to conduct three levels of review (by an analyst, a senior analyst, and the program director or deputy) when determining to approve or deny a firm. It is not known to what extent SBA reviewed staff compliance with certification and recertification review procedures. SBA provided an assurance letter stating it evaluated the Office of HUBZone's internal controls and concluded the controls were effective, but the letter did not specify what steps SBA took for the evaluation. Standards for internal control state management should document its control policies and conduct periodic reviews to ensure controls are effective. Because SBA has not updated its internal policy manuals or conducted a documented review of staff compliance with its quality review procedures, it lacks reasonable assurance that firms are eligible or its review process is effective. In turn, this increases the risk of ineligible firms participating in the HUBZone program and receiving contracting preferences to which they are not entitled.

GAO_GAO-19-87

Background Indian tribes and nations are recognized as “distinct, independent political communities” that are part of the unique political structure of layered sovereigns and internal governments that comprise the U.S. system of government. Tribal powers of self-government are recognized by the Constitution, legislation, treaties, judicial decision, and administrative practice. Tribal governments have many of the same responsibilities as state and local governments. However, tribes are generally unable to establish a strong tax base structured around the property taxes and income taxes typically available to state and local governments, according to a 2016 joint report from the Native Nations Institute and the Harvard Project on American Indian Economic Development and a 2003 report from the U.S. Commission on Civil Rights. For example, the reports found that tribes are unable to levy property taxes on some of their lands because of the legal status of the land. In addition, most tribes have a limited land base. Tribes generally do not levy income taxes because many tribal communities have disproportionately high levels of unemployment and a lack of employment opportunities. To the degree that they are able, some tribes use sales and excise taxes, but these do not generally generate enough revenue to fully support tribal governments. Therefore, some tribes rely on a combination of federal funds and economic development initiatives as fundamental sources of financial support for the government programs and services provided to their communities. According to Cohen’s Handbook of Federal Indian Law, “federal services to Indians were never mere gratuities. Instead, they were provided in exchange for cessions of land and rights, and to achieve distinctly federal purposes.” Generally, the programs that provide basic tribal services are supported through tribal priority allocation (TPA) funds that Congress appropriates. TPA funds are used to provide a wide variety of services to tribal communities—either through BIA-administered programs or self- determination contracts and self-governance compacts—and all federally recognized tribes are eligible to receive those funds. Bureau of Indian Affairs BIA, through its 12 regional offices and more than 80 agency offices, administers programs that provide services and funding to tribes. For example, BIA programs include social services, natural resources management, economic development, law enforcement and detention services, tribal court administration, implementation of land and water claim settlements, repair and maintenance of roads and bridges, repair of structural deficiencies on high hazard dams, land consolidation activities, and electric utilities. In some cases, a BIA agency office may serve one tribe, and in other cases, a BIA agency office may administer programs on behalf of more than one tribe. For example, BIA’s Central California Agency administers programs to 56 tribes, the largest multi-tribal field office in the contiguous 48 states. These programs may also be administered by tribal governments under a self-determination contract or self-governance compact. BIA is responsible for administering self-determination contracts, including negotiating and approving each contract and its associated annual funding agreement and disbursing funds to the tribes. For instance, under its procedures, BIA is to provide tribes that are interested in pursuing a self-determination contract with key information about the program and available funding. ISDEAA transfers control over programs to tribes, but as stated in Cohen’s Handbook of Federal Indian Law, “financial responsibility remains with the federal government.” ISDEAA provides that tribes who decide to administer federal programs are to receive the same funds that would have been provided had the federal government operated the programs. BIA identifies the amount of funds available to a tribe under a self- determination contract or self-governance compact for the administration of a federal program. In general, the most basic process for calculating the program amount is as follows: The program amount equals the total amount of funds Interior used to operate a program minus residual funds. Residual funds are the funds necessary for the federal government to carry out residual functions. Residual functions are inherently federal functions that only federal employees’ may perform if all tribes were to assume responsibilities for all programs that ISDEAA permits. Inherently federal functions are not defined in Title I or Title IV of the ISDEAA, and a 1994 Solicitor of the Interior memo reports that inherently federal functions are to be determined on a case-by-case basis when they fall outside certain defined categories. BIA officials told us the basic calculation is most likely to be used when a tribe is served by an agency office that only serves one tribe and the tribe took over administration of a program from that agency office. In cases where the total amount of funds BIA used to operate a program serves more than one tribe, additional data and factors may be included in the methodology to calculate the amount of funds available to administer the program. This is needed to ensure BIA can continue to provide services to the tribes that did not take over administration of the program. A BIA official told us that some regions and agency offices may divide the total amount by the number of tribes served, as shown in the following example: The program amount equals the total amount of funds Interior used to operate a program minus residual funds divided by the number of tribes served by the program. In other cases, regions and agency offices may include additional data to weight the calculation, such as tribal population or tribal land acres. When a tribe elects to pursue a self-determination contract, BIA is to meet with tribal officials to discuss and negotiate the terms of the contract, including what functions will be retained by BIA, the annual funding amount, and terms for the frequency of disbursing funds—that is, disbursed in a single lump sum or other intervals, such as quarterly payments. According to Interior budget officials responsible for BIA’s budget, after Interior receives its appropriations, departmental budget officials determine how to distribute any changes between the Administration’s budget and the final budget among BIA offices that deliver direct services to tribes and to tribes that contract the services through self-determination contracts. According to Interior budget officials, they calculate changes in the budget amounts for each contract after consulting BIA program officials and based on statutory requirements, historical percentages, or other distribution factors. After the budget calculations are completed, Interior officials transfer funds to BIA regional offices to distribute to BIA agency offices and tribes. An awarding official in the regional or agency office then provides contracting tribes an updated annual funding agreement that identifies the amount of funds for that fiscal year. Self-Determination Contracts and Self- Governance Compacts ISDEAA authorizes federally-recognized tribes to assume administration of certain federal programs and functions that were previously managed by the federal government. It is Interior policy to facilitate tribal administration of programs through self-determination contracts and remove obstacles that hinder tribal autonomy and flexibility to administer such programs. Under Title I of ISDEAA, an interested tribe may request by tribal resolution to enter into a self-determination contract with BIA. ISDEAA requires the parties to such contracts to negotiate annual funding agreements and determine the frequency and timing of payments under the contract. Payments may occur throughout the fiscal year in accordance with terms identified in the annual funding agreements as Interior’s Indian Affairs Office of Budget and Performance Management makes appropriated funds available. Under Title IV of ISDEAA, an interested tribe may request to enter into a self-governance compact. Under the law, to be eligible for participation in self-governance compacting, a tribe must, among other things, demonstrate financial stability and management capability, which can be evidenced by participating in a self-determination contract for at least 3 years with no material audit exceptions. Interior’s Office of Self- Governance (OSG) is responsible for administering self-governance compacts and funding agreements for Interior programs. OSG assists tribes that want to enter into self-governance compacts by providing training, determining eligibility, participating in negotiations with the tribes and Interior agencies to identify the amount of funds that will be included in the self-governance compacts, and approving tribes to participate in self-governance. In addition, tribes with self-governance compacts negotiate annual funding agreements with OSG rather than BIA. OSG is also responsible for transferring funds from Interior to tribes with a self- governance compact, ensuring audit compliance, and processing waivers of BIA regulations. Further, OSG is responsible for preparing an annual report to Congress on the costs and benefits of self-governance. As of fiscal year 2016, OSG has entered into self-governance compacts that cover 47 percent of federally recognized tribes (267 tribes). For additional information on the differences between self-determination contracts and self-governance compacts, see table 1. Several Factors, Including Certain Federal Actions, Can Affect Tribes’ Use of Self-Determination Contracts, Self- Governance Compacts, and the HEARTH Act Several factors, including federal agencies’ processes and actions can affect tribes’ use of mechanisms that further tribal self-government such as self-determination contracts, self-governance compacts, or leasing authority under the HEARTH Act that further tribal self-government. Some of these factors, such as federal training and resources, can help tribes develop the tribal capacity needed to take over administration of federal programs and thereby facilitate tribes’ use of these mechanisms. In contrast, other factors, specifically federal processes and actions, can hinder or delay tribes’ use of these mechanisms. Some of these processes include: (1) BIA’s approach for sharing information with tribes, (2) Interior’s process to disburse funds, and (3) Interior’s process to review proposed tribal leasing regulations submitted under the HEARTH Act. In addition, the adequacy of federal resources needed to administer a program is a factor that can affect tribes’ use of self-determination contracts and self-governance compacts, according to several tribal stakeholders and federal officials we spoke with, government reports, our prior reports, and other articles we reviewed. Tribal Capacity is a Key Factor That Can Facilitate Tribes’ Use of Self- Determination Contracts, Self-Governance Compacts, and Authority under the HEARTH Act The capacity of a tribal government to administer a federal program or manage its resources is a key factor that can affect a tribe’s decision to enter into a self-determination contract or self-governance compact, or to use the authority available under the HEARTH Act, according to some reports we reviewed. For example, the Harvard Project on American Indian Economic Development found that successful tribal assertions of sovereignty and self-government are backed by capable institutions of governance that contribute to tribal capacity. According to federal officials and agency training documents we reviewed, Interior has contributed to the capacity of tribal governments by increasing tribes’ knowledge about self-governance compacting and the HEARTH Act. For example, Interior’s OSG provides opportunities for tribes to learn about self-governance compacting and build capacity by partnering with a non-profit organization to conduct training events, including an annual week-long training program. In addition, BIA offered several training sessions in 2014 and 2015 on the HEARTH Act to educate tribes on the benefits of developing tribal leasing regulations. Furthermore, Interior’s Office of Indian Energy and Economic Development administers a grant program, Tribal Energy Development Capacity, intended to help tribes build the capacity to enter into a tribal energy resource agreement (TERA) or develop leasing regulations under the HEARTH Act. Some tribal stakeholders identified the EPA’s Indian Environmental General Assistance Program (GAP) as a model for a federal program that helped their tribes build the capacity needed to administer environmental programs from EPA. These tribal stakeholders also told us this capacity benefitted the tribes as they sought to take over similar programs from Interior. Some tribal stakeholders told us the GAP program is effective in assisting tribal governments build capacity because it is designed to provide consistent funding over multiple years. According to reports we reviewed that discuss building tribal capacity, effective capacity building efforts should both provide for sustained, consistent funding over time, since developing capacity can be an ongoing effort that may take longer than 1 year to achieve and facilitate a tribe’s ability to develop a program that is responsive to each tribe’s unique conditions and priorities. Factors That Can Hinder Tribes’ Use of Self- Determination Contracts, Self-Governance Compacts, and Authority under the HEARTH Act We found that several factors can hinder tribes’ ability to use self- determination contracts, self-governance compacts, or leasing authorities under the HEARTH Act, including: (1) BIA’s approach for sharing key information with tribes seeking to develop a program using a self- determination contract, (2) Interior’s process to disburse funds to tribes associated with self-determination contracts and self-governance compacts, (3) Interior’s review of tribal leasing regulations submitted under the HEARTH Act, and (4) BIA’s management and maintenance of federal programs that tribes may pursue to take over under a self- determination contract. BIA’s Approach for Sharing Key Information with Tribes According to several tribal stakeholders, BIA’s approach for sharing key information with tribes does not always ensure that tribes have the information they need to design programs under self-determination contracts prior to negotiations. As a result, this has been a factor that has hindered or delayed tribes’ use of self-determination contracts for administering programs. Interior guidance and policy call for BIA to provide tribes information that includes, among other things, calculations BIA uses to identify the amount of funds available to a tribe if it takes over administration of a program. In accordance with Interior’s policy, BIA should provide tribes with the information necessary to design programs those tribes would like to administer under a self-determination contract to meet the needs of their communities consistent with their diverse demographic, geographic, economic, cultural, health, social, religious, and institutional needs. Also in accordance with Interior guidance, when a tribe requests to enter into a self-determination contract with Interior, BIA should disclose information to the tribe that identifies the amount of program funding available, the methodology used to identify available amounts, the process used to arrive at available amounts, an identification of the amount of funding retained by BIA, and any other information useful to understand how contract amounts were calculated. Moreover, Interior regulations call for BIA to provide to tribes, for the negotiation of annual funding agreements for self-governance compacts, a brief justification as to why specific functions have been determined inherently federal. However, according to several tribal stakeholders, they do not receive this information, including calculations BIA uses to identify the amount of funds available to tribes, prior to negotiating their self-determination contracts. Some BIA regional and agency office officials we interviewed told us they do not generally provide information to tribes prior to negotiating the terms of a self-determination contract because the determinations of inherently federal functions and the amount of funding the bureau would retain to perform such functions generally occurs during meetings with BIA and the tribe. A tribal stakeholder told us that without documentation on funding calculations and methodologies, tribes are at a disadvantage and have little basis to negotiate during these meetings. A tribal stakeholder told us that, in practice, the negotiation generally consists of BIA informing the tribe of the amount of funds to request in its proposal and what federal functions BIA will retain without any documentation to support its determination of inherently federal functions or the resources to be made available to the tribe to administer a program using a self- determination contract. BIA’s approach is not consistent with Interior’s policy of sharing information so tribes can develop programs. By developing a process that results in BIA’s regional and agency offices providing tribes with documentation on calculations and methodologies to identify resources available to administer a program using a self-determination contract, BIA would be adhering to Interior’s policy and have greater assurance that tribes have the information they need to design the programs that they would like to pursue under a self-determination contract. In addition, BIA guidance states the bureau will ensure functional consistency in the determination of inherently federal functions when the Central Office and all regional offices are compiling that information for negotiating annual funding agreements with tribes. We found examples that suggest that BIA has not consistently determined whether programs and functions are inherently federal, which can affect some tribes’ use of self-determination contracts. For example, a BIA official in one regional office told us that the region had previously decided all functions associated with the Land Titles and Records Offices were inherently federal and told tribes that BIA would not approve a self-determination contract for those functions. However, other BIA regional offices did not consider the functions of the Land Titles and Records Offices as inherently federal, and some tribes in those regions had taken over administration of those functions. BIA does not have a process that results in consistent determinations of inherently federal functions and does not provide tribes with information on its prior determinations. A BIA official told us that determinations of inherently federal functions are made on a case-by-case basis because each tribe and its circumstances are unique. However, this approach does not provide BIA leadership with reasonable assurance of functional consistency throughout the bureau in the determination of inherently federal functions—consistent with bureau guidance. By developing a process that results in consistent determinations of inherently federal functions, BIA could have greater assurance that these decisions are being made appropriately across the agency. BIA could also increase transparency in the process by providing tribes with documentation on activities and functions previously determined to be inherently federal and the basis for making these determinations. Interior’s Process to Disburse Funds According to tribal stakeholders we spoke with, Interior’s process to disburse funds associated with the tribes’ self-determination contracts and self-governance compacts is a factor that hinders expansion of self- determination contracts or self-governance compacts. Several tribal stakeholders and federal officials we interviewed said that the process does not ensure that tribes receive funds within the time frame specified in ISDEAA’s Model Agreement for self-determination contracts or as agreed to by Interior and the tribes in their annual funding agreements. Two tribal stakeholders stated that in prior years, funds were disbursed several weeks or months after Interior received its apportionment from the Office of Management and Budget. We were unable to determine the extent to which Interior disburses funds for self-determination contracts within the time frame agreed to in a self- determination contract because Interior does not systematically track the disbursement of funds from the date it received its appropriations through the date that it made funds available to tribes and does not compare its actual performance to expected performance. Not tracking this information and comparing actual performance to expected performance is contrary to federal internal control standards, which state that agency management should design control activities to achieve objectives and respond to risks, such as by comparing actual performance to planned or expected results and analyzing significant differences. This is not a new issue for Interior. Specifically, in 2015, an Interior contractor reported on an evaluation of Interior’s process for disbursing funds and identified opportunities for improvement. Consistent with our findings, the report also found that, among other things, the process used by Interior to disburse funds is a manual process that does not include a real-time tracking mechanism. Without such a mechanism, the report found that officials must spend time trying to determine the status of documents and finding misplaced or lost documents. For example, the report found that in fiscal year 2014, Interior had more than 6,000 scanned documents that required up to 6 signatures each, for a total of up to 36,000 signatures, to disburse funds including funds to tribes for self-determination contracts or self-governance compacts. To finalize these documents, the report estimates that 600 hours of staff time were spent scanning, uploading, and printing the documents. Several Interior officials told us they conduct monitoring activities within a specific BIA region or BIA agency office, such as tracking disbursement information through an Excel spreadsheet, but these activities were not part of a systematic process. An Interior official told us there are no plans to develop a real-time tracking mechanism. Interior officials we interviewed cited several reasons why some funds associated with self-determination contracts and self-governance compacts were not disbursed in accordance with time frames outlined in its Model Agreement or negotiated in funding agreements. The reasons include the following: Interior’s financial data management system. Interior officials told us that the agency’s financial data management system is used for all of Interior and is not equipped for the unique aspects of self- determination contracts and self-governance compacts—making it difficult to properly track and monitor key actions. Prior use of an inefficient process. An Interior official told us that prior to fiscal year 2017, BIA used several spreadsheets to coordinate TPA information for distributions. The official stated that these spreadsheets were over 15 years old, and they made the process inefficient and time-consuming. To distribute funds, officials would use one spreadsheet to gather information and another to summarize the amounts by functional area and region. The official stated that BIA updated the process in fiscal year 2018 and does not expect it to delay funding in the future. Staff shortages in key positions. BIA officials in several regions told us they are experiencing staff shortages in key positions that are responsible for the transfer of funds from BIA to tribal governments, such as awarding officials. Interior officials said the Office of Self Governance also needs additional awarding officials with only one awarding official for self-governance compacts. Interior officials stated that the challenges from staff shortages are compounded by Congress’ use of continuing resolutions that result in BIA repeating its fund distribution process multiple times in a single year. Delays in receiving tribal signatures. Interior officials we interviewed told us that they have experienced delays disbursing funds to a tribe because they must wait for tribal officials to sign documents before funds may be disbursed. When funds are not disbursed in a timely manner, a tribal stakeholder told us that tribes may have to use funds from their general revenue accounts to cover expenses for federal programs or seek other sources, such as loans, to cover program expenses. According to several tribal stakeholders, when a tribe has to use its own funds for the administration of programs—even temporarily—it can adversely affect the tribe in various ways, including lost opportunities to use tribal funds for improving the tribes’ economic conditions, reducing other services provided to tribal communities, and furloughing tribal government employees. In addition, several tribal stakeholders told us that the timeliness of disbursements for self-determination contracts is a factor they consider when deciding whether to take over additional programs under a self-determination contract. The tribal stakeholders said that the tribe must consider if it is able to use tribal funds or willing to obtain a loan to fund a program when the federal government is late disbursing funds. Without establishing a process for tracking and monitoring the disbursement of funds associated with self-determination contracts and self-governance compacts, Interior will not have reasonable assurance it disburses funds in a systematic way or in accordance with agreed upon time frames. Interior’s Process for Reviewing Proposed Tribal Leasing Regulations Interior has not clearly documented its process for reviewing proposed tribal leasing regulations with timeframes associated with each step of the process. The process can often be lengthy and time consuming; according to tribal stakeholders, this can be a factor that hinders the tribes’ ability to make decisions about the use of tribal resources. Under the HEARTH Act, tribes are to submit proposed leasing regulations for Interior’s review and approval before a tribe can approve leases for the use of tribal lands, and Interior’s review is to be completed within 120 days after the dates on which the tribal regulations are submitted to the agency. Interior officials told us they interpret the statutory review time frame requirements of the HEARTH Act as applying only to the agency’s review to ensure tribes incorporated all changes identified in prior reviews. Specifically, Interior officials told us the agency does not consider the statutory time frame to begin until it has received a final version of the proposed tribal leasing regulations. These officials described the final version of proposed tribal leasing regulations as regulations that have already undergone review by BIA and Interior’s Solicitor’s office, have been revised by the tribe, and have been resubmitted for additional review by BIA and the Solicitor’s office. This process can be repeated multiple times before Interior considers the tribe’s proposed leasing regulations to be final. In contrast, a tribal stakeholder told us that Interior’s interpretation of how to measure the time frame is inconsistent with the tribe’s interpretation of the statutory time frame. The tribal stakeholder told us that a tribe considers its leasing regulations initially submitted to Interior as final, although the tribe understands that BIA and the Solicitor’s office may request revisions. Some tribal stakeholders told us that because Interior is not considering the 120 days as a time frame from first submission until approval, tribes do not know when to expect a final decision on draft tribal regulations. We found that some of this confusion could be attributed to the fact that Interior has not clearly documented its review process to include established time frames associated with each step of the process. Under federal standards for internal control, management should design control activities, such as clearly documenting internal control in management directives, administrative policies, or operating manuals. The HEARTH Act seeks to expand tribal self-government and promote economic development by shifting the authority for leasing from the Secretary to the tribes. By developing a clearly documented review process that includes established time frames for each step in the process for reviewing proposed tribal leasing regulations submitted under the HEARTH Act, Interior can better ensure that it is eliminating uncertainty and better communicating the process for approval to the tribes. We also found that the approval process can be lengthy in some cases. Our review of 42 tribal leasing regulations submitted to Interior for review from 2012 through 2017 for which BIA provided us with data on the date the tribe submitted the regulations to Interior and the date of Interior’s approval found that 4 of the 42 leasing regulations were approved within 120 days. For the other 38 proposed regulations, the time from when the tribe submitted the regulations to Interior to when the agency approved the regulations ranged from 134 days to 980 days. Half of the 42 proposed regulations were under review by Interior for a year or longer, with 5 of the 21 under review for more than 2 years. Interior’s review was generally not continuous during the entire period; instead, these time periods included review by BIA and the Solicitor’s office and the time spent by the tribe revising its leasing regulations in response to Interior’s review. Tribal stakeholders also shared with us several examples that illustrate Interior’s lengthy review process for tribal governments’ use of the HEARTH Act. For example, in one case, Interior received a tribe’s leasing regulations for review and approval in May 2015. Interior approved the tribe’s leasing regulations and published the decision in the Federal Register in April 2018—more than 2 years later. Officials representing this tribe told us they considered the leasing regulations initially submitted on May 18, 2015, as final, though they understood that Interior could request revisions. These officials explained that the tribe has its own extensive process and procedures for lawmaking and developed its leasing regulations consistent with its Constitution, Legislative Procedures Act, and Administrative Rulemaking Procedure, which take into account comments from tribal members and tribal agencies and includes a judicial review, legislative analysis, fiscal impact review, and adoption by the tribe’s elected business committee. Tribal stakeholders told us that after each communication with BIA about the leasing regulations, they believed the regulations were satisfactory for approval. For example, the tribe received preliminary approval from BIA in October 2016. Then, tribal stakeholders said in August 2017—nearly 10 months later—the tribe received correspondence from BIA stating that the tribe needed to add several additional provisions, including language regarding Indian irrigation projects and districts even though the tribe does not have any irrigation projects or districts within its boundaries. Additional correspondence took place between the tribe and Interior, resulting in final approval in January 2018. Tribal stakeholders told us that the lengthy review delayed the tribe’s ability to implement leasing regulations and delayed the tribe’s ability to make decisions about the use of tribal resources. In another case, Interior received tribal leasing regulations for review and approval on January 17, 2014. The tribe stated in documentation submitted to Interior that it was seeking increased decision-making authority under the HEARTH Act because it had finalized various construction agreements and needed to approve surface leases for an economic development project. During the time that the tribe’s leasing regulations were under review at Interior, BIA asked the tribe to submit multiple versions of its leasing regulations. According to BIA documents, the bureau took approximately 2 months to transfer the tribe’s regulations from BIA headquarters to a regional office for its review. Once the regional office received the tribal leasing regulations, the office conducted its review over a 3-month period and provided comments to BIA’s headquarters. BIA’s data show that headquarters sent the tribe’s leasing regulations to the Solicitor’s office nearly 5 months after it received the tribal leasing regulations. Over the next couple of years, Interior requested the tribe make changes to its leasing regulations three more times and resubmit revised versions for review. On March 3, 2016—more than 2 years after receiving the tribe’s leasing regulations—Interior documented that it had “one small change” it would like the tribe to make to the regulations. The tribe made the requested change and resubmitted the leasing regulations to Interior via certified mail, which showed receipt at Interior on July 1, 2016. Interior approved the tribal leasing regulations on October 7, 2016—more than 3 months after the tribe submitted regulations with the “small change.” Interior approved the tribe’s leasing regulations and published the decision in the Federal Register in October 2016—more than 2 years after Interior first received the tribe’s leasing regulations. Interior officials told us there was not a single reason for the lengthy review times. In some cases, Interior officials said the review times were long because the BIA official responsible for managing Interior’s review had left the bureau. In other cases, Interior officials told us they were short-staffed in the Office of the Solicitor and the legal review took longer than anticipated. However, they acknowledged that the uncertainty associated with how long Interior’s review will take can make it difficult for tribes to plan and execute economic development projects. For example, a BIA official told us that a tribe was unable to pursue an economic development opportunity because of the time it took for Interior to complete the process to review the tribe’s regulations. In contrast, a timely review of a tribe’s proposed leasing regulations can positively affect tribal control and decision making. For example, a tribal stakeholder said after several months waiting for BIA to approve a surface lease needed for a tribe to develop a wind farm, the tribe decided to pursue authority under the HEARTH Act so that it could review and approve the lease without waiting for BIA’s review of the surface lease. Interior reviewed and approved the tribe’s leasing regulations submitted under the HEARTH Act authority in 31 days. According to the tribal stakeholder, the timely review and approval of the tribe’s leasing regulations allowed the tribe to review and approve the surface lease needed for construction of the wind farm to commence before the expiration of tax credits—a key component that made the project feasible. BIA’s Past Management of Federal Programs Past mismanagement of federal programs under the administration of BIA is a factor that can affect tribes’ decisions whether to take over federal programs through self-determination contracts, according to several tribal stakeholders and BIA officials. As documented in a 2003 report by the U.S. Commission on Civil Rights, decades of general mismanagement of infrastructure and programs under BIA’s administration can hinder a tribes’ use of self-determination contracts. In 1999, BIA reported to Congress that funds provided under self-determination must be used not only for current operations but also “to repair 150 years of general neglect” of Indian programs. In these cases, taking over programs with long-standing neglect is a liability that some tribes are not willing to assume. For example, a tribal stakeholder told us that its BIA agency office neglected tribal land records for many years. As a result, the tribe is reluctant to assume the liability associated with administering a real estate program without accurate property records. In another example, BIA operates an irrigation project that provides electric utility service to two tribes. Both tribes have taken over certain functions associated with the utility service provided to their communities through self-determination contracts, and both tribes have expressed interest in expanding the functions they administer. However, BIA and tribal officials said that concerns over infrastructure that needs to be repaired or replaced and the liability associated with rights-of-way have deterred both tribes from taking over the remaining functions of the utility. For example, many utility poles on the project’s transmission lines are more than 50 years old and are in need of replacement, and the project has over 1,500 miles of transmission lines and 2,000 miles of distribution lines. According to a BIA document, these lines might have been extended without receiving a formal right-of-way. The report states that “many of ’s rights-of-way are unperfected and there are no supporting documents evidencing a legal right-of-way.” According to tribal stakeholders these kinds of uncertainties are significant factors they must consider in their decisions related to self- governance of BIA programs. Adequacy of Resources Affects Tribes’ Use of Self- Determination Contracts and Self- Governance Compacts The adequacy of resources is a long-standing concern that has been a factor affecting tribal participation in self-determination contracts and self- governance compacts, according to several tribal stakeholders and federal officials we interviewed, government reports, our prior reports, and articles we reviewed. Specifically, a lack of adequate resources has been a long-standing concern that can limit the number of programs tribes take over using self-determination contracts and self-governance compacts. For example, the U.S. Commission on Civil Rights 2003 report noted that the authority tribes have to take over the administration of federal programs is useful to the extent that adequate funds are made available to the tribes to operate the program. According to Interior officials, Interior does not have an estimate on the extent to which it can provide adequate resources to tribes that want to administer federal programs. For one program, BIA estimated in a report to Congress that the dollars BIA expended in fiscal year 2013 for BIA and tribes to operate detention and corrections centers fund about forty percent of the estimated operating needs. Faced with funding shortfalls from the BIA budget to administer federal programs under federal self-determination contracts or self-governance compacts, many tribal stakeholders told us that they supplement federal funding. Officials from one tribe told us that the tribe has supplemented all the programs it has taken over from BIA. For example, the tribe reported that the Land Titles and Records Program has a shortfall of about $300,000 annually; the Law Enforcement program with about $564,000 annually; and the Probate Program with about $129,000 annually. Officials from the tribe told us that tribes may rely on revenues generated from economic development or tax revenue to supplement federal dollars for programs they have taken over from the federal government. However, tribal stakeholders we interviewed told us that not all tribes are in a position to supplement additional federal programs because of limited economic development opportunities and tax revenue; therefore, those tribes may not have the option to take over additional federal programs. According to a tribal stakeholder, dual-taxation—when both a tribe and state tax the same non-tribal members and businesses on tribal land— can significantly limit a tribe’s tax revenue because tribes must reduce or eliminate their taxes to stay competitive and attract business and enterprise to their lands. Furthermore, the funds tribes may use to supplement federal programs are needed to fund other governmental services and activities, which place tribal leaders in the position of deciding whether to use funds to provide governmental services not funded by the federal government or to increase self-governance by administering additional federal programs. As we have previously reported, when tribes supplement the federal program they take over, it diverts funds away from other economic development opportunities and other government functions and services they provide to their communities and citizens. Lastly, several tribal stakeholders told us that not receiving adequate resources from the federal government to administer federal programs makes them reluctant to administer additional federal programs because they believe BIA has a better chance than the tribe to obtain additional resources that can be used to supplement program shortfalls. This is, in part, because they believe that BIA agency offices and regional offices have access to funding sources that are not available to tribes and because BIA does not always make tribes aware of funds that are available. For example, the Department of the Interior’s Self-Governance Advisory Committee reported in 2015 that the distribution of year-end funds is entirely within the discretion of the local awarding official and that not all tribes are notified that these funds are available. Conclusions Interior has taken steps to assist tribes pursuing tribal self-government by providing training opportunities focused on self-governance compacts and the use of the HEARTH Act to help increase tribal capacity. However, several factors have continued to hinder tribes’ use of these mechanisms to further tribal self-government. First, BIA’s approach for sharing key information with tribes when tribes seek to administer a program using a self-determination contract does not provide the tribes with the information they need to understand how the self-determination contract amounts were calculated. As a result, tribal leaders are at a disadvantage in making sound decisions regarding the feasibility of taking over the administration of federal programs. Second, BIA does not have a process that results in consistent determinations of inherently federal functions and does not provide tribes with information on its prior determinations. By developing a process that results in consistent determinations of inherently federal functions, BIA could have greater assurance that such determinations are being made appropriately across the agency and BIA could increase the transparency of the process by providing tribes with documentation on activities and functions previously determined to be inherently federal and the basis for the determinations. Third, Interior does not have an effective process for tracking and monitoring the disbursement of funds associated with tribes’ self- determination contracts and self-governance compacts or as agreed to with the tribes. Without establishing an effective tracking and monitoring process, Interior does not have reasonable assurance that it is disbursing funds in accordance with ISDEAA or time frames agreed to with the tribes. Lastly, Interior has not documented its process to include established time frames associated with each step of the process to review proposed tribal leasing regulations submitted under the authority provided by the HEARTH Act. This has resulted in lengthy review times—in some cases, multiple years. By developing a clearly documented review process that includes established time frames for each step in the process for reviewing proposed tribal leasing regulations submitted under the HEARTH Act, Interior can better ensure that it is eliminating uncertainty in the process to approve tribal leasing regulations. Recommendations for Executive Action We are making the following four recommendations to Interior: The Assistant Secretary of Indian Affairs should develop a process so that all regional and agency offices consistently provide tribes with documentation on calculations and methodologies to identify resources available to administer a program using a self- determination contract. (Recommendation 1) The Assistant Secretary of Indian Affairs should develop a process that results in consistent determinations for inherently federal functions and to provide documentation to tribes on specific activities and functions determined to be inherently federal. (Recommendation 2) The Assistant Secretary of Indian Affairs should establish a process to track and monitor the disbursement of funds associated with self- determination contracts and self-governance compacts. (Recommendation 3) The Assistant Secretary of Indian Affairs should coordinate with the Office of Solicitor and BIA to develop a clearly documented process with established time frames for each step in the process for reviewing proposed tribal leasing regulations submitted under the HEARTH Act. (Recommendation 4) Agency Comments We provided a draft of this report to Interior for comment. In its comments reproduced in appendix II, Interior generally concurred with our recommendations. Interior also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 28 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of the Interior, the Assistant Secretary of Indian Affairs, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Scope and Methodology For this report, we reviewed a range of reports, articles, conference proceedings, congressional testimony, and other publications from federal and tribal governments, academics, and nonprofit organizations. These publications included general background information related to tribal self- government and tribes’ use of self-determination contracts, self- governance compacts, and the HEARTH Act, as well as historical perspectives, successes and challenges, and identified some factors that can affect a tribe’s decision to use one of these mechanisms. We identified these articles and publications by searching various Web-based databases, such as ProQuest, Scopus, DIALOG, Academic OneFile, JSTOR, and Lexis to identify existing studies from articles, peer-reviewed and other journals, including law review journals, and government and academic publications. We searched terms such as tribal sovereignty, self-governance, self-determination, and capacity, as well as relevant acts or program names. We also asked tribal stakeholders that we interviewed to recommend additional reports, congressional testimony, and other articles on the topic. We did not set specific time frames for the search, and identified more than 50 articles from 1982 to 2017. We examined summary-level information about the literature identified in our search and identified a few of the articles as directly related to our report. These five publications are identified throughout this report. Other articles provided beneficial context and historical information but did not contribute to us identifying factors to include in this report. We reviewed relevant laws and regulations including the Indian Self- Determination and Education Assistance Act of 1975 (ISDEAA), as amended and Helping Expedite and Advance Responsible Tribal Home Ownership Act of 2012 (HEARTH Act). We also reviewed Interior’s policy manual, Interior’s procedures handbook for contracting under Title I of ISDEAA, the Interior Solicitor’s opinions on inherently federal functions, and other guidance documents. We reviewed Interior reports and audits related to self-determination contracts, self-governance compacts, and the Hearth Act, including Interior budget justification reports and evaluations of tribes’ performance with trust programs administered under a self-governance compact. ISDEAA also allows tribal governments to take over administration of certain programs from the Department of Health and Human Service’s Indian Health Service. For this review, we focused on tribes’ use of self-determination contracts and self- governance compacts to administer Bureau of Indian Affairs (BIA) programs. To determine tribes’ use of self-determination contracts, we obtained data from Indian Affairs’ Office of Chief Financial Officer for all current contracts as of November 2017. The data provided included the contract number, the tribe or tribal organization with the contract, and the program included in the contract. To assess the reliability of the data, we consulted with knowledgeable federal officials and found examples in one of our prior reports that generally supported the data we obtained from the Office of Chief Financial Officer. To determine tribes’ use of self- governance compacts, we reviewed data that Interior provides to Congress in annual reports that cover tribal use of self-governance compacts. To assess the reliability of the data, we consulted with Interior’s Office of Self Governance officials and tribal stakeholders and compared information provided to us from Interior with information obtained from the Tribal Self-Governance Communication and Education Consortium. We determined that the data were sufficiently reliable for the purpose of our report. To obtain a better understanding of the information found in self- determination contracts, we requested BIA provide information from self- determination contract files. We requested contract files that would represent a range of BIA regions and programs. We also sought to use this information to identify examples from the contract file where BIA documented the amount of program funding available to the tribe and retained by BIA, and the methodology BIA used to identify available amounts. Through our review of several contract files, we were able to corroborate information from BIA officials and tribal stakeholders, who told us that BIA does not systematically document the amount of program funding available to the tribe and retained by BIA and the methodology BIA used to identify available amounts. The findings from the contract reviews are not generalizable to those we did not request and obtain. We also collected information from 9 BIA regions on the number of retrocessions (tribes that voluntarily turned back administration of a program to BIA), reassumptions (programs where BIA took back administration from a tribe because of noncompliance with contract requirements), and declinations (programs that tribes requested to take over administration but BIA declined) from 2012 through 2017. BIA does not have a centralized data system to collect this information and through consultations with knowledgeable federal officials, we determined that each of BIA’s regions was in the best position to provide us with this information. To determine tribal participation with the HEARTH Act and the extent to which Interior’s review is consistent with the Act, we collected data from BIA on the number of tribes that have submitted leasing regulations for BIA’s review, and the number of tribal leasing regulations BIA approved under the HEARTH Act. In most cases, Interior provided an internal checklist that included, among other things, the dates tribes submitted information and dates of Interior responses. We used this information to identify the amount of time associated with BIA’s review of tribal leasing regulations. In some cases, we also gathered information from tribes. We determined that the data were sufficiently reliable for the purposes of this report. We interviewed federal officials from Interior’s Office of Solicitor, Indian Affair’s Office of Self Governance, Office of the Chief Financial Officer, and Office of Budget and Performance Management. Within BIA, we met with officials from Office of Trust Services, the Office of Indian Services and interviewed or received written responses from regional officials in all 12 BIA regions. Through these interactions we asked officials to identify processes associated with tribes entering into, negotiating, and administering federal programs under a self-determination contract or self-governance compact. We also discussed processes associated with Interior’s disbursement of funds agreed upon in contracts and compacts. In addition, we discussed processes for tribes to submit leasing regulations to BIA and for BIA’s review of tribal leasing regulations. We compared the information collected through discussions with federal officials and federal documents with Interior guidance documents and Standards for Internal Control in the Federal Government. We also discussed the use of self-determination contracts and self-governance compacts with Interior’s Bureau of Land Management and Bureau of Reclamation, and interviewed officials from the Environmental Protection Agency to discuss tribes’ use of existing authorities to administer environmental programs and the agency’s efforts to build tribal capacity. To identify factors that can affect a tribe’s decision to use self- determination contracts, self-governance compacts, and the HEARTH Act—as well as tribes’ experience with these mechanisms—we interviewed leaders and officials from 29 federally recognized Indian tribes and nations, the Department of the Interior Self-Governance Advisory Committee, and non-profits representing tribal interests, such as the National Congress of American Indians (NCAI) and the Native Governance Center. The key factors we included in this report are those that were most frequently mentioned and that are specifically related to federal government policies and processes. During the review, we identified factors that tribes may consider but that are not related to the federal government; because these factors were outside of the scope of this review, we did not include them in our report. We selected Indian tribes and nations to ensure a representation of tribes with a range of experience using self-determination contracts and self-governance compacts, tribal size, and geographic location. We also selected tribes to ensure we had representation from tribes that developed leasing regulations under the HEARTH Act and those that have elected to not yet develop or submit leasing regulations under the HEARTH Act. We also met with representatives from tribal consortia, such as the Coalition of Large Tribes; the Great Plains Tribal Chairman’s Association; the Department of the Interior Tribal Self-Governance Advisory Committee; the United South and Eastern Tribes; and the United Indian Nations of Oklahoma, Kansas, and Texas to gather additional perspectives on factors that can affect tribal participation. To encourage increased participation and perspectives from tribal leaders and officials, we provided opportunities for tribes to contact us for individual discussions by requesting that tribal consortia, as well as NCAI, include information about our review in their newsletters or other correspondence with tribal stakeholders. As a result of these efforts, several additional tribes contacted us to share information about their experiences. For the purposes of this review, we refer to tribal leaders, tribal government officials, and representatives from tribal consortia as tribal stakeholders. Throughout the report, we use the following categories to quantify statements made by stakeholders: “some” is defined as two to five entities and “several” is defined as six to 10 entities. Because each of the federally recognized tribes and nations are unique, the information obtained in our discussions with tribal stakeholders is not generalizable, but provides examples of tribes’ experiences with self-determination contracts, self-governance compacts, and the HEARTH Act. It is possible we did not identify all of the factors that can affect a tribe’s decision to use self-determination contracts, self-governance compacts, or the HEARTH Act and there may be other factors we did not present. We conducted this performance audit from February 2017 to January 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of the Interior Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Christine Kehr (Assistant Director); Jay Spaan (Analyst in Charge); John Delicath, William Gerard, Cindy Gilbert, Greg Marchand, Dan Purdy, Vasiliki Theodoropoulos, and Leigh White made key contributions to this report.

For more than 4 decades, federal Indian policy has promoted tribal self-government—the practical exercise of Indian tribes and nations' inherent sovereign authority. Under ISDEAA, federally recognized tribes may request to enter into self-determination contracts and self-governance compacts with Interior, transferring the administration of federal programs to the tribe. Under the HEARTH Act, tribes may issue certain leases on their lands without Interior approval if such leases are executed under approved tribal regulations. GAO was asked to evaluate issues related to tribal self-government. This report examines factors affecting tribes' use of self-determination contracts, self-governance compacts, and tribal leasing authority under the HEARTH Act. GAO reviewed key legislation and regulations, relevant literature, federal and tribal documents; analyzed agency data; and interviewed federal officials at 12 BIA regional offices, 29 tribes that used at least one of these mechanisms, and 7 tribal organizations. GAO found that various factors can affect tribes' use of self-determination contracts and self-governance compacts under the Indian Self-Determination and Education Assistance Act of 1975 (ISDEAA), as amended, and tribal leasing under the Helping Expedite and Advance Responsible Tribal Home Ownership Act of 2012 (HEARTH Act). A key factor that helps tribes use these self-governance mechanisms is tribal government capacity to administer a federal program or manage these resources. Federal efforts that have helped build this capacity have included training, such as that offered by the Bureau of Indian Affairs (BIA) in 2014 and 2015 to educate tribes on the benefits of developing tribal leasing regulations under the HEARTH Act. In contrast, GAO found that other factors can hinder tribes' use of these mechanisms including: Inadequate Information Sharing. The Department of the Interior's (Interior) policy and guidance states that tribes should be provided necessary information to design programs they would like to self-administer, such as the amount of funding available to the tribes for the programs and the amount retained by Interior for inherently federal functions. However, according to several tribal stakeholders and some BIA regional officials GAO spoke to, some of this information is not made available to the tribes prior to self-determination contract negotiations, such as information on funding calculations and determinations of inherently federal functions. Without this information, according to a tribal stakeholder, tribes may be at a disadvantage when negotiating with BIA and designing programs for self-determination contracts. Delays in Disbursing Funds. According to tribal stakeholders, Interior's process does not ensure that funds associated with their self-determination contracts and self-governance compacts are disbursed in a timely manner. These funding delays can therefore be a factor that hinders their use of self-government mechanisms. Some tribal stakeholders said that disbursement delays have ranged from weeks to months. GAO was unable to determine the extent to which Interior disburses funds in accordance with ISDEAA or within agreed-upon time frames with the tribes, because Interior does not systematically track and monitor the disbursement of these funds. Lengthy Review of Proposed Tribal Leasing Regulations. Interior does not have a clearly documented process for reviewing proposed tribal leasing regulations submitted under the HEARTH Act with identified time frames associated with each step of the process. As a result, tribal stakeholders told GAO that they are uncertain about how long the process will take and how it aligns with the 120 day requirement in the Act. According to tribal stakeholders and GAO's analysis of proposed regulations submitted from 2012 through 2017, Interior's review process has resulted in lengthy review times—in some cases, multiple years. Some tribal officials told GAO that Interior's lengthy review process had delayed the tribe's ability to make decisions about the use of their resources. By developing a clearly documented process that includes established time frames for each step in the review, Interior can help eliminate uncertainty and improve the transparency of the review process for the tribes.

CRS_R45457

Introduction In the past two decades, increasing global trade liberalization, among other factors, has led to a rise in U.S. agricultural imports. The U.S. Department of Agriculture (USDA) reports that U.S. agricultural imports reached nearly $121 billion in the 2017 calendar year ( Figure 1 ), which was twice the level of such imports in 2000. Consequently, the increasing volume of imports has heightened public concern about the potential for introducing pests and diseases. Most imported agricultural products, such as live animal and plants, are inspected by U.S. government officials and have accompanying documentation—animal and plant health import permits—certifying adherence to U.S. requirements. More than ever, the U.S. government depends on the proper use of these import permits to facilitate U.S. agricultural trade. The USDA's Animal and Plant Health Inspection Service (APHIS) regulates the import, transit, and release of regulated animals, animal products, veterinary biologics, plants, plant products, pests, organisms, soil, and genetically engineered organisms. APHIS-issued import health permits verify that the health status and the production practices of an imported product meet U.S. import standards. APHIS works with foreign exporters, U.S. importers, and foreign governments to interpret and enforce APHIS-issued animal and plant health import permits. Animal and plant health import permits include components from U.S. specific regulations and World Trade Organization (WTO) guidelines. Further, these health import permits are a part of broader agreements between the United States and its trading partners in the WTO that establish sanitary and phytosanitary (SPS) standards. SPS measures aim to protect against diseases, pests, toxins, and other contaminants. Since 2000, the United States has entered into a dozen free trade agreements (FTAs), which include an SPS chapter containing specific U.S. import requirements that the partner country has agreed to recognize. Examples include specific product or processing standards, requirements for products to be produced in disease-free areas, quarantine and inspection procedures, sampling and testing requirements, residue limits for pesticides and drugs in foods, and prohibitions on certain food additives. APHIS works with the Department of Homeland Security's (DHS) Customs and Border Protection (CBP), in addition to other federal agencies (e.g., Food Safety and Inspection Service, Food and Drug Administration), to enforce agricultural import regulations. CBP has authority to enforce APHIS regulations at ports of entry. APHIS and CBP personnel inspect shipments of imported agricultural products and certify that the required animal or plant health import permits and SPS documentation accompany each shipment. APHIS Authority Over Health Import Permits For much of the 20 th century, animal and plant health bureaus within USDA operated independently of one another. The creation of APHIS consolidated these bureaus in 1972. There are a number of statutes (e.g., Table 1 ) that have established APHIS's authority over health import permits. However, the majority of the directives are found in two key legislative actions: 1. The Animal Health Protection Act (AHPA, 7 U.S.C. § § 8301 et seq .) is the primary federal law governing the protection of animal health. It gives APHIS broad authority to detect, control, or eradicate pests or diseases of livestock or poultry. AHPA consolidated all of the animal quarantine and related laws—some dating back to the late 1800s—and replaced them with one statutory framework. While most of the authorities contained in the consolidated AHPA were taken from existing laws, some new provisions were added to fill in gaps in legal authority. 2. The Plant Protection Act of 2000 (PPA, 7 U.S.C. § § 7701 et seq . ) is the primary federal law governing plant pests in foreign and interstate commerce, covering agricultural commodities, plants, biological control organisms, articles that might be infested, means of transportation, and other pathways for moving pests. It authorizes APHIS to prohibit or restrict the importation, exportation, and interstate movement of plants, plant products, certain biological control organisms, noxious weeds, and plant pests. It also authorizes APHIS to inspect foreign plant imports, quarantine any state or premise infested with a new pest or noxious weed, and cooperate with states in certain control and eradication actions. Both AHPA and PPA give APHIS authority to inspect agricultural imports. However, after the events of September 11, 2001, congressional concern about agroterrorism—the deliberate introduction of an animal or plant disease to infect food, causing economic losses and/or undermining social stability—triggered the strengthening of APHIS and other federal agency agricultural inspection activities. Congress passed the Public Health Security and the Bioterrorism Preparedness and Response Act of 2002 (16 U.S.C. §§3371-3378; commonly referred to as the Bioterrorism Act) to bolster protection of the nation's food and water supplies and prevent unauthorized access to certain animal and plant disease organisms in laboratories. Since the enactment of the Bioterrorism Act, APHIS-issued health permits have been required to accompany APHIS-regulated agricultural imports to facilitate trade. Annual Appropriations to Conduct APHIS Health Import Permit Activities Overall, the House and Senate Agriculture Committees maintain jurisdiction over USDA's meat and poultry inspection programs and also other food-safety-related programs administered by other USDA agencies. These House and Senate committees direct APHIS, other federal agencies, states, industry, and professional groups to facilitate international and domestic agricultural trade. The Subcommittees on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies of the House and Senate Appropriations Committees appropriate funds for APHIS. Between FY2014 and FY2018, APHIS's discretionary appropriation has averaged $877 million annually. APHIS's appropriations cover four broad mission areas: (1) Safeguarding and Emergency Preparedness/Response, (2) Agency-Wide Programs, (3) Safe Trade and International Technical Assistance, and (4) Animal Welfare. The Safeguarding and Emergency Preparedness/Response portion of the APHIS budget is responsible for monitoring animal and plant health in the United States and throughout the world and represents roughly 85% of APHIS's annual budget. Most of the animal and plant health import permit activities are housed in this mission area. In May 2018, both the House and Senate appropriations committees reported bills ( H.R. 5961 , S. 2976 , 115 th Congress) that would have provided roughly $1 billion for the APHIS budget for FY2019. This amount was roughly $260 million more than Administration's FY2019 request and would have amounted to an increase of 7% from the FY2018 appropriation of $981.9 million. In August 2018, the Senate passed H.R. 6147 , which would have provided $1 billion for APHIS for FY2019. APHIS-Issued Federal Orders When the APHIS administrator considers it necessary to take emergency action to protect U.S. agriculture or prevent pest or disease entry into the United States, the administrator may issue a Federal Order. Such Federal Orders are effective immediately, contain specific regulatory requirements, and remain in effect until they are revised by another Federal Order or until an interim rule on the subject is published. APHIS issues Federal Orders, under the PPA, which authorizes USDA to prohibit or restrict the importation or entry of any plant, plant part, or article that USDA identifies as necessary to prevent the introduction or dissemination of a plant pest into or within the United States. For example, in June 2018, APHIS released a Federal Order prohibiting the importation of pomegranate arils from Peru into the United States due to concerns about the potential importation of the Mediterranean fruit fly ( Ceratitis capitata ). This Federal Order is still in effect as of January 9, 2019. Obtaining an Animal or Plant Health Import Permit Agricultural imports arrive to the Un ited States through five U.S. Customs Districts ( Figure 2 ). Although APHIS regulations are enforced at the ports of entry, they are typically mediated through health import permits. APHIS's Plant Production Quarantine and Veterinary Services oversee the health import permit process for a "plant health import permit" or "animal health import permit," respectively ( Figure 3 ). APHIS works with several federal agencies to issue import permits. U.S. importers obtain APHIS health import permits via the APHIS website ("ePermit") or in consultation with APHIS or state Department of Agriculture offices. Many U.S. importers use ePermit for the importation of products from abroad as well as for interstate trade. The ePermit system enables federal regulatory officials to issue, track, and verify the validity of import permits online. There is a cost to the importer associated with each ePermit application. APHIS and the state-level authorities often request health import permit submissions alongside supporting documentation ( Figure 4 ). In many cases, a biosafety facility inspection is a part of the review process—where a facility (e.g., laboratory, greenhouse, growth chamber) must demonstrate they can adequately and safely contain certain organisms. Health import permits are normally processed and issued within 10 business days of receipt of the application. After a health import permit is obtained, APHIS and/or CBP must inspect the APHIS-regulated product. One of the flagship programs that APHIS and CBP collaborate on and administer is the Agricultural Quarantine Inspection (AQI) program. AQI ensures that the required health permits, sanitary certificates (for animal products), and phytosanitary certificates (for plant products) accompany each shipment. APHIS transfers funds to CBP to conduct AQI activities. APHIS collects AQI user fees from international airline passengers, operators of commercial vehicles, cruise ship passengers, and importers of shipments requiring phytosanitary treatments. Congress appropriates funding for AQI each year (e.g., operating expenses such as rent, utilities, travel, and supplies to conduct program activities). The AQI user fees recover costs that APHIS and CBP bear to administer the inspections. USDA estimates that in FY2018, AQI collected $765 million in fees, of which it transferred $539 million to DHS and retained $226 million to augment its discretionary appropriation. In a 2013 report, the Government Accountability Office (GAO) identified a gap between fee revenues and total program costs. In its report, GAO recommended aligning the division of fees between APHIS and CBP with their respective costs and that the two agencies ensure that fees are collected when due. In February 2018, APHIS announced it had implemented all of GAO's recommendations. Role of Other Government Entities in Plant and Animal Imports Importers must obtain APHIS-issued health import permits before beginning the inspection process. In addition to APHIS, Congress has directed other federal agencies and state-level Departments of Agriculture (see Table 2 ) to participate in inspecting APHIS-regulated products: The Food and Drug Administration (FDA) has taken steps to protect the public from terrorist attacks on the U.S. food supply and other food-related emergencies in collaboration with DHS. Since 2003, FDA has advised U.S. importers to submit "prior notice" online forms to FDA before food is imported or offered for import into the United States. Unlike APHIS, FDA does not enforce industry guidelines, but FDA does review APHIS-issued import permits to verify the disease or pest status of the agricultural product. The Food Safety Modernization Act (FSMA; P.L. 111-353 ) created new rules governing FDA's food inspection regime of both domestic and imported foods under the agency's jurisdiction. CBP and APHIS inspect agricultural products together through the AQI program. CBP officials require U.S. importers to present an APHIS-issued import permit before conducting inspections. The F ood Safety and Inspection Service (FSIS) has regulatory oversight of meat, poultry, and some egg products. FSIS often requests APHIS-issued health import permits before proceeding with meat inspections. In the case of FSIS-regulated products, FSIS requires APHIS-issued animal health import permits to ensure that the meat and/or poultry ingredients in such food products are prepared under FSIS inspection or in a foreign establishment certified by a foreign inspection system approved by FSIS. S tate-l evel D epartments of A griculture enforce APHIS regulations. States have different animal and plant health import restrictions that apply to interstate trade. Some states have heightened restrictions based on disease and pest detections. Similar to FSIS, state-level regulators typically request APHIS-issued animal or plant health import permits before conducting their inspections. State-level Departments of Agriculture often coordinate with APHIS and CBP directly (e.g., when a state detects a disease outbreak). Congressional Activities Congress has long been involved in efforts to prevent the entry of pest and disease threats into the United States from agricultural imports. This oversight has manifest in various congressional actions, including continuing to provide APHIS with appropriations to monitor pests and diseases, introducing legislation to address invasive species (e.g., Areawide Integrated Pest Management, H.R. 5411 , 115 th Congress), and directing CBP to enforce APHIS regulations to deter agricultural smuggling into the United States. APHIS-issued animal and plant health import permits can be a tool to prevent agricultural import threats to the United States. The sections that follow summarize selected issues that Congress has addressed by directing APHIS to undertake a specific role, assigning the agency with specific responsibilities, or authorizing it carry out certain actions. Pests and Diseases In the event of a U.S. disease outbreak or pest infestation, APHIS is designated to be the lead U.S. agency for informing the international community (such as to the World Organization for Animal Health, also known as "OIE"). Typically, APHIS would directly contact the partner country's scientific authority to explain the nature and extent of the outbreak. In most cases, APHIS and officials of the partner country observe the SPS guidelines agreed upon under the WTO framework or, in some cases, the SPS chapters in individual FTAs. Responses to a pest or disease outbreak can include a complete ban on the importation of U.S. products impacted by the pest/disease. Under certain circumstances, a "regionalization" protocol may be applied in which a specific exporting region within the United States may be recognized as disease- or pest-free. In the event of a trading partner experiencing a disease outbreak or pest infestation, the notification process is similar to a U.S. outbreak (e.g., informing OIE). APHIS informs U.S. importers of the trading partner outbreak. U.S. importers work with APHIS to verify that the health import permit reflects the disease or pest status of the exporting country. APHIS provides guidance to U.S. importers if their health import permits would be accepted (e.g., following SPS protocol of regionalization) or rejected (e.g., ban products from an infected trading partner). Table 3 provides a selected listing of prominent APHIS-monitored diseases and pests that pose a threat to U.S. agriculture. Among these are disease concerns, including avian influenza and foot-and-mouth disease, and invasive plant pests such as the Asian longhorned beetle and the emerald ash borer. In some instances, agricultural imports (or even interstate shipments) can arrive into AQI with pests and diseases that could impact public health or U.S. agricultural production systems. Congress has sometimes directed APHIS to address certain diseases through the annual appropriations process. For example, the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), includes a general provision providing APHIS with an additional $5.5 million—to remain available until the end of FY2019—to fund a multiple-agency response to citrus greening disease. Agroterrorism Agroterrorism is the deliberate introduction of an animal or plant disease with the objective of infecting food, causing economic losses and/or undermining social stability. Requiring U.S. importers to obtain APHIS-issued health import permits is one way that APHIS and the CBP protect against agroterrorism. Permits provide APHIS and CBP inspectors an opportunity to conduct random sampling to assist in disease and pest identification or to detect other potential threats. Congress has taken steps to address potential harmful imports ("select agents") that could impact public health or animal/plant health through the Bioterrorism Act by directing the Department of Health and Human Services's (HHS) Centers for Disease Control and Prevention (CDC) and APHIS to enforce the Select Agents and Toxins List under the Federal Select Agent Program. The agents and toxins on this list have been determined to pose a threat to human and animal health, plant health, or animal and plant products. Some of these agents and toxins are overseen by HHS, others by USDA, and certain ones by both agencies. Invasive Species An invasive species is a nonnative (also known as an alien ) species that does or is likely to cause economic or environmental harm or harm to human health. Invasive species include plants, animals, and microbes. The introduction of invasive species into the United States—whether deliberate or unintentional—can threaten native animal and plant communities, lead to ecosystem disruptions, and contribute to extinctions of native species. Invasive species can also impact biodiversity and alter habitats and can result in the introduction of new pests and diseases. An estimated 50,000 non-native invasive animal and plant species have been introduced to the United States for over a century, with a 2011 study citing total costs exceeding $100 billion annually—including economic costs related to damages as well as management, mitigation, and recovery activities. APHIS collects information on invasive species and monitors their impacts (e.g., on agricultural production, forest lands). The information is updated and shared with AQI and ports of entries. The health import permits provide the APHIS/CBP officials specific guidelines (e.g., identifying specific pests), depending on the origination of the product, that facilitate detection during inspecting or random sampling of the imported agricultural products. U.S. importers also work with APHIS and other federal agencies (e.g., the Environmental Protection Agency) to obtain regulations on preventing an invasive species infestation (e.g., vessel ballast water discharge). Several statutes provide federal agencies with authorities to address invasive species in the United States. Some in Congress have expressed interest in pursuing legislation to reduce the prevalence of invasive species, such as through the introduction of "area-wide integrated pest management" (e.g., H.R. 5411 , 115 th Congress), a pest management strategy that is applied within a geographical area. This bill would have expanded the USDA Integrated Research, Education, and Extension Competitive Grants Program for qualified area-wide integrated pest management projects. Smuggling Over the past 30 years, there has been a steady increase in the movement of people and agricultural products around the world. The volume of smuggled and improperly imported agricultural products entering the United States has been a congressional concern. Products smuggled into the United States can harbor exotic plant and animal pests, diseases, or invasive species that could damage domestic crops, livestock, and the environment. If APHIS identifies an illegally imported product or a regulatory violation, it may seize the item and pursue civil and criminal penalties, if warranted. APHIS encourages distributors and retailers to purchase products that have been imported through legal channels that are typically accompanied by APHIS health import permits. One way that Congress has attempted to prevent agricultural smuggling is through the Lacey Act. The Lacey Act dates from 1900 and prohibits the importation of any plant—with limited exceptions—that is taken or traded in violation of domestic or international laws. The act requires declarations—in addition to the APHIS-issued plant health import permits—for imported shipments of most plants or plant products. APHIS works with CBP, the U.S. Coast Guard (e.g., for fisheries violations), the National Marine Fisheries Service, the Federal Bureau of Investigation, the U.S. Forest Service, and U.S. Immigration and Customs Enforcement to enforce the Lacey Act through inspection or monitoring activities. APHIS's role in this context is to collect APHIS-issued health import permits, manage the declaration requirement, provide guidance to importers regarding the declaration, perform compliance checks, and provide enforcement agencies with information to assist their investigations. The declaration is to be made by the importer at the time of import. According to USDA, both CBP and APHIS activities have contributed to an increase in the number of declarations, with approximately 1 million declarations in FY2017, up roughly 300,000 from FY2016. This increase has coincided with the introduction of the online system in lieu of paper-based declarations.

The Animal and Plant Health Inspection Service (APHIS) of the U.S. Department of Agriculture (USDA) is the U.S. government authority tasked with regulating the import, transit, and release of regulated animals, animal products, veterinary biologics, plants, plant products, pests, organisms, soil, and genetically engineered organisms. APHIS provides scientific authorities in trade partner countries and U.S. importers with animal and plant health import regulations. APHIS requires U.S. importers to obtain animal or plant health import permits, which verify that the items being imported meet U.S. import standards. Animal and plant health import permits certify that imports follow U.S. regulations, World Trade Organization (WTO) guidelines, and/or trading partner specific requirements. These import permits are a part of broader agreements between the United States and its trading partners within the WTO on established sanitary and phytosanitary (SPS) measures. These measures aim to protect against diseases, pests, toxins, and other contaminants. The House and Senate Agricultural Appropriations Committees appropriate funds that allow APHIS to carry out a range of activities, including those involved in issuing import permits. From FY2014 to FY2018, discretionary appropriations for APHIS have averaged nearly $900 million. About 85% of the APHIS budget is allocated to the "Safeguarding and Emergency Preparedness/Response" mission area, which includes the administration of health import permits and other efforts to prevent imports of pests and diseases into the United States. APHIS's authority over agricultural imports is largely provided by the Animal Health Protection Act (7 U.S.C. §§8301 et seq.), the Plant Protection Act (7 U.S.C. §§7701 et seq.), and the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (7 U.S.C. §§8401). These laws authorize APHIS to administer animal and plant health import permits and conduct agricultural import inspections. APHIS works with other federal agencies, such as the Department of Homeland Security's Customs and Border Protection (CBP), to conduct animal and plant health monitoring programs and to determine if new pest or disease management programs are needed. In addition, Congress directs the Food and Drug Administration, the Food Safety and Inspection Service, and state-level Departments of Agriculture to participate in inspecting many products regulated by APHIS. APHIS and CBP personnel inspect shipments of imported agricultural products and certify that the required import health permits and SPS certificates accompany each shipment. One of the major flagship programs that APHIS and CBP administer together is the Agricultural Quarantine Inspection (AQI) program, in which APHIS and CBP technical staff work to ensure that the required animal or plant health permits, sanitary certificates (for animal products), and phytosanitary certificates (for plant products) accompany each shipment. APHIS transfers funds to CBP to conduct AQI activities. The ongoing congressional commitment to preventing plant and animal disease and pests from entering the United States through agricultural imports is evident in annual appropriations Congress provides for APHIS. Congress has directed APHIS to monitor pests and diseases and has assigned APHIS to oversee SPS activities in some free trade agreements. Moreover, legislation introduced in the 115th Congress sought to address invasive species (e.g., Areawide Integrated Pest Management, H.R. 5411) and would have directed CBP to enforce APHIS regulations to deter smuggling of plants and animals into the United States.

CRS_R45626

T he Senior Community Service Employment Program (SCSEP) authorizes the Department of Labor (DOL) to make grants to support part-time community service employment opportunities for eligible individuals who are age 55 or over and have limited employment prospects. Participation in the program is temporary, with the goal of transitioning participants to unsubsidized employment. In FY2019, appropriations for the SCSEP program were $400 million and supported approximately 41,000 positions. SCSEP appropriations accounted for approximately 20% of total Older Americans Act funding in FY2019. Authorization, Administration, and Terminology SCSEP is authorized by Title V of the Older Americans Act of 1965, as amended (OAA; 42 U.S.C. 3056 et seq.) Since enactment of the OAA, Congress has reauthorized and amended the act numerous times. Most recently, the Older Americans Act Reauthorization Act of 2016 ( P.L. 114-144 ) authorized appropriations for OAA programs for FY2017 through FY2019, and made other changes to the act. Prior to the 2016 OAA reauthorization, the OAA Amendments of 2006 ( P.L. 109-365 ) reauthorized all programs under the act through FY2011. Although the authorizations of appropriations under the OAA expired at the end of FY2011, Congress continued to appropriate funding for OAA-authorized activities through FY2016. Grants under the program are administered by the Employment and Training Administration (ETA) at the Department of Labor (DOL). (References to the Secretary in this report refer to the Secretary of Labor, unless otherwise specified.) SCSEP is the only OAA program administered by DOL. Other OAA programs are administered by the Administration for Community Living (ACL) at the Department of Health and Human Services (HHS). SCSEP is supported by discretionary appropriations under the DOL-HHS appropriations bill. SCSEP programs operate on DOL's program year (PY), which operates nine months behind the fiscal year. Activities in a given program year are supported by funding from the corresponding fiscal year. For example, PY2017 ran from July 1, 2017, through June 30, 2018, and was supported by FY2017 appropriations. Programs administered under Title V of the OAA may also be referred to as the Community Service Employment for Older Americans (CSEOA) programs. DOL uses the CSEOA and SCSEP terminology interchangeably. Grant Structure and Funding Formulas From its total appropriation, the OAA establishes three reservations: (1) up to 1.5% for DOL-selected pilots, demonstration, and evaluation projects; (2) a fixed percentage of 0.75% for the territories of Guam, American Samoa, the U.S. Virgin Islands, and the Northern Mariana Islands; and (3) a portion determined by the Secretary for activities that support eligible individuals who are American Indian and Pacific Islander/Asian American. The remaining funds are allocated to formula grants. Title V supports formula grants to both national organizations ("national grantees") and state agencies ("state grantees"). National grantees are typically nonprofit organizations that operate in more than one state. State grantees are state government agencies. State grantee agencies are typically housed in a state's workforce unit or aging unit. In PY2018, approximately 78% of funds for formula grants ($298 million) were distributed among national grantees. There are about 15-20 national grantee organizations, including AARP and the National Council on Aging. About 22% of PY2018 funds for grants ($84 million) were allocated to state agencies. Both national grantees and state grantees subgrant funds to partner organizations that work with host agencies that provide the actual employment (see Figure 1 ). Funding Formula and Hold Harmless Provision The OAA specifies that in years where funds available for formula grants exceed the "funds necessary to maintain the fiscal year 2000 level of activities supported by grantees," the excess funds are allotted using a series of formulas that are directly correlated to the number of persons age 55 and over in the state and inversely correlated to the per capita income of the state. Thus, the formulas favor states with larger populations of persons age 55 or over and states with lower per capita incomes. The law contains hold harmless provisions that specify that in years where funds are less than their FY2000 level, funds are awarded proportionately "to maintain their fiscal year 2000 level of activities." The last year in which funds were allocated using the formula was PY2010. Since then, funding for grants has consistently been below the FY2000 level (see Table 1 ). As such, specific grant levels have varied but each state's relative share of grants funds has been proportionate to its FY2000 levels and a consistent share of the funding has been allocated to national grantees in each state as well as each state agency. The OAA defines a state's allotment (and corresponding hold harmless share of funding) as the sum of the allotment for national grants in the state and the grant to the state agency. The proportion of each state's total funding that comes from grants to national organizations versus grants to the state agency varies somewhat. State Plans and Integration with WIOA9 As a condition of receiving SCSEP funds, each state's governor must develop and submit a state plan to DOL. The plan can be an independent document or part of a combined plan with the state's activities under the Workforce Innovation and Opportunity Act (WIOA), the primary federal workforce development legislation authorizing workforce services for the broader population. Whether the SCSEP plan is independent or part of a combined plan, it must provide information on individuals in the state who will be eligible for the program as well as the localities most in need of services. The plan must be developed in consultation with the state WIOA agency, national grantees operating in the state, and other stakeholders. The state plan must describe how the activities under SCSEP will be coordinated with activities under WIOA and how the state will minimize duplication between Title V and WIOA. Responsibilities of Host Agencies and Activities of Participants Grantees that receive funds directly from DOL typically allocate funds to subgrantees and/or host agencies that provide the actual work site placements and part-time community service employment. Recruitment and Participant Eligibility Host agencies are responsible for recruiting program participants. To be eligible for the program, a prospective participant must be age 55 or older, unemployed, and a member of a family with income of not more than 125% of the poverty level ($15,613 for a family size of one in 2019). Statute specifies that priority will be given to prospective participants who demonstrate additional barriers to employment. Specifically, an individual may receive priority if the individual is 65 years of age or older; has a disability; has limited English proficiency or low literacy skills; resides in a rural area; is a veteran; has low employment prospects; has failed to find employment after utilizing services provided under Title I of the Workforce Innovation and Opportunity Act; or is homeless or at risk for homelessness. As is the case with other DOL programs, eligible veterans receive priority of service in the SCSEP program. Participant Employment and Related Activities The OAA allows host agencies to employ program participants part-time in a variety of community service activities, including (but not limited to) social, health, welfare, and educational services as well as conservation and community beautification activities. Some participants may be employed at senior centers and other facets of the Aging Network established by the OAA, such as an Area Agency on Aging. Program participants are paid by the host agency. Participants must earn the highest of (1) the federal minimum wage, (2) the prevailing minimum wage in the state or locality in which the participant works, or (3) the prevailing rate for individuals employed in similar occupations by the same employer. Title V of the OAA does not establish a definition for "part-time" and federal policy does not limit the number of hours participants can work. In establishing the cost per authorized position, however, Title V establishes a formula that includes the federal minimum wage "multiplied by the number of hours equal to the product of 21 hours and 52 weeks." As part of program orientation, the subgrantee or host agency is responsible for assessing the participant, including the participant's skills, interests, needs, and potential for unsubsidized employment. Using information from this assessment, the grantee works with the participant to develop an individual employment plan (IEP) that includes a post-service objective (including employment, if appropriate) and the timeline for achievement of that objective. In addition to employment, grantee organizations may also provide training and supportive services. These services can include (but are not limited to) costs of transportation, health and medical services, special job-related or personal counseling, and work-related incidentals such as eyeglasses or work shoes. Individual participants are typically limited to an aggregate maximum of 48 months of participation in the program. Grantees are required to manage programs such that the average duration of participation for all participants does not exceed 27 months. This cap may be increased to an average of 36 months in certain circumstances such as high unemployment in the service area. SCSEP participants are not federal employees. Regulations specify that grantees are responsible for determining whether or not a participant qualifies as an employee of the grantee, subgrantee, or host agency under applicable laws. Financial Responsibilities of Grantees Grantees must match SCSEP grants such that federal funds account for no more than 90% of the project cost. DOL may waive match requirements in cases of emergency or disaster projects or projects in economically depressed areas. At least 75% of federal grants must be used to pay wages and legally required benefits for program participants. In limited cases, this requirement may be reduced to 65% if the program allocates a certain portion of funds to training and supportive services. In most circumstances, grantees may not use more than 13.5% of their federal grant for administrative expenses. Performance Accountability Federal law establishes six core indicators for CSEOA grantees. Three of the six CSEOA indicators focus on unsubsidized employment and earnings after participation in the program. The performance indicators are 1. hours (in the aggregate) of community service employment; 2. the percentage of project participants who are in unsubsidized employment during the second quarter after exit from the project; 3. the percentage of project participants who are in unsubsidized employment during the fourth quarter after exit from the project; 4. the median earnings of project participants who are in unsubsidized employment during the second quarter after exit from the project; 5. indicators of effectiveness in serving employers, host agencies, and project participants; and 6. the number of eligible individuals served, including the number of participating individuals with demonstrated barriers to employment. Indicators 2-4 are largely based on the performance accountability indicators for the general workforce programs under WIOA. Indicators 1, 5, and 6 do not have direct analogues in the WIOA performance accountability system. The current performance accountability measures were established by the Older Americans Act Reauthorization Act of 2016 ( P.L. 114-144 ). Grantees started reporting performance under these metrics beginning in PY2018, starting July 1, 2018. Grantees negotiate expected performance levels with DOL. Negotiating performance levels at the grantee level allows the expected performance levels to reflect the types of participants a particular grantee serves or the environment in which it operates (e.g., the grantee serves a disproportionate number of high-need participants or operates in an area with a high rate of unemployment.) Performance accountability is assessed at the level of the grantee (i.e., the entity that receives funding directly from DOL). Grantees are responsible for oversight of subgrantees and host agencies. Regulations establish that performance is measured as a percentage of the negotiated level of performance. For example, if a grantee negotiates a performance rate of 50% of participants in unsubsidized employment in the second quarter after exit and 48% of the program participants subsequently meet that standard, the grantee has reached 96% of its agreed-upon level of performance. Performance in the range of 80% to 100% constitutes meeting the core level of performance. If a national or state grantee fails to meets its negotiated level of performance, the grantee must receive technical assistance from DOL and submit a corrective action plan. If a national grantee fails to meet expected levels of performance for four consecutive years, the grantee may not compete in the subsequent grant competition. If a state grantee fails to meet the expected levels of performance for three consecutive program years, the state must conduct a competition to award its formula funds to a new grantee. Program Data and Reports DOL makes available several reports with SCSEP participation data. Data are reported by program year. Reports currently made available by DOL include the following: Aggregate and Individual Performance Reports . These reports include the performance of each national grantee and state agency relative to the negotiated levels of performance. Nationwide Quarterly Progress . These reports include total participation as well as data on demographics and participants' demonstrated barriers to employment. Service to Minority Individuals . These reports include information on the participation and outcomes of minorities for each grantee. The reports are required under Section 515 of the OAA.

The Senior Community Service Employment Program (SCSEP) authorizes the Department of Labor (DOL) to make grants to support part-time community service employment opportunities for eligible individuals age 55 or over. In FY2019, appropriations for SCSEP programs were $400 million and supported approximately 41,000 positions. DOL may also refer to the SCSEP program as Community Service Employment for Older Americans (CSEOA) SCSEP is authorized by Title V of the Older Americans Act (OAA). The Older Americans Act Reauthorization Act of 2016 (P.L. 114-144) authorized appropriations for OAA programs for FY2017 through FY2019. In FY2019, SCSEP appropriations accounted for about 20% of the funding under the OAA. The bulk of SCSEP appropriations support two primary grant streams: one to national nonprofit organizations and one to state agencies. In the most recent program year, approximately 78% of formula grant funds were allocated to national grantees and about 22% were allocated to state grantees. Both the national organizations and state grantees subgrant funds to host agencies that provide the actual community service employment opportunities to participants. Host agencies are responsible for recruiting eligible participants. To be eligible for the program, prospective participants must be at least age 55, low-income, and unemployed. Federal law requires host agencies to give preference to prospective participants who demonstrate additional barriers to employment such as having a disability or being at risk of homelessness. Program participants work part-time in community service jobs, including employment at schools, libraries, social service organizations, or senior-serving organizations. Program participants earn the higher of minimum wage or the typical wage for the job in which they are employed. An individual may typically participate in the program for a cumulative total of no more than 48 months. During orientation, participants receive an assessment of their skills, interests, capabilities, and needs. This assessment informs the development of an individual employment plan (IEP). A participant's IEP is updated throughout their participation in the program. Grantees are subject to a performance accountability system. Performance metrics generally relate to participants' unsubsidized employment and earnings after exiting the program. In addition to outcome-based metrics, grantees are also assessed on participants' total number of hours of service and whether the grantee served participants with barriers to employment. Grantees that do not meet negotiated levels of performance may become ineligible for subsequent grants.

CRS_R45725

Introduction The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens. The act provides a significant degree of protection from foreign competition for U.S. shipyards, domestic carriers, and American merchant sailors. It is a subject of debate because some experts point out that it makes domestic ocean shipping relatively expensive, constrains the availability of ships, and contributes to making it much more costly to build merchant vessels in U.S. shipyards than in shipyards abroad. The Jones Act has been an issue in recent Congresses, coming into prominence amid debates over Puerto Rico's economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the 40-year-old ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas. The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability. In May 2018, the Office of Management and Budget requested public comment on federal requirements that could be modified or repealed to increase efficiency and reduce or eliminate unnecessary or unjustified regulatory burdens in the maritime sector. Legislative Context The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. Rather, it was a restatement of a long-standing restriction that was temporarily suspended during World War I by P.L. 65-73, enacted October 6, 1917. Laws favoring a U.S.-flag fleet over a foreign fleet were initiated by the third act of the First Congress (1 Stat. 27, enacted July 20, 1789), which assessed lesser duties on vessels built and owned domestically than on those foreign-built and -owned. On September 1 of the same year, Congress specified that only a U.S.-built vessel owned by U.S. citizens and with a U.S. citizen captain could register as a U.S. vessel (1 Stat. 55). In 1817, Congress enacted a precursor to the Jones Act by disallowing any vessel wholly or partially foreign-owned from transporting domestic cargo between U.S. ports (3 Stat. 351). In 1886, this prohibition was extended to vessels transporting passengers domestically (24 Stat. 81). The early United States had a comparative advantage in shipbuilding due to its ample supplies of large timber. During the second half of the 1800s, it lost that advantage as wooden sailing ships gave way to iron steamships, with the advantage shifting to Scotland and England. Congress began debating how to respond to the steep drop-off in the share of U.S. foreign trade carried by U.S. vessels. The fall-off in domestic coastwise transport was less severe, but railroads began offering competition to coastal shipping. Proposals to allow foreign-built vessels to sail under the U.S. flag became known as the "free ship" movement. Opponents of the free ship movement argued that the higher cost of U.S. crews in and of itself would prevent a resurgence of trade carried by U.S. vessels even if foreign-built ships were allowed. While bills that would have allowed foreign-built vessels to qualify for U.S.-flag international service were reported by House and Senate committees in the late 1800s, it was in 1912 that Congress enacted such a measure (P.L. 62-33, 37 Stat. 562). Thus, since 1912, the domestic build requirement has principally applied to vessels making domestic voyages. In the late 1800s, Congress considered but did not pass bills that would have allowed foreign-built ships in domestic trade. Rather, Congress tightened the language concerning coastwise transport in response to shippers' attempts to avoid high-cost U.S. vessels. For instance, in 1891 a shipper loaded 250 kegs of nails at the Port of New York with an ultimate destination of Los Angeles (Redondo).The shipper loaded the merchandise on a foreign-flag ship bound for Antwerp, Belgium, where the goods were transferred to another foreign-flag ship bound for Los Angeles. Despite the circuitous routing and extra port charges, the freight charges were apparently less than they would have been using a U.S.-built and U.S.-owned ship to carry the nails directly between New York and Los Angeles. A court found that the shipper had acted legally. Similarly, shipments from Seattle to Alaska often were routed via Vancouver, Canada, so shippers could use foreign-flag ships for both legs. Congress amended the coastwise law in 1893 (27 Stat. 455) and again in 1898 (30 Stat. 248) to prohibit shippers from routing cargo through a foreign port so as to avoid coastwise laws. Nonetheless, U.S. shippers continued to use foreign-flag vessels in the Alaska trade by moving cargo between the United States and Vancouver, Canada, by rail. In the Merchant Marine Act of 1920, Senator Wesley Jones of Washington, chair of the Commerce Committee, sought to stop this practice by requiring Alaska-bound cargo to move through the Port of Seattle by amending the coastwise language to cover shipments "by land and water" and replacing shipments between "U.S. ports" with shipments between "U.S. points." These amendments remain current law. Shipbuilding Costs Debated The relative cost of building ships in the United States versus foreign countries was part of the debate leading up to passage of the Jones Act. Four years earlier, in the Shipping Act of 1916, Congress had requested annual reports on the subject from the federal agency in charge of maritime transportation. The minority report to a 1919 House committee report to the bill that would become the Jones Act expressed the view that banning foreign-built ships would result in more costly domestically built ships: … in order to build up and sustain an American merchant marine it is absolutely necessary to remove every restriction against American merchants acquiring ships, whether built in the United States or out of the United States, at the lowest possible price, in order to enable them to compete with other nations in the transportation of the commerce of the world. If our merchants are allowed to buy ships in the open world market and place them under American registry with the privilege of using them both in the coastwise and overseas trade, it will inevitably follow that ships under the American flag will be bought as cheaply as ships under other flags. On the other hand, if the American merchant shall be permitted to buy ships only from American builders in order to engage in our coastwise trade, it necessarily follows that every ship built in the United States will command a higher price than any foreign-built ship. Our American iron and steel manufacturers were unable to compete until they had to. When they had to they did compete successfully. Our shipbuilders can and will do likewise. A 1922 government report on shipbuilding indicated that U.S.-built ships cost 20% more than those built in foreign yards. The cost differential increased to 50% in the 1930s. In the 1950s, U.S. shipyard prices were double those of foreign yards, and by the 1990s, they were three times the price of foreign yards. Today, the price of a U.S.-built tanker is estimated to be about four times the global price of a similar vessel, while a U.S.-built container ship may cost five times the global price, according to one maritime consulting firm. The cost differential is also an issue for Department of Defense officials in charge of military sealift ships. As discussed later in this report, the military has modified a plan to build sealift ships domestically, finding it unaffordable, and instead will buy more used foreign-built cargo ships. Since U.S. shipyards do not build vessels for export, they are not required to compete with foreign shipyards on price or vessel characteristics. However, as was argued in the late 1800s, shipbuilding costs are not the only cost factor. U.S. crewing costs are higher than those of foreign-flag vessels. U.S.-flag ships have an operating cost differential estimated to be over $6 million per ship per year compared to foreign-flag ships. While crewing is the primary cost element, this estimate also includes insurance and ship maintenance costs. A 2011 study by the U.S. Maritime Administration (MARAD) found that in 2010, the average operating cost of a U.S.-flag ship was 2.7 times greater than a foreign-flag ship, but MARAD estimates that this cost differential has since increased. Statement of U.S. Maritime Policy A main thrust of the Merchant Marine Act of 1920 concerned the sale of a surplus of government cargo ships constructed for World War I. A second important and enduring aspect of the bill is its statement of maritime policy. The policy goals stated in the 1920 act, which appear in Section 27, have continued to the present day (46 U.S.C. §50101). The law stated the following: That it is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in times of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is hereby declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine. This statement reflects the United States' status as an emerging power at that time. When World War I began in 1914, European nations utilized their ships for the war effort or kept them in harbors for fear of submarine attacks, leaving the United States with a shortage of ships for carrying its foreign trade. The Merchant Marine Act therefore emphasized that the United States should have its own merchant marine so as not to be dependent on any other nations' merchant vessels. What the Jones Act Requires The Jones Act applies only to domestic waterborne shipments. It does not apply to the nation's international waterborne trade, which is almost entirely carried by foreign-flag ships. The U.S. citizen crewing requirement means that the master, all of the officers, and 75% of the remaining crew must be U.S. citizens. If the U.S. owner of a Jones Act ship is a corporation, 75% of the corporation's stock must be owned by U.S. citizens. Regarding U.S. territories, the U.S. Virgin Islands, America Samoa, and the Northern Mariana Islands are exempt from the Jones Act. Therefore, foreign-flag ships can transport cargo between these islands and other U.S. points. Puerto Rico is exempt for passengers but not for cargo. Vessels traveling between Guam and another U.S. point must be U.S.-owned and -crewed but need not be U.S.-built. Regulatory Background The Coast Guard is in charge of enforcing the U.S.-build requirement for vessels (46 C.F.R. §§67.95-67.101), U.S. ownership of the carriers (46 C.F.R. §§67.30-67.43), and U.S. crewing (46 C.F.R. §10.221)—essentially, the licensing of Jones Act operators. It enforces these requirements when an operator seeks a "coastwise endorsement" (46 C.F.R. §67.19) from the agency. The terms "coastwise qualified" and "Jones Act qualified" are synonymous. Customs and Border Protection (CBP) is primarily responsible for determining what maritime activity falls under the act, namely defining what constitutes "transportation" and whether the origin and destination of a voyage are "U.S. points" (19 C.F.R. §§4.80–4.93). Agency interpretations of domestic shipping restrictions have been consistent since the late 1800s and early 1900s, as discussed further below. "U.S.-Built" Vessel Defined A significant element of the Jones Act is the requirement to use only "U.S.-built" vessels. Competing freight transportation modes have no requirement to purchase only domestically built equipment. Congress has not defined what constitutes a U.S.-built vessel, leaving this determination to the Coast Guard. Coast Guard regulations deem a vessel to be U.S.-built if (1) all "major components" of its hull and superstructure are fabricated in the United States, and (2) the vessel is assembled in the United States. The "superstructure" means the main deck and any other structural part above the main deck (e.g., the bridge, forecastle, pilot house). The Coast Guard holds that propulsion machinery (the ship's engine), other machinery, small engine room equipment modules, consoles, wiring, piping, certain mechanical systems and outfitting have no bearing on a U.S.-build determination. Consequently, for oceangoing ships, U.S. shipyards typically import engines from foreign manufacturers. This is allowed because engines are deemed components that are attached to the hull rather than an integral part of the hull's structure. A ship part or component that is self-supporting and independent of the vessel's structure and does not contribute to the overall integrity of the vessel or compromise the watertight envelope of the hull can be manufactured in a foreign country. However, the part or component must be attached or joined to the vessel in a U.S. shipyard, not an overseas yard. The Coast Guard's test for "major components" of the hull or superstructure is based on weight; up to 1.5% of the steel weight of hull and superstructure components can be manufactured abroad. By this reasoning, the propeller, stern bulb, bulbous bow, some rudders (depending on their design), and watertight closures used in U.S.-built vessels are often imported, as long as they (in the aggregate) do not exceed the steel weight limit. The Coast Guard also permits steel products in standard forms ("off the shelf") to be imported with no limit on their weight, but any shaping, molding, and cutting of the steel that is custom to the design of the vessel must be performed in a U.S. shipyard. Shipyards typically seek confirmation from the Coast Guard that incorporating certain foreign-built components in construction of a vessel will not disqualify the vessel from the Jones Act trade. These "determination letters" written by the Coast Guard detail which and to what extent foreign components are permissible. In the Coast Guard Authorization Act of 2018 ( P.L. 115-282 , §516) Congress directed the Coast Guard to publish these letters. Shipyard unions refer to ships built in this manner as "kit ships." They sued the Coast Guard in 2007, arguing that the Coast Guard's interpretation of the statute violated the Administrative Procedure Act. The U.S. District Court for the Eastern District of Pennsylvania sided with the Coast Guard, noting in part that the Coast Guard's interpretation is rooted and consistent with the Treasury Department's interpretation dating to at least the late 1800s (the Treasury Department was the agency of jurisdiction at that time), as well as U.S. Attorney General interpretations dating to the early 1900s. The shipyard unions' lawsuit was prompted by a Philadelphia shipyard's partnership with a South Korean shipbuilder, begun in 2004, to use the Korean builder's ship designs and other procurement services to build a series of Jones Act tankers. This partnership continues today and also includes container ships built in the Philadelphia shipyard. Since 2006, General Dynamics NASSCO of San Diego, another builder of Jones Act oceangoing ships, has partnered with Daewoo Shipbuilding of South Korea to procure vessel designs, engineering, and some of the materials for the commercial ships it has since built for Jones Act carriers. Importing engines and other major ship components would appear to undermine the Jones Act policy objective of a domestic shipbuilding capability independent of foreign yards. In the court case cited above, the shipyards argued that not allowing use of such foreign components would increase the cost of ships further. This would reduce orders for new ships and harm the domestic fleet. Passenger Vessel Itineraries The United States is the largest cruise ship market, but most Americans board foreign-flag cruise ships. This is because CBP has determined that a cruise ship serving a U.S. port does not have to be Jones Act-compliant as long as it has visited a distant foreign port (any port outside North and Central America, Bermuda, the Bahamas, and the Virgin Islands). Thus, for example, if a cruise ship includes Aruba or Curacao in its itinerary, it does not need to be Jones Act-compliant. The reasoning is that the main objective of such a cruise itinerary is to visit such foreign ports, not to transport passengers from one U.S. port to another U.S. port. This reasoning was articulated in a 1910 Attorney General's opinion. Another significant regulatory interpretation allowing for the prevalence of foreign cruise ships at U.S. ports is a 1985 rulemaking by the U.S. Customs Service (the predecessor of CBP). In this rulemaking, Customs allowed foreign-flag cruise ships to make round trips from a U.S. port and to visit other U.S. ports as long as they also include a visit to a nearby foreign port (such as those in Canada, Mexico, or Bermuda). All passengers must continue with the cruise until the cruise terminates at the same dock at which it began. Again, the reasoning is based on the primary intent of the cruise voyage; if the main purpose of the voyage is not domestic transportation of passengers then the Jones Act is not violated. Another type of passenger vessel excursion involves visits to no other ports. The purpose of the voyage could be whale watching, recreational diving, gambling, duty-free shopping, or deep-sea fishing, for example. These are so-called "voyages to nowhere" since passengers do not visit any other ports besides the one at which they embark and disembark. In these cases, CBP has determined that if such vessels stay within the 3-mile zone of U.S. territorial waters they must be Jones Act-compliant since CBP considers any places within such waters as "U.S. points." This interpretation is based on Treasury Decision 22275, issued in 1900. However, CBP has determined that if the vessel journeys beyond 3 miles from shore (into international waters), then it does not need to be Jones Act-compliant. This determination is based on a 1912 Attorney General opinion. But the policy regarding charter fishing boats differs from that regarding other passenger vessels. If charter fishing boats venture into international waters, they still must be Jones Act-compliant. This determination is by virtue of a 1936 ruling by the Bureau of Navigation and Steamboat Inspection (Circular Letter No. 103, June 3, 1936), and affirmed by Treasury Decision 55193(2) in 1960. Another element of CBP's interpretation of the Jones Act with respect to passenger vessels is its definition of a passenger. According to CBP, a passenger need not be a paying customer (such as a tour boat or cruise ship ticket holder); rather, the term encompasses anyone aboard a vessel who is not a member of the crew or an owner of the vessel. Thus, for example, an owner of a yacht who chooses to entertain business clients aboard his or her vessel must comply with the Jones Act. A construction company transporting construction workers to a construction site must use a Jones Act-compliant vessel. Offshore Oil and Gas Vessels In the offshore oil market, CBP's interpretations have affected "lightering" (the transfer of oil offshore from an oil tanker too large to transit a harbor to a smaller vessel) and offshore supply vessels (OSVs) used to supply oil platforms. CBP has determined that if a tanker to be lightered is anchored to the seabed and within 3 nautical miles of shore (which are U.S. territorial waters), it is a "U.S. point." Many lightering areas in the Gulf of Mexico are 60 to 80 miles offshore and therefore the lightering vessels can be foreign-flagged. Lightering operations in the Delaware Bay and elsewhere are within the 3-mile zone, and therefore lightering vessels operating in these areas must be Jones Act-compliant (in which case tank barges rather than ships are typically used as lighters). Regarding OSVs, two factors determine whether these vessels must be Jones Act-compliant in servicing offshore oil rigs. By virtue of the Outer Continental Shelf Lands Act of 1953 (P.L. 83-212), U.S. waters extend 200 miles offshore strictly for purposes related to the exploration, development, and production of offshore natural resources. CBP has determined that within this zone, only oil rigs attached to the seabed (anchored or submerged to) are "U.S. points." Another type of oil rig is not attached to the seabed: some mobile offshore drilling units (MODUs) are semisubmerged and can hold their positions with the use of propellers. CBP had determined that MODUs not attached to the seabed are not "U.S. points," and therefore foreign-flagged vessels were permitted to service these units. However, in 2008, Congress required that OSVs servicing MODUs be U.S.-owned and -crewed, but need not be U.S.-built ( P.L. 110-181 , §3525), which is the same requirement applied to U.S.-flag vessels engaged in international voyages. A second factor determining whether OSVs must be Jones Act-compliant is whether the OSV is transporting supplies or workers to the oil rig, or if the vessel is involved in installing equipment necessary for the operation of the rig. CBP defines "vessel equipment" as anything "necessary and appropriate for the navigation, operation or maintenance of a vessel or for the comfort and safety of persons on board." Consequently, a vessel laying cable or pipeline in U.S. waters does not need to be Jones Act-compliant. Similarly, while OSVs transporting supplies and rig workers must be Jones Act-compliant (if the rig is attached to the seabed), vessels involved in installing rig equipment or conducting geophysical surveying or diving inspections can be foreign-flagged, as well as "flotels," which are vessels that provide living quarters for construction workers. The distinction can be unclear. In 2017, CBP proposed that most or all activities performed by OSVs fall under the Jones Act, but after reviewing comments, the agency withdrew the proposal. Offshore Wind Farms Some question whether the Outer Continental Shelf Lands Act, and therefore the Jones Act, applies to offshore wind farms located beyond 3 miles from shore. Currently, wind farm developers are being guided by CBP's interpretations of the Jones Act with respect to OSVs and oil rigs. The Department of Energy has noted that the nonavailability of Jones Act-compliant "Tower Installation Vessels" (TIVs) can be a hindrance to offshore wind farm development, especially for installations in deeper water. In Europe, TIVs not only install the towers but also transport the equipment from shore to the offshore site. Since there are no Jones Act-compliant TIVs, U.S. wind developers either transport the equipment from foreign countries or use Jones Act-compliant vessels to transport the equipment to the site from a U.S. port alongside non-Jones Act-compliant TIVs to install the equipment. Foreign Blending Ports A third CBP interpretation of the Jones Act has been significant in shaping coastal maritime activity. CBP determined that if merchandise is transformed (manufactured or processed) into a new and different product at an intermediate foreign port, then the vessels transporting the original product from a U.S. port to this foreign port and transporting the transformed product from the foreign port to a U.S. port do not need to be Jones Act-compliant. For example, a Texas oil producer has shipped a gasoline product to a Bahamian storage facility where its product is blended with a different imported petroleum product to produce a final gasoline product that is shipped to New York. Foreign-flag tankers are allowed to make all of these shipments even though it could be argued that a portion of the cargo is being shipped between two U.S. points (Texas and New York). The transformation of the product into a new and different product at an intermediate foreign port distinguishes this case from the 1891 kegs-of-nails case mentioned above. This interpretation has precedent in a 1964 Customs Service ruling involving California rice being processed in the U.S. Virgin Islands (exempt from the Jones Act) before being shipped to Puerto Rico, with both shipment legs involving foreign-flag ships. The Jones Act Since 1920 Since 1920, Congress has enacted provisions that could be said to tighten Jones Act requirements, as well as provisions that exempt certain maritime activities from the requirements. In 1935, Congress forbade Jones Act-qualified vessels sold to foreign owners or registered under a foreign-flag to subsequently requalify as Jones Act-eligible (P.L. 74-191), meaning that they could never again be used in U.S. domestic trade. This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take two years to construct a new ship. In 1940, Congress expanded the Jones Act to cover towing vessels, such as river tugs that push barge tows and harbor tugs that assist larger ships, and salvage vessels operating in U.S. waters (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material, such as dredge spoil or municipal solid waste, requires use of a Jones Act-qualified vessel ( P.L. 100-329 ). Precedents for Exempting the Jones Act Congress has enacted numerous exemptions or exceptions to the Jones Act. A list of these legislated exemptions and exceptions can be found in the Appendix . It has waived the Jones Act's restrictions when finding that no Jones Act-qualified operator was interested in providing service in a particular market, reasoning that the waiver thus would bring no harm to the domestic maritime industry. For instance, in 1984, Congress exempted passenger travel between Puerto Rico and any other U.S. port as long as no Jones Act-qualified operator was able to provide comparable service ( P.L. 98-563 ). This exemption remains in force, allowing foreign-flag cruise ships to carry passengers between the U.S. mainland and the island. On two occasions, in 1996 ( P.L. 104-324 ) and again in 2011 ( P.L. 112-61 ), Congress has permitted certain foreign-flagged liquefied natural gas (LNG) tankers to provide domestic service because none existed in the Jones Act fleet; no ship owners have made use of these exemptions (see Table A-1 ). Congress has also enacted exemptions due to a sudden spike in demand for Jones Act-qualified vessels. To address a vessel shortage, Congress enacted an exemption for iron ore carried on the Great Lakes during the 1940s that was related to a surge in steelmaking for the war effort. It did the same for a bumper grain harvest in 1951 (see Table A-1 ). In 1996, Congress enacted an exemption for vessels participating in oil spill cleanup operations when an insufficient number of Jones Act-qualified vessels are available. Congress has enacted Jones Act waivers for two innovations in vessel designs used in foreign trade but whose cargo operations included domestic legs that technically would otherwise fall under the Jones Act. One concerned a ship designed to carry river barges on international voyages, a technology known as Lighter Aboard Ship (LASH). In 1971, Congress exempted these specific barges from the Jones Act (P.L. 92-163). The exemption is no longer relevant, as this type of shipping is not now in use. In 1965, as container ships were about to come into use internationally, Congress exempted the movement of empty containers between U.S. ports from the Jones Act (P.L. 89-194). This exemption is restricted to containers used for international shipments, thus allowing the foreign-flagged container carriers to reposition their empty equipment along U.S. coastlines. Jones Act-compliant ships are necessary for transshipment of loaded international containers. This distinction between carriage of loaded and unloaded containers has ramifications for the development of marine highways or short sea shipping routes. Transshipment of international containerized cargo by feeder ships is prevalent abroad, but the practice does not exist in the United States. The Jones Act would require such ships be U.S.-built, -crewed, and -owned. Lack of transshipment services increases demand for rail and road connections to ports, as smaller feeder container ships do not play a role in distributing international containerized cargo among U.S. ports. Waivers for Specifically Named Vessels In addition to authorizing exemptions to the Jones Act under certain circumstances, Congress has enacted exemptions for specific vessels identified by name and identification number (a registration number with a state government, the Coast Guard, or International Maritime Organization). Typically, the legislative language does not indicate why a waiver was needed or describe the kind of vessel, its size, or its function. A search of the statutes at large under the terms "coastwise" and "endorsement" and "certificate of documentation" indicates that since 1989, at least 133 specific vessels have been granted Jones Act waivers by Congress in 16 separate legislative acts. These waivers typically appear in maritime-related legislation, such as a Coast Guard authorization bill. One act contains waivers for 67 vessels and another for 35 vessels. It appears in most cases that these vessels are not commercially significant—for instance, that they are not large or even moderately sized cargo or passenger vessels. Some of them are owned by nonprofit entities. One exception was the previously mentioned 2011 granting of waivers to three LNG tankers built in the United States in the late 1970s that subsequently became foreign-registered ( P.L. 112-61 ). In many cases, it appears the vessel needs a waiver because of a technicality in meeting Jones Act requirements; for example, the U.S.-citizen ownership history may be missing some records. In many cases, the statute granting the waiver places specific conditions on how the vessel can be used. Administrative Waivers in The Interest of National Defense As noted, the domestic shipping restrictions were waived during World War I. They were waived again in preparation for World War II (P.L. 77-507, 1942). In 1950, after the Korean War began, Congress enacted a provision allowing the executive branch to issue waivers "in the interest of national defense" (P.L. 81-891). This authority is still in effect, as the language did not specify that it was intended only for the conduct of that war. In 1991 and 2011, waivers were granted on national defense grounds to expedite oil shipments from the Strategic Petroleum Reserve in response to the Persian Gulf War and a conflict in Libya, respectively. In addition to military conflicts, the executive branch has waived the Jones Act for fuel resupply in the aftermath of natural disasters. This so-called "national defense waiver" authority has been the basis for recent waivers granted in the aftermath of major hurricanes, beginning with Hurricane Katrina in 2005 up to and including Hurricanes Harvey, Irma, and Maria in 2017 (see Table A-2 ). In 2008 ( P.L. 110-417 ), Congress inserted a role for MARAD to check on the availability of any Jones Act-qualified vessel before granting certain waivers. The lack of heavy-lift vessels in the Jones Act fleet has also prompted national defense waivers: in 2005 to allow a foreign-flag heavy-lift vessel to transport a radar system from Texas to Hawaii and in 2006 to allow an oil company to use a Chinese-flagged heavy-lift vessel to transport an oil rig from the Gulf Coast to Alaska. The national defense justification for the oil rig waiver was apparently based on addressing a fuel shortage in that region of Alaska. However, in 1992, Customs denied a waiver request to use a foreign-flag heavy-lift vessel to transport replicas of Christopher Columbus's Niña, Pinta, and Santa Maria vessels from Boston to San Francisco. A specific type of heavy-lift vessel is used in the construction of offshore oil rigs, but CBP has denied Jones Act waivers for these vessels even after Coast Guard and the Bureau of Safety and Environmental Enforcement in the Department of the Interior advised that not granting a waiver created a safety hazard for these operators. CBP has stated that the "national defense" justification is a high standard and that national defense waivers would not be issued for economic reasons such as commercial practicality or expediency. Consistent with this view, while CBP has issued national defense waivers in circumstances involving fuel shortages, it has not issued waivers that would merely favor domestic supply lines over offshore ones, even though one might argue the latter is a national security issue. For instance, in 1976, arguing that offshore supply lines are more vulnerable, some Members of Congress representing Gulf Coast states sought to have the Jones Act extended to the U.S. Virgin Islands. At the time, the largest refinery in North America was located in the U.S. Virgin Islands, and the refinery supplied petroleum products to the U.S. Northeast on foreign-flagged tankers. In 2014, northeast refineries reportedly contemplated seeking a Jones Act waiver to ship crude oil from Texas. These refineries import much of their crude oil. In 2018, the United States exported between 40 million and 80 million barrels of crude oil per month on foreign-flag tankers, imported about 150 million barrels per month from overseas sources on foreign-flag tankers, and shipped about 15 million barrels per month domestically on Jones Act tankers. A similar situation is occurring with liquefied natural gas (LNG): the United States has begun exporting substantial quantities by ship while continuing to import LNG by ship, but no LNG is shipped domestically. There are no LNG tankers in the Jones Act fleet, and it is unclear why shippers have not utilized the 1996 or 2011 waivers for LNG tankers mentioned above. Puerto Rico, which currently imports LNG from Trinidad and Tobago, is seeking a 10-year waiver of the Jones Act to receive bulk shipments of LNG from the U.S. mainland. The Jones Act Fleet Recent controversies over the Jones Act have concerned the oceangoing ship and offshore supply vessel sectors. The Jones Act also covers ships on the Great Lakes, river barges, harbor tugs, dredging vessels, and various kinds of passenger vessels. The Jones Act ship fleet, in particular, has shortcomings compared to the merchant fleet desired by the drafters of the 1920 act as they described it in the aforementioned statement of U.S. maritime policy. Oceangoing Ships As of March 2018, there were 99 oceangoing ships in the Jones Act-compliant fleet, employing about 3,380 mariners. The largest category of Jones Act ships is tankers. Of the 57 tankers in the fleet, 11 carry Alaskan crude oil to refineries on the West Coast, 44 are medium-sized product tankers that mostly carry refined products along the Atlantic Coast, and 2 are chemical or asphalt tankers. The dry cargo fleet includes 24 small to medium-sized container ships, 7 ships that have ramps for carrying vehicles (known as roll on/roll off vessels), and 2 dry bulk vessels designed to carry such commodities as grain and coal in bulk form. The fleet also includes 9 relatively small general-cargo vessels supplying subsistence harbors along Alaska's coast. As Figure 1 indicates, the number of oceangoing ships in the Jones Act fleet has shrunk to less than a quarter of what it was in 1950. The ships are much larger today than they were then, but their aggregate carrying capacity (DWT) is still less than in 1950. As shown in the figure, there was a pronounced drop in the size of the fleet in the late 1950s and early 1960s. At a 1967 congressional hearing, Alan Boyd, Secretary of Transportation in the Lyndon B. Johnson Administration, testified that the U.S. merchant marine was "too small, too old, and too unproductive," and stated, "you do not revitalize an industry by flooding it with Federal dollars and imprisoning it within a wall of protection." The Lyndon B. Johnson Administration appears to be the only Administration in the modern era that has called for the repeal of the Jones Act. While domestic ships are carrying fewer tons of freight today than they did in the 1950s, their most direct competitors, railroads and pipelines, are carrying more. Domestic ships have lost market share to land modes even though ships have economic advantages. Ocean carriers do not need to acquire and maintain rights-of-way like railroads and pipelines. They can move much more cargo per trip and per gallon of fuel than trucks and railroads. Although ships are slower than truck and rail modes, many shippers are willing to sacrifice transit time for substantially lower costs, as long as delivery schedules are reliable. The Jones Act fleet is almost entirely engaged in domestic trade routes where overland modes are not an option, serving Alaska, Hawaii, and Puerto Rico. In other words, it operates in markets where shippers have little alternative. Although the Jones Act can be said to have preserved a nucleus of a U.S. maritime industry, it has not succeeded in meeting the stated policy goal of sustaining a growing merchant marine that carries an increasing proportion of the nation's commerce. In the Merchant Marine Act of 1936 (P.L. 74-835, Section 101), Congress amended the policy goals articulated in the 1920 Act by adding the phrase "providing shipping service on all routes essential for maintaining the flow [of commerce] at all times," and also added the word "safest" to the policy goal of having the best equipped and most suitable types of vessels. At present, the Jones Act fleet does not appear to achieve either of these goals Ship Designs Missing from the Fleet One can also question whether the policy objective of having "the best equipped and most suitable types of vessels" has been achieved. Not all ship designs are represented in the Jones Act fleet. "Project cargo" or "heavy-lift" vessels are often used to carry oversized pieces of equipment such as smaller vessels, ship engines and modules, wind turbine parts, and power generation equipment. They would be useful for moving dredging fleets to project sites. There have not been any such vessels in the Jones Act fleet in recent decades. The Department of Defense has used "national defense" waivers of the Jones Act (see below) to move radar systems and newly built vessels on foreign-flag heavy-lift vessels. This type of cargo typically does not generate regular shipments in any one region; thus these ships would likely need to extend their market reach beyond the United States to include the international market. However, the higher cost structure of Jones Act operators is an obstacle to competing for international shipments. Two dry bulk ships are in the oceangoing Jones Act fleet, and they appear to be mostly inactive, possibly because they are nearly 40 years old. This is twice the economic life of a ship in the global fleet (where ships are typically sent for scrapping between 15 and 20 years of age). The sole Jones Act-qualified chemical tanker was built in 1968. No LNG tankers are in the Jones Act fleet despite new domestic markets as a result of the shale gas boom. The lack of sufficient Jones Act-qualified tanker capacity to move booming shale oil production coastwise added to pressure for lifting the crude oil export ban in 2015. Seagoing Barges In response to the high cost of U.S.-built and U.S.-crewed ships, the U.S. market has developed a unique vessel design, a seagoing barge called an articulated tug barge (ATB). MARAD estimates that over 150 ATBs are operating in the Jones Act trades. While ATBs are more capable than flatwater barges in handling sea swells (with a hinge between the tug and barge), they are still less capable than ships in handling heavy sea states. They are less reliable and less efficient over longer voyages because they are slower and smaller than tanker ships, and the notch between the barge and tug creates more resistance through the water than a single hull. Since ATBs sail closer to the coasts, they could pose a higher risk of grounding and provide less time to prevent spilled oil from reaching shorelines. ATB crews are not qualified to sail sealift ships. ATBs now carry more cargo (predominantly oil) on coastal voyages than does the tanker fleet (see Figure 2 ). Age of Fleet Raises Safety Concerns The El Faro was a Jones Act general cargo ship that sank in a hurricane in 2015. Because the ship was built in 1975, it was required to have only open lifeboats rather than the closed lifeboats with auto launchers required on ships built since 1983. After its sinking, the Coast Guard forbade its sister ship of the same age from sailing, and in congressional testimony noted concern about the condition of the rest of the U.S.-flag fleet: We looked a little further beyond this particular incident, caused us to look at other vessels in the fleet and did cause us concern about their condition.… And the findings indicate that it is not unique to the El Faro . We have other ships out there that are in substandard condition.… You know, some of our fleet—our fleet is almost three times older than the average fleet sailing around the world today. Just like your old car, those are the ones likely to breakdown. Those are the (inaudible) one—the ones that are more difficult to maintain and may not start when I go out, turn the key. Substantiating the Coast Guard's concern, in February 2019, the crew of the 46 year-old Jones Act containership Matsonia found a crack in the hull when looking for the source of an oil sheen in Oakland harbor. The Jones Act fleet today is relatively young compared to its prior composition because of shipbuilding undertaken after the large increase in shale oil production and before the lifting of the oil export ban. In part, new ships were needed to comply with tighter emissions requirements in the newly created North American emission control area. Today, just over one-third of the Jones Act oceangoing fleet (35 ships) is 21 years old or older, down from two-thirds (64 ships) in 2007. The Great Lakes Fleet Jones Act-compliant vessels operating in the Great Lakes are considerably older than the oceangoing fleet. The Great Lakes fleet consists of 33 dry bulk ships and several large barges carrying mostly iron ore, limestone, and coal used in steelmaking, and cement. The U.S. fleet of 1,000-foot freighters, the largest ships operating on the Great Lakes, was built between 1972 and 1981. The second-largest class of ships, around 700 feet in length, is older, with some of the vessels having originally been built in the 1940s or 1950s; a number of these were rebuilt in the 1970s. According to the U.S. Lake Carriers Association, ships operating in freshwater, such as the Great Lakes, can have longer lives than oceangoing vessels. Jones Act-compliant Great Lakes ships are much narrower for their length compared to the global dry bulk fleet because of the dimensions of the Soo Locks in Michigan. Domestic tonnage on the Great Lakes has declined steadily since the 1950s, and is now about half what it was then. The Canadian Great Lakes fleet illustrates the effect that vessel import policy can have on a domestic fleet. Canada's fleet was of similar age as the Jones Act fleet, with the youngest ship having been built in 1985, before Canada imposed a 25% tariff on newly constructed imported ships. While this import tariff was in effect, no new ships were added to the Canadian fleet. In 2010, Canada repealed the import tariff, and since then over 35 new dry bulk ships have been constructed in other countries specifically for service on the Great Lakes. These vessels cannot carry cargo between U.S. points. Inland River Fleet Thousands of tugs and barges carry mostly dry and liquid bulk commodities on the nation's inland rivers. The fleet includes several thousand tugs or pushboats that push the barge tows, about 20,000 dry cargo barges, and several thousand tank barges that carry liquid bulk cargoes. Tonnage is dominated by the export of corn and soybeans and domestic movement of coal. Since 1990, overall tonnage on the system has been flat or declining slightly. One of the two leading manufacturers of river barges ceased operation in April 2018 in response to the fall-off in demand for coal deliveries by barge. The Dredging Fleet The Dredging Act of 1906 (P.L. 59-185, 34 Stat. 204) requires that vessels engaged in dredging in U.S. waters be U.S.-built, -operated, and -crewed. The 1906 act was prompted by dredging work then being carried out in Galveston Bay, TX, after a calamitous 1900 hurricane. It required all dredge vessels henceforth to be U.S.-built. In 1988, Congress amended the Jones Act to define "merchandise" transported domestically by vessel to also include any valueless material ( P.L. 100-329 ). This change effectively required that dredge spoil be transported in Jones Act-qualified vessels. According to one study, the ban on foreign-built dredgers and foreign operators raises the cost of dredging U.S. harbors substantially. According to U.S. Army Corps of Engineers figures, while federal spending on navigation dredging has increased over the last decade by several hundred million dollars per year, the spending increase has not resulted in a larger volume of material being dredged from U.S. harbors. In addition to a limited supply of dredging vessels, increases in the cost of fuel, steel, and labor, as well as more stringent environmental requirements, are factors that may be causing cost increases. The U.S. privately owned fleet is much older and smaller, both in terms of the capacity of individual vessels and the total size of the fleet, compared to the four leading European dredging firms that perform work worldwide (except in U.S. waters). Each of the four European firms has a fleet of hopper dredges, the preferred type for dredging coastal harbors, whose total capacity is around three to four times the capacity of the entire U.S. hopper fleet. Three-quarters of the U.S. privately owned hopper dredge fleet is over 20 years of age, while about three-quarters of the European fleet is under 20 years. When the Army Corps bids harbor work requiring a hopper dredge, one of the four U.S. firms is the sole bidder over a third of the time. When the Army Corps schedules dredging projects for an upcoming year, it has periods when an insufficient number of dredges can perform the work. In addition to the dredge vessel, dredging projects involve a number of support vessels. One study found that mobilization and demobilization of the equipment in the U.S. market can amount to more than one-third of total project costs. Foreign firms use heavy-lift vessels to transport their dredge fleets to the next project. As indicated earlier, no such vessels are available in the Jones Act fleet. Offshore Supply Vessels The size of the OSV fleet can change significantly with changes in the oil market. In 2017, the offshore supply vessel fleet consisted of about 1,800 vessels, working mainly in the Gulf of Mexico. Over the last decade, annual construction averaged 32 vessels, but ranged between 4 and 53 vessels. Foreign-built vessels are relied upon for construction of rigs in deeper waters. These vessels need dynamic positioning propulsion systems to keep the vessel in place while performing the construction work, as the waters are too deep for anchoring. As mentioned above, similar vessels are lacking in the Jones Act fleet for installing wind towers in deeper waters. The Jones Act and Sealift Capability As with the commercial aspirations stated in the maritime policy of the Jones Act, there are also perceived shortcomings with respect to the domestic fleet's ability to serve as a naval auxiliary in times of war or national emergency. Since 1920, Congress has enacted programs that designate other fleets for sealift support, but the merchant mariners crewing Jones Act ships are still identified as contributing to the pool of mariners available to crew the sealift fleet. The shrinking size of the U.S. mariner pool puts in doubt its ability to sufficiently crew a reserve sealift fleet, as discussed further below. In 2014 ( P.L. 113-76 ), Congress directed the Department of Transportation and the Department of Defense to develop a national sealift strategy. This has yet to be issued. Sealift Crews The crews of Jones Act oceangoing ships are arguably the most salient and immediate element that could be called upon to support military sealift. Jones Act mariners typically have six months of shore leave per year, and those mariners on shore leave would be expected to crew a reserve fleet of government-owned cargo ships kept on standby for military sealift purposes (the Ready Reserve Force, or RRF). The Jones Act crew of oceangoing ships consists of about 3,380 merchant mariners, which is about 29% of the total mariner pool of 11,678 mariners that MARAD estimates would be required to crew the government-owned reserve fleet while still concurrently being able to operate the commercial fleet. The remaining pool of mariners would come from (1) the U.S.-flag privately owned international fleet enrolled in the Maritime Security Program (MSP) consisting of 60 ships and 2,386 commercial mariners, and (2) the Military Sealift Command (MSC) fleet of government-owned ships consisting of about 120 ships and 5,576 mariners. While MARAD estimates that there is a sufficient commercial mariner pool to crew the reserve sealift fleet during a surge lasting up to 180 days, a more prolonged sealift effort would start to entail crew rotations, and MARAD estimates a shortfall of about 1,800 mariners in that scenario. That the mariner pool is barely sufficient to sustain an immediate surge and is insufficient for a longer sealift effort has been a consistent finding of sealift officials for decades, even in previous periods when the mariner pool was much larger than it is today. For instance, this was the same finding by the Department of Defense Transportation Command (TRANSCOM) in 2004, when the RRF consisted of 59 ships and the mariner pool was 16,900. And in 1991, when the RRF consisted of 96 ships and the mariner pool was 25,000 (more than twice the size that it is today), the then MARAD Administrator testified that the mariner pool was barely sufficient to crew the reserve sealift fleet. Sealift Ships While the Jones Act's statement of maritime policy indicated a desire for a commercial fleet that also could provide sealift in times of war, since then three other fleets of ships have been established for purposes of military sealift: the RRF, MSC, and MSP. These ships are predominantly foreign-built. The RRF, a concept that originates in a 1954 act of Congress (P.L. 83-608), today consists of 46 ships that can sail upon either 5 or 10 days' notice and are on standby with a skeleton crew of about 600 commercial mariners (13 per ship), but would require an additional 1,200 mariners to sustain its operation once activated. The MSC fleet is controlled by TRANSCOM and has a subset of about 50 ships that carry military cargoes in port-to-port voyages similar to those undertaken by commercial ships. MSC ships are mostly crewed by civilian mariners who are federal employees. The MSP ships, a fleet established by Congress in 1996 ( P.L. 104-239 ), receive an operating subsidy of about $5 million per vessel per year to cover the additional cost of American crews and rely heavily on government cargoes (military and food aid) that pursuant to "cargo preference" law are reserved for them. As per long-standing agreements between MARAD, acting as advocate for the U.S. maritime industry, and the Department of Defense, the military is to utilize MSP ships and exhaust that capacity before it utilizes MSC ship capacity. While Jones Act operators are required to purchase more costly U.S.-built ships, the military sealift fleet is largely composed of more economical foreign-built ships. Jones Act operators are competing in the commercial marketplace while the sealift fleet is not. Instead of relying on the Jones Act commercial fleet to provide oceangoing shipbuilding capability, the sealift fleet could be required to be built domestically. The higher cost of the domestically built sealift fleet would be shared nationally, as is the case with other defense assets. Lower-cost coastwise ships would be more price-competitive with railroads, pipelines, and ATBs, thereby enlarging the mariner pool available for sealift support and increasing repair and maintenance work for U.S. shipyards. The sealift ships could also be designed to military specifications rather than be in conflict with commercial needs (see below). Divergence in Design of Commercial and Sealift Ships The military seeks cargo ships with flexible capabilities: ships not so large that they could face draft restrictions in some overseas harbors, ships with ramps or onboard cranes so that they can still unload cargo at underdeveloped or damaged ports, and ships that can carry a wide variety of cargo types and sizes. The majority of the military sealift fleet consists of product tankers for carrying fuel and roll-on/roll-off (Ro/Ro) ships that have ramps for moving tanks, trucks, and helicopters. It also consists of container ships used for moving ammunition and other supplies. The military's preference for versatility is in conflict with the commercial fleet's trend toward more specialized and larger ships, a trend driven by the need for ships with the lowest operating cost. General cargo and break-bulk ships capable of carrying a wide variety of cargo types and sizes and that were typically equipped with their own onboard cranes have been largely replaced by container ships without onboard cranes. Thus, commercial mariners may no longer have experience operating cargo cranes, as might be required in foreign ports where shore-based cranes are out of service or are not available. The largest container ships require 45 to 50 feet of water below the waterline, far more depth than many ports can provide. Ro/Ro ships have been replaced by "pure car carriers" that maximize the number of passenger cars they can carry, but may be less useful for military purposes. Cost pressures have induced commercial carriers to install engines that minimize fuel costs by operating at lower speeds and cannot achieve the higher speeds desired for military sealift ships. In addition, more stringent sulfur emission regulations recently enacted have prompted ship operators to convert to LNG-fueled engines, a fuel not globally available, or to install scrubbers, equipment that takes up cargo space and has no military utility. Licensing of engine crews is specific to engine type. Thus, a growing disparity exists between the military's ideal vessel designs and those of commercial carriers, as well as in the skill sets of the crew. Shipbuilding and Repair Industrial Base Besides the deep-sea ship crews, another purported Jones Act contribution to military sealift is preservation of a shipyard industrial base with the knowledge and skills to build and repair ships. The Merchant Marine Act of 1970 (P.L. 91-469) added as an additional objective of U.S. maritime policy to have a merchant marine "supplemented by efficient facilities for building and repairing vessels." U.S. shipyards typically build only two or three oceangoing ships per year, and none for export, so they do not achieve economies of scale. There may be gaps of several years in between orders for container ships. In recent years, the demand has been sufficient to sustain one shipyard that builds only commercial ships. However, this yard stated that its employment had fallen below 100 people and that it had no vessels under construction or on order as of March 31, 2019. The other shipyard that builds commercial ships also relies heavily on Navy orders. A larger number of shipyards build smaller vessels such as tour boats, ferries, tugs, barges, and offshore supply vessels. Around 1,000 barges are built in a typical year. These vessels also fall under the Jones Act domestic build requirement and are rarely built for export. However, the shipyards building smaller vessels lack dry docks of sufficient size to repair large ships. The government-owned sealift fleet is 44 years old on average, and many of the vessels are in need of repair. According to the Maritime Administrator, there is an insufficient number of large dry docks to service the sealift fleet, delaying their readiness to sail. Some of the reserve fleet has failed Coast Guard safety inspection, and some ships have too much steel rusted from their hulls to be seaworthy. For example, while sailing to a readiness exercise, a hole was found in the hull of one of the ships. According to TRANSCOM, the Navy's plan to recapitalize the reserve fleet includes building new vessels in domestic shipyards, repairing ships in the current fleet to extend their service life out to 60 years, and purchasing used, foreign-built ships. The Navy has found that repairing the vessels has thus far been three times more expensive and has taken twice as long as originally projected. It therefore is contemplating the need to accelerate the purchase of used, foreign-built ships because building new ships in U.S. yards is estimated to be 26 times more expensive and thus not affordable. In addition to the Jones Act, the Tariff Act of 1930 is intended to support U.S. shipyards by assessing a 50% duty on the price of any nonemergency repairs on U.S. flag ships done in foreign shipyards. A 2011 MARAD study found that many U.S.-flag international trading ships have repairs performed in foreign yards because, even with the 50% duty, the total cost is less than if the repairs were performed in a domestic shipyard. A U.S.-flag operator confirms that this is still the case in 2018. Appendix. Exemptions and Waivers

The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens. The act provides a significant degree of protection for U.S. shipyards, domestic carriers, and American merchant sailors. It is a subject of debate because some experts point out that it leads to high domestic ocean shipping costs and constrains the availability of ships for domestic use. The Jones Act has come into prominence amid debates over Puerto Rico's economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas. The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability. The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. It restated a long-standing restriction that was temporarily suspended during World War I. Since 1920, Congress has enacted provisions that could be said to tighten Jones Act requirements as well as provisions that exempt certain maritime activity from the requirements. In 1935, Congress forbade Jones Act-qualified vessels that were sold to foreign owners or registered under a foreign flag to subsequently requalify as Jones Act-eligible (P.L. 74-191). This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take around two years to construct a new ship. In 1940, Congress expanded the Jones Act to include towing and salvage vessels (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material required use of a Jones Act-qualified vessel, such that transport of dredge spoil or municipal waste would fall under the law (P.L. 100-329). Generally, dredging and towing vessels, as well as Great Lakes ships, have occasioned less debate about the Jones Act than oceangoing ships and offshore supply vessels. Congress has enacted numerous exemptions or exceptions to the Jones Act. In some cases, Congress has enacted an exemption if there are no Jones Act-qualified carriers interested in providing service in a particular market (for example, passenger travel to and from Puerto Rico). Congress has allowed waivers of the Jones Act for national defense reasons, which most often have been executed to speed fuel deliveries to a region after a natural disaster disrupted normal supply lines. Regulatory interpretations of the Jones Act have been significant in defining what constitutes a "U.S.-built" vessel, what constitutes "transportation" between two U.S. points, and what are "U.S. points." The Coast Guard has determined that a U.S.-built vessel can be assembled with major foreign components such as engines, propellers, and stern and bow sections. This interpretation has been consistent from the late 1800s. Customs and Border Protection (CBP) has determined that cruise ship voyages that involve visits to foreign ports in addition to a domestic port are not domestic transportation and therefore not subject to the Jones Act. This interpretation also dates to the late 1800s. CBP's interpretations of what constitutes domestic transportation and U.S. points are significant to the offshore oil industry, as some of the vessels supporting that industry must be Jones Act-compliant while others need not be. By long-standing agreement, the military is to utilize U.S.-flag commercial ships for sealift before it utilizes government-owned vessels in its reserve fleet. Jones Act mariners are expected to crew sealift ships when needed, and thus the decades-long shrinkage of the oceangoing Jones Act fleet and mariner pool has been raised as a concern. The Department of Defense is planning to buy more used foreign-built ships for sealift rather than building them in the United States for cost reasons. It also has found that repairing its current fleet in U.S. shipyards is three times more expensive and has taken twice as long as estimated. Much of the commercial fleet is relatively old, raising safety concerns. Some useful types of ships are missing from the Jones Act-qualified fleet, such as heavy-lift vessels, liquefied natural gas (LNG) tankers, and deepwater offshore construction vessels. Both situations appear to some observers to be contrary to the policy goal of the Jones Act, which is to "have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in times of war or national emergency."

CRS_R40589

Introduction Concurrent receipt refers to the simultaneous receipt of two types of monetary benefits: military retired pay and Department of Veterans Affairs (VA) disability compensation. With several separate programs, varying eligibility criteria, and several eligibility dates, some observers find the subject complex and somewhat confusing. There are, however, two common criteria: first, all recipients are military retirees; second, they are also eligible for VA disability compensation. This report addresses the two primary components of the concurrent receipt program: Combat-Related Special Compensation (CRSC) and Concurrent Retirement and Disability Payments (CRDP). It reviews the possible legislative expansion of the program to additional populations and provides several potential options for Congress to consider. Background In 1891, Congress first prohibited payment of both military retired pay and a disability pension under the premise that it represented dual or overlapping compensation for the same purpose. The original law was modified in 1941, and the present system of VA disability compensation offsetting military retired pay was adopted in 1944. Under this system, retired military personnel were required to waive a portion of their retired pay equal to the amount of VA disability compensation, a dollar-for-dollar offset. If, for example, a military retiree received $1,500 a month in retired pay and was rated by the VA as 70% disabled (and therefore entitled to approximately $1,000 per month in disability compensation), the offset would operate to pay $500 monthly in retired pay and the $1,000 in disability compensation. The advantage for the retiree was that VA disability compensation was not taxable. For many years some military retirees and advocacy groups sought a change in law to permit receipt of all, or some, of both payments. Opponents of concurrent receipt frequently referred to it as double dipping , maintaining that it represented two payments for the same condition. In the FY2003 NDAA ( P.L. 107-314 ), Congress created a benefit known as Combat Related Special Compensation (CRSC). CRSC provided, for certain disabled retirees whose disability is combat-related, a cash benefit financially identical to what concurrent receipt would provide them. The FY2004 NDAA ( P.L. 108-136 ) authorized, for the first time, the phase-in of actual concurrent receipt (now referred to as Concurrent Retirement and Disability Payments or CRDP), and a greatly expanded CRSC program. The FY2005 NDAA ( P.L. 108-375 ) further liberalized the concurrent receipt rules contained in the FY2004 NDAA and authorized immediate concurrent receipt for those rated by the VA totaling 100%. The FY2008 NDAA ( P.L. 110-181 ) expanded concurrent receipt eligibility to include those who are 100% disabled due to unemployability and provided CRSC to those who were medically retired or retired prematurely due to force reduction programs prior to completing 20 years of service. CRDP phase-in was fully implemented by 2014, allowing retirees with a disability rated at 50% or greater to receive full retired pay and full VA disability compensation without an offset. Military Retirement and VA Disability Compensation An understanding of military retirement, VA disability compensation, and the interaction of these two elements is helpful in discussing concurrent receipt. Military Retirement An active duty servicemember becomes entitled to retired pay, frequently referred to as vesting , upon completion of 20 years of service, regardless of age. A member who retires is immediately paid a monthly annuity based on a percentage of their final base pay or the average of their high three years of base pay, depending on when they entered active duty. Retired pay accrues at the rate of 2.5% per year of service for those who have entered the service prior to January 1, 2018, and 2.0% for those entering service on or after January 1, 2018. An alternative retirement option, known as "Redux," was also available for certain active duty servicemembers, depending on their date of entry. Reserve Retirement Reserve component servicemembers also become eligible for retirement upon completion of 20 years of qualifying service, regardless of age. However, their retired pay calculation is based on a point system that results in a number of "equivalent years" of service. In addition, a reserve component retiree does not usually begin receiving retired pay until reaching age 60. Disability Retirement While retirement eligibility at 20 years of service is the norm for active component members and age 60 for reserve component members, there are some circumstances that result in earlier retirement. Servicemembers found to be unfit for continued service due to physical disability may be retired if the condition is permanent and stable and the disability is rated by DOD as 30% or greater. These retirees are generally referred to as Chapter 61 retirees , a reference to Chapter 61 of Title 10, which covers disability retirement. As a result, some disability retirees are retired before becoming eligible for longevity retirement while others have completed 20 or more years of service. A servicemember retired for disability may select one of two available options for calculating their monthly retired pay: 1. Longevity Formula. Retired pay is computed by multiplying the years of service times 2.5% or 2.0% (respectively based on a date of entry into service before or after Jan 1, 2018) and then times the pay base. Monthly Retired Pay= (years of service x 2.5% or 2.0%) x (pay base) 2. Disability Formula. Retired pay is computed by multiplying the DOD disability percentage by the pay base. Monthly Retired Pay= disability % x (pay base) The maximum retired pay calculation under either formula cannot exceed 75% of base pay. The retired pay computed under the disability formula is fully taxed unless the disability is the result of a combat-related injury. Since the disability percentage method usually results in higher retired pay, it is most commonly selected. Generally, military retired pay based on longevity is taxable. In certain instances, a portion of disability retired pay may be tax-free. Temporary Early Retirement Authority (TERA) Personnel retired due to force management requirements and before completing 20 years of service are generally referred to as "TERA retirees" because the National Defense Authorization Act for Fiscal Year 1993 granted Temporary Early Retirement Authority (TERA) as a manpower tool to entice voluntary retirements during the drawdown of the early 1990s. This authority was in effect from 1992 to 2001. TERA retired pay is calculated in the same way as longevity retirement, but there is a retired pay reduction of 1% for every year of service below 20. VA Disability Compensation To qualify for VA disability compensation, the VA must make a determination that the veteran sustained a particular injury or disease, or had a preexisting condition aggravated, while serving in the Armed Forces. Some exceptions exist for certain conditions that may not have been apparent during military service but which are presumed to have been service-connected. The VA has a scale of 10 ratings, from 10% to 100%, although there is no direct arithmetic relationship between the amounts of money paid for each step. Each percentage rating entitles the veteran to a specific level of disability compensation. In a major difference from the DOD disability retirement system, a veteran receiving VA disability compensation can ask for a medical reexamination at any time (or a veteran who does not receive disability compensation upon separation or retirement from service can be examined or reexamined later). All VA disability compensation is tax-free, which makes receipt of VA compensation desirable, even with the operation of the offset. As a general rule of thumb, DOD pays for longevity while the VA pays for disability. Interaction of DOD and VA Disability Benefits12 As veterans, military retirees can apply to the VA for disability compensation. A retiree may (1) apply for VA compensation any time after leaving the service and (2) have his or her degree of disability changed by the VA as the result of a later medical reevaluation, as noted above. Many retirees seek benefits from the VA years after retirement for a condition that may have been incurred during military service but that does not manifest itself until many years later. Typical examples include hearing loss, some cardiovascular problems, and conditions related to exposure to Agent Orange. The DOD and VA disability rating systems have much in common, but there are also significant differences. DOD makes a determination of eligibility for disability retirement only once, at the time the individual is separating from the service. Although DOD uses the VA rating schedule to determine the percentage of disability, DOD measures disability, or lack thereof, against the extent to which the individual can or cannot perform military duties. Military disability retired pay, but not VA disability compensation, is usually taxable, unless related to a combat disability. As a result of the current disability process, a retiree can have both a DOD and a VA disability rating and these ratings will not necessarily be the same percentage. The percentage determined by DOD is used to determine fitness for duty and may result in the medical separation or disability retirement of the servicemember. The VA rating, on the other hand, was designed to reflect the average loss of earning power. Studies over the past several years have consistently recommended a single, comprehensive medical examination that would establish a disability rating that could be used by both DOD and the VA. The National Defense Authorization Act for Fiscal Year 2008 required a joint DOD and VA report on the feasibility of consolidating disability evaluation systems to eliminate duplication by having one medical examination and a single-source disability rating. As a result, DOD and the VA initiated a one-year pilot program, now called the Integrated Disability Evaluation System (IDES), at the Walter Reed Army Medical Center, the National Naval Medical Center at Bethesda, and the Malcolm Grove Medical Center at Andrews Air Force Base. The program was expanded to other sites in 2009 and 2010, and since September 2011 all new disability retirement cases at facilities worldwide have been processed through IDES. As IDES streamlined the disability evaluation process, DOD and VA now focus on improving health care data and records sharing, a process deemed "vital to Service members who are leaving the DOD system with complex medical issues and ongoing health care needs." In September 2018, DOD and VA issued a joint statement indicating their commitment to implement an integrated electronic health system that will allow for seamless sharing of health care data between both departments and aid the disability rating process. Combat-Related Special Compensation (CRSC) The FY2003 NDAA, as amended by the FY2004 NDAA, authorized Combat-Related Special Compensation (CRSC). Military retirees with at least 20 years of service and who meet either of the following two criteria are eligible for CRSC: A disability that is "attributable to an injury for which the member was awarded the Purple Heart," and is not rated as less than a 10% disability by the VA; or A disability rating resulting from involvement in "armed conflict," "hazardous service," "duty simulating war," or "through an instrumentality of war." This liberal definition of combat-related encompasses disabilities associated with any kind of hostile force; hazardous duty such as diving, parachuting, or using dangerous materials such as explosives; individual training and unit training and exercises and maneuvers in the field; and "instrumentalities of war." Retirees must apply for CRSC to their parent service, and the parent service is responsible for verifying that the disability is combat-related. This process is not automatic; it is application-driven. CRSC payments will generally be equal to the amount of VA disability compensation that has been determined to be combat-related. The legislation does not end the requirement that the retiree's military retired pay be reduced by the amount of the total VA disability compensation the retiree receives. Instead, CRSC beneficiaries are to receive the financial equivalent of concurrent receipt as "special compensation," but the statute states explicitly that it is not retired pay per se. CRSC payments are paid from the Department of Defense Military Retirement Fund. As of September 2017, a total of 90,740 retirees were receiving CRSC (see Figure 1 ). CRSC for Military Disability (Chapter 61) and TERA Retirees Servicemembers with a permanent DOD disability rating of 30% or greater may be retired and receive retired pay prior to completing 20 years of service. These retirees are generally referred to as "Chapter 61" retirees, a reference to Chapter 61, Title 10, which governs disability retirement. In addition to the Chapter 61 retirees with less than 20 years of service, those who voluntarily retired under the Temporary Early Retirement Authority (TERA) during the military drawdown of the early to mid-1990s also have less than 20 years of service. The original CRSC legislation excluded those active duty members who retired with less than 20 years of service. However, the FY2008 NDAA expanded CRSC to include Chapter 61 and active duty TERA retirees effective January 1, 2008. Eligibility no longer requires a minimum number of years of service or a minimum disability rating (other than the 30% noted above for disability retirement); a 10% VA rating may qualify if it is combat-related. Eligible retirees must still apply to their parent service to validate that the disability is combat-related. The FY2008 NDAA included almost all reserve disability retirees in the eligible CRSC population except those retired under 10 U.S.C. 12731b, a special provision which allows reservists with a physical disability not incurred in the line of duty to retire with between 15 and 19 creditable years of service. The "Special Rule" for Disability Retirees As noted earlier, an individual generally cannot receive two separate lifelong government annuities from federal agencies for the same purpose or qualifying event, for example, disability retired pay and VA disability compensation. To preclude this, there is a "special rule" for Chapter 61 disability retirees. Application of the special rule caps the CRSC at the level to which the retiree could have qualified based solely on years of service or longevity. In some instances, the special rule could limit or completely eliminate the concurrent receipt payment. In other instances, application of the rule may not result in any changes. Each situation is unique (rank, years of service, DOD and VA disability ratings, and the disability percentage attributable to combat) and requires independent calculations. It appears that those most vulnerable to the reduction of CRSC due to the special rule would be active duty servicemembers with a disability retirement, significantly less than 20 years of service, and a high VA disability rating. Others potentially impacted would be reserve members with little active duty. CRSC for Reserve Retirees When CRSC was originally enacted in 2002, it required all applicants to have at least 20 years of service creditable for computation of retired pay. As a result, reserve retirees had to have at least 7,200 reserve retirement points to be eligible for CRSC. As noted earlier, a reservist receives a certain number of retirement points for varying levels of participation in the reserves, or active duty military service. The 7,200-point figure was extraordinarily high; it could only have been attained by a reservist who had many years of active duty military service in addition to a long reserve career. Initially this law, as enacted, effectively denied CRSC to almost all reservists. However, a provision in the FY2004 NDAA clarified the service requirement for reserve component personnel. It specified that personnel who qualify for reserve retirement by having at least 20 years of duty creditable for reserve retirement are eligible for CRSC. While eligible for CRSC, reserve retirees must be drawing retired pay (generally at age 60) to actually receive the CRSC payment. CRSC Eligibility Summary Essentially, with the exception of reserve component members injured while not in a duty status, all military retirees who have been awarded a Purple Heart or have combat-related disabilities compensable by the VA are eligible for CRSC (see Figure 2 ). Military retirees with service-connected disabilities which are not combat-related as defined by the statute are not eligible for CRSC, but may be eligible for CRDP as discussed below. Concurrent Retirement and Disability Payments (CRDP) The FY2004 NDAA authorized, for the first time, actual concurrent receipt for retirees with at least a 50% disability, regardless of the cause of disability. However, the amount of concurrent receipt was to be phased in over a 10-year period, from 2004 to 2013, except for 100% disabled retirees, who became entitled to immediate concurrent receipt effective January 1, 2005. Depending on the degree of disability, the initial amount of retired pay that the retiree could have restored would vary from $100 to $750 per month, or the actual amount of the offset, whichever was less. In 2014, all offsets ended and military retirees with at least a 50% disability became eligible to receive their entire military retired pay and VA disability compensation. In FY2017 there were 577,399 retirees receiving CRDP. A retiree cannot receive both CRSC and CRDP benefits. The retiree may choose whichever is more financially advantageous to him or her and may change the type of benefit to be received during an annual o pen s eason to maximize the payments received. There are currently two groups of retirees who are not eligible for CRDP benefits (see Figure 4 ). The first group is nondisability military retirees with service-connected disabilities that have been rated by the VA at 40% or less. The second group includes Chapter 61 disability retirees with service-connected disabilities of 100% or less and with less than 20 years of service. CRDP for Temporary Early Retirement Authority (TERA) Retirees The National Defense Authorization Act for Fiscal Year 1993 granted temporary authority (which expired on September 30, 2001) for the services to offer early retirements to personnel with more than 15 but less than 20 years of service. TERA was used as a manpower tool to entice voluntary retirements during the post-Cold War drawdown. TERA retired pay was calculated in the usual way except that there is an additional reduction of 1% for every year of service below 20. Part or all of this latter reduction could be restored if the retiree worked in specified public service jobs (such as law enforcement, firefighting, and education) during the period immediately following retirement, until the point at which the retiree would have reached the 20-year mark if he or she had remained in the service. TERA retirees are eligible for CRSC and CRDP even though they have less than 20 years of service. The "special rule" for disability retirees (discussed below) does not apply to TERA retirees since TERA was not a disability retirement, but rather a regular retirement but for those with less than 20 years of service. Concurrent Receipt and Blended Retirement System Lump Sum Payments The Blended Retirement System (BRS), effective for all servicemembers joining on or after January 1, 2018, offers servicemembers the option to select a lump sum payment of a portion of their military retired pay in lieu of a monthly annuity. If a member retiring under the BRS is eligible for CRDP and elects the lump sum payment of retired pay, the individual will continue to receive a monthly VA disability payment. If the member electing the lump sum payment is not eligible for CRDP (i.e., the retired pay offset applies), the VA will withhold disability payments until the sum of the amount withheld over time equals the gross amount of the lump sum payment. If the member is eligible for CRSC, the procedures for withholding VA disability payments relate to the combat-related portion of the total VA entitlement. CRSC and CRDP Comparisons and Costs CRSC and CRDP share some common elements, but are unique benefits. Table 1 summarizes some of the similarities and differences between CRSC and CRDP. CRDP and CRSC are paid from the DOD Military Retirement Fund. Costs have been rising every year as a consequence of the phased implementation and a rise in the number of eligible recipients. As of September 2017, one-third of all military retirees collecting retired pay were receiving either CRDP or CRSC. Issues and Options for Congress Veteran advocacy groups continue to lobby for changes to the concurrent receipt programs that would expand benefits to a larger population of retirees. Other groups have pressed Congress to offset or streamline duplicative benefits, contending that the dual receipt of VA and DOD payments amounts to double-dipping , or in some cases triple-dipping for those veterans also eligible for Social Security Disability Insurance (SSDI) from the Social Security Administration. Some of the factors that Congress might consider regarding potential changes include program costs, program efficiencies, individual eligibility requirements, and interaction with other servicemembers' and veterans' benefits and programs. Below are some options to change concurrent receipt programs that have been proposed or considered. Eliminate or Sunset Concurrent Receipt Programs The Congressional Budget Office has estimated that eliminating the CRDP program would save the government $139 billion between 2018 and 2026. While achieving significant cost savings, eliminating or sunsetting concurrent receipt programs could be unpopular among servicemembers, veterans, and their families. Previous efforts to reduce benefits to servicemembers have typically included a grandfather clause that would allow all current servicemembers and retirees to maintain existing benefits while the law would only apply to those who joined the service after a specific date. Extend CRDP to Chapter 61 Disability Retirees with Less Than 20 Years of Service As previously discussed, the FY2008 NDAA extended CRSC eligibility to Chapter 61 retirees who retired due to combat-related physical disability prior to completing 20 years of service. However, Chapter 61 retirees with service-connected disabilities rated less than 50% or with less than 20 years of service are not eligible for CRDP. Congress could expand the CRDP provision to include this cohort. This option would extend CRDP eligibility to approximately 100,000 additional disability retirees at an estimated 10-year cost of $5.8 billion. Extend CRDP to Those with a 40% or Less VA Disability Rating At present, those military retirees with service-connected disabilities rated at 50% or greater are eligible for CRDP. Congress could revise the concurrent receipt legislation to include the entire population of military retirees with service-connected disabilities. In 2014, CBO estimated that to extend benefits to all veterans who would be eligible for both disability benefits and military retired pay would cost $30 billion from 2015 to 2024. Modify or Eliminate the Special Rule With the extension of CRSC to Chapter 61 disability retirees, the special rule factors significantly into the concurrent receipt calculations. For those whose CRSC payment is limited or eliminated by the special rule , there may be a perceived inequity between CRSC recipients with 20 or more years of service (longevity retirees) and Chapter 61 (disability retirees who generally have less than 20 years of service) retirees. To resolve this potential issue, Congress could modify or eliminate the special rule or limit its application to specific military operations. However, some observers may note that eliminating or modifying the special rule would result in paying for the same disability twice, by DOD and by VA. It might also complicate future initiatives to simplify and streamline postservice compensation whereby DOD would only compensate for years of service and the VA would only compensate for disability, as recommended by the Dole/Shalala commission.

Concurrent receipt refers to the simultaneous receipt of two types of federal monetary benefits: military retired pay and Department of Veterans Affairs (VA) disability compensation. Prior to 2004, existing laws and regulations dictated that a military retiree could not receive two payments from federal agencies for the same purpose. As a result, military retirees with physical disabilities recognized by the VA would have their military retired pay offset or reduced dollar-for-dollar by the amount of their nontaxable VA compensation. Legislative activity on the issue of concurrent receipt began in the late 1980s and culminated in the provision for Combat-Related Special Compensation (CRSC) in the Bob Stump National Defense Authorization Act for Fiscal Year 2003 (P.L. 107-314). Since then, Congress has added Concurrent Retirement and Disability Payments (CRDP) for those retirees with a disability rated at 50% or greater, extended concurrent receipt to additional eligible populations, and further refined and clarified the program. There are two common criteria that define eligibility for concurrent receipt: (1) all recipients must be military retirees and (2) they must also be eligible for VA disability compensation. An eligible retiree cannot receive both CRDP and CRSC. The retiree must choose whichever is most financially advantageous to him or her and may change the type of benefit to be received during an annual open season. In FY2017, approximately one-third of the retired military population was receiving either CRSC or CRDP at a cost of $12.4 billion. Nevertheless, there are also military retirees who receive VA disability compensation but are not eligible for concurrent receipt. Determining whether to make some or all of this population eligible for concurrent receipt remains a point of contention in Congress. The Congressional Budget Office (CBO) has estimated that to extend benefits to all veterans who would be eligible for both disability benefits and military retired pay would cost $30 billion from 2015 to 2024. In 2016, CBO estimated that eliminating concurrent receipt would save the government $139 billion between 2018 and 2026.

GAO_GAO-18-643

Background WMATA operates the nation’s second largest heavy rail transit system (Metrorail) and fifth largest bus system (Metrobus), accounting for about 1.1 million passenger trips per weekday. Metrorail runs 6 train lines connecting the District of Columbia to various locations in Maryland and Virginia. A portion of the latest addition, the Silver Line, was opened in 2014. WMATA was created in 1967 through an interstate compact— matching legislation passed by the District of Columbia, the state of Maryland, and the Commonwealth of Virginia, and then ratified by Congress—to plan, develop, finance, and operate a regional transportation system in the National Capital area. A board of eight voting directors and eight alternate directors governs WMATA. The directors are appointed by the District of Columbia, Virginia, Maryland, and the federal government, with each appointing two voting and two alternate directors. Operating Revenues WMATA’s operating revenues from rider fares, parking fees, and paid advertisements, do not cover its annual costs, so it relies on year-to-year funding commitments from Maryland, Virginia, and the District of Columbia, and various forms of federal funding to cover gaps in its capital and operating budgets. WMATA’s operating budget covers personnel costs and contracted services; in fiscal year 2017 about 75 percent of its $1.8 billion operating budget went to personnel costs. WMATA’s capital budget, which covers short-term maintenance and long-term capital projects, totaled $1.2 billion in fiscal year 2017. In 2018, Maryland, Virginia, and the District of Columbia each passed legislation to provide additional recurring annual funding to WMATA generally for capital purposes, totaling $500 million annually across the 3 jurisdictions. Service Levels and Ridership In recent years, WMATA added new rail service while also experiencing declines in ridership. From fiscal years 2006 through 2017, WMATA increased Metrorail service about 23 percent as measured in total railcar revenue service miles, or the miles traveled when the vehicle is in revenue service; WMATA increased Metrobus service slightly, by about 4 percent. Over this same time, ridership declined—by about 17 percent on Metrorail and 12 percent on Metrobus. (See fig. 1). WMATA attributes this ridership decline to multiple factors, including growth in telecommuting, the expansion of alternative transportation options, and a decline in service quality and reliability. In addition, between June 2016 and June 2017, WMATA completed SafeTrack, a large-scale accelerated maintenance program that suspended service on portions of Metrorail, resulting in delays and additional ridership declines. Workforce and Employee Groups WMATA’s workforce is composed of bus and rail operations staff, as well as managers, administrators, law enforcement, and others. In September 2017, after reducing its workforce by eliminating 6 percent of its 13,000 positions, WMATA reported that it had 12,217 employee positions across 6 different employee groups, of which 11,341 were filled. Most WMATA employees—83 percent—are represented by one of WMATA’s five unions, depending on the employees’ positions. The Amalgamated Transit Union Local 689 is the largest union, representing 67 percent of WMATA employees (see table 1). Each union negotiates its own terms on wages, salaries, hours, working conditions, and pensions or retirement, and generally documents these terms in its collective bargaining agreement. Employee and Retiree Benefits WMATA provides a defined benefit pension for almost all of its represented employees and for non-represented employees hired before January 1, 1999. In these pension plans, the benefit a retiree receives is generally based on the retiree’s age and/or years of service and compensation, which may include overtime wages for represented employees. WMATA’s annual contributions to its pension plans are invested in portfolios that include stocks, bonds, and real estate to fund future pension benefits. The Local 689 pension plan is WMATA’s largest, and covered 80 percent of all WMATA pension plan members in fiscal year 2017. Each of the five pension plans is governed by a separate group of trustees responsible for administering the plan. The trustees are composed of a mix of members selected by WMATA and by the respective union or employee group. For example, the trustees for the Local 689 plan include three appointed by WMATA and three by Local 689. WMATA makes payments for four defined benefit retiree health plans. These plans generally cover Local 689 employees, Local 2 employees, Metro Transit Police, and Metro Special Police, in addition to non- represented employees. According to WMATA officials, WMATA’s four retiree health plans are “pay-as-you-go,” meaning WMATA pays for benefits as they become due each year, and funds necessary for future benefits are not accumulated. Increases in WMATA’s Workforce Costs since Fiscal Year 2006 Are Largely Driven by the Cost of Benefits, with Pensions Posing Particular Risk WMATA’s total workforce costs—composed of wages, salaries, and benefits for current and retired employees—increased modestly in inflation-adjusted dollars (on average by about 3 percent annually) from fiscal years 2006 through 2017. This modest increase reflected small increases in wage and salary costs and substantial increases in employee and retiree benefit costs. In particular, WMATA’s required annual contributions to its pension plans increased by an annual average of almost 19 percent and were WMATA’s fastest growing workforce cost component from fiscal years 2006 through 2017. The possibility of further increases in the costs of WMATA’s pension plans poses significant risk to the agency’s financial operations, yet WMATA has not fully assessed these risks. Since 2006, WMATA Wages and Salaries Increased Modestly While Contract Costs More Than Doubled WMATA’s total workforce costs increased by about 3 percent annually on average between fiscal years 2006 and 2017 in inflation-adjusted fiscal year 2017 dollars, with wages and salaries increasing an average 1.1 percent per year, from $645 million in 2006 to $728 million in 2017. These costs grew at a slower rate than the costs of contracted services (7.3 percent annually on average) and employee and retiree benefits (5.6 percent annually on average), as discussed below (see table 2). The total number of employees WMATA budgeted for each year (authorized positions) grew slightly faster than wages and salaries—about 2 percent per year on average—increasing from 10,451 in 2006 to 13,032 in 2017, with similar growth in the number of occupied positions. Wages and salaries increased at a slower rate than WMATA’s workforce in part because, according to WMATA officials, non-union employees did not receive a salary increase for several of these years. In contrast, employees represented by one of WMATA’s five unions generally received annual wage and salary increases, as laid out in their collective bargaining agreements. WMATA officials also estimated that since 2008, between about 10 and 14 percent of its annual wage and salary costs were composed of operating overtime. WMATA officials stated that operating overtime is used to fill gaps in schedules or staffing in positions that have high vacancy rates, such as Metro Transit Police. While wage and salary costs increased modestly, the cost of WMATA’s contracted services more than doubled from fiscal years 2006 through 2017. During this time contracted services costs increased more than 7 percent per year on average, from $123 million in fiscal year 2006 to $267 million in fiscal year 2017. WMATA officials reported large increases during this period in repair and maintenance, custodial services, professional and technical services such as attorneys and management consultants, and WMATA’s MetroAccess contract that provides paratransit door-to-door service for riders unable to use bus or rail. WMATA officials attributed these increases to several factors. First, they stated that paratransit service ridership and the contractor cost per trip have increased. The officials estimated that providing paratransit service currently costs WMATA about $50 per passenger trip. Second, WMATA officials said adding five new Silver Line stations resulted in increases in contract costs because some of the services already provided by contractors, including custodial services and some track work, were extended to the new stations. Third, WMATA officials said they have been using more contractors in recent years to control costs and improve efficiency. For example, they stated they may use contracts to address problems such as a backlog of track inspections because they can procure contractors to complete the work more quickly than they could with current WMATA staff who would have to be pulled away from other duties or new WMATA staff who would have to be hired and trained. WMATA’s Employee and Retiree Benefit Costs Increased Substantially since 2006, but WMATA Has Not Fully Assessed Risks Posed by Its Pension Plans From fiscal years 2006 through 2017, WMATA’s annual costs for its employee and retiree benefits increased substantially in inflation-adjusted fiscal year 2017 dollars. Employee and retiree benefit costs—which include benefits for current employees, such as health care and vacation, and benefits for retired employees such as pensions and health care— increased at an average annual rate of 5.6 percent, from $327 million to $593 million (see table 2 above). These cost increases are reflective of substantial increases in the amount WMATA contributed to its pension plans. These costs increased by an average of 18.9 percent annually, from $25 million in fiscal year 2006 to $168 million in fiscal year 2017. WMATA payments for retiree health benefits increased less dramatically, on average 2.7 percent per year from fiscal years 2008 through 2017($39 million to $49 million). (See fig. 2). WMATA officials attributed increases in employee and retiree benefit contributions to multiple factors including market losses to pension assets incurred after the 2007–2009 financial crisis and an increase in the cost of providing healthcare benefits. Despite paying more for its retiree pension and health plans since 2006, in fiscal year 2017 WMATA had large unfunded retiree health and pension liabilities. Unfunded liabilities are the estimated value of the amount of additional assets, beyond any existing plan assets, that would be required to fully fund accrued liabilities of a plan. The assets of WMATA’s pensions largely consist of investments in stocks, bonds, and real estate. Unfunded liabilities are similar to other kinds of debt because they constitute a promise to make a future payment or provide a benefit. According to WMATA’s fiscal year 2017 Comprehensive Annual Financial Report, WMATA’s pension plans were underfunded by $1.1 billion for fiscal year 2017, of which $814 million was attributed to WMATA’s largest pension plan—Local 689. In contrast, WMATA’s four retiree health plans were pay-as-you-go during fiscal years 2006 through 2017, meaning WMATA’s annual plan contributions were benefit payments for retirees each year in that period. Since WMATA did not make contributions to prefund retiree health benefits, funds necessary for future benefits were not accumulated as assets. As a result, the entire accrued liability was an unfunded liability, and WMATA’s four retiree health plans were unfunded by over $1.8 billion in fiscal year 2017. WMATA officials said they have made several changes to reduce unfunded pension and retiree health liabilities through negotiations with WMATA’s unions. For example, in 2014, Local 689 employees began contributing a portion of their compensation (1 percent) to the Local 689 pension plan. This amount increased to 3 percent in 2015. Local 689 employee contributions reported for fiscal year 2017 were about $22 million, which was about 17 percent of the $127.5 million reported for WMATA’s contribution to their pension plan for that year. In addition, according to WMATA’s fiscal year 2017 Comprehensive Annual Financial Report, non-represented and Local 2 employees hired on or after January 1, 1999 are not eligible for the defined benefit pension plan. WMATA also reported that Local 689 and Local 2 employees hired on or after January 1, 2010, Metro Special Police hired after February 25, 2016, and non- represented employees hired after January 1, 2017 are not eligible for retiree health benefits. Most recently, WMATA created a trust to fund WMATA’s retiree health benefits and invested $3 million in the trust. WMATA’s pension plans, due to their relative size and maturity and investment decisions, pose a particular risk to WMATA’s financial operations: Relative size and maturity: The size of WMATA’s pension plans and the overall maturity of the plans’ participants pose a combined financial risk to WMATA. WMATA’s pension plans assets and liabilities are large relative to its business operations. For example, in fiscal year 2017, WMATA’s pension assets ($3.6 billion) were about 5 times more, and its pension liabilities ($4.7 billion) about 6.5 times more than its annual wages and salaries ($728 million). Because of their relative size, changes in the value of these assets or liabilities— for example, as a result of underperforming investments or revisions to actuarial assumptions—could significantly affect WMATA’s operations. In addition, WMATA’s pension plans are considered “mature” by actuarial measures, meaning, for example, that they have a high proportion of retirees compared to active members. A 2017 WMATA Board of Directors Pension Subcommittee report indicated that if WMATA’s assumed rate of return across all five plans decreased from 7.66 percent to 7 percent, WMATA’s required annual pension contribution would increase $42 million, a 26 percent increase, from 22 percent of wages and salaries ($160.7 million) to about 28 percent of wages and salaries ($203 million). Investment decisions: WMATA’s pension plans assume higher rates of return than state and local pension plans generally do, according to a recent National Association of State Retirement Administrators report. For the 2017 plan year, WMATA’s largest pension plan had an assumed rate of return of 7.85 percent per year, and the weighted average assumed rate of return for WMATA’s five plans combined was 7.66 percent. The average assumed rate of return among the largest state and local government plans was 7.52 percent in 2017, and dropped to a planned 7.36 percent for fiscal year 2018. If WMATA’s pension plan assets return significantly less than assumed, WMATA’s unfunded liabilities will be higher than anticipated, potentially resulting in a spike in required contributions, as occurred in the years following the 2007-2009 financial crisis (see fig. 2 above). WMATA’s pension plans are largely invested in the stock market, which also poses risk. For example, according to a November 2017 report to WMATA’s Board of Directors Pension Subcommittee, 69 percent of WMATA’s plan assets across all five pension plans were invested in the stock market, and only 18 percent in fixed income or cash. Investing in assets such as stocks may increase expected investment returns, but it also increases risk because stock returns are more volatile than investments in high quality bonds that provide a more stable rate of return. In addition, with its mature plans, WMATA faces a shorter time horizon before benefits for its retirees and older workers will become due, leaving less time to recover from investment shortfalls. According to literature on challenges facing U.S. pension plans, plans should take on less risk as they become more mature. This is because investment losses—and corresponding required increases in contributions—can potentially be a high percentage of wage and salary costs, with less time to make adjustments. As described above, WMATA’s pension plans are considered mature, yet they still have a high percentage allocated to risky assets. Although WMATA recently hired a consultant to complete a high-level review of its pensions, it has not fully assessed the risks of its five pension plans to the agency’s financial operations. In 2016 and 2017 WMATA hired a consultant to provide an overview of its five pension plans, including reviewing the plans’ funding strategies and performance. However, the stated purpose of these reports did not include an assessment of risk, and the reports included only limited analysis of the various risks facing WMATA from the plans, for example forecasting WMATA’s pension contributions over the next 10 years, but only under one scenario. In addition, WMATA provided us with analyses conducted by an actuary for each of its five pension plans, which included some limited risk analysis for three of the five pension plans, and no risk analysis for the other two plans, including the Local 689 plan—WMATA’s largest. Neither WMATA nor the trustees for the Local 689 plan have fully assessed the risks of that plan. WMATA’s Office of Internal Compliance has developed a process to periodically assess risks across the agency, known as an Enterprise Risk Management Program, and reported that pension risks could be assessed within this framework. However, WMATA has not yet assessed the fiscal risks from its pension plans within this program. WMATA officials said they are in the process of identifying risks to include in this program for 2019. The internal control standards WMATA follows state that organizations should identify, analyze, and respond to risks related to achieving their objectives. Further, a Society of Actuaries Blue Ribbon Panel reported that it is important for stakeholders—such as trustees, funding entities, plan members, union officials, and, in WMATA’s case, its Board of Directors—to have comprehensive information about the current and expected future financial position of pension plans and the extent of risks facing pension plans. According to the Blue Ribbon Panel, this information should include, among other things, “stress testing,” which projects a plan’s financial outcomes under adverse scenarios. WMATA officials told us that WMATA has not fully assessed pension risks because WMATA’s management does not have control over decisions related to the risks its pension plans take. For example, WMATA officials told us that given that both asset-allocation and investment-return assumptions are the purview of plan trustees who are required to act independently, WMATA has left the decision to determine if risk analysis is necessary to the individual plans’ trustees. WMATA officials stated that even if they were to identify risks, there are not many actions WMATA management could take to change them because trustees have ultimate control over the plans’ investment decisions. However, the investment risks taken by the pension plans’ trustees ultimately affect the amount that WMATA is required to contribute, and assessing those risks could help WMATA better anticipate its required future pension contributions. Without a comprehensive assessment of these risks, WMATA and its stakeholders—such as its Board of Directors—are limited in their ability to prepare for economic scenarios that could ultimately increase the amount WMATA is required to contribute to its pension plans. In addition, if disappointing market returns were the result of a broader economic downturn, WMATA’s revenues—such as those from local jurisdictions— could decline at the same time as higher pension contributions were required. For example, as noted earlier, if WMATA’s pension plans’ assets of $3.6 billion return significantly less than assumed, WMATA could experience a spike in required contributions, as it did in the years following the 2007–2009 financial crisis. Such a spike would further constrain WMATA’s operating budget, and potentially jeopardize its ability to pay for pension contributions or provide transit service. Moreover, without a comprehensive assessment of these risks under various scenarios, WMATA may lack useful information to develop risk mitigation efforts and to inform its collective bargaining negotiations about pay and benefits. Such information would also be useful to WMATA to inform its Board of Directors, and the jurisdictions that fund WMATA, about the impact that adverse economic scenarios could have on WMATA’s ability to provide future service at anticipated funding levels. WMATA Lacks a Strategic Process to Identify and Address Future Workforce Needs WMATA identifies the staffing levels it needs each year through its annual budgeting process, but does not have a strategic process to identify and address its long-term workforce needs to meet the agency’s goals. For example, in preparing the annual budget request for the Board of Directors, WMATA officials identify the number of staff needed in individual departments the following fiscal year. However, WMATA does not have a process for identifying and addressing agency-wide workforce needs beyond one year or in relation to agency-wide goals, contrary to leading practices. In addition, WMATA has some workforce development programs, including some that are piloted or planned, but these programs are not based on an agency-wide assessment of the skills the agency needs to meet its strategic goals. Instead, WMATA’s workforce development programs are directed to short-term needs such as filling vacancies. WMATA Identifies Short- Term Staffing Levels for Its Annual Budget but Has Not Set a Direction for its Long-Term Workforce Needs WMATA officials identify staffing levels needed by individual departments annually, in preparation for WMATA’s annual budget. The annual budget, once approved by WMATA’s Board of Directors, sets a ceiling for the number of positions WMATA can employ in the next fiscal year. For example, in fiscal year 2016, WMATA was authorized to fill up to 13,032 positions in fiscal year 2017. WMATA officials told us that each department, such as Rail Services or Bus Services, estimates the number of positions they will need to meet their mission the following fiscal year. According to WMATA officials, this estimation is based in large part on the number of positions allotted to them in the previous fiscal year. WMATA officials said the budget office assembles this department-level data into WMATA’s agency-wide budget request for the board of directors. WMATA’s recent restructuring of its workforce was also guided by the annual budget process. Beginning in June 2016 in preparation for the fiscal year 2018 budget proposal, WMATA eliminated 800 positions, most of which were vacant. To identify these positions, WMATA’s General Manager directed department heads to help identify any positions that were redundant or obsolete. WMATA officials reported that 637 of the 800 positions eliminated were already vacant, and of the 163 occupied positions most were reassigned to other existing positions. Ultimately, WMATA terminated 62 employees during this time for an estimated savings of $7.3 million (about $116,000 per employee in salary and benefits). Although WMATA estimates departmental staffing needs annually, WMATA officials said the agency does not have a process for identifying the agency’s long-term workforce needs. Instead, officials said that each department typically completes a 3-year business plan through which it may identify the number of employees needed over that period. However, none of the 8 department business plans that we reviewed for calendar years 2017 through 2019 identified the number of employees needed. Further, WMATA’s Chief Operating Office business plan identified the lack of long-term workforce planning as a risk to the office’s ability to meet its core organizational goals. WMATA’s four organizational goals are creating a safety culture and system, delivering quality service, improving regional mobility, and ensuring financial stability and investing in people. According to leading human capital practices we have previously identified, agencies should have a strategic workforce planning process that identifies the workforce, including full-time, part-time, and contracts, needed to meet the agency’s strategic goals now and in the future. Strategic workforce planning helps an agency align its human capital program with its current and emerging mission and ensures that it will have the workforce it needs to accomplish its goals. According to these leading practices, the first step of strategic workforce planning is for top management to set a strategic direction for the agency’s workforce planning efforts, and to involve employees and other stakeholders in the development and communication of these efforts. WMATA does not have a strategic workforce planning process that would address its workforce needs beyond the next fiscal year because it has not prioritized that effort. WMATA officials told us they were interested in creating a strategic workforce plan, and had made previous plans to do so. Specifically, WMATA’s 2013–2025 Strategic Plan reported that the agency was creating a “Strategic Human Capital Plan” that would have developed long-term workforce planning strategies. However, WMATA officials told us that the Strategic Human Capital Plan was never completed due to other, competing priorities such as filling vacant positions and addressing other workforce issues in the upcoming budget. Without a strategic workforce planning process to establish a long-term direction for its workforce, WMATA does not have a clear plan for how it will acquire, develop, and retain the workforce needed to achieve its strategic goals of creating a safety culture, delivering quality service, improving regional mobility, and financial stability. Further, without such a process, WMATA lacks reasonable assurance that its short-term annual budget requests for staff, including the recent restructuring, will move the agency toward these strategic goals. WMATA’s Workforce Development Programs Are Not Based on an Agency-wide Assessment of Gaps in Critical Skills and Competencies WMATA officials told us they have some established workforce development programs, and others piloted or planned. For example, WMATA currently has three specialized recruitment programs to identify qualified veterans, Latinos, and persons with disabilities for WMATA positions. WMATA also provides targeted training for employees such as “principles of supervision” for all new supervisors. WMATA officials told us the agency is also developing a “People Strategy,” which will include multiple workforce development programs for certain entry-level workers and managers to improve their skills and help them to advance in the agency. One component of the People Strategy will be to establish a program to identify and train “high-potential” staff for leadership positions. Although WMATA has some limited workforce development programs, these programs are not based on an agency-wide assessment of skill and competency gaps. According to the COSO internal control standards and leading practices we have previously identified, once an organization’s leadership sets a strategic direction for workforce planning efforts, it needs to conduct a “workforce gap analysis”—a data-driven assessment of the critical skills and competencies the agency will need to achieve its current and future goals. Agencies can use different approaches for this analysis. One example is using information on retirements and attrition to identify future gaps in staffing or skills. Another is “scenario planning” in which an agency identifies how its activities might change in scope and volume in the next 5 years, and then identifies gaps in skills and competencies needed to fill the likely scenarios, rather than planning to meet the needs of a single view of the future. An agency can then develop strategies that are tailored to address any gaps between the skills and competencies they need and the ones they already have. WMATA officials reported that they identify workforce gaps by tracking vacancy rates (percentage of budgeted positions that are vacant) and consulting department leaders about employees departing or retiring. However, WMATA officials said they do not monitor trends in agency- wide retirements and had not projected the number of employees eligible to retire in the future—essential components of a data-driven workforce gap analysis. In comparison, officials from four of the five similar transit agencies we interviewed project the percentage of staff who are eligible to retire in the future, ranging from 3 to 10 years. WMATA officials said the agency has not conducted an agency-wide assessment of its skill and competency needs because it has been more reactive than proactive in response to attrition and retirements and relied on promoting staff to higher-level positions to fill vacancies. For example, until 2017, WMATA had a Superintendent Succession Planning Program, which was designed to prepare bus and rail employees for management roles. WMATA officials reported that this program was initiated in 2009 but is currently on hold as the agency develops its People Strategy. WMATA officials said they plan to implement a different succession planning program, which will offer financial incentives for some managers to transfer knowledge to staff before they retire, as part of the People Strategy. However, without conducting a data-driven assessment of the critical skills and competencies WMATA needs to fill any gaps and achieve its strategic goals, WMATA lacks complete information on where the gaps in its workforce lie, and if its workforce development programs are addressing those gaps or ultimately moving the agency closer to its strategic goals. WMATA Lacks Some Key Elements of an Effective Performance Management System and Sufficient Controls to Ensure Accurate and Timely Performance Reviews WMATA has implemented two performance management systems to cover its various employee groups, but these systems lack some key elements of an effective performance management system. Specifically, WMATA has linked employee performance to pay for some employees; however, WMATA’s performance management systems do not (1) consistently align employee and agency goals or assign responsibilities, (2) make meaningful distinctions in performance, or (3) consistently use competencies to identify the behaviors individual employees need to contribute to strategic goals. In addition, WMATA does not have sufficient controls to ensure that performance reviews are complete, accurate, and submitted within established timeframes and does not use performance management information to track progress towards strategic goals. WMATA’s Performance Management Systems Cover All Employees but Design Lacks Some Key Elements WMATA has implemented two performance management systems that cover all employees: PERFORMetro for non-represented staff and staff represented by Local 2, Fraternal Order of Police, or Local 639; and Performance Conversations for staff represented by Local 689 or Teamsters Local 922. The features of the PERFORMetro and Performance Conversations systems vary somewhat in terms of the frequency of performance reviews, the use of objectives to assess performance, and other characteristics (see table 3). WMATA links pay increases to positive performance for some employees under PERFORMetro, a key element of effective performance management. For example, Metro Special Police must earn a solid performer or better rating to be eligible for salary increases. We have previously noted that high-performing organizations seek to create pay systems that clearly link to employee contributions. WMATA does not link pay to performance for employees who fall under Performance Conversations. Pay increases for these employees—who are represented by two of the largest unions at WMATA—are determined by years of service as described in the collective bargaining agreements. WMATA officials said they had considered linking some pay to performance in the past, but had not pursued this since they believe any changes to how pay is awarded would have to be negotiated between WMATA and each respective bargaining unit. Although WMATA has linked individual performance to pay for some employees, the design of WMATA’s performance management systems lacks three additional key elements of an effective performance management system as identified in our prior work and internal control standards followed by WMATA. Those key elements are: aligning employee and agency goals and identifying responsibilities making meaningful distinctions in performance, and using tailored competencies to define needed skills and behaviors. Aligning employee and agency goals and identifying responsibilities: PERFORMetro is not designed to align individual employee performance with all of its strategic goals. While Performance Conversation forms guide supervisors to discuss the employees’ performance in relation to each of WMATA’s four strategic goals, supervisors under PERFORMetro are required to evaluate employees on individual performance objectives that are aligned with three of these goals. Supervisors under PERFORMetro are not required to evaluate employees on a performance objective aligned with WMATA’s fourth strategic goal—improving regional mobility. WMATA officials told us it is up to individual supervisors to determine whether to evaluate an employee on the fourth strategic goal. Of the 50 performance reviews we assessed, we observed one that aligned an employee’s performance objectives with the organizational goal of improving regional mobility. According to leading performance management practices we previously identified, aligning individual performance objectives with organizational goals helps individuals see the connection between their daily activities and the organization’s goals. Without a mechanism in place to do this for PERFORMetro staff, WMATA may not know how these employees are contributing to increasing regional mobility, and employees may not know how they are performing relative to this goal. In addition, WMATA has not consistently identified how its performance management systems support its overarching strategic goals or assigned responsibilities for implementing these systems. While WMATA issued a staff memo in April 2016 that identified a goal for Performance Conversations—to ensure that employees understand how their performance supports Metro’s strategic goals—WMATA has not done so for PERFORMetro. In addition, none of the performance management documents we reviewed clearly assigned authority or defined responsibilities for implementing either PERFORMetro or Performance Conversations. According to the COSO internal control standards, setting program goals is a key part of the management process, and program- level goals should cascade from agency-level goals. Additionally, these standards include establishing policies and procedures that effectively document a program’s design, delegation of authorities, and assignments of responsibilities. Making meaningful distinctions: WMATA’s performance management systems are not designed to make meaningful distinctions in performance. According to leading performance management practices, the organization’s leadership should make meaningful distinctions between acceptable and outstanding performance of individuals. However, both of WMATA’s performance management systems lack clear definitions for supervisors and employees to use in assessing performance. For example, WMATA leaves it up to employees and their supervisors to identify and define many of the objectives on which employees under PERFORMetro are evaluated. WMATA officials said this provides supervisors some flexibility to account for the responsibilities of employees in different positions. However, the result is that two employees performing the same functions may be evaluated on different objectives, making it difficult to distinguish their performance. Further, under PERFORMetro supervisors are required to rate employees on each objective as “met,” “did not meet,” and “exceeded,” but WMATA does not provide definitions for these categories for each objective. As a result, two employees rated under PERFORMetro could receive different ratings for comparable performance. In addition, for employees under the Performance Conversations system, WMATA does not require supervisors to rate employee performance. Rather, officials told us that WMATA implemented Performance Conversations as a way to encourage more positive, performance-based interactions between employees and management that expanded beyond discipline. WMATA has a discipline-based program for most employees under Performance Conversations (Local 689 bus and rail operations employees and Local 922 bus operators) that establishes standards of conduct these employees must adhere to, and identifies penalties if they do not. This discipline-based program lays out the penalties for violations of employee standards of conduct such as speeding or failing to stop at a red signal. The penalties for conduct violations range from written warnings, to suspensions, to termination. Using competencies tailored to each position: WMATA’s performance management systems do not consistently use competencies to identify the behaviors individual employees are expected to contribute to strategic goals. Although WMATA has established competencies as part of its PERFORMetro system, these competencies are defined in a uniform manner that does not reflect the varied job responsibilities of its employees. Inclusion of such competencies tailored to each position’s responsibilities is a leading practice for an effective performance management system. Competencies, which define the skills and supporting behaviors that individuals are expected to exhibit to carry out their work effectively can provide a fuller picture of an individual’s performance. WMATA defines four competencies for all employees under PERFORMetro—”focuses on safety,” “serves customers,” “accountability,” and “teamwork.” However, these competencies are defined in the same way for all employees under PERFORMetro and are not based on the job responsibilities of each position. For example, WMATA assesses the performance of individuals performing different job functions—such as administrative staff and police officers—by the same competencies and without consideration for how skills and behaviors vary by job function. As such, some portions of the competency descriptions are not applicable to all employees. For example, all PERFORMetro employees are evaluated on the extent that they wear required personal protective equipment and/or clothing, but this may not apply to someone in accounting or human resources. WMATA officials said they are aware of this, and that supervisors choose which portions of the competency descriptions to apply to their employees. Finally, WMATA officials said they do not include competencies for employees under Performance Conversations because Performance Conversations are intended to promote performance discussions, not to evaluate employee performance. However, without competencies tailored to employees’ positions, supervisors are limited in their ability to assess employee performance. WMATA’s performance management systems lack key elements of an effective performance management system in part because the agency has not established comprehensive policies and procedures, as called for by COSO, for its performance management systems. Instead, the agency relies on piecemeal documents—such as staff memos and training—and individual supervisors to define and carry out performance management. By establishing comprehensive policies and procedures that document key elements, such as defined objectives and rating categories, WMATA would be better positioned to assess staff performance and ensure performance management is consistently implemented across supervisors. Additionally, WMATA would be better positioned to use its performance management systems to move employees toward achieving its strategic goals. Better Controls Could Improve the Completeness, Accuracy, and Timeliness of WMATA’s Employee Performance Reviews We found that, in implementing its most recent performance evaluation cycle, WMATA’s reviews of employee performance were often incomplete, inaccurate, or untimely. First, officials said that they do not routinely collect or retain the forms for its Performance Conversations and that accordingly, WMATA does not know the extent to which these reviews were completed. Second, in our review of a non-generalizable sample of 50 PERFORMetro performance evaluations for fiscal year 2016, we found that WMATA supervisors frequently submitted evaluations that were incomplete, inaccurate, or not submitted within established timeframes. Specifically: 25 of the 50 selected files we reviewed were missing either the employee’s or supervisor’s signature required on the initial expectations setting portion of the form; 3 of those 25 files were also missing a required signature on the final review portion of the evaluation form, which provides assurance that the performance evaluation was completed; 10 of the 50 selected files we reviewed were scored incorrectly and thus assigned a performance rating inconsistent with the supporting review. WMATA determines an employee’s final rating based on scores tabulated by supervisors for an employee meeting his or her objectives and demonstrating competencies. Specifically, employees receive separate ratings for objectives and competencies, which are then combined together to yield a final overall rating of “role model,” “solid performer,” or “improvement required”. We found tabulation errors in 10 of the files where, for example, a “solid performer” was given a “role model” rating. Without accurate information about employee performance, WMATA may not be able to recognize employees’ achievements or address potential performance challenges. 22 of the 50 selected files we reviewed were not submitted on time according to timeframes established in a 2016 WMATA staff notice and a 2017 agreement between WMATA and one of its unions. This includes 9 files of employees not represented by a union, 5 law enforcement staff files, and 8 Local 2 staff files. Local 2 officials told us they filed a grievance following delayed performance reviews for its members. Pursuant to the grievance, Local 2 officials signed an agreement with WMATA that if a supervisor does not submit a scheduled performance evaluation within 30 calendar days of a Local 2 employee’s anniversary date, that employee will receive an automatic solid performer rating and any associated pay or step increase. COSO internal control standards state that management should establish control activities, such as policies and procedures, to achieve its goals. Examples of control activities include management reviews and controls over information processing, among other things. A specific type of control activity is a “transaction control,” which helps management ensure that all transactions (in this case, performance reviews) are completely captured, accurate, and timely. Transaction controls may include authorizations or approvals by a higher level of management, or verifications to compare transactions to a policy and then follow-up if the transaction is not consistent with the policy. In the case of WMATA’s performance reviews, this could include comparing a list of employees who should have received a performance review per WMATA policy to a list of the reviews that were submitted to the human resources office. We found that WMATA does not have sufficient controls in place to ensure that supervisors accurately complete performance reviews and submit them to the human resources department within established timeframes. WMATA human resources officials said that for the 2016 review cycle, they emailed a report to supervisors listing year-end performance reviews that were due within 90 days, but did not subsequently ensure that they were completed correctly and on time. Officials said that once supervisors emailed these reviews to the human resources department, human resources staff manually recorded these reviews into WMATA’s personnel information system. WMATA officials told us that human resources staff examined the performance reviews for completion and accuracy. Despite this process, WMATA officials could not provide us reliable information on the number of 2016 performance reviews that were completed, and as previously mentioned, said they did not routinely collect or retain Performance Conversations forms. WMATA officials said they have plans to upgrade their current performance management information technology system, but descriptions of the upgrade that WMATA provided to us do not identify how the upgrade will address the issues we identified. Without controls to ensure that supervisors submit complete, accurate, and timely performance reviews, WMATA lacks information on the performance of its workforce, and employees lack information needed to improve performance. WMATA Does Not Have a Process to Use Employee Performance Information to Monitor Progress toward Strategic Goals WMATA officials told us that they do not have a process to use information from their performance management systems to identify performance gaps, or pinpoint improvement opportunities. We have previously identified that routinely using performance information to track individual contributions to organizational priorities, and then requiring follow-up actions to address gaps, are key performance management practices. This approach allows an agency to use its employee performance information to monitor progress towards its strategic goals. Officials from two transit agencies we spoke to told us they use information from their performance management systems to track performance gaps related to strategic goals. For example, Chicago Transit Authority officials told us that they evaluate employees on competencies related to the organization’s strategic goals of safety, customer service, and teamwork, and then aggregate performance review information to assess the organization’s performance on these goals. WMATA does not make use of employee performance information in part because it has not developed a process to do so. Without a documented process to use employee performance management information to monitor progress on its strategic goals, WMATA may miss opportunities to identify and follow-up on performance gaps and to make full use of the information collected through its performance management systems. Conclusions WMATA transports more than 1 million passengers each weekday, making it central to the mobility and productivity of the nation’s capital. Recent safety incidents and declines in ridership place additional pressure on WMATA to effectively manage its most expensive resource— its workforce. If increases in WMATA’s workforce pension costs continue to outpace increases in WMATA’s other workforce costs, WMATA will be under greater pressure to manage its costs and balance competing priorities. A comprehensive assessment of the fiscal risks these pension investments could pose to WMATA could help it prepare for various economic scenarios and ensure that it can continue to provide benefits to its employees without having to compromise future service to riders to pay for these benefits. Effective workforce planning could also help WMATA by ensuring that WMATA has the people and skills it needs to achieve its goals of safety, customer service, financial stability, and regional mobility now and in the future. Establishing a strategic workforce planning process that involves employees and other stakeholders, and that uses data on WMATA’s workforce to assess competency and skill gaps would provide WMATA with critical information that could help it address any identified gaps and ultimately move it closer to its strategic goals. With effective employee performance management, WMATA also would be better positioned to achieve its goals by explicitly aligning them with the daily tasks of its employees. By establishing comprehensive policies and procedures for its performance management systems that align employee performance objectives with WMATA’s strategic goals and define performance objectives, rating categories, and competencies, WMATA will be better able to steer employees towards behaviors that support the agency’s goals and away from behaviors that do not. Further, establishing controls for supervisors to submit complete, accurate, and timely performance reviews would help ensure that staff receive information needed to improve their performance. Finally, a documented process to make use of the performance information WMATA collects could help it track progress in meeting its organizational goals and identify and address performance gaps. In light of WMATA’s uncertain financial future, improvements in WMATA’s workforce planning and performance management could better position WMATA to navigate that future. Recommendations We are making the following five recommendations to WMATA: 1. WMATA’s General Manager should conduct a comprehensive assessment of the financial risks to which WMATA is exposed from its pension plans and communicate the results to its pension plan trustees and other stakeholders, such as its Board of Directors. This assessment should include information about WMATA’s current and potential future required payments and unfunded liabilities, including under potentially adverse economic scenarios. (Recommendation 1) 2. WMATA’s General Manager should develop a strategic workforce planning process that (1) sets a strategic direction for WMATA’s workforce planning and involves employees and other stakeholders in developing and communicating the process, and (2) includes a data- driven assessment of the critical skill and competencies WMATA needs to fill any gaps. (Recommendation 2) 3. WMATA’s General Manager should establish comprehensive policies and procedures for both of its performance management systems that document the goals of the systems and individuals’ responsibilities for implementing these systems; align employee performance objectives with all of WMATA’s strategic goals; and define performance objectives, rating categories, and competencies tailored to individual positions’ responsibilities. (Recommendation 3) 4. WMATA’s General Manager should establish controls to ensure supervisors fully and accurately complete employee performance reviews and submit them to human resources within established timeframes. (Recommendation 4) 5. WMATA’s General Manager should develop a documented process to use employee performance management information to monitor progress toward WMATA’s strategic goals. (Recommendation 5) Agency Comments and Our Evaluation We provided a draft of this report to WMATA and DOT for review and comment. WMATA provided written comments, which we have reprinted in appendix II, and technical comments, which we incorporated as appropriate throughout our report. Regarding our first recommendation that WMATA conduct a comprehensive assessment of the financial risks to which it is exposed from its pension plans, WMATA concurred but stated that the agency has already completed such an assessment and does not believe that any additional assessment would add value. As stated in our report, WMATA hired a consultant in 2016 and 2017 to provide an overview of its five pension plans, including reviewing the plans’ funding strategies and performance. However, the stated purpose of these reports did not include an assessment of risk, and the reports included only limited analysis of the various risks WMATA is facing from the plans, and only considered a single scenario for estimating WMATA’s future pension obligations. As such we concluded that these reports did not constitute a comprehensive assessment of risks facing WMATA from its pension plans. Given the plans’ large size relative to WMATA’s business operations, high proportion of retirees compared to active members, high percentage allocation to risky assets, and high assumed rates of return, WMATA’s pension plans pose significant risk to its financial operations. Without a comprehensive risk assessment, WMATA and its Board of Directors are limited in their ability to prepare for economic scenarios that could compromise WMATA’s ability to provide future service. Thus, we continue to believe that our recommendation is valid and that WMATA should fully implement it. Regarding our second recommendation that WMATA develop a strategic workforce planning process, WMATA concurred and described actions it has underway to address the recommendation. Regarding our third recommendation that WMATA develop comprehensive policies and procedures for both of its performance management systems, WMATA concurred and stated that it is in the process of hiring a consultant to evaluate and redesign WMATA’s performance management systems for fiscal year 2020. WMATA also noted that the agency published a performance management handbook and guide in July 2018 that, among other things, provides definitions and indicators for behaviors assessed in performance evaluations. As part of our recommendation follow up process, we will obtain and review the handbook to determine whether it fully addresses our recommendation. Regarding our fourth recommendation that WMATA establish controls to ensure that supervisors complete and submit employee performance reviews to human resources within established timeframes, WMATA concurred and described actions it plans to take in response. Regarding our fifth recommendation that WMATA develop a documented process to use employee performance management information to monitor progress towards WMATA’s strategic goals, WMATA neither agreed nor disagreed. WMATA stated that it already ties individual employee performance to the agency’s strategic goals, but is open to considering improvements through the third-party consultant it plans to hire to review its performance management systems. In our report we note that WMATA’s PERFORMetro performance management system is not designed to align individual employee performance with all of its strategic goals. Specifically, supervisors under PERFORMetro are required to evaluate employees on individual performance objectives that are aligned with three of WMATA’s strategic goals, but not with WMATA’s fourth strategic goal—improving regional mobility. Further, WMATA officials told us that they do not have a process to use information from their performance management systems to identify performance gaps, or pinpoint improvement opportunities. Thus, we continue to believe that our recommendation is valid and WMATA should fully implement it. We are sending copies of this report to the General Manager of WMATA, the Secretary of Transportation, and the appropriate congressional committees. We provided a draft of this report to WMATA and DOT for review and comment. If you or your staff have any questions about this report, please contact Mark Goldstein at (202) 512-2834 or [email protected] or Frank Todisco at (202) 512-2700 or [email protected]. Mr. Todisco meets the qualification standards of the American Academy of Actuaries to address the actuarial issues contained in this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors are listed in Appendix III. Appendix I: Objectives, Scope and Methodology This report assesses (1) how the Washington Metropolitan Area Transit Authority’s (WMATA) workforce costs have changed from fiscal years 2006 through 2017 and factors contributing to those changes; (2) how WMATA identifies and addresses its current and future workforce needs; and (3) how WMATA has designed, implemented, and monitored its employee performance management systems. To assess how WMATA’s workforce costs have changed since 2006, we used data from WMATA’s annual budgets and annual audited financial statements from fiscal years 2006 through 2017 on the amounts expensed by WMATA on wages and salaries, employee and retiree benefits, contracted services, and other information on WMATA’s pension and retiree medical plans. We selected 2006 to account for any potential effects of the 2007-2009 financial crisis on pension or other costs, and because WMATA began contributing to its largest pension plan again in 2006 after a 6-year period of not contributing to this plan. To adjust WMATA’s costs for inflation, we used quarterly data on the GDP price index, which we obtained from the Bureau of Economic Analysis. Inflation adjustment factors are calculated to align with the definition of WMATA’s fiscal year, which begins on July 1 and ends on June 30 of the following calendar year. Our calculations adjust nominal values for inflation to find real values are expressed in fiscal year 2017 dollars, where fiscal year refers to WMATA’s fiscal year. We also reviewed data WMATA provided on operating and capital overtime costs, and the most recent actuarial reports for each of WMATA’s five pension plans for more information on WMATA’s pension obligations. Additionally, we analyzed characteristics of WMATA’s five pension plans in consultation with GAO’s Chief Actuary and in relation to actuarial principles and recent literature. Further, we consulted with GAO’s Chief Actuary for assistance in interpreting information about WMATA’s pension and retiree medical plans. To assess WMATA’s pension costs, we reviewed pension expense— which reports WMATA’s expense for its pension plans during a year, as measured in accordance with pension accounting standards for financial reporting purposes—and pension contributions, which reports the amount WMATA paid into its pension plans during a year. Both pension expense and pension contributions increased substantially from fiscal years 2006 through 2017. While pension expense is the pension component of WMATA’s employee and retiree benefit cost data described above, changes in pension accounting reporting standards in 2014 resulted in pension expense being reported differently before and after 2014. As such, we relied on pension contributions as our primary measure of growth of WMATA’s annual pension costs. To assess the reliability of WMATA’s budget data, and other data WMATA provided, we interviewed WMATA officials on practices used to assemble these data. We found these data to be sufficiently reliable for our purposes. To identify factors contributing to changes in workforce costs, we interviewed WMATA officials and reviewed WMATA’s annual budgets, annual financial statements, and actuarial statements for information on the total number of authorized represented and non-represented staff, changes in operating overtime costs, changes in pension-related costs, and other factors that could influence workforce cost changes since fiscal year 2006. To evaluate how WMATA identifies and addresses its workforce needs, we compared WMATA’s workforce planning and workforce development efforts to leading practices we previously identified and the Committee of Sponsoring Organizations of the Treadway Commission (COSO) internal control standards, which WMATA follows. We previously developed these leading strategic workforce planning practices based on a review of documents from (1) organizations with government-wide responsibilities for or expertise in workforce planning models and tools, such as the Office of Personnel Management and the National Academy of Public Administration, and (2) federal agencies recommended as having promising workforce planning programs. Additionally, to identify these practices we reviewed our prior reports and testimonies on human capital issues and met with officials from the aforementioned organizations concerning existing workforce planning models and lessons learned from workforce planning experiences. In addition to comparing WMATA’s workforce planning efforts to leading practices and COSO standards, we reviewed WMATA’s 2017–2019 individual department business plans and 2013–2025 strategic plan to describe how WMATA identifies its short- and long-term workforce needs. Furthermore, we obtained and reviewed WMATA information on the positions WMATA eliminated in fiscal years 2017 and 2018, including the number of positions that were vacant or occupied. Lastly, we compared WMATA’s workforce planning approach to those at a non- generalizable sample of five similar U.S. transit and rail agencies, selected based on similarity in size, age, unions representing agency staff, and stakeholder recommendations. Agency size was measured according to unlinked passenger trips and passenger miles data in the American Public Transportation Association’s 2016 Public Transportation Fact Book, the most recent issue available at the time of selection. System age and union status were determined by a review of publicly available information about each transit system such as academic papers and transit agency websites. With input from industry, federal, WMATA, and union stakeholders, we selected the following peer agencies: (1) Chicago Transit Authority, (2) Los Angeles County Metropolitan Transportation Authority, (3) San Francisco Bay Area Rapid Transit District, (4) Southeastern Pennsylvania Transportation Authority, and (5) Metropolitan Transportation Authority, Metro-North Commuter Railroad. To evaluate how WMATA designed, implemented, and monitored its performance management systems, we reviewed documentation on WMATA’s two employee performance management systems— ”PERFORMetro” for non-represented, Office and Professional Employees International Union Local 2, Fraternal Order of Police, and International Brotherhood of Teamsters Local 639 employees; and “Performance Conversation” for Amalgamated Transit Union Local 689 and International Brotherhood of Teamsters Local 922 employees. We compared these systems to leading performance management practices we have previously identified and to the COSO internal control standards. We previously identified these key practices for modern, effective, and credible performance management systems by synthesizing information contained in its previous performance management work. These practices were also provided for comments to officials from the Office of Personnel Management, the Senior Executives Association and the Center for Human Resources Management at the National Academy of Public Administration. In addition to comparing WMATA’s performance management systems to key practices and COSO internal control standards, we also reviewed WMATA’s 2013–2025 strategic plan, which outlines WMATA’s four strategic goals: (1) build and maintain a premier safety culture and system, (2) meet or exceed expectations by consistently delivering quality service, (3) improve regional mobility and connect communities, and (4) ensure financial stability and invest in our people and assets. To assess how WMATA implemented its performance management systems, including what management controls it had in place to track the completion of required annual employee performance reviews, we interviewed WMATA human resources officials and assessed the data they collected on the number of 2016 PERFORMetro year-end reviews that were required and submitted by supervisors. WMATA officials could not tell us how many PERFORMetro reviews or Performance Conversation forms were required over the period we requested. WMATA officials said that they had data on the number of 2016 PERFORMetro reviews submitted to human resources, but did not collect any data on Performance Conversation forms. As such, we requested the list of submitted 2016 PERFORMetro reviews. WMATA human resources management sent an email to all supervisors asking them to send the reviews they had conducted in the 2016 performance period if they had not already done so. While this information met our purposes for performing a non-generalizable review of selected completed performance reviews, data on the number of employees who were required to have a performance review under PERFORMetro in the 2016 performance period and the number of those employees who received a review were not reliable for reporting purposes. WMATA officials agreed with our assessment that these data were not reliable for reporting purposes. From the list of PERFORMetro reviews we received, we selected an initial non-generalizable sample of 60 files to assess based on employee group (non-represented, Local 2, and Metro Transit Police) and job title. We selected 20 files from each of the three employee groups—10 files each from the two job titles within each employee group with the highest number of identified reviews. We selected the 60 files by assigning random numbers to each file within the six selected job titles and selecting the first 10 files in the sorted, randomized list. We adjusted our random selection as needed to ensure our selection included performance reviews completed by multiple supervisors. Our final selection included the following performance review files: Non-represented employees (20 files total) Rail Operations Supervisor (10 files) Transit Field Operations Supervisor (10 files) Local 2 employees (20 files total) Training and Safety Instructor (10 files) Central Control Supervisor (10 files) METRO Transit Police Department (20 files total) METRO Police S (10 files) Special Police Series (10 files) While conducting our file review, we found that the Special Police Series evaluation forms were significantly different than the other files and did not align with the data collection instrument we had designed. As a result, we did not include these 10 files, leaving us with 50 files included in our final analysis. Lastly, as discussed in our report, we did not review any Performance Conversation files as WMATA officials told us that they do not track the completion of these forms and therefore did not have any data on the number of Performance Conversation year-end reviews that were completed in fiscal year 2017, the first year Performance Conversations were implemented. Finally, we interviewed officials from the FTA and union leadership from four of the five unions representing WMATA employees. We conducted our work from July 2017 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Washington Metropolitan Area Transit Authority Appendix III: GAO Contacts and Staff Acknowledgements GAO Contacts Staff Acknowledgments In addition to the contacts named above, Matt Barranca (Assistant Director), Sarah Farkas (Analyst in Charge); Namita Bhatia Sabharwal; Lacey Coppage; Tom Gilbert; Josh Ormond; Steve Rabinowitz; Michelle Weathers; Hannah Weigle; and Elizabeth Wood made key contributions to this report.

WMATA transports more than 1 million rail and bus passengers each weekday in the nation's capital and surrounding areas. However, recent safety incidents and declines in ridership and revenues have focused public attention on how WMATA manages its workforce and associated costs. GAO was asked to review WMATA's workforce management. This report examines, among other things, (1) how WMATA's workforce costs have changed from fiscal years 2006 through 2017 and factors contributing to those changes, and (2) how WMATA has designed and implemented its employee performance management systems. GAO reviewed WMATA's annual financial statements and budgets from fiscal years 2006 through 2017, and compared WMATA's workforce cost and performance management efforts to leading practices and internal control and actuarial principles. GAO also reviewed a non-generalizable sample of employee performance evaluations selected to include occupations with the highest number of evaluations. The Washington Metropolitan Area Transit Authority's (WMATA) workforce costs—including wages, salaries, and benefits for employees and retirees—increased on average by about 3 percent annually from fiscal years 2006 through 2017. This increase was largely driven by the cost of employee and retiree benefits. Specifically, the amount WMATA was required to contribute to its pension plans increased by an annual average of about 19 percent during this period. Due to their relative size, proportion of retirees compared to active members, and investment decisions, these pension plans pose significant risk to WMATA's financial operations, yet WMATA has not fully assessed the risks. Without comprehensive information on the risks facing its pension plans, WMATA may not be prepared for economic scenarios that could increase its required contributions to an extent that might jeopardize its ability to provide some transit service. WMATA has implemented two employee performance management systems that cover all employees, but these systems lack some key elements of an effectively designed and implemented performance management system. For example, WMATA's performance management systems are not designed to make meaningful distinctions in performance, a key element of an effective system. This design is due in part to WMATA's lack of comprehensive policies and procedures for its performance management systems. In addition, WMATA lacks sufficient controls to ensure that supervisors complete required performance evaluations accurately and on-time. For example, in 10 of 50 performance evaluations we reviewed, we found scoring errors where employees were assigned a performance rating inconsistent with the supporting review. Without comprehensive policies and procedures or sufficient controls over its performance management systems, WMATA lacks tools and information to move employees toward achieving WMATA's strategic goals.

GAO_GAO-18-533

Background NSF relies on two programs for bringing rotators into the agency: (1) the IPA program and (2) the VSEE program. The Office of Personnel Management develops policies on agencies’ use of the IPA program and promulgates program regulations. Rotators in NSF’s IPA and VSEE programs differ in key respects, including their employment status and compensation. IPA rotators. NSF enters into written agreements with rotators’ home institutions for all IPA assignments. The agreements detail rotators’ salaries and health, retirement, and other fringe benefits at their home institutions, as well as the cost-sharing amounts NSF and home institutions are to pay during rotators’ assignments. NSF reimburses its cost-sharing amounts to home institutions, which continue to pay rotators’ full salaries and benefits. NSF does not cap the salaries of IPA rotators; as a result, IPA rotators may receive salaries that exceed the maximum federal salary for the position they hold at NSF. In contrast, if an IPA rotator’s salary is less than the minimum federal salary for the position, NSF will supplement the salary to the minimum rate. VSEE rotators. NSF appoints VSEE rotators as federal employees on a nonpaid leave of absence from their home institutions. VSEE rotators receive their salaries directly from NSF but are not eligible for certain federal benefits, such as retirement; instead, NSF reimburses home institutions for the employer’s share of retirement, life insurance, and health benefits that would otherwise be discontinued. NSF’s policy is to set salaries for VSEE rotators that are generally comparable to the salaries the rotators would receive at their home institutions. In setting salaries, NSF also takes into account other sources of income, such as consulting, and allows for locality pay adjustments applicable to employees in the Washington, D.C., metropolitan area. However, because VSEE rotators are federal employees, NSF caps their salaries at the federal maximum for the position they hold at NSF. Both IPA and VSEE rotators are eligible for certain other types of reimbursement. In particular, rotators have the option of having NSF pay their moving expenses to and from Washington, D.C., or receiving per diem allowances in accordance with federal travel regulations for up to 2 years. In addition, NSF may reimburse rotators for travel-related expenses related to their participation in NSF’s Independent Research and Development program, which enables NSF staff to maintain their involvement with their professional research and research-related activities at their home institutions. Table 1 shows additional information on IPA and VSEE rotator expenses. Rotators are generally assigned to one of NSF’s seven directorates that support science and engineering research and education (see table 2). Each directorate is headed by an assistant director and deputy assistant director. Directorates are further subdivided into divisions, offices, or sections. Each division is headed by a division director and typically a deputy division director, and each office is headed by an office director and typically a deputy office director. All these positions are executive positions at NSF. At the staff level, NSF uses program directors—subject matter experts in the scientific areas they manage—to conduct reviews of proposals and recommend which projects the agency should fund. With an annual budget of about $7.5 billion, NSF funds approximately 24 percent of all federally supported basic research conducted by colleges and universities in the United States. In 2016, NSF established the Steering Committee for Policy and Oversight of the IPA Program. The steering committee serves as the primary body for considering policy on NSF’s use of IPA rotators and overseeing common approaches to budgeting and implementation of the IPA program. The committee’s membership includes NSF’s chief human capital officer, who serves as the chair, and several other NSF officials. The steering committee has established strategic principles for management of the IPA program. These principles include maintaining a balance between IPA rotators and federal staff and a commitment to ongoing improvement of the program. NSF officials told us that there is no similar steering committee for overseeing VSEE rotators. Instead, each VSEE rotator is individually overseen by his or her respective supervisor. For the agency as a whole, NSF’s Office of Information and Resource Management and its Division of Human Resource Management conduct human capital management. NSF officials stated that the head of the Office of Information and Resource Management serves as the Chief Human Capital Officer and develops and oversees NSF’s human capital approaches and strategies. These officials also told us that the Deputy Chief Human Capital Officer serves as the division director of Human Resource Management and is responsible for administering the division’s day-to-day operations. The Division of Human Resource Management administers the agency’s human capital policies as set forth in NSF’s personnel manual. NSF Maintained a Relatively Stable Number and Cost of Rotators and Used Them in Executive and Program Director Positions The numbers of rotators and their costs to NSF in proportion to other staff have remained relatively stable. Most rotators were IPA rotators, and were used in both executive and program director (staff-level) positions. NSF generally used VSEE rotators in program director positions. Most Rotators Were IPA Rotators, Comprising About 12 Percent of NSF’s Workforce and 17 Percent of Staff Costs on Average in Fiscal Years 2008-2017 Most rotators at NSF were IPA rotators, and the proportion of rotators relative to other staff has remained relatively stable over time (see fig. 1). During the 10-year period we reviewed, from fiscal year 2008 through fiscal year 2017, IPA and VSEE rotators comprised about 12 percent and about 3 percent, respectively, of NSF’s total workforce; and the number of IPA rotators ranged from 162 to 190 (about 11 to 12 percent of total staff), and the number of VSEE rotators ranged from 22 to 52 (about 1 to 3 percent of total staff). NSF Primarily Used IPA Rotators in Executive and Program Director Positions and VSEE Rotators in Program Director Positions NSF primarily used rotators across its seven scientific directorates, using IPA rotators in executive and program director positions and VSEE rotators in program director positions. The agency used rotators in these positions alongside NSF’s permanent staff to perform day-to-day agency operations, including managing the agency’s merit review process for determining which projects to fund. Use of IPA Rotators in Executive Positions NSF used IPA rotators in executive positions such as assistant director. According to agency officials, individuals in executive positions at NSF are responsible for setting the direction for the scientific area they are assigned, leading scientific and technical matters, establishing an organizational culture, overseeing outreach and collaboration with NSF stakeholders, and contributing to NSF and national policy development and implementation. For example, an executive IPA rotator that we interviewed told us that he emphasized forming partnerships with industry when setting the direction for his directorate, including issuing joint solicitations for research proposals with industry partners. In addition, according to NSF officials, individuals in executive positions provide guidance and team management for staff. The proportion of IPA rotators to federal employees in executive positions within NSF’s seven scientific directorates and other staff offices has generally increased since fiscal year 2012. As shown in figure 4, from fiscal year 2008 through fiscal year 2017, the number and proportion of executive positions filled by IPA rotators ranged from 18 of 98 (about 18 percent) in 2008 to 30 of 108 (about 28 percent) in fiscal year 2016. In November 2017, IPA rotators filled 29 of 88 (about 33 percent) executive positions within NSF’s seven scientific directorates. At that time, the proportion of executive positions filled by IPA rotators varied among directorates, as shown in table 3. For example, IPA rotators filled 4 of 8 (50 percent) of the executive positions in the Directorate for Social, Behavioral, and Economic Sciences and 2 of 14 (about 14 percent) of the executive positions in the Directorate for Mathematical and Physical Sciences. According to NSF officials, NSF often pairs IPA rotators and federal employees at the executive level so that each can benefit from the other’s experience and perspective. For example, in all but one directorate, an IPA rotator filled the assistant director position and a federal employee filled the corresponding deputy assistant director position. Two NSF executives we interviewed, including an IPA rotator and a federal employee, commented positively on the pairing of IPA rotators and federal employees at the executive level. For example, they said that rotators maintain close ties to the research community and federal employees may have more experience with NSF’s institutional history. One NSF executive told us that IPA rotators help keep the agency at the forefront of science because they have deep ties with the research community and regularly publish their own research. Additionally, a federal program director we interviewed told us that in one previous instance in which an IPA rotator filled an executive position without being paired with a federal employee, the rotator’s lack of institutional knowledge of NSF and the steep learning curve for the position caused inefficiencies during the rotator’s first year at NSF. The agency, however, does not require pairing IPA rotators and federal employees at the executive level, according to NSF officials. For example, in November 2017, IPA rotators filled both the division director and deputy division director positions in the Division of Behavioral and Cognitive Science and Division of Undergraduate Education. In our interviews with a nongeneralizable sample of NSF employees and rotators, we found mixed perceptions about the effect of NSF’s use of IPA rotators on opportunities for advancement for permanent employees. For example, in response to a question about this effect, one permanent NSF employee told us that she advanced to an executive position and that opportunities exist for advancement within the agency. In contrast, another NSF employee we interviewed told us that she did not feel there were opportunities for advancement because, in her view, executive vacancies created by the departure of rotators were exclusively filled with other rotators. NSF officials said that the agency has no policy that restricts repeatedly filling certain executive positions with rotators and that such a situation is a common practice. Nevertheless, NSF officials told us 32 of the 88 executives (about 36 percent) in NSF’s seven scientific directorates in November 2017 had held staff-level positions within the agency before becoming executives. Use of IPA and VSEE Rotators as Program Directors NSF uses both IPA and VSEE rotators in program director positions, which are staff-level positions. In fiscal year 2016, NSF had a total of 506 program directors, including 139 IPA rotators (about 27 percent) and 39 VSEE rotators (about 8 percent). According to NSF officials, program directors are responsible for conducting long-range planning and developing budgets for the areas of science represented by their program and for administrating the merit review process. In particular, IPA and VSEE rotators who serve as program directors help determine the projects that NSF funds. To do so, they review proposals, identify experts in their field to serve as external reviewers, and make funding recommendations to their respective division directors. NSF officials told us that, similar to the pairing of IPA rotators and federal employees at the executive level, permanent and rotating program directors frequently work together on a shared program so that each can benefit from the other’s experience and perspective. For example, a rotating program director we interviewed told us that she worked under the guidance of a program lead, who is typically a permanent employee. Another rotating program director told us that NSF’s permanent federal employees are good at training incoming rotators. NSF Adopted Rotator Program Cost- Management Strategies to Achieve the Greatest Savings with the Least Harm to Recruitment, but Results Are Unknown Beginning in fiscal year 2017, NSF adopted rotator program cost- management strategies expected to achieve the greatest savings with the least harm to recruitment, but NSF officials said it is too soon to determine the full results because these new strategies are being phased in for new IPA agreements only. NSF considered other strategies to manage rotator costs, but it did not adopt them, generally because NSF anticipated negative effects on rotator recruitment or because it estimated the resulting cost savings would be small. NSF Adopted Three Strategies to Manage IPA Rotator Costs in Fiscal Year 2017 and Has Not Yet Determined Their Full Results NSF has adopted three strategies to manage rotators’ costs in fiscal year 2017, but, NSF officials said it is too soon to determine the full results because these new strategies are being phased in for new IPA agreements only. All three of these strategies relate to IPA rotators; NSF officials told us that they have not considered or adopted any cost- management strategies related to VSEE rotators. The officials explained that any such strategies could affect NSF’s entire federal workforce because VSEE rotators are federal employees. The three strategies are: (1) obtaining a minimum 10 percent cost-share from each IPA rotator’s home institution, (2) limiting IPA rotators’ paid trips to their home institutions to 12 per year, and (3) no longer reimbursing IPA rotators for consulting income that they forgo while at NSF. NSF officials told us they expect to issue a report with the results of evaluations of all three strategies in December 2018. Cost-Sharing Pilot Program In October 2016, NSF implemented a cost-sharing pilot program that requires institutions covered by the program—those who entered into negotiations for new IPA agreements in fiscal year 2017—to pay for at least 10 percent of the IPA rotators’ salaries and fringe benefits. Implementing this cost-management strategy, and the other strategies that NSF adopted, was consistent with recommendations from NSF’s steering committee for oversight of IPA rotators. This cost-management strategy targeted NSF’s costs for IPA rotators’ salary and fringe benefits, which constitute the largest component of IPA rotators’ costs. For example, these costs were about $34.7 million, or about 89 percent of IPA rotator costs in fiscal year 2017. Previously, according to NSF officials, the agency requested an optional cost-share amount of 15 percent from rotators’ home institutions, but it typically received less because of variations in the amounts that home institutions provided. According to an October 2016 report from the task force on fiscal oversight, NSF decided on 10 percent for the cost-sharing pilot program because, historically, few home institutions provided the full 15 percent and NSF believed a requirement of 10 percent would not significantly affect its ability to recruit and hire IPA rotators. If a home institution is unable to provide the full 10 percent, the institution may request that NSF waive the cost-sharing requirement. According to NSF officials, such requests must be signed by a senior administrator at the rotator’s home institution and include the rationale for not being able to provide the required amount, the financial impact on the institution if it were to provide the full 10 percent, and associated documentation, among other things. Changes made in implementing this strategy, and the other strategies that NSF adopted, applied to new IPA agreements made in fiscal year 2017. These changes did not apply to IPA rotators with agreements made prior to 2017—even if those agreements are subsequently extended or renewed—or that were being negotiated at the time of the policy change, provided that the rotators’ appointment memoranda were already being reviewed by NSF’s Division of Human Resource Management. NSF officials told us that as of March 2018, the agency had not conducted full evaluations of this strategy or the other strategies because it was too soon to determine their full effects and NSF had not yet collected enough data to do so. Instead, NSF issued reports in January and March 2018 containing its preliminary analyses. In general, these preliminary reports found that the cost-management strategies resulted in savings to NSF. Similarly, our analysis of data from NSF found that cost sharing as a percentage of IPA rotators’ salary and fringe benefits increased from about 7 percent in fiscal year 2016 to about 8 percent in fiscal year 2017. NSF officials told us that of the 55 IPA rotators who were subject to the cost-sharing requirement in fiscal year 2017: the home institutions for 54 rotators met or exceeded the 10 percent cost-share requirement, and of those, 16 exceeded the cost-share requirement; and the home institution for 1 rotator did not cost-share because the rotator was from a Federally Funded Research and Development Center and NSF waived the cost-share requirement because cost- sharing would not decrease the overall federal cost. In November 2017, NSF decided to extend the cost-sharing pilot through at least the end of fiscal year 2018, to ensure a full evaluation could be conducted. In particular, NSF officials told us that they need more data and experience with this pilot program to better understand its effects, such as the ability to recruit potential IPA rotators. For example, one IPA rotator that we interviewed expressed concern with the cost-sharing requirement’s potential effect on small or publicly funded universities, which may lack funds to contribute to the cost of an IPA assignment. According to NSF officials, their evaluation will include an analysis of the cost of IPA rotators under the cost-sharing requirement and its effect on the IPA program, including recruitment. Limitation on NSF-Funded Trips to IPA Rotators’ Home Institutions Beginning in fiscal year 2017, for IPA rotators who entered into negotiations for new agreements in that fiscal year, NSF placed a limit of 12 agency-funded trips per year that rotators may take to their home institutions under the Independent Research and Development program. In our analysis of data from NSF, we found that NSF’s costs for IPA rotators under this program decreased from about $1.5 million (about 3 percent of IPA rotator costs) in fiscal year 2016 to $1.1 million (about 3 percent of IPA rotator costs) in fiscal year 2017. NSF officials told us that the new limit applies only to an IPA rotator’s trips to their home institution and does not limit travel to other locations for fieldwork or scientific conferences, among other things. These officials explained that NSF chose not to limit trips to these other locations because they are considered fundamental to IPA rotators’ research and are infrequent—occurring one to three times per year, on average, per IPA rotator. Additionally, rotators are permitted to use annual leave, leave without pay, or flexitime to take trips using non-NSF funds for activities performed on a rotator’s own time. In adopting this cost-management strategy, NSF sought to balance the benefits of IPA rotators’ travel with the travel costs. According to the Task Force on Fiscal Oversight’s October 2016 report, NSF’s support for travel benefits the agency by providing a way for program directors and executives to stay current in their scientific fields, conduct outreach with scientific communities, and provide oversight and stewardship of NSF’s programs and awards. NSF officials told us that the agency sought to control travel costs under the Independent Research and Development program by setting a reasonable limit to NSF-funded trips that would cause the least harm to rotators’ research so as not to discourage them from coming to NSF. As a result, NSF decided on a maximum of 12 trips per year under this program because, historically, more than 80 percent of the IPA rotator participants traveled to their home institution less than once per month. Elimination of Reimbursement for Lost Consulting Income In fiscal year 2017, for IPA rotators who entered into new agreements in that fiscal year, NSF ended reimbursements for consulting income that the rotators forgo as a result of their assignment to NSF. Previously, when an IPA rotator discontinued consulting activities during an IPA assignment, NSF would reimburse the rotator up to $10,000 a year. IPA rotators who entered into negotiations or agreements with NSF prior to this change may still receive this reimbursement. In fiscal year 2017, NSF’s cost for lost consulting reimbursements to IPA rotators was $150,000. This amount represented a decrease of about $160,000, or about 52 percent, from fiscal year 2016. NSF made this change because it determined that doing so would not negatively affect the IPA program. In particular, NSF found that other federal science agencies typically did not reimburse IPA rotators for lost consulting income and it concluded that IPA rotators typically do not expect NSF to offer reimbursement. NSF Did Not Adopt Certain Cost-Management Strategies It Considered Because of Small Cost Savings or Potential Negative Effects In addition to the three adopted strategies, NSF’s Task Force on Fiscal Oversight identified other potential cost management strategies for the IPA program. The task force reviewed various data on the costs that make up the IPA program, such as the number of IPA rotators who received a particular form of compensation or who would be affected by the potential strategies. In addition, the task force took into account anecdotal and other evidence on how IPA rotators might react to the strategies. Using input from the task force, NSF opted against the other potential strategies because it either (1) expected the resulting cost savings to be small or (2) anticipated potential negative effects from implementing them, such as increased difficulty in hiring IPA rotators. These potential cost-management strategies primarily related to IPA rotator compensation, as described below. Capping IPA rotators’ salaries. NSF decided against establishing a salary cap for IPA rotators at various levels between about $185,000 and $240,000 annually. The task force found that salary caps at lower levels would have greater cost savings because of the higher number of individuals covered by the cap, but that the caps would also pose a significant risk to NSF’s ability to recruit IPA rotators. In particular, the task force found that salary caps at lower levels would disproportionately affect IPA rotators in two of its directorates—the Directorate for Computer and Information Science and Engineering and the Directorate for Engineering—because of the higher salaries of individuals in positions associated with those fields. As a result, the task force recommended that NSF first assess the effects of its cost-sharing pilot program before proceeding with any cap on IPA rotators’ salaries. Reducing or eliminating IPA rotators’ supplemental pay. NSF decided against reducing or eliminating the supplemental pay that IPA rotators receive when their salary at their home institution is below the minimum for their NSF position. In fiscal year 2017, NSF’s cost for IPA rotators’ supplemental pay was $1.0 million (about 3 percent of IPA rotator costs). The task force recommended against this potential cost-management strategy because it would disproportionately affect IPA rotators in two of its directorates—the Directorate for Biological Sciences and the Directorate for Geosciences. In addition, the task force expected that any cost savings associated with this strategy would be small. Reducing IPA rotators’ per diem payments. NSF decided against reducing or eliminating per diem payments for lodging (excluding taxes), meals, and incidental expenses incurred during the length of rotators’ assignments. In fiscal year 2017, NSF’s cost for per diem payments was $3.1 million (about 8 percent of IPA costs). The task force concluded, based on its analysis of per diem costs and anecdotal evidence, that many IPA rotators would opt to depart NSF if NSF did not provide per diem payments. As a result, the task force recommended against this strategy. NSF Has Not Developed a Workforce Strategy for Using Rotators or Fully Evaluated Rotator Program Results NSF Has Not Developed an Agency-Wide Workforce Strategy for Balancing Rotators and Federal Staff As of June 2018, NSF had not developed an agency-wide workforce strategy for using rotators, as its IPA program steering committee recommended. In addition, NSF has not fully evaluated or developed plans to evaluate both IPA and VSEE rotator program results in terms of progress toward NSF’s human capital goals or programmatic results. As of June 2018, NSF had not developed an agency-wide workforce strategy that includes use of rotators, as NSF’s IPA program steering committee had recommended. In an August 2016 report on the IPA program, the steering committee stated that NSF did not have an agency- wide workforce strategy; instead, each directorate made decisions on its own about when and how to use IPA rotators in executive and program director positions. According to the report, an agency-wide framework would enable NSF to ensure an optimal balance of federal and rotator executives and program directors, which is a strategic principle that the steering committee developed for the IPA program. In February 2017, the committee issued an internal report to agency leadership that recommended expanding what was originally envisioned as a workforce strategy for the IPA program into a comprehensive agency-wide workforce strategy. The report stated that expanding the scope of the workforce strategy would have the greatest impact across the agency and would help NSF leadership in making strategic human capital decisions. The report outlined a process for developing a workforce strategy with various steps, including the following: Job analyses. The report recommended job analyses to review the roles and responsibilities of executive and staff-level positions and to identify the skills and capabilities required for successful performance of the work. According to the report, the steering committee’s working group for developing a workforce strategy found, based on its initial efforts to review position descriptions and roles and responsibilities, that some functions may be better served if performed by permanent federal employees and other functions by rotators. However, the working group concluded that NSF should obtain additional input and evidence before initiating large-scale changes in its workforce. Analysis of workforce gaps and surpluses. The report stated that identifying gaps and surpluses in the demand and supply for federal and rotator scientific staff would inform opportunities to optimize recruitment and retention efforts. The report recommended separate analyses for executive and scientific staff- level positions. Development of strategies to close workforce gaps and address surpluses. According to the steering committee’s report, examples of strategies include succession planning and rebalancing the mix of permanent federal staff and rotators to ensure an optimal workforce with the skills, experience, and capabilities to accomplish NSF’s science-related work. According to NSF officials, the agency’s Division of Human Resource Management was responsible for implementing the steering committee’s recommendation. In particular, it undertook an effort to work with senior leadership to develop a broad strategic workforce plan for the agency. However, in June 2018, NSF officials told us that they shifted their focus from developing a separate workforce strategy in order to focus instead on (1) development of a human capital operating plan, which agencies are required to develop and approve annually, and update as needed, under OPM regulations that went into effect on April 11, 2017; and (2) an Office of Management and Budget (OMB) memorandum issued in April 2017 directing agency heads to develop reform plans that identify ways to improve the efficiency, effectiveness, and accountability of their respective agencies. The NSF officials explained that they recognized the value in having a workforce strategy, but they did not consider it appropriate for the Division of Human Resource Management to develop a workforce strategy at the same time that the agency was completing the OPM and OMB plans. NSF did not specify how its efforts to complete the OPM and OMB plans would address the need the steering committee identified for an agency- wide framework that would enable NSF to ensure an optimal balance of federal and rotator executives and program directors. In particular, NSF’s human capital operating plan, which it approved in April 2018, does not discuss NSF’s use of rotators or include information on balancing the agency’s use of rotators with permanent staff. Furthermore, NSF has not yet determined how it will address its use of rotators as part of its agency reform plan. In particular, NSF officials told us in June 2018 that they may address the agency’s use of rotators under the workforce focus area of its reform plan, but that they were only just beginning to identify and select initiatives under this focus area and that these initiatives have not yet been finalized. The process the NSF steering committee laid out in its internal report, when implemented, would align with two key principles GAO has identified for effective strategic workforce planning. Specifically, it would align with the principles of (1) determining the skills and competencies that are critical to successfully achieving missions and goals, and (2) developing human capital strategies to address gaps and enable the contribution of critical skills and competencies needed for mission success. By incorporating the NSF’s steering committee’s recommendation for a workforce strategy—and the process outlined by the steering committee for developing this strategy—into its human capital operating plan or agency reform plan, NSF could better manage its use of rotators and balance them with its permanent staff. NSF Has Not Fully Evaluated the Rotator Program’s Progress toward Human Capital Goals or Their Programmatic Results We have previously found that high-performing organizations recognize the fundamental importance of measuring both the outcomes of human capital strategies and how these outcomes have helped the organizations accomplish their missions and programmatic goals. However, as of May 2018, NSF had not fully evaluated and did not have plans to evaluate the results of its IPA and VSEE rotator programs in terms of progress toward human capital goals and the contributions the programs made toward achieving programmatic results. One of GAO’s key principles for effective strategic workforce planning states that agencies should monitor and evaluate progress toward the agencies’ human capital goals and the contribution that human capital results have made toward achieving programmatic results. In particular, we previously found that evaluation activities can improve the effectiveness of workforce strategies by identifying shortfalls in performance and other improvement opportunities. OPM also requires agencies to develop a human capital operating plan that will support the evaluation of the agency’s human capital strategies. In March 2014, NSF published a summary of the results of focus groups with IPA rotators and their supervisors. This summary outlined benefits and challenges of the program from the perspectives of both groups, such as the benefit of bringing fresh perspective and new ideas to NSF and the challenge of recruiting and retaining qualified IPA rotators. However, the summary did not provide the agency’s assessment of progress towards programmatic results and human capital goals. For example, it summarized the benefits of the program from the standpoint of rotators and did not provide NSF’s assessment of how individual IPA rotators or the program as a whole contributed to NSF’s scientific mission. In addition, the summary did not provide an assessment of the extent to which the current workforce balance of federal and rotator executives and program directors is aligned with NSF’s work. In our semistructured interviews with federal staff and rotators in executive and staff-level positions at NSF, most were comfortable with the current balance, but three individuals raised concerns about the use of rotators in executive positions, suggesting that NSF could benefit from further analysis of its balance of rotators and federal staff. In April 2018, NSF adopted its human capital operating plan which identifies specific, short-term actions that the agency will take to achieve its human capital goals. In its plan, NSF identified strategies derived from NSF’s commitment to ongoing improvement, such as reviewing and realigning its workforce to meet future needs. Also, NSF’s process for developing a workforce strategy, outlined in the steering committee’s February 2017 internal report, included recommendations to conduct an assessment of the outcomes of workforce strategies and the impact of these outcomes on helping NSF accomplish its scientific mission and related programmatic goals. However, plans for this assessment did not include an evaluation of the agency’s rotator programs. Moreover, neither the steering committee’s February 2017 internal report nor NSF’s April 2018 report committed to conducting such an evaluation or specified how assessments described in its reports would address NSF’s rotator programs. For example, neither report specified how NSF would evaluate the extent to which the rotator programs have achieved NSF’s objectives, which we identified through our review of NSF documentation and interviews with NSF officials. These objectives include: bringing fresh perspectives from across the country and across all fields of science and engineering supported by NSF; helping influence new directions for research in science, engineering, and education, including emerging interdisciplinary fields; providing scientific leadership and management of NSF’s research and education programs; and providing opportunities for researchers to gain first-hand knowledge of the philosophy and mechanisms of federal support for research and bring this knowledge back to their home institutions. According to NSF officials, the agency has not separately evaluated the results of its rotator programs in part because rotators are blended into its permanent federal workforce, making it difficult to evaluate the results of its rotator programs separately from those of its overall workforce. In our December 2003 report on key principles for effective strategic workforce planning, we found that federal agencies in general have experienced difficulties in defining practical and meaningful measures that assess the effects human capital strategies have on programmatic results. However, without an evaluation of the extent of the rotator programs’ contributions toward NSF’s human capital goals or programmatic results, NSF is limited in its ability to demonstrate the programs’ benefits to external stakeholders, such as the Congress, and to adjust the programs, if warranted. Such adjustments could include increasing or decreasing the use of rotators overall or in certain types of positions, such as executive or staff-level positions. Conclusions In recent years, NSF has recognized the need to think more strategically about its use of rotators and has taken positive steps to manage its rotator programs. For example, beginning in fiscal year 2017, NSF adopted several strategies to manage the cost of rotators. However, as of June 2018, NSF had decided against developing a separate agency-wide strategy for balancing its use of IPA rotators and federal staff, as NSF’s steering committee for the IPA program recommended in February 2017. NSF officials said that they recognized the value in having a workforce strategy but wanted to focus instead on addressing OPM and OMB requirements related to workforce planning. By following through on the steering committee’s recommendation for a workforce strategy, NSF could better manage its use of rotators and balance them with its permanent staff. Moreover, as of June 2018, NSF had not fully evaluated the results of the rotator programs, as called for by key principles for effective strategic workforce planning. NSF officials told us they have not done so, in part, because rotators are blended into NSF’s permanent federal workforce, making it difficult to evaluate the results of its rotator program separately from those of its overall workforce. However, without an evaluation of the extent of the rotator programs’ contributions toward NSF’s human capital goals or programmatic results, NSF is limited in its ability to demonstrate the programs’ benefits to external stakeholders, such as the Congress, and to adjust the programs, if warranted. Recommendations for Executive Action We are making the following two recommendations to NSF: The NSF Director of Human Resource Management should complete the development of an agency-wide workforce strategy for balancing the agency’s use of IPA and VSEE rotators with permanent staff as part of NSF’s current agency reform planning efforts or updates to its human capital operating plan. (Recommendation 1) The NSF Director of Human Resource Management should evaluate the contributions of the IPA and VSEE rotator programs toward NSF’s human capital goals and the contributions the programs have made toward achieving programmatic results. (Recommendation 2) Agency Comments We provided a draft of this report to NSF for comment. In its written comments, which are reproduced in appendix I, NSF concurred with our recommendations and stated that implementation of the recommendations will enhance efforts to fulfill the agency’s mission and strengthen its workforce. NSF also provided technical comments, which we incorporated as appropriate. We are sending copies to the appropriate Congressional Committees, the Director of the National Science Foundation, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the National Science Foundation Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Joseph Cook (Assistant Director), Nkenge Gibson, Kathryn Smith, and Douglas Hunker made key contributions to this report. Also contributing to this report were Antoinette Capaccio, Serena Lo, Timothy Guinane, Cynthia Norris, and Sara Sullivan.

NSF has identified potential benefits and challenges associated with its use of rotators. Benefits include fresh perspectives and close connections to the scientific community, while challenges include staffing turnover and higher costs for some rotators compared with permanent employees. GAO was asked to review NSF's use and management of the IPA and VSEE rotator programs, among other things. This report examines (1) the number, costs, and uses of NSF rotators for fiscal year 2008 through fiscal year 2017; (2) the strategies NSF has used to manage rotator costs and the results of these efforts; and (3) the extent to which NSF has a workforce strategy for using rotators and has evaluated the results of its rotator programs. GAO analyzed summary-level data on NSF's rotators; reviewed key documents; interviewed NSF officials; conducted semistructured interviews with a nongeneralizable sample of rotators and permanent federal employees selected from different scientific directorates within NSF; and compared NSF's management of the program to key principles for effective strategic workforce planning. The numbers of rotators—outside scientists, engineers, and educators on temporary assignment—at the National Science Foundation (NSF) and their costs in proportion to other staff remained relatively stable in fiscal years 2008 through 2017. Most rotators joined NSF under its Intergovernmental Personnel Act (IPA) mobility program. IPA rotators comprised about 12 percent of NSF's workforce and 17 percent of staff costs on average and were not subject to a federal salary cap. They remain employees of their home institutions, with NSF reimbursing the institutions for most of their salaries and benefits. The remaining rotators are considered temporary federal employees under the Visiting Scientist, Engineer, and Educator (VSEE) program; their salaries could not exceed the federal maximum for their positions. Beginning in fiscal year 2017, NSF adopted IPA rotator program cost management strategies expected to achieve the greatest savings with the least harm to recruitment, but NSF officials said it is too soon to determine the full results. For example, for new IPA rotators who had not yet begun negotiating their assignments, NSF began requiring their home institutions to pay for 10 percent of the rotators' salary and benefits. NSF officials told GAO they expect to issue a report evaluating the strategies in December 2018. NSF's IPA program steering committee recommended developing a workforce strategy for balancing the agency's use of rotators with federal staff, but as of June 2018, NSF had not developed a strategy or fully evaluated the IPA and VSEE rotator programs' results, as called for by GAO's key principles for effective strategic workforce planning. NSF officials said they recognized the value of a workforce strategy but were focusing instead on other workforce planning efforts, and they had not fully evaluated program results in part because rotators are blended into the agency's permanent workforce, making a separate evaluation difficult. Without a workforce strategy and evaluation of results, NSF is limited in its ability to manage and, if warranted, adjust its use of rotators.

CRS_RS20530

Introduction The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD) that insures private mortgage lenders against the possibility of borrowers defaulting on certain mortgage loans. If a mortgage borrower defaults on a mortgage—that is, does not repay the mortgage as promised—and the home goes to foreclosure, FHA is to pay the lender the remaining amount that the borrower owes. FHA insurance protects the lender, rather than the borrower, in the event of borrower default; a borrower who defaults on an FHA-insured mortgage will still experience the consequences of foreclosure. To be eligible for FHA insurance, the mortgage must be originated by a lender that has been approved by FHA, and the mortgage and the borrower must meet certain criteria. FHA is one of three government agencies that provide insurance or guarantees on certain home mortgages made by private lenders, along with the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA). Of these federal mortgage insurance programs, FHA is the most broadly targeted. Unlike VA- and USDA-insured mortgages, the availability of FHA-insured mortgages is not limited by factors such as veteran status, income, or whether the property is located in a rural area. However, the availability or attractiveness of FHA-insured mortgages may be limited by other factors, such as the maximum mortgage amount that FHA will insure, the fees that it charges for insurance, and its eligibility standards. This report provides background on FHA's history and market role and an overview of the basic eligibility and underwriting criteria for FHA-insured home loans. It also provides data on the number and dollar volume of mortgages that FHA insures, along with data on FHA's market share in recent years. It does not go into detail on the financial status of the FHA mortgage insurance fund. For information on FHA's financial position, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) . Background History The Federal Housing Administration was created by the National Housing Act of 1934, during the Great Depression, to encourage lending for housing and to stimulate the construction industry. Prior to the creation of FHA, few mortgages exceeded 50% of the property's value and most mortgages were written for terms of five years or less. Furthermore, mortgages were typically not structured to be fully repaid by the end of the loan term; rather, at the end of the five-year term, the remaining loan balance had to be paid in a lump sum or the mortgage had to be renegotiated. During the Great Depression, lenders were unable or unwilling to refinance many of the loans that became due. Thus, many borrowers lost their homes through foreclosure, and lenders lost money because property values were falling. Lenders became wary of the mortgage market. FHA institutionalized a new idea: 20-year mortgages on which the loan would be completely repaid at the end of the loan term. If borrowers defaulted, FHA insured that the lender would be fully repaid. By standardizing mortgage instruments and setting certain standards for mortgages, the creation of FHA was meant to instill confidence in the mortgage market and, in turn, help to stimulate investment in housing and the overall economy. Eventually, lenders began to make long-term mortgages without FHA insurance if borrowers made significant down payments. Over time, 15- and 30-year mortgages have become standard mortgage products. When the Department of Housing and Urban Development (HUD) was created in 1965, FHA became part of HUD. Today, FHA is intended to facilitate access to affordable mortgages for some households who otherwise might not be well-served by the private market. Furthermore, it facilitates access to mortgages during economic or mortgage market downturns by continuing to insure mortgages when the availability of mortgage credit has otherwise tightened. For this reason, it is said to play a "countercyclical" role in the mortgage market—that is, it tends to insure more mortgages when the mortgage market or overall economy is weak, and fewer mortgages when the economy is strong and other types of mortgages are more readily available. Current Role Facilitating Access to Mortgage Credit Some prospective homebuyers may have the income to sustain monthly mortgage payments but lack the funds to make a large down payment or otherwise have difficulty obtaining a mortgage. Borrowers with small down payments, weaker credit histories, or other characteristics that increase their credit risk might find it difficult to obtain a mortgage at an affordable interest rate or to qualify for a mortgage at all. This has raised a policy concern that some borrowers with the income to repay a mortgage might be unable to obtain affordable mortgages. FHA mortgage insurance is intended to make lenders more willing to offer affordable mortgages to these borrowers by insuring the lender against the possibility of borrower default. FHA-insured loans have lower down payment requirements than most conventional mortgages. (Conventional mortgages are mortgages that are not insured by FHA or guaranteed by another government agency, such as VA or USDA. ) Because saving for a down payment is often the biggest barrier to homeownership for first-time homebuyers and lower- or moderate-income homebuyers, the smaller down payment requirement for FHA-insured loans may allow some households to obtain a mortgage earlier than they otherwise could. (Borrowers with down payments of less than 20% could also obtain non-FHA mortgages with private mortgage insurance. See the nearby text box on "FHA and Private Mortgage Insurance.") FHA-insured mortgages also have less stringent requirements related to credit history than many conventional loans. This might make FHA-insured mortgages attractive to borrowers without traditional credit histories or with weaker credit histories, who would either find it difficult to take out a mortgage absent FHA insurance or may find it more expensive to do so. FHA-insured mortgages play a particularly large role for first-time homebuyers, low- and moderate-income households, and minorities. For example, 83% of FHA-insured mortgages made to purchase a home (rather than to refinance an existing mortgage) in FY2018 were obtained by first-time homebuyers. Over one-third of all FHA loans (both purchase and refinance loans) were obtained by minority households, and FHA-insured mortgages accounted for about 57% of all forward mortgages made to low- or moderate-income borrowers during the year. Since FHA-insured mortgages are often obtained by borrowers who cannot make large down payments or those with weaker credit histories, some have questioned whether FHA-insured mortgages are similar to subprime mortgages. Like subprime mortgages, FHA-insured mortgages are often obtained by borrowers with lower credit scores, though some borrowers with higher credit scores also obtain FHA-insured mortgages. However, FHA-insured mortgages are prohibited from carrying the full range of features that many subprime mortgages could carry. For example, FHA-insured loans must be fully documented, and they cannot include features such as negative amortization. (FHA mortgages can include adjustable interest rates.) Some of these types of features appear to have contributed to high default and foreclosure rates on subprime mortgages. Nevertheless, some have suggested that FHA-insured mortgages are too risky, and that they can harm borrowers by providing mortgages that often have a higher likelihood of default than other mortgages due to combinations of risk factors such as low down payments and lower credit scores. Countercyclical Role Traditionally, FHA plays a countercyclical role in the mortgage market, meaning that it tends to insure more mortgages when mortgage credit markets are tight and fewer mortgages when mortgage credit is more widely available. A major reason for this is that FHA continues to insure mortgages that meet its standards even during market downturns or in regions experiencing economic turmoil. When the economy is weak and lenders and private mortgage insurers tighten credit standards and reduce lending activity, FHA-insured mortgages may be the only mortgages available to some borrowers, or may have more favorable terms than mortgages that lenders are willing to make without FHA insurance. When the economy is strong and mortgage credit is more widely available, many borrowers may find it easier to qualify for affordable conventional mortgages. Features of FHA-Insured Mortgages This section briefly describes some of the major features of FHA-insured mortgages for purchasing or refinancing a single-family home. Single-family homes are defined as properties with one to four separate dwelling units. Eligibility and Underwriting Guidelines FHA-insured loans are available to borrowers who intend to be owner-occupants and who can demonstrate the ability to repay the loan according to the terms of the contract. FHA-insured loans must be underwritten in accordance with accepted practices of prudent lending institutions and FHA requirements. Lenders must examine factors such as the applicant's credit, financial status, monthly shelter expenses, funds required for closing expenses, effective monthly income, and debts and obligations. In general, individuals who have previously been subject to a mortgage foreclosure are not eligible for FHA-insured loans for at least three years after the foreclosure. As a general rule, the applicant's prospective mortgage payment should not exceed 31% of gross effective monthly income. The applicant's total obligations, including the proposed housing expenses, should not exceed 43% of gross effective monthly income. If these ratios are not met, the borrower may be able to present the presence of certain compensating factors, such as cash reserves, in order to qualify for an FHA-insured loan. Since October 4, 2010, FHA has required a minimum credit score of 500, and has required higher down payments from borrowers with credit scores below 580 than from borrowers with credit scores above that threshold. See the " Down Payment " section for more information on down payment requirements for FHA-insured loans. Owner Occupancy In general, borrowers must intend to occupy the property as a principal residence. Eligible Loan Purposes FHA-insured loans may be used to purchase one-family detached homes, townhomes, rowhouses, two- to four-unit buildings, manufactured homes and lots, and condominiums in developments approved by FHA. FHA-insured loans may also be obtained to build a home; to repair, alter, or improve a home; to refinance an existing home loan; to simultaneously purchase and improve a home; or to make certain energy efficiency or weatherization improvements in conjunction with a home purchase or mortgage refinance. Loan Term FHA-insured mortgages may be obtained with loan terms of up to 30 years. Interest Rates The interest rate on an FHA-insured loan is negotiated between the borrower and lender. The borrower has the option of selecting a loan with an interest rate that is fixed for the life of the loan or one on which the rate may be adjusted annually. Down Payment FHA requires a lower down payment than many other types of mortgages. Under changes made by the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289 ), borrowers are required to contribute at least 3.5% in cash or its equivalent to the cost of acquiring a property with an FHA-insured mortgage. (Prior law had required borrowers to contribute at least 3% in cash or its equivalent.) Prohibited sources of the required funds include the home seller, any entity that financially benefits from the transaction, and any third party that is directly or indirectly reimbursed by the seller or by anyone that would financially benefit from the transaction. HUD has interpreted the 3.5% cash contribution as a down payment requirement and has specified that contributions toward closing costs cannot be counted toward it. Since October 4, 2010, FHA has required a 10% down payment from borrowers with credit scores between 500 and 579, while borrowers with credit scores of 580 or above are still required to make a down payment of at least 3.5%. FHA no longer insures loans made to borrowers with credit scores below 500. Maximum Mortgage Amount There is no income limit for borrowers seeking FHA-insured loans. However, FHA-insured mortgages cannot exceed a maximum mortgage amount set by law. The maximum mortgage amounts allowed for FHA-insured loans vary by area, based on a percentage of area median home prices. Different limits are in effect for one-unit, two-unit, three-unit, and four-unit properties. The limits are subject to a statutory floor and ceiling; that is, the maximum mortgage amount that FHA will insure in a given area cannot be lower than the floor, nor can it be higher than the ceiling. In 2008, Congress temporarily increased the maximum mortgage amounts in response to turmoil in the housing and mortgage markets, with the intention of allowing more households to qualify for FHA-insured mortgages during a period of tighter credit availability. New permanent maximum mortgage amounts were later established by the Housing and Economic Recovery Act of 2008. The maximum mortgage amounts established by HERA were higher than the previous permanent limits, but in many cases lower than the temporarily increased limits. However, the higher temporary limits were extended for several years, until they expired at the end of calendar year 2013. Since January 1, 2014, the maximum mortgage amounts have been set at the permanent HERA levels. For a one-unit home, HERA established the maximum mortgage amounts at 115% of area median home prices, with a floor set at 65% of the Freddie Mac conforming loan limit and a ceiling set at 150% of the Freddie Mac conforming loan limit. For calendar year 2019, the floor is $314,827 and the ceiling is $726,525. (That is, FHA will insure mortgages with principal balances up to $314,827 in all areas of the country. In higher-cost areas, it will insure mortgages with principal balances up to 115% of the area median home price, up to a cap of $726,525 in the highest-cost areas.) These maximum mortgage amounts, and the maximum mortgage amounts for 2-4 unit homes, are shown in Table 1 . Mortgage Insurance Fees (Premiums) Borrowers of FHA-insured loans pay an up-front mortgage insurance premium (MIP) and annual mortgage insurance premiums in exchange for FHA insurance. These premiums are set as a percentage of the loan amount. The maximum amounts that FHA is allowed to charge for the annual and the upfront premiums are set in statute. However, since these are maximum amounts, HUD has the discretion to set the premiums at lower levels. Up-Front Mortgage Insurance Premiums The maximum up-front premium that FHA may charge is 3% of the mortgage amount, or 2.75% of the mortgage amount for a first-time homebuyer who has received homeownership counseling. Currently, FHA is charging the same up-front premiums to first-time homebuyers who receive homeownership counseling and all other borrowers. Since April 9, 2012, HUD has set the up-front premium at 1.75% of the loan amount, whether or not the borrower is a first-time homebuyer who received homeownership counseling. This premium applies to most single-family mortgages. Annual Mortgage Insurance Premiums The amount of the maximum annual premium varies based on the loan's initial loan-to-value ratio. For most loans, (1) if the loan-to-value ratio is above 95%, the maximum annual premium is 1.55% of the loan balance, and (2) if the loan-to-value ratio is 95% or below, the maximum annual premium is 1.5% of the loan balance. FHA increased the actual annual premiums that it charges several times in recent years in order to bring more money into the FHA insurance fund and ensure that it has sufficient funds to pay for defaulted loans. However, in January 2015, FHA announced a decrease in the annual premium for most single-family loans. For most FHA case numbers assigned on or after January 26, 2015, the annual premiums are 0.85% of the outstanding loan balance if the initial loan-to-value ratio is above 95% and 0.80% of the outstanding loan balance if the initial loan-to-value ratio is 95% or below. This is a decrease from 1.35% and 1.30%, respectively, which is what FHA had been charging from April 1, 2013, until January 26, 2015. These premiums apply to most single-family mortgages; FHA charges different annual premiums in certain circumstances, including for loans with shorter loan terms or higher principal balances. Table 2 shows the up-front and annual mortgage insurance premiums that have been in effect for most loans since January 26, 2015. Premium Refunds and Cancellations In the past, if borrowers prepaid their loans, they may have been due refunds of part of the up-front insurance premium that was not "earned" by FHA. The refund amount depended on when the mortgage closed and declined as the loan matured. The Consolidated Appropriations Act 2005 ( P.L. 108-447 ) amended the National Housing Act to provide that, for mortgages insured on or after December 8, 2004, borrowers are not eligible for refunds of up-front mortgage insurance premiums except when borrowers are refinancing existing FHA-insured loans with new FHA-insured loans. After three years, the entire up-front insurance premium paid by borrowers who refinance existing FHA-insured loans with new FHA-insured loans is considered "earned" by FHA, and these borrowers are not eligible for any refunds. The annual mortgage insurance premiums are not refundable. However, beginning with loans closed on or after January 1, 2001, FHA had followed a policy of automatically cancelling the annual mortgage insurance premium when, based on the initial amortization schedule, the loan balance reached 78% of the initial property value. However, for loans with FHA case numbers assigned on or after June 3, 2013, FHA will continue to charge the annual mortgage insurance premium for the life of the loan for most mortgages. This change responded to concerns about the financial status of the FHA insurance fund. FHA has stated that, since it continues to insure the entire remaining mortgage amount for the life of the loan, and since premiums were cancelled on the basis of the loan amortizing to a percentage of the initial property value rather than the current value of the home, FHA has at times had to pay insurance claims on defaulted mortgages where the borrowers were no longer paying annual mortgage insurance premiums. Options for FHA-Insured Loans in Default An FHA-insured mortgage is considered delinquent any time a payment is due and not paid. Once the borrower is 30 days late in making a payment, the mortgage is considered to be in default. In general, mortgage servicers may initiate foreclosure on an FHA-insured loan when three monthly installments are due and unpaid, and they must initiate foreclosure when six monthly installments are due and unpaid, except when prohibited by law. A program of loss mitigation strategies was authorized by Congress in 1996 to minimize the number of FHA loans entering foreclosure, and has since been revised and expanded to include additional loss mitigation options. Prior to initiating foreclosure, mortgage servicers must attempt to make contact with borrowers and evaluate whether they qualify for any of these loss mitigation options. The options must be considered in a specific order, and specific eligibility criteria apply to each option. Some loss mitigation options, referred to as home retention options, are intended to help borrowers remain in their homes. Other loss mitigation options, referred to as home disposition options, will result in the borrower losing his or her home, but avoiding some of the costs of foreclosure. The loss mitigation options that servicers are instructed to pursue on FHA-insured loans are summarized in Table 3 . Additional loss mitigation options are available for certain populations of borrowers. For example, defaulted borrowers in military service may be eligible to suspend the principal portion of monthly payments and pay only interest for the period of military service, plus three months. On resumption of payment, loan payments are adjusted so that the loan will be paid in full according to the original amortization. Certain loss mitigation options are also available in areas affected by presidentially declared major disasters. Program Funding FHA's single-family mortgage insurance program is funded through FHA's Mutual Mortgage Insurance Fund (MMI Fund). Cash flows into the MMI Fund primarily from insurance premiums and proceeds from the sale of foreclosed homes. Cash flows out of the MMI Fund primarily to pay claims to lenders for mortgages that have defaulted. This section provides a brief overview of (1) how the FHA-insured mortgages insured under the MMI Fund are accounted for in the federal budget and (2) the MMI Fund's compliance with a statutory capital ratio requirement. For more detailed information on the financial status of the MMI Fund, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) . FHA Home Loans in the Federal Budget The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal loan guarantees, including FHA-insured loans, are recorded in the federal budget. The FCRA requires that the estimated lifetime cost of guaranteed loans (in net present value terms) be recorded in the federal budget in the year that the loans are insured. When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in more money coming into the account than flowing out of it, the program is said to generate negative credit subsidy. When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in less money coming into the account than flowing out of it, the program is said to generate positive credit subsidy. Programs that generate negative credit subsidy result in offsetting receipts for the federal government, while programs that generate positive credit subsidy require an appropriation to cover the cost of new loan guarantees. The MMI Fund has historically been estimated to generate negative credit subsidy in the year that the loans are insured and therefore has not required appropriations to cover the expected costs of loans to be insured. The MMI Fund does receive appropriations to cover salaries and administrative contract expenses. The amount of money that loans insured in a given year actually earn for or cost the government over the course of their lifetime is likely to be different from the original credit subsidy estimates. Therefore, each year as part of the annual budget process, each prior year's credit subsidy rates are re-estimated based on the actual performance of the loans and other factors, such as updated economic projections. These re-estimates affect the way in which funds are held in the MMI Fund's two primary accounts: the Financing Account and the Capital Reserve Account. The Financing Account holds funds to cover expected future costs of FHA-insured loans. The Capital Reserve Account holds additional funds to cover any additional unexpected future costs. Funds are transferred between the two accounts each year on the basis of the re-estimated credit subsidy rates to ensure that enough is held in the Financing Account to cover updated projections of expected costs of insured loans. If FHA ever needs to transfer more funds to the Financing Account than it has in the Capital Reserve Account, it can receive funds from Treasury to make this transfer under existing authority and without any additional congressional action. This occurred for the first time at the end of FY2013, when FHA received $1.7 billion from Treasury to make a required transfer of funds between the accounts. The funds that FHA received from Treasury did not need to be spent immediately, but were to be held in the Financing Account and used to pay insurance claims, if necessary, only after the remaining funds in the Financing Account were spent. The MMI Fund has not needed any additional funds from Treasury to make required transfers of funds between the two accounts since that time. The Capital Ratio The MMI Fund is also required by statute to maintain a capital ratio of at least 2%, which is intended to ensure that the fund is able to withstand some increases in the costs of loans guaranteed under the insurance fund. The capital ratio measures the amount of funds that the MMI Fund currently has on hand, plus the net present value of the expected future cash flows associated with the mortgages that FHA currently insures (e.g., the amounts it expects to earn through premiums and lose through claims paid). It then expresses this amount as a percentage of the total dollar volume of mortgages that FHA currently insures. In other words, the capital ratio is a measure of the amount of funds that would remain in the MMI Fund after all expected future cash flows on the loans that it currently insures have been realized, assuming that FHA did not insure any more loans going forward. Beginning in FY2009, and for several years thereafter, the capital ratio was estimated to be below this mandated 2% level. The capital ratio again exceeded the 2% threshold in FY2015, when it was estimated to be 2.07%. This represented an improvement from an estimated capital ratio of 0.41% at the end of FY2014, and from negative estimated capital ratios at the ends of FY2013 and FY2012. The capital ratio has remained above 2% since that time, and was estimated to be 2.76% in FY2018. A low or negative capital ratio does not in itself trigger any special assistance from Treasury, but it raises concerns that FHA could need assistance in order to continue to hold enough funds in the Financing Account to cover expected future losses. In the years since the housing market turmoil that began around 2007, FHA has taken a number of steps designed to strengthen the insurance fund. These steps have included increasing the mortgage insurance premiums charged to borrowers; strengthening underwriting requirements, such as by instituting higher down payment requirements for borrowers with the lowest credit scores; and increasing oversight of FHA-approved lenders. Program Activity Number of Mortgages Insured The number of new mortgages insured by FHA in a given year depends on a variety of factors. In general, the number of new mortgages insured by FHA increased during the housing market turmoil (and resulting contraction of mortgage credit) that began around 2007, reaching a peak of 1.8 million mortgages in FY2009 before beginning to decrease somewhat. FY2014 was the only year since FY2007 that FHA insured fewer than 1 million new mortgages. As shown in Table 4 , FHA insured just over 1 million new single-family purchase and refinance mortgages in FY2018. Together, these mortgages had an initial loan balance of $209 billion. About 77% (776,284) of the mortgages were for home purchases, while about 23% (238,325) were for refinancing an existing mortgage. The overall number of mortgages insured by FHA in FY2018 represented a decrease from FY2017, when it insured 1.25 million mortgages. Many FHA-insured mortgages are obtained by first-time homebuyers, lower-and moderate-income homebuyers, and minority homebuyers. Of the home purchase mortgages insured by FHA in FY2018, about 83% were made to first-time homebuyers. Over a third of all mortgages (both for home purchases and refinances) insured by FHA in FY2018 were made to minority borrowers. As shown in Table 5 , at the end of FY2018 FHA was insuring a total of over 8 million single-family loans that together had an outstanding balance of nearly $1.2 trillion. Since it was first established in 1934, FHA has insured a total of over 47.5 million home loans. Market Share Measuring Market Share FHA's share of the mortgage market is the amount of mortgages that are insured by FHA compared to the total amount of mortgages originated or outstanding in a given time period. FHA's market share can be measured in a number of different ways. Therefore, when evaluating FHA's market share, it is important to recognize which of several different figures is being reported. First, FHA's share of the mortgage market can be computed as the number of FHA-insured mortgages divided by the total number of mortgages, or as the dollar volume of FHA-insured mortgages divided by the total dollar volume of mortgages. Furthermore, FHA's market share is sometimes reported as a share of all mortgages , and sometimes only as a share of home purchase mortgages (as opposed to both mortgages made to purchase a home and mortgages made to refinance an existing mortgage). A market share figure can be reported as a share of all mortgages originated within a specific time period , such as a given year, or as a share of all mortgages outstanding at a point in time , regardless of when they were originated. Finally, FHA's market share is sometimes also reported as a share of the total number of mortgages that have some kind of mortgage insurance (including mortgages with private mortgage insurance and mortgages insured by another government agency) rather than as a share of all mortgages regardless of whether or not they have mortgage insurance. FHA's Share of the Mortgage Market FHA's market share tends to fluctuate in response to economic conditions and other factors. Between calendar years 1996 and 2002, FHA's market share averaged about 14% of the home purchase mortgage market and about 11% of the overall mortgage market (both home purchase mortgages and refinance mortgages), as measured by number of mortgages. However, by 2005 FHA's market share had fallen to less than 5% of home-purchase mortgages and about 3% of the overall mortgage market. Subsequently, as economic conditions worsened and mortgage credit tightened in response to housing market turmoil that began around 2007, FHA's market share rose sharply, peaking at over 30% of home-purchase mortgages in 2009 and 2010, and over 20% of all mortgages (including both home purchases and refinances) in 2009. In 2017, FHA insured 19.5% of new home purchase mortgages and about 16.7% of new mortgages overall, a small decrease compared to its market share in 2016. Figure 1 shows FHA's market share as a percentage of the total number of new mortgages originated for each calendar year between 1996 and 2017. As described, FHA's market share can be measured in a number of different ways. The figure shows FHA's share of (1) all newly originated mortgages, (2) just newly originated purchase mortgages, and (3) just newly originated refinance mortgages. FHA's share of home purchase mortgages tends to be the highest, largely because borrowers who refinance are more likely to have built up a greater amount of equity in their homes and, therefore, might be more likely to obtain conventional mortgages. For the number of mortgages insured by FHA in each year calendar since 1996, see the Appendix . The increase in FHA's market share after 2007 was due to a variety of factors related to the housing market turmoil and broader economic instability that was taking place at the time. Housing and economic conditions led many banks to limit their lending activities, including lending for mortgages. Similarly, private mortgage insurance companies, facing steep losses from past mortgages, began tightening the underwriting criteria for mortgages that they would insure. Furthermore, in 2008 Congress increased the maximum mortgage amounts that FHA can insure, which may have made FHA-insured mortgages a more viable option for some borrowers in certain areas. More recently, FHA's market share has decreased somewhat from its peak during the housing market turmoil, although it generally remains somewhat higher than it was in the late 1990s and early 2000s. A number of factors may have contributed to this decrease, including lower loan limits in some high-cost areas, higher mortgage insurance premiums, and greater availability of non-FHA-insured mortgages. While not the focus of this report, the appropriate market share for FHA has been a subject of ongoing debate among policymakers. It is likely to continue to be a topic of debate, both in the context of policies specifically related to FHA as well as part of broader debate about the future of the U.S. housing finance system. Appendix. FHA's Market Share Since 1996 Table A-1 provides data on the number of mortgages insured by FHA in each calendar year since 1996, along with FHA's overall market share in each calendar year.

The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), was created by the National Housing Act of 1934. FHA insures private lenders against the possibility of borrowers defaulting on mortgages that meet certain criteria, thereby expanding the availability of mortgage credit beyond what may be available otherwise. If the borrower defaults on the mortgage, FHA is to repay the lender the remaining amount owed. A household that obtains an FHA-insured mortgage must meet FHA's eligibility and underwriting standards, including showing that it has sufficient income to repay a mortgage. FHA requires a minimum down payment of 3.5% from most borrowers, which is lower than the down payment required for many other types of mortgages. FHA-insured mortgages cannot exceed a statutory maximum mortgage amount, which varies by area and is based on area median house prices but cannot exceed a specified ceiling in high-cost areas. (The ceiling is set at $726,525 in high-cost areas in calendar year 2019.) Borrowers are charged fees, called mortgage insurance premiums, in exchange for the insurance. In FY2018, FHA insured over 1 million new mortgages (including both home purchase and refinance mortgages) with a combined principal balance of $209 billion. FHA's share of the mortgage market tends to vary with economic conditions and other factors. In the aftermath of the housing market turmoil that began around 2007 and a related contraction of mortgage lending, FHA insured a larger share of mortgages than it had in the preceding years. Its overall share of the mortgage market increased from about 3% in calendar year 2005 to a peak of 21% in 2009. Since that time, FHA's share of the mortgage market has decreased somewhat, though it remains higher than it was in the early 2000s. In calendar year 2017, FHA's overall share of the mortgage market was about 17%. FHA-insured mortgages, like all mortgages, experienced increased default rates during the housing downturn that began around 2007, leading to concerns about the stability of the FHA insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMI Fund). In response to these concerns, FHA adopted a number of policy changes in an attempt to limit risk to the MMI Fund. These changes have included raising the fees that it charges and making changes to certain eligibility criteria for FHA-insured loans.

CRS_R45500

Introduction The nation's air, land, and marine transportation systems are designed for accessibility and efficiency, two characteristics that make them vulnerable to attack. The difficulty and cost of protecting the transportation sector from attack raises a core question for policymakers: how much effort and resources to put toward protecting potential targets versus pursuing and fighting terrorists. While hardening the transportation sector against terrorist attack is difficult, measures can be taken to deter terrorists. The focus of debate is how best to implement and finance a system of deterrence, protection, and response that effectively reduces the possibility and consequences of terrorist attacks without unduly interfering with travel, commerce, and civil liberties. For all modes of transportation, one can identify four principal policy objectives that would support a system of deterrence and protection: (1) ensuring the trustworthiness of the passengers and the cargo flowing through the system; (2) ensuring the trustworthiness of the transportation workers who operate and service the vehicles, assist the passengers, or handle the cargo; (3) ensuring the trustworthiness of the private companies that operate in the system, such as the carriers, shippers, agents, and brokers; and (4) establishing a perimeter of security around transportation facilities and vehicles in operation. The first three policy objectives are concerned with preventing an attack from within a transportation system, such as occurred on September 11, 2001. The concern is that attackers could once again disguise themselves as legitimate passengers (or shippers or workers) to get in position to launch an attack. The fourth policy objective is concerned with preventing an attack from outside a transportation system. For instance, terrorists could ram a bomb-laden speedboat into an oil tanker, as was done in October 2002 to the French oil tanker Limberg , or they could shoot a shoulder-fired missile at an airplane taking off or landing, as was attempted in November 2002 against an Israeli charter jet in Mombasa, Kenya. Achieving all four of these objectives is difficult at best, and in some modes, is practically impossible. Where limited options exist for preventing an attack, policymakers are left with evaluating options for minimizing the consequences of an attack, without imposing unduly burdensome requirements. Aviation Security1 Following the 9/11 terrorist attacks, Congress took swift action to create the Transportation Security Administration (TSA) within the U.S. Department of Transportation and gave it control over all airline passenger and baggage screening functions and deployment of armed air marshals on commercial passenger flights. In 2003, TSA was transferred to the newly formed Department of Homeland Security (DHS). To this day, the federal role in airport screening remains controversial. While airports are allowed to opt out of federal screening, alternative private screening under TSA contracts has been limited to 22 airports out of approximately 450 commercial passenger airports where passenger screening is required. Congress has sought to ensure that optional private screening remains available for those airports that want to pursue this option. The TSA Modernization Act, incorporated into the FAA Reauthorization Act of 2018 ( P.L. 115-254 ), includes language directing TSA to streamline the contracting process for private screening at airports, and directs TSA to look into the feasibility of modifying the program to allow individual airport terminals, instead of entire airports, to switch over to screening by private contractors. Proposals seeking more extensive reforms of passenger screening have not been extensively debated. Rather, aviation security legislation has largely focused on specific mandates to comprehensively screen for explosives and carry out background checks and threat assessments. Despite the extensive focus on aviation security for more than a decade, a number of challenges remain, including effectively screening passengers, baggage, and cargo for explosives threats; developing effective risk-based methods for screening passengers and others with access to aircraft and sensitive areas; incorporating biometrics into the passenger screening process to verify identities; exploiting available intelligence information and watchlists to identify individuals who pose potential threats to civil aviation; implementing effective systems, regulations, and international agreements to assess risk and conduct risk-based screening of air cargo shipments worldwide; effectively deterring and responding to security threats in public areas of airports and at screening checkpoints; developing effective strategies for addressing aircraft vulnerabilities to shoulder-fired missiles and other standoff weapons; and addressing the potential security implications of unmanned aircraft operations in domestic airspace and developing effective countermeasures to protect critical infrastructure, including airports and aircraft, from attacks using drones. Explosives Screening Strategy for the Aviation Domain Prior to the 9/11 attacks, explosives screening in the aviation domain was limited in scope and focused on selective screening of checked baggage placed on international passenger flights. Immediately following the 9/11 attacks, the Aviation and Transportation Security Act (ATSA; P.L. 107-71 ) mandated 100% screening of all checked baggage placed on domestic passenger flights and on international passenger flights to and from the United States. In addition, the Implementing the 9/11 Commission Recommendations Act of 2007 ( P.L. 110-53 ) mandated the physical screening of all cargo placed on passenger flights. Unlike passenger and checked baggage screening, TSA does not routinely perform physical inspections of air cargo. Rather, TSA satisfies this mandate through the Certified Cargo Screening Program. Under the program, manufacturers, warehouses, distributors, freight forwarders, and shippers carry out screening inspections using TSA-approved technologies and procedures both at airports and at off-airport facilities in concert with certified supply-chain security measures and chain-of-custody standards. Internationally, TSA works with other governments, international trade organizations, and industry to assure that all U.S.-bound air cargo shipments carried aboard passenger aircraft meet the requirements of the mandate. Additionally, TSA works closely with Customs and Border Protection (CBP) to carry out risk-based targeting of cargo shipments, including use of the CBP Advance Targeting System-Cargo (ATS-C), which assigns risk-based scores to inbound air cargo shipments to identify shipments of elevated risk. Originally designed to combat drug smuggling, ATS-C has evolved over the years, particularly in response to an October 2010 cargo aircraft bomb plot that originated in Yemen, to assess shipments for explosives threats or other terrorism-related activities. CBP and TSA continue to pilot test the Air Cargo Advance Screening (ACAS) system, initiated in 2010, under which freight forwarders and airlines voluntarily submit key data elements of cargo manifests for predeparture vetting. P.L. 115-254 requires TSA to establish an air cargo security division and review and improve the Known Shipper Program and Certified Cargo Screening Program to enhance their effectiveness and address any identified vulnerabilities. The act also requires U.S. Customs and Border Protection to work with TSA to establish a formal ACAS program for inbound international cargo modelled on the long-running ACAS pilot program. It directs TSA to examine the feasibility of expanding the use of computed tomography to air cargo and examine other emerging screening technologies that may enhance air cargo screening. Given the focus on the threats to aviation posed by explosives, a significant focus of TSA acquisition efforts has been on explosives screening technologies. The Transportation Security Acquisition Reform Act ( P.L. 113-245 ) required TSA to develop a five-year technology investment plan and mandated formal justifications and certifications that technology investments are cost-beneficial. The act also required tighter inventory controls and processes to ensure efficient utilization of procured technologies. P.L. 115-254 requires TSA to update this plan annually to accompany its budget request. The act also requires TSA to establish an innovation task force to work with industry to identify, cultivate, and accelerate the development and implementation of innovative transportation security technologies. A major thrust of TSA's acquisition and technology deployment strategy is improving the capability to detect concealed explosives and bomb-making components carried by airline passengers. The October 31, 2015, downing of a Russian passenger airliner departing Sharm el-Sheikh, Egypt, reportedly following the explosion of a bomb aboard the aircraft, renewed concerns over capabilities to detect explosives in baggage and cargo and monitoring of airport workers with access to aircraft, particularly overseas. In response to a 2009 incident aboard a Northwest Airlines flight, the Obama Administration accelerated deployment of Advanced Imaging Technology (AIT) whole body imaging devices and other technologies at passenger screening checkpoints. This deployment responded to the 9/11 Commission recommendation to improve the detection of explosives on passengers. In addition to AIT, next generation screening technologies for airport screening checkpoints include advanced technology X-ray systems for screening carry-on baggage, bottled liquids scanners, cast and prosthesis imagers, shoe scanning devices, and portable explosives trace detection equipment. The use of AIT has raised a number of policy questions. Privacy advocates have objected to the intrusiveness of AIT, particularly when used for primary screening. To allay privacy concerns, TSA eliminated the use of human analysis of AIT images and does not store imagery. In place of human image analysts, TSA has deployed automated threat detection capabilities using automated targeting recognition (ATR) software. Another concern raised about AIT centered on the potential medical risks posed by backscatter X-ray systems, but those systems are no longer in use for airport screening, and current millimeter wave systems emit nonionizing millimeter waves generally not considered harmful. More recently, the effectiveness of AIT and ATR has been brought into question. In 2015, the DHS Office of Inspector General completed covert testing of passenger screening checkpoint technologies and processes and consistently found failures in technology and procedures coupled with human error that allowed prohibited items to pass into secure areas. Even prior to the revelations of weaknesses in passenger checkpoint screening technologies and procedures, the use of AIT was controversial. Past legislative proposals specifically sought to prohibit the use of whole body imaging for primary screening (see, for example, H.R. 2200 , 111 th Congress). Primary screening using AIT is now commonplace at larger airports, but checkpoints at many smaller airports have not been furnished with AIT equipment and other advanced checkpoint detection technologies. This raises questions about TSA's long-range plans to expand AIT to ensure more uniform approaches to explosives screening across all categories of airports. Through FY2018, TSA deployed about 960 AIT units. It has not planned for procurements beyond this level, although many smaller airports are not equipped with this capability. TSA plans to manage this risk to a large extent through risk-based passenger screening measures, primarily through increased use of voluntary passenger background checks under the PreCheck trusted traveler program. However, this program, likewise, is not available at many smaller airports: Currently, the program's incentive of expedited screening is offered at fewer than half of all commercial passenger airports. The FAA Extension, Safety, and Security Act of 2016 ( P.L. 114-190 ) directed TSA to initiate a demonstration program at three to six large airports to examine passenger checkpoint reconfigurations that increase efficiencies and reduce vulnerabilities, and a separate demonstration program at three airports to develop and test next-generation screening system prototypes designed to expedite passenger handling. P.L. 115-254 instructs TSA to continue operation of its systems integration facility at Washington Reagan National Airport for testing and evaluating advanced transportation security screening technologies, and to ensure timely assessments of new screening technologies. It also directs TSA to promote a diverse security technology industry to better enable small business innovators to develop and commercialize new transportation security technologies. The act requires TSA to formally establish its innovation task force to accelerate the development of innovative transportation security technologies and capabilities. The act also directs DHS to conduct a review to determine whether the Transportation Security Laboratory in Atlantic City, NJ, whose core mission is to perform research, development, and validation of explosives detection and mitigation technologies, should be managed by TSA or by another DHS entity. The laboratory was originally transferred to TSA from the Federal Aviation Administration (FAA), but has been in the hands of the DHS Science and Technology Directorate for more than a decade. Risk-Based Passenger Screening TSA has initiated a number of risk-based screening initiatives to focus its resources and apply directed measures based on intelligence-driven assessments of security risk. These include PreCheck; modified screening procedures for children 12 and under; and a program for expedited screening of known flight crew and cabin crew members. Programs have also been developed for modified screening of elderly passengers similar to those procedures put in place for children. PreCheck is modeled on CBP programs such as Global Entry, SENTRI, and NEXUS. Under the program, participants vetted through a background check process are processed through expedited screening lanes where they can keep shoes on and keep liquids and laptops inside carry-on bags. As of December 2018, PreCheck expedited screening lanes were available at more than 200 airports. The cost of background checks under the PreCheck program is recovered through application fees of $85 per passenger for a five-year membership. TSA's goal is to process 50% of passengers through PreCheck expedited screening lanes, thus reducing the need for standard security screening lanes, but it has struggled to increase program membership. One concern raised over the PreCheck program is the lack of biometric authentication to verify participants at screening checkpoints. A predecessor test program, the Registered Traveler program, which used private vendors to issue and scan participants' biometric credentials, was scrapped by TSA in 2009 because it failed to show a demonstrable security benefit. In 2016, biometric identity authentication was reintroduced at 13 airports under a private trusted traveler program known as Clear. Participants in Clear, which is separate from PreCheck and not operated or funded by TSA, use an express lane to verify identity using a fingerprint or iris scan rather than interacting with a TSA document checker. Previously, the extensive use of a program called "managed inclusion" to route selected travelers not enrolled in PreCheck through designated PreCheck expedited screening lanes also raised objections. The Government Accountability Office (GAO) found that TSA had not fully tested its managed inclusion practices, and recommended that TSA take steps to ensure and document that testing of the program adheres to established evaluation design practices. TSA phased out the managed inclusion program in the fall of 2015. Since September 2015, TSA behavior detection officers and explosives trace detection personnel no longer direct passengers not enrolled in PreCheck to expedited screening lanes, but pre-assessments using canine teams have continued at some major airports. Questions remain regarding whether PreCheck is fully effective in directing security resources to unknown or elevated-risk travelers. Nonetheless, it has improved screening efficiency. TSA has estimated annual savings in direct screener workforce costs totaling $110 million as a result of PreCheck and other risk-based initiatives. A study suggested that considerably greater efficiency gains might be realized if TSA could double the annual number of PreCheck screenings, which would require increasing the number of PreCheck-eligible travelers to about 15 to 20 million. PreCheck expansion was addressed in recent legislation, and oversight of TSA efforts to expand PreCheck may be a specific topic of interest during the 116 th Congress. Language in P.L. 115-254 directs TSA to work with at least two private-sector entities to expand PreCheck enrollment options and forge at least two agreements for marketing the program, setting enrollment targets of 7 million by the end of FY2019, 10 million by the end of FY2020, and 15 million by the end of FY2021. The act also directs TSA to explore cost-effective options for conducting recurrent background checks of program participants, although this could raise concerns over impacts on enrollments if procedures for recurrent checks impose additional burdens on participants. The act requires TSA to ensure that PreCheck expedited screening lanes are open and available to program participants during peak and high-volume travel times and take steps to provide expedited screening at standard screening lanes when PreCheck lanes are not available. It also instructs TSA to ensure that only trusted traveler program members and members of the Armed Forces are permitted to use PreCheck screening lanes. P.L. 115-254 also directs TSA and CBP to work together on the deployment of biometric technologies for the entry-exit program for international travelers and other uses. According to the TSA Biometrics Roadmap, TSA also plans to integrate biometrics technology for identity verification of PreCheck travelers, and seeks to eventually expand the voluntary use of biometrics to all domestic air travelers. Plans for increased use of biometrics raise privacy and data-protection concerns that may be of particular interest to congressional oversight committees. In addition to passenger screening, TSA, in coordination with participating airlines and labor organizations representing airline pilots, has developed a known crewmember program to expedite security screening of airline flight crews. In July 2012, TSA expanded the program to include flight attendants. TSA has also developed a passenger behavior detection program to identify potential threats based on observed behavioral characteristics. TSA initiated early tests of its Screening Passengers by Observational Techniques (SPOT) program in 2003. By FY2012, the program deployed almost 3,000 behavior detection officers at 176 airports, at an annual cost of about $200 million. Questions remain regarding the effectiveness of the behavioral detection program, and privacy advocates have cautioned that it could devolve into racial or ethnic profiling. While some Members of Congress have sought to shutter the program, Congress has not moved to do so. For example, H.Amdt. 127 (113 th Congress), an amendment to the FY2014 DHS appropriations measure that sought to eliminate funding for the program, failed to pass a floor vote. Congress also has not taken specific action to revamp the program, despite the concerns raised by GAO and the DHS Office of Inspector General. P.L. 115-254 directed TSA to utilize risk-based strategies in deploying federal air marshal teams on international and domestic flights. However, a more controversial TSA initiative using air marshals to shadow passengers whose behavioral profiles based on past itineraries indicated they might pose an elevated security risk was reportedly shuttered in December 2018 after media reports and some Members of Congress raised concerns over the privacy implications of the program. The Use of Terrorist Watchlists in the Aviation Domain Airlines were formerly responsible for checking passenger names against terrorist watchlists maintained by the government. Following at least two instances in 2009 and 2010 in which such checks failed to identify individuals who may pose a threat to aviation, TSA took responsibility for checking passenger names under the Secure Flight program. In November 2010, DHS announced that 100% of passengers flying to or from U.S. airports are being vetted using the Secure Flight system. Secure Flight vets passenger name records against a subset of the Terrorist Screening Database (TSDB). On international flights, Secure Flight operates in coordination with the use of watchlists by CBP's National Targeting Center-Passenger, which relies on the Advance Passenger Information System (APIS) and other tools to vet both inbound and outbound passenger manifests. In addition to flights of U.S. and foreign airlines, all inbound and outbound international flights using chartered and private aircraft must transmit passenger and crew manifests to CBP at least one hour prior to departure. In addition to these systems, TSA conducts risk-based analysis of passenger data carried out by the airlines through use of the Computer-Assisted Passenger Prescreening System (CAPPS). In January 2015, TSA gave notification that it would start incorporating the results of CAPPS assessments, but not the underlying data used to make such assessments, into Secure Flight, along with each passenger's full name, date of birth, and PreCheck traveler number (if applicable). These data are used within the Secure Flight system to perform risk-based analyses to determine whether passengers receive expedited, standard, or enhanced screening at airport checkpoints. P.L. 115-254 removed statutory references to CAPPS, replacing them with references to the Secure Flight Program to clarify that these various passenger vetting elements are fully encompassed under Secure Flight. The act also directed TSA to conduct and publicly disseminate a review of its privacy impact assessment of the Secure Flight Program. Central issues surrounding the use of terrorist watchlists in the aviation domain that may be considered during the 116 th Congress include the speed with which watchlists are updated as new intelligence information becomes available; the extent to which all information available to the federal government is exploited to assess possible threats among passengers and airline and airport workers; the ability to detect identity fraud or other attempts to circumvent terrorist watchlist checks; the adequacy of established protocols for providing redress to individuals improperly identified as potential threats; and the adequacy of coordination with international partners. In addition, there has been a growing interest in finding better ways to utilize watchlists to prevent terrorist travel, particularly travel of radicalized individuals seeking to join forces with foreign terrorist organizations such as the Islamic State (IS). Language in P.L. 114-190 directed TSA to assess whether recurrent fingerprint-based criminal background checks could be carried out in a cost-effective manner to augment terrorist watchlist checks for PreCheck program participants. Additionally, the act directed TSA to expand criminal background checks for certain airport workers. Perimeter Security, Access Controls, and Worker Vetting Airport perimeter security, access controls, and credentialing of airport workers are generally responsibilities of airport operators. There is no common access credential for airport workers. Rather, each airport separately issues security credentials to airport workers. These credentials are often referred to as Security Identification Display Area (SIDA) badges, and they convey the level of access that an airport worker is granted. TSA requires access control points to be secured by measures such as posted security guards or electronically controlled locks. Additionally, airports must implement programs to train airport workers to challenge anyone not displaying proper identification. Airports may also deploy surveillance technologies, access control measures, and security patrols to protect airport property from intrusion, including buildings and terminal areas. Such measures are paid for by the airport, but must be approved by TSA as part of an airport's overall security program. State and local law enforcement agencies with jurisdiction at the airport are generally responsible for patrols of airport property, including passenger terminals. They also may patrol adjacent properties to deter and detect other threats to aviation, such as shoulder-fired missiles (see " Mitigating the Threat of Shoulder-Fired Missiles to Civilian Aircraft "). TSA requires security background checks of airport workers with unescorted access privileges to secure areas at all commercial passenger airports and air cargo facilities. Background checks consist of a fingerprint-based criminal history records check and security threat assessment, which include checking employee names against terrorist database information. Certain criminal offenses committed within the past 10 years, including aviation-specific crimes, transportation-related crimes, and other felony offences, are disqualifying. Airports must collect applicant biographical information and fingerprints to submit to TSA to process background checks. Many airports use a service known as the Transportation Security Clearinghouse to coordinate the processing of background check applications. P.L. 114-190 directed TSA to update the eligibility criteria and disqualifying criminal offenses for SIDA access credentials based on other transportation vetting requirements and knowledge of insider threats to security. The law proposes that TSA expand the criminal history look-back period from the current 10 years to 15 years, and that individuals be disqualified if they have been released from prison within 5 years of their application. The statute directs TSA to establish a formal waiver process for individuals denied credentials. It also calls for full implementation of recurrent vetting of airport workers with SIDA access credentials using the Federal Bureau of Investigation's (FBI's) Rap Back service to identify disqualifying criminal offences. Language in P.L. 115-254 requires TSA to provide congressional oversight committees with data on the number of airport workers being continuously vetted though the Rap Back service. It also directs TSA to identify means of using homeland security and intelligence resources to educate TSA personnel on means to better mitigate insider threats. The law also requires TSA to establish a centralized database of individuals who have had security access or aircraft-operator credentials revoked for failing to comply with aviation security requirements. P.L. 114-190 directed TSA to conduct random physical inspections of airport workers at SIDA access points and in SIDA areas. P.L. 115-254 clarifies that TSA-led random inspections of aviation workers be targeted, strategic, and focused on providing the greatest level of security effectiveness, rather than being "random" in the true sense of the word. The law also directs TSA to continue its covert testing of employee access controls and provide measures of the effectiveness of such operations to airport operators, and as appropriate, to airlines. The act also establishes more stringent standards for individuals applying for SIDA access, requiring that such individuals provide their social security number in order to strengthen vetting effectiveness. Explosives Screening Technology and Canines Explosives screening technologies at passenger screening checkpoints primarily consist of the AIT whole body imaging systems; advanced technology X-ray imagers for carry-on items; and explosives trace detection systems used to test swab samples collected from individuals or carry-on items for explosives residue. TSA began introducing Computed Tomography (CT) scanning technology at passenger screening checkpoints in FY2018 on a trial basis, and plans to expand the use of CT technology for scanning carry-on items throughout FY2019, with an aim of deploying more than 150 units at 14 major airports. TSA asserts that CT technology offers automated capabilities to help improve detection of explosives and other threats. TSA concedes, however, that the introduction of CT technology, at least initially, will require more resources to clear increased numbers of false alarms compared to X-ray technology, and seeks to increase screener numbers at those airports where CT will be deployed to minimize these impacts on passenger screening. P.L. 115-254 directs TSA to proceed with these CT pilot programs and also to examine the feasibility of using CT technology to screen cargo carried on passenger aircraft. The act also directs TSA to assess other emerging screening technologies that may be used to enhance air cargo screening. For checked baggage screening, TSA utilizes a combination of CT-based explosives detection systems and chemical trace detection technology. TSA deploys either high-speed (greater than 900 bags per hour), medium-speed (400 to 900 bags per hour), or reduced-size (100 to 400 bags per hour) CT-based systems, depending on airport needs and configurations. TSA is also funding the development of new algorithms to more reliably detect homemade explosives threats in checked baggage and reduce false positives. TSA pays for or reimburses airports for modifying baggage-handling facilities and installing new inspection systems to accommodate explosives detection technologies. The TSA's National Explosives Detection Canine Team Program trains and deploys canines and handlers at transportation facilities to detect explosives. The program includes approximately 370 TSA teams and 675 state and local law enforcement teams trained by TSA under partnership agreements. More than 350 of the TSA teams are dedicated to passenger screening at 46 airports. Following airport bombings in Brussels, Belgium, and Istanbul, Turkey, in 2016, there has been interest in increasing deployments of canine teams in nonsterile areas of airport terminals. P.L. 114-190 authorized TSA to provide training to foreign governments in airport security measures including the use of canine teams. The act also directed TSA to utilize canine teams to minimize passenger wait times and maximize security effectiveness of checkpoint operations. P.L. 115-254 directs TSA to establish a working group to assess ways to support a decentralized, nonfederal domestic breeding program for explosives detection canines and to modernize canine breeding, medical, technical, and training standards. It further instructs TSA to develop guidance for the procurement and deployment of third-party domestic canines to enhance public area security at transportation hubs, including airports. Large hub airports that do not have their full allocation of explosives detection canine teams would be able to directly acquire canines from TSA-approved third-party sources, but canines procured in this manner would be trained by TSA personnel. Additionally, the act directs TSA to issue standards for the primary screening of air cargo by private entities using dogs and handlers not owned or employed by TSA. Protecting Public Areas of Airports Incident response at airports is primarily the responsibility of airport operators and state or local law enforcement agencies, with TSA acting as a regulator in approving an airport's comprehensive security program. Federal law enforcement may also be involved in developing and reviewing response plans, but will typically not have a lead role in event response. However, federal law enforcement may assume a lead investigative role following a security incident, particularly if the event is determined to be an act of terrorism. P.L. 115-254 directs TSA to establish a working group to collaborate with public and private stakeholders to develop nonbinding recommendations for enhancing security in public areas of transportation facilities. The act also directs TSA to increase funding under the law enforcement reimbursable program for airports to increase the presence of law enforcement officers in public areas to provide visible deterrents to terrorists, including in baggage claim and ticketing areas and on airport access roads, as well as at screening checkpoints. On November 1, 2013, a lone gunman targeting TSA employees fired several shots at a screening checkpoint at Los Angeles International Airport (LAX), killing one TSA screener and injuring two other screeners and one airline passenger. In a detailed postincident action report, TSA identified several proposed actions to improve checkpoint security, but did not support proposals to arm certain TSA employees or provide screeners with bulletproof vests, and did not recommend mandatory law enforcement presence at checkpoints. The Gerardo Hernandez Airport Security Act of 2015 ( P.L. 114-50 ), named in honor of the TSA screener killed in the LAX incident and enacted in September 2015, requires airports to adopt plans for responding to security incidents and to create a mechanism for sharing information among airports regarding best practices for airport security incident planning, management, and training. It also requires TSA to identify ways to expand the availability of funding for checkpoint screening law enforcement support through cost savings from improved efficiencies mainly achieved through implementing PreCheck expedited screening protocols. TSA partially reimburses local law enforcement agencies for support at screening checkpoints, and P.L. 115-254 directs TSA to increase funding for the reimbursable program to expand protection of public areas of airports as well as screening checkpoints. Foreign Last Point of Departure Airports TSA regulates foreign air carriers that operate flights to the United States to enforce requirements regarding the acceptance and screening of passengers, baggage, and cargo carried on those aircraft. As part of this regulation, TSA inspects foreign airports from which commercial flights proceed directly to the United States. Officials known as Transportation Security Administration Representatives (TSARs) assess country compliance with international standards for aviation security and plan and coordinate U.S. airport risk analysis and assessments of foreign airports. TSARs also administer and coordinate TSA response to terrorist incidents and threats to U.S. citizens and transportation assets and interests overseas. Fifteen foreign last point of departure airports (eight in Canada, two in the Bahamas, one in Bermuda, one in Aruba, two in Ireland, and one in Abu Dhabi) have Customs and Border Protection (CBP) preclearance facilities where passengers are admitted to the United States prior to departure. Passengers arriving on international flights from these preclearance airports deplane directly into the airport sterile area upon arrival at the U.S. airport of entry, where they can board connecting flights or leave the airport directly, rather than being routed to customs and immigration processing facilities. CBP has announced its intention to expand customs preclearance to additional countries and airports. While agreements to offer preclearance at airports in Stockholm, Sweden, and Punta Cana, Dominican Republic, were finalized in 2016, preclearance operations at these airports have not yet been established. Plans to offer preclearance at other airports are still being negotiated. Assessing screening measures at preclearance airports is a particular priority for TSA. TSA is also working to increase checked baggage preclearance processing so checked baggage does not have to be rescreened by TSA at the U.S. airport of entry, which has been the practice. Language in P.L. 114-190 requires TSA to conduct security risk assessments at all last point of departure airports, and authorizes the donation of security screening equipment to such airports to mitigate security vulnerabilities that put U.S. citizens at risk. P.L. 115-254 mandates that any such donated screening equipment be restored to original commercial settings and must not contain TSA-specific security standards or algorithms. Recipients of donated screening equipment must satisfactorily demonstrate that they are capable of properly maintaining it and must ensure that, once the equipment is retired from service, it does not get into the hands of terrorists or otherwise compromise security. The act also directs DHS, in coordination with the Department of State, to review and improve international aviation security standards and dissemination and implementation processes for security directives and emergency amendments to security requirements issued to domestic and foreign air carriers. It instructs TSA to work with the International Civil Aviation Organization to raise minimum standards for aviation security. P.L. 115-254 also directs TSA to work with FAA to track public charter flights between the United States and Cuba, and to brief congressional oversight committees on aviation security measures at Cuban airports that have air service to the United States. Mitigating the Threat of Shoulder-Fired Missiles to Civilian Aircraft The terrorist threat posed by small man-portable shoulder-fired missiles was brought into the spotlight soon after the 9/11 terrorist attacks by the November 2002 attempted downing of a chartered Israeli airliner in Mombasa, Kenya. Since then, Department of State and military initiatives have sought bilateral cooperation and voluntary reductions of shoulder-fired missiles, formally referred to as man-portable air defense systems (MANPADS), worldwide. The most visible DHS initiative to address the threat was the multiyear Counter-MANPADS program carried out by the DHS Science & Technology Directorate. The program concluded in 2009 with extensive testing and FAA certification of two systems capable of protecting airliners against heat-seeking missiles. The systems have not been deployed on commercial airliners in the United States, however, due largely to high acquisition and life-cycle costs. U.S. airlines have not voluntarily invested in these systems for operational use, and argue that the costs for such systems should be borne, at least in part, by the federal government. MANPADS are mainly seen as a security threat to civil aviation overseas, but a MANPADS attack in the United States could have a considerable impact on the airline industry. While major U.S. airports have conducted vulnerability studies, efforts to reduce vulnerabilities to potential MANPADS attacks face significant logistic challenges. While Congress has not formally debated the issue since the conclusion of the DHS program in 2009, any future terrorist attempts to use standoff weapons, including shoulder-fired missiles, to attack civilian aircraft could quickly escalate this to a major national security priority. Security Issues Regarding the Operation of Unmanned Aircraft The proliferation of civilian drones, also known as unmanned aircraft systems (UAS), raises potential security risks, including the possibility that terrorists could use a drone to carry out an attack against a ground target. It is also possible that drones themselves could be targeted by terrorists or cybercriminals seeking to tap into sensor data transmissions or to cause mayhem by hacking or jamming command and control signals. Two principal concerns are that drones could be used to attack critical infrastructure or high-profile targets and that unauthorized drone operations in close proximity to airports could disrupt air transportation. The 116 th Congress may have a particular interest in policies and technologies to mitigate safety and security threats posed by unmanned aircraft. Terrorists could potentially use drones to carry out small-scale attacks using explosives, or as platforms for chemical, biological, or radiological attacks. In September 2011, the FBI disrupted a homegrown terrorist plot to attack the Pentagon and the Capitol with large model aircraft packed with high explosives. Widely publicized drone incidents include an unauthorized flight at a political rally in Dresden, Germany, in September 2013 that came in close proximity to German Chancellor Angela Merkel; a January 2015 crash of a small hobby drone on the White House lawn in Washington, DC; a series of unidentified drone flights over landmarks and sensitive locations in Paris, France, in 2015; and drone sightings around London Gatwick and Heathrow airports in December 2018 that grounded numerous airline flights. These incidents have raised additional concerns about safety and security threats posed by small unmanned aircraft. Domestically, there have been numerous reports of drones flying in close proximity to airports and manned aircraft, in restricted airspace, and over stadiums and outdoor events. In September 2017, a hobby drone collided with a National Guard Black Hawk helicopter assigned to patrol the skies over New York harbor during a meeting of the United Nations General Assembly, causing damage to one of the helicopter's rotor blades. Numerous other safety incidents involving drones have been reported in the United States and abroad, but few have been tied to terrorism. However, ISIS is known to have used drones in conflict zones to conduct reconnaissance and drop explosives. While the payload capacities of small unmanned aircraft would likely limit the damage a terrorist attack using conventional explosives could inflict, drone attacks using chemical, biological, or radiological weapons could be more serious. Regulations for small unmanned aircraft used for commercial purposes require TSA to carry out security threat assessments of certificated operators as it does for civilian pilots. However, this requirement does not apply to recreational users, who are already permitted to operate small drones at low altitudes. Moreover, while FAA has issued general guidance to law enforcement regarding unlawful UAS operations, it is not clear that law enforcement agencies have sufficient training or technical capacity to respond to this potential threat. Technology may help manage security threats posed by unmanned aircraft. Integrating tracking mechanisms as well as incorporating "geo-fencing" capabilities, designed to prevent flights over sensitive locations or in excess of certain altitude limits, into unmanned aircraft systems may help curtail unauthorized flights. Language in P.L. 114-190 directed FAA to establish a pilot program to detect and mitigate unmanned aircraft operations in the vicinity of airports and other critical infrastructure. Additionally, the act directed FAA to develop an air traffic management system for small UASs that could include measures to detect and deter security threats posed by UASs. The National Defense Authorization Act for FY2017 ( P.L. 114-328 ) authorized the Armed Forces and the Department of Energy to take necessary actions to mitigate threats posed by a UAS to certain security-related facilities in the United States. The act authorizes the military to detect, monitor, and track UASs; issue warnings to operators; disrupt control of a UAS, including interrupting or jamming control signals; seize or take control of the UAS; confiscate the unmanned aircraft; or use reasonable force to disable or destroy the UAS. P.L. 115-254 more broadly authorizes the Department of Justice and DHS to take similar defensive actions to protect people, facilities, or assets from credible threats posed by UASs. The act also expands the mission of the Coast Guard to include carrying out protective measures to safeguard its facilities and assets, including Coast Guard vessels and aircraft, from threats posed by unmanned aircraft. P.L. 115-254 also directs FAA to coordinate with the various agencies authorized to engage in counter-unmanned aircraft (C-UAS) activities to review standards, policies, and practices with respect to maintaining safety for airspace users, protecting individuals and property on the ground, and not interfering with avionics, navigation, and air traffic control systems. Additionally, the review is to assess the adequacy of those agencies' coordination with FAA regarding C-UAS operations, the adequacy of training for personnel operating C-UAS systems, information sharing regarding airspace authorizations, and best practices for consistent C-UAS operations. The act directs FAA to work with the Department of Defense (DOD), DHS, and other relevant agencies to ensure that technologies developed to mitigate risks posed by an errant or hostile UAS do not adversely impact safe airport operations and air traffic and air navigation services. The act also directs FAA to work with DOD to streamline deployment of C-UAS and requires FAA to develop a comprehensive strategy for identifying and responding to public safety threats posed by UASs. It also requires FAA to implement a pilot program using remote detection capabilities to identify UASs in order to carry out enforcement actions against UAS operators not in compliance with applicable aviation laws and regulations. P.L. 115-254 establishes a formal prohibition against civilians arming unmanned aircraft with dangerous weapons. Additionally, the act establishes criminal penalties for flying a drone over the White House grounds, the Vice President's residence, sites where the President or other individuals protected by the Secret Service are visiting, or other buildings or grounds hosting a special event of national significance. It also establishes criminal penalties for using a drone in a manner that interferes with wildfire suppression efforts or related law enforcement or emergency response activities. Aviation Cybersecurity There is growing concern over cybersecurity threats to aircraft, air traffic control systems, and airports. Executive Order 13636 provides broad guidance for DHS to work with FAA to identify cybersecurity risks, establish voluntary cybersecurity measures, and share information on cybersecurity threats within the broader cybersecurity framework. Additionally, 49 U.S.C. §44912 specifically directs TSA to periodically review threats to civil aviation with a particular focus on specified threats, including the potential disruption of civil aviation service resulting from a cyberattack. TSA has indicated that its approach to cybersecurity thus far has not been through regulation, but rather through voluntary collaboration with industry. Under this framework, TSA formed the Transportation Systems Sector Cybersecurity Working Group, which created a cybersecurity strategy for the transportation sector in 2012. Also, in coordination with the FBI and industry partners, TSA launched the Air Domain Intelligence Integration Center and an accompanying analysis center in 2014 to share information and conduct analysis of cyberthreats to civil aviation. In recognition of those threats, FAA has developed a software assurance policy for all FAA-owned and FAA-controlled information systems. However, according to an April 2015 GAO report, while FAA has taken steps to protect air traffic control systems from cyberthreats, it faces continuing challenges in mitigating cyberthreats, particularly as it transforms air traffic control systems under its NextGen modernization initiative. While FAA has adopted an evolving framework to address the cybersecurity of its systems, a January 2018 GAO report warned that new aircraft tracking technologies that will transform air traffic control in the coming years under NextGen have unmitigated cybersecurity vulnerabilities, including vulnerabilities to jamming, hacking, and spoofing of signals, that could compromise air traffic operations as well as pose a threat to national security and military aircraft operations. For systems onboard aircraft, FAA requires cybersecurity to be addressed in the existing airworthiness certification process. Large commercial aircraft and aviation systems manufacturers now typically collaborate with software security companies to attain high levels of assurance for software embedded in avionics equipment. Despite efforts to design aircraft systems to be resilient to cyberthreats, in April 2015 TSA and the FBI issued warnings that the increasing interconnectedness of these systems makes them vulnerable to unauthorized access and advised airlines to look out for individuals trying to tap into aircraft electronics and for evidence of tampering or network intrusions. FAA separately addresses cybersecurity of government-owned air traffic control systems and certified aircraft systems. However, GAO has cautioned that FAA's current approach to cybersecurity does not adequately address the interdependencies between aircraft and air traffic systems, and consequently may hinder efforts to develop a comprehensive and coordinated strategy. While it identified no easy fix, GAO recommended that FAA develop a comprehensive cybersecurity threat model, better clarify cybersecurity roles and responsibilities, improve management security controls and contractor oversight, and fully incorporate National Institute of Standards and Technology information security guidance throughout the system life cycle. Language in P.L. 114-190 mandated development of a comprehensive strategic framework for reducing cybersecurity risks to the national airspace system, civilian aviation, and FAA information systems. P.L. 115-254 directs FAA to review and update the framework to address known cybersecurity risks to the aviation system and short-term and long-term objectives for addressing these risks. The act also directs FAA to address cybersecurity in the certification of aircraft avionics systems and component software, and the cybersecurity of systems and technologies relating to the air traffic control system. The act also directs FAA to develop an integrated cybersecurity testbed for air traffic control modernization technologies. It orders a National Academy of Sciences study to develop recommendations on how to increase the size, quality, and diversity of FAA's cybersecurity workforce. P.L. 115-254 directs TSA to implement the framework for improving critical infrastructure cybersecurity developed by the National Institute of Standards and Technology to manage cybersecurity risks and conduct cybersecurity vulnerability assessments, including cybersecurity evaluations of the PreCheck program as well as transportation worker credentialing programs that contain data on individuals. The act also directs TSA to coordinate with international counterparts to harmonize validation processes, allowing reciprocal recognition of security and screening technology approvals that comply with agreed-upon standards relating to performance as well as information security and cybersecurity. The act also directs DHS to review global aviation security standards and practices, including assessments of the cybersecurity risks of security screening equipment. In November 2018, TSA released a new cybersecurity roadmap providing a broad framework for how it will work with transportation industry and government stakeholders to address cybersecurity risks, including risks to aviation. The specific roles of TSA and FAA in regulating cybersecurity, particularly in areas such as aircraft and avionics certification and air traffic control, which have historically been FAA responsibilities, may be a specific topic for congressional oversight during the 116 th Congress. Transit and Passenger Rail Security37 Bombings of and shootings on passenger trains in Europe and Asia have illustrated the vulnerability of passenger rail systems to terrorist attacks. Passenger rail systems—primarily subway systems—in the United States carry about five times as many passengers each day as do airlines, over many thousands of miles of track, serving stations that are designed primarily for easy access. The increased security efforts around air travel have led to concerns that terrorists may turn their attention to "softer" targets, such as transit or passenger rail. A key challenge Congress faces is balancing the desire for increased rail passenger security with the efficient functioning of transit systems, the potential costs and damages of an attack, and other federal priorities. The volume of ridership and number of access points make it impractical to subject all rail passengers to the type of screening all airline passengers undergo. Consequently, transit security measures tend to emphasize managing the consequences of an attack. Nevertheless, steps have been taken to try to reduce the risks of an attack as well. These include vulnerability assessments; emergency planning; emergency response training and drilling of transit personnel (ideally in coordination with police, fire, and emergency medical personnel); increasing the number of transit security personnel; installing video surveillance equipment in vehicles and stations; and conducting random inspections of bags, platforms, and trains. The challenges of securing rail passengers are dwarfed by the challenge of securing bus passengers. There are some 76,000 buses carrying 19 million passengers each weekday in the United States. Some transit systems have installed video cameras on their buses, but the number and operating characteristics of transit buses make them all but impossible to secure. In contrast with the aviation sector, where TSA provides security directly, security in surface transportation is provided primarily by the transit and rail operators and local law enforcement agencies. TSA's main roles are oversight, coordination, intelligence sharing, training, and assistance. However, it provides some operational support through its Visible Intermodal Prevention and Response (VIPR) teams, which conduct operations with local law enforcement officials, including periodic patrols of transit and passenger rail systems to create "unpredictable visual deterrents." Several presidential Administrations have sought to reduce the size of the VIPR program, the value of which has yet to be demonstrated, but Congress has sought to increase the size of the program. Congressional efforts to promote the security of passenger rail and transit include providing grants to service providers, requiring those providers considered to be high-risk targets (by DHS) to have security plans approved by DHS, and requiring DHS to conduct security background checks and immigration status checks on all transit and railroad frontline employees. According to TSA, its three primary objectives for reducing risk in transit are to increase system resilience by protecting high-risk/high-consequence assets (i.e., critical tunnels, stations, and bridges); expand visible deterrence activities (i.e., canine teams, passenger screening teams, and antiterrorism teams); and engage the public and transit operators in the counterterrorism mission. TSA surface transportation security inspectors conduct assessments of transit systems (and other surface modes) through the agency's Baseline Assessment for Security Enhancement (BASE) program. The agency has also developed a security training and security exercise program for transit. TSA's program for securing surface transportation is known as Risk Mitigation Activities for Surface Transportation (RMAST). The intent of the RMAST program is to focus TSA's limited surface security resources on high-risk entities and locations. However, GAO reported in 2017 that TSA had not identified or prioritized high-risk entities for the RMAST program to focus on. The surface transportation inspector program has been a focus of congressional interest. Issues of concern to Congress have included whether the inspectors promoted from screening passengers at airports have sufficient expertise in surface transportation security; the administrative challenge of having the surface inspectors managed by airport-based federal security directors who themselves typically have no surface transportation experience; and the security value of the tasks performed by surface inspectors. The number of surface inspectors declined from 404 in FY2011 to 222 (full-time equivalent positions) in FY2018. TSA attributed the decrease to efficiencies achieved through focusing efforts on the basis of risk. However, in 2017 GAO reported that surface transportation inspectors were spending more time on the surface transportation mode that TSA had identified as the lowest risk than on the one identified as the highest risk. Surface inspection field offices are located near airports, and surface inspectors may spend a significant portion of their time on tasks related to aviation safety, but TSA does not have complete information on the extent to which surface inspectors are tasked to work on aviation security. GAO reported in 2014 that lack of guidance to TSA's surface inspectors resulted in inconsistent reporting of rail security incidents and that TSA had not consistently enforced the requirement that rail agencies report security incidents, resulting in poor data on the number and types of incidents. GAO also found that TSA did not have a systematic process for collecting and addressing feedback from surface transportation stakeholders regarding the effectiveness of its information-sharing effort. In a 2015 hearing, GAO testified that TSA had put processes in place to address these issues. DHS provides grants for security improvements for public transit, passenger rail, and occasionally other surface transportation modes under the Transit Security Grant Program. The vast majority of the funding goes to public transit providers. CRS estimates that, on an inflation-adjusted basis, funding for this program has declined 84% since 2009, when Congress allocated $150 million in the American Recovery and Reinvestment Act of 2009, in addition to routine appropriations (see Table 1 ). In a 2012 report, GAO found potential for duplication among four DHS state and local security grant programs with similar goals, one of which was the public transportation security grant program. Despite this finding, Congress has not supported consolidation of the programs, though appropriators have expressed concern that grant programs have not focused on areas of highest risk and that significant amounts of previously appropriated funds have not yet been awarded to recipients. In P.L. 114-50 , Congress directed TSA to ensure that all passenger transportation providers it considers as having high-risk facilities have in place plans to respond to active shooters, acts of terrorism, or other security-related incidents that target passengers. Port and Maritime Security49 The bulk of U.S. overseas trade is carried by ships, and thus the economic consequences of a maritime terrorist attack could be significant. In the aftermath of the 9/11 attacks, the U.S. Customs Service (now Customs and Border Protection, CBP) and the Coast Guard realized that they needed to "push the borders out"—that is, they needed to begin screening vessels and cargo before they reached a U.S. port. While the previous screening methods that occurred at U.S. ports were sufficient to intercept other illicit cargo (e.g., drug smuggling) they could be too late in the case of intercepting a terrorist bomb. Thus, Customs instituted the "24-hour rule," requiring importers to submit shipment information to Customs a day before the shipment arrived at the overseas port of loading rather than submitting this information within days of its arrival at a U.S. port. Customs analyzes this information and other intelligence to flag shipments it believes are higher risk or have an unknown risk. Under the Container Security Initiative, those riskier shipments are examined by imaging machines or possibly unloaded before being loaded on a vessel. (It is practically impossible to examine shipping containers once they are aboard a vessel or while the ship is at sea.) Similarly, the Coast Guard recognized the need to extend terrorist screening beyond U.S. ports. It required ships to announce and report their intended arrival four days before entering a U.S. harbor. The Coast Guard examines the vessel's particulars, its crew, and past history to evaluate the security risk. The Coast Guard pushed for establishing international standards for port security at the International Maritime Organization so that overseas ports sending cargo to the United States would abide by the same security regulations as U.S. ports. The Coast Guard also visits foreign ports to assess their security measures. In addition to pushing the borders out, these agencies have instituted multiple layers of security that cover the four main elements of maritime transportation: ports, vessels, cargo, and workers. CBP's Customs Trade Partnership Against Terrorism (C-TPAT) program identifies a series of practices that importers are to follow that are designed to cover a shipper's entire supply chain—from the overseas point of origin to final delivery in the United States. For instance, C-TPAT includes procedures and independent checks when loading a shipping container and applying the seal on its doors to prevent tampering while in route. In addition to container inspection equipment installed at overseas ports, CBP has installed radiation portal monitors at each truck exit gate in U.S. ports. The Coast Guard requires vessel owners, port authorities and their terminal operators to submit security plans that describe their access control measures, drills and exercises to respond to a security incident, and other measures to secure their facilities. The Coast Guard recognizes that U.S. ports vary greatly in terms of their geographies and types of cargo they handle. The port security plans allow the industry to develop plans specific to their vulnerabilities. An important goal of the Coast Guard is "maritime domain awareness"—knowledge of the varied legitimate vessel activity taking place in a harbor (cargo, fishing, recreational) so as to spot any abnormal or suspicious activity. One aspect of this is requiring many vessels to be equipped with Automatic Identification Systems (transponders). The Coast Guard, along with TSA, has also instituted a port worker background check for longshoremen, truck drivers, vessel crews, and others that need access to port terminals. A Transportation Worker Identification Credential (TWIC) card must be obtained from the TSA and renewed every five years. Congress authorized much of the Coast Guard's role in maritime security in the Maritime Transportation Security Act of 2002 (MTSA; P.L. 107-295 ) and CBP's role in the Security and Accountability for Every Port Act of 2006 (SAFE Port Act; P.L. 109-347 ). Congress modified these maritime security programs in Division J of the FAA Reauthorization Act of 2018 ( P.L. 115-254 ). Two aspects of maritime security that have drawn attention recently are cybersecurity and the use of drones for coastal surveillance. The development of electronic navigation ("e-navigation"), involving the replacement of paper charts with electronic charts (already commonplace) or the replacement of channel marker buoys with virtual aids to navigation (in progress), could create vulnerabilities to cyberattack. In June 2017, a cyberattack on Maersk Line, the largest container carrier, prevented the carrier from taking bookings and required it to close its U.S. terminals for two to three days. A less severe attack affected COSCO Shipping in July 2018. P.L. 115-254 incorporated cybersecurity as a required element in MTSA security plans for terminal and vessel operators. The Coast Guard has provided guidance for vessels and ports to address cyber vulnerabilities, and has incorporated cybersecurity into existing enforcement and compliance programs. The Coast Guard has added cybersecurity training to the requirements for mariner licensing and for port security officer qualifications. Greater use of unmanned aircraft systems potentially offers significant efficiencies in performing various Coast Guard missions, including coastal surveillance. Congress has provided funding for the use of drones aboard national security cutters. The Coast Guard has tested both hand-held drones and larger drone aircraft to extend the surveillance range of its patrol vessels. Since 2015, the Coast Guard has been testing UASs in the Arctic for missions such as surveying ice conditions, marine environmental monitoring, marine safety, and search and rescue. The unmanned aircraft being tested each summer can be launched from land or a Coast Guard cutter. The Coast Guard Authorization Act of 2018 ( P.L. 115-282 , §812) requests a study by the National Academy of Sciences as to how drones could be used to enhance the Coast Guard's maritime domain awareness. The act also allows the Coast Guard to lease but not design its own large UASs if funding is provided for design and construction of Offshore Patrol Cutters (§304).

The nation's air, land, and marine transportation systems are designed for accessibility and efficiency, two characteristics that make them vulnerable to terrorist attack. While hardening the transportation sector is difficult, measures can be taken to deter terrorists. The enduring challenge facing Congress is how best to implement and finance a system of deterrence, protection, and response that effectively reduces the possibility and consequences of terrorist attacks without unduly interfering with travel, commerce, and civil liberties. Transportation security has been a major policy focus since the terrorist attacks of September 11, 2001. In the aftermath of those attacks, the 107th Congress moved quickly to pass the Aviation and Transportation Security Act (ATSA; P.L. 107-71), creating the Transportation Security Administration (TSA) and mandating that security screeners employed by the federal government inspect airline passengers, their baggage, and air cargo. Despite the extensive focus on aviation and transportation security over the past decade, a number of challenges remain, including developing and deploying effective biometric capabilities to verify the identities of transportation workers and travelers; developing effective risk-based approaches to vetting and screening transportation workers accessing secured areas of airports and other sensitive areas of transportation networks; developing cost-effective solutions to screen air cargo and freight without impeding the flow of commerce; and coordination among state, local, and federal homeland security and law enforcement personnel to effectively deter and respond to criminal and terrorist acts targeting public areas of transportation facilities. The FAA Extension, Safety, and Security Act of 2016 (P.L. 114-190) and the TSA Modernization Act (P.L. 115-254, Division K) included provisions intended to improve screening technologies, streamline the passenger screening process, mandate more rigorous background checks of airport workers, strengthen airport access controls, increase passenger checkpoint efficiency and operational performance, and enhance security in public areas of airports and at foreign airports where flights depart for the United States. Oversight of TSA actions to implement these mandates may be an area of particular interest in the 116th Congress. Particular topics may include the evolution of screening technologies and assessments of emerging screening technology solutions; the expansion of canine teams for transportation security; the expansion of the PreCheck program to expedite screening of known travelers; the use of biometrics and associated data security and privacy concerns; implementing effective approaches, regulations, and international agreements to conduct risk-based screening of air cargo shipments worldwide; protecting public areas of airports; and developing effective countermeasures to protect critical infrastructure, including airports and aircraft, from attacks using drones. Bombings of passenger trains in Europe and Asia in the past few years illustrate the vulnerability of passenger rail systems to terrorist attacks. Passenger rail systems—primarily subway systems—in the United States carry about five times as many passengers each day as do airlines, over many thousands of miles of track, serving stations that are designed primarily for easy access. Transit security issues of recent interest to Congress include the quality of TSA's surface transportation inspector program. The bulk of U.S. overseas trade is carried by ships, and thus the economic consequences of a maritime terrorist attack could be significant. Customs and Border Protection (CBP) and the Coast Guard have implemented security screening procedures that effectively "push the borders out"—that is, they begin screening vessels and cargo before they reach a U.S. port. Two aspects of maritime security that have drawn attention recently are cybersecurity and the use of drones for coastal surveillance.

GAO_GAO-18-262

Background and individuals made by an employee who believes he or she has witnessed certain wrongdoing, such as gross mismanagement Reprisal Complaint: Following a disclosure, a complaint that an employee has experienced reprisal as a result of the disclosure, such as demotion or discharge. For contractor and grantee employees at NASA, whistleblower protections have changed over time. For example, by statute, in 2007, NASA contractor employees were protected against reprisal if they disclosed information relating to a substantial violation of law related to a contract. However, in 2008, amendments to the whistleblower statute provided protections only to those contractor employees at NASA who reported “a substantial and specific danger to public health or safety.” In 2013, the statute was amended again to include disclosures of gross mismanagement of a NASA contract or grant, a gross waste of Administration funds, and abuse of authority relating to a NASA contract or grant, or a violation of law, rule, or regulation related to a NASA contract or grant. In 2014, the statute was further amended with the only significant change to protect grantee and subgrantee employees. See table 1 for detailed description of the 2008, 2013, and 2014 amendments of the statute. Requirements under the Current Statute Under the current statute, the NASA Office of Inspector General and Administrator have different responsibilities. Since the 2014 amendments, contractor, subcontractor, grantee, and subgrantee employees are protected from reprisal if they disclose to certain persons or bodies information they reasonably believe is evidence of gross mismanagement of a federal contract or grant, a gross waste of federal funds, an abuse of authority relating to a federal contract or grant, a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a federal contract or grant. Additionally, contractor employees may make whistleblower disclosures to several entities, including a management official at the contractor. Figure 1 depicts the disclosure process and the complaint process. NASA OIG Role: Upon receiving a reprisal complaint, the OIG must evaluate whether a reprisal complaint is covered under the statute. In addition to the steps described in figure 1 for investigating complaints, there are instances when the OIG does not investigate. The OIG might not investigate for a variety of reasons, such as in cases where the complaint is already under investigation by another authority such as another OIG, or otherwise does not allege a violation of the law, such as if whistleblower disclosure does not constitute gross fraud, waste, abuse or mismanagement. If the OIG determines the case is not covered under the statute, it may then notify the complainant that no further action will be taken on the reprisal complaint. Administrator Role: Upon receipt of the NASA OIG investigation report, the NASA Administrator (the head of agency) has 30 days to determine whether the contractor made a prohibited reprisal and issue an order denying or granting relief. According to NASA officials, during the 30-day period after the agency head receives the OIG report, the agency practice has been to ask the OIG for any additional investigative work and also afford the complainant and the contractor an opportunity to submit a written response to the OIG report. Any person adversely affected or aggrieved by the administrator’s order may, within 60 days of issuance, obtain a limited review by the U.S. circuit court of appeals. Agency Procurement Official Role: Under the NFS regulations, NASA contracting officers are also responsible for inserting an NFS whistleblower clause into applicable contracts that requires contractors communicate to their employees their rights under the statute. The NFS whistleblower clause lays out the responsibility of contractors to communicate to their employees their rights under the statute, in writing and in their predominant native language. All contracts over the simplified acquisition threshold awarded on or after July 29, 2014, require a whistleblower clause. The statute also requires NASA to make best efforts to include a clause providing for the applicability of the 2013 amendments in contracts awarded before July 1, 2013—the effective date of the 2013 amendments—that have undergone major contract modifications. The terms “best efforts” and “major modifications” are not defined in the statute. Unlike provisions affecting contractors, the statute does not require NASA to ensure that grantees or subgrantees notify employees in writing of their rights under the statute. NASA OIG Investigated Reprisal Complaints within Required Time Frames and Recently Updated Incomplete Guidance From 2008 to June 2017, NASA OIG addressed whistleblower reprisal complaints within required time frames, according to OIG officials. At the time we initiated this review, the OIG’s guidance for handling reprisal complaints had been updated to reflect most statutory changes; however, it did not include guidance regarding subgrantees. During the course of our review, the OIG updated the investigation guidance in October 2017 to include subgrantee employees. NASA OIG Handled Reprisal Complaint Investigations within Required Time Frames NASA OIG completed 6 reprisal investigations within required time frames. The OIG received 277 whistleblower disclosures leading to 48 reprisal complaints from 2008 through June 2017, and handled those complaints within required time frames, according OIG officials. For the 6 of those reprisal complaints that were investigated, the OIG used extensions. OIG officials said that extensions may be necessary for a number of reasons, including that the complaint may be highly technical in nature, requiring the OIG to find subject matter expertise to better understand the nature of the whistleblower complaint and whether it constitutes gross fraud, waste, abuse, or mismanagement. When the OIG receives a reprisal complaint, complainants are asked to fill out a whistleblower complaint form and an investigation is initiated. See figure 2 below for the process by which the OIG conducts its investigations. In addition, there were 5 complaints currently under investigation and 37 complaints during this time frame that the NASA OIG did not investigate because the OIG deemed them to be frivolous, determined they were not covered under the statute, or the complaint was handled in another forum, such as the court system or by another OIG. Complaints were deemed frivolous for several reasons, including if the complainant did not want to disclose his or her identity and proceed with the claim, or the whistleblower disclosure happened after the reprisal. OIG officials told us that when cases are disposed of without an investigation, the OIG notifies the complainant of the decision in writing. Figure 3 shows the disposition of the 48 reprisal complaints received from 2008 through June 2017. The OIG Updated Investigation Guidance The OIG has developed guidance for conducting investigations, which includes a chapter on contractor and grantee whistleblower reprisal complaints. Although most changes to the statute (such as to whom reprisal may be reported) had been incorporated into the investigation guidance, the initial guidance provided to us by the OIG did not include a 2014 statutory requirement to extend protections to subgrantees. During the course of our review, in October 2017, the OIG updated its guidance for investigating reprisal complaints to include subgrantee employees. Because subgrantees are now protected by statute, including them in the investigation policy will help ensure they are consistently extended protections through OIG investigations. In addition to its guidance, OIG officials said they have developed training specific to whistleblower investigations for new investigators, conducted internal training for investigators, and external training for contractor employees. Additionally, the OIG Investigators’ Central Field Office conducts periodic training for investigators that includes any updates to whistleblower protections. With regard to external training, the OIG officials said that investigators at some of the NASA centers—with the largest contract activity—have conducted on-site training for some contractors. This training is conducted as part of general fraud awareness training. NASA Administrator Did Not Meet the Required Time Frames for Reprisal Complaint Review The Administrator failed to meet the required review time frame and issue an order of final determination of reprisal for 5 completed investigations received from the OIG from 2008 through June 2017. In all 5 cases, the Administrator took longer than the 30 days to issue an order. In one of those 5 complaints, an official from the Office of General Counsel was unable to provide us with the issued order and said he did not believe one was completed, and could not provide an explanation as to why an order was not completed. For the 5 reprisal complaints, figure 4 shows the number of days from when the Administrator received an OIG report of findings to the time when an order of final determination was documented. In addition to the 5 complaints mentioned above, there was another OIG investigation of a reprisal complaint that did not require response from the administrator within 30 days, but was finalized within our review time frame, for a total of 6 completed OIG investigations of reprisal complaints. For 3 of the 6 complaints, the OIG found that reprisal had occurred and reported those findings to the administrator for final determination of reprisal. The Administrator determined that none of these 3 complaints qualified for protection under the law. For 2 of these complaints, the Administrator found that they did not qualify for protections because they fell under the 2008 version of the statute and failed to allege a violation specific to public health and safety. In 2017, a court affirmed the Administrator’s position. For the third complaint, the Administrator determined reprisal could not be substantiated due to the complainant not meeting the standards of evidence under the statute. Further, we found that NASA does not have a standard process in place for the Administrator to review cases that qualify for protections under the statute and issue an order of final determination. According to an official from the Office of General Counsel, the agency has no standard process to ensure the contractors are afforded due process, among other things. The official from Office of General Counsel said the Administrator may need to conduct an additional investigation in some cases. He said that each case is different and would have to be handled on a case by case basis. In addition, the official said the Administrator may need to conduct hearings, independent of the OIG. Moreover, the official from Office of General Counsel highlighted concern that the Administrator’s office does not have the resources to conduct additional investigative work, which he said is a key contributor for the office’s inability to meet the 30-day timeline to issue an order of final determination. Despite acknowledging these challenges, the Administrator does not have a formal process or criteria to monitor and evaluate the way the office handles issuing an order of final determination of reprisal to ensure that it meets the statutory time requirements. Because the Administrator took longer than 30 days to respond to all reprisal complaints, including one where the Office of General Counsel failed to provide evidence that the Administrator responded at all, there may be the unintended consequence of disincentivizing future whistleblowers from making disclosures who fear their complaint will not be handled timely. Internal controls require that management should establish and operate monitoring activities to monitor the internal control system, evaluate the results, and take appropriate action to address issues on a timely basis. Without monitoring, evaluating, and taking appropriate corrective action based on the way the Administrator or his or her designee makes a final determination of reprisal, there is no assurance that whistleblower reprisal complaints will be handled within required time frames in the future. NASA Almost Always Communicates Whistleblower Protections to Contractors, but Internal Guidance Is Unclear In almost all of the contracts we reviewed, NASA had met its obligation to ensure its contractors are communicating whistleblower protections to their employees through a whistleblower contract clause. We also found that NASA has put in place guidance to its contracting workforce on the protections, and guidance on when to include the whistleblower clause in contracts. However, we found that some NASA officials have interpreted this guidance differently. Further, NASA’s guidance does not reflect an agency-wide policy on when to include the whistleblower clause when modifying a contract. Whistleblower Clause Included in Almost All Contracts, but a Few Were Missing the Required Clause In most cases, NASA included a clause regarding whistleblower reprisal protections in applicable contracts to ensure contractors communicate rights to its employees. But we found that the clause was not included in all relevant contracts in our review. Based on our review of a generalizable sample of contracts, we estimate that 98 percent of contracts would be expected to include a whistleblower clause at the time new contracts were awarded in applicable contracts in 2016, and 2 percent would not. Within our sample, 4 contracts did not have a whistleblower reprisal clause. After we shared our contract file review findings with NASA officials, they modified 3 of the 4 contracts to include the missing required whistleblower clause. For the remaining contract, the contractor performance was complete, the contract had been closed, and no further action will be taken. According to NASA procurement officials, human error, combined with its former contract writing system, could explain why the contracts in our sample did not have the required clause. They explained that the former contracting writing system relied on templates and did not automatically include the NFS clause into all contracts. Under this system, contracting officers used templates that included a list of all potential or applicable NFS and FAR clauses, which are incorporated through a manual process. Officials said that if a clause were included in the templates, it is unlikely that it would be removed because doing so would require supervisory approval. NASA procurement officials told us that the agency launched a new contract writing system in June 2017. They said that under the new contract writing system, contracting officers use a logic system that prepopulates each contract with required clauses. They said that the new automated system will likely lead to fewer human errors because inserting the clause will not be a manual process. Because the new system is still being implemented, we were unable to evaluate whether the risk of human error has been reduced or eliminated to ensure applicable contract awards have the clause. Under the previous and current systems, NASA contracts are to undergo various levels of review prior to award—including attorney review—at the centers or headquarters based on risk level and dollar thresholds. For example, contracts awarded by JSC valued at over $50 million are to be reviewed by headquarters. NASA procurement officials stated that they conduct procurement management reviews, and centers conduct annual self-assessments; however, at one center, officials pointed out that these reviews have not previously included whether a whistleblower clause is included in new contracts or major modifications. They said this is because reviews typically focus on known issues or program risk, and inclusion of the whistleblower clause has not been previously identified as an issue or risk. Contractors we spoke with were generally aware of their responsibilities to communicate reprisal protections to their employees because their contracts with NASA included the required NFS whistleblower clause. In response to our review, NASA procurement officials said they plan to include a review of the inclusion of NFS whistleblower clause in future compliance reviews as an area of emphasis and will instruct centers to include whether the clause is included in applicable contracts as part of the centers’ self-assessment process. NASA’s Guidance Contributes to Different Understanding of Reprisal Protections Three elements of NASA’s whistleblower reprisal protection guidance—its procurement notice, NFS clause, and definition of major modification— contribute to potential confusion or inconsistent application of whistleblower reprisal protections. First, in July 2014, NASA notified its contracting officials of the changes to the NFS required by the 2013 amendments to section 2409 Title 10 of the U.S. code through a procurement notice 04-80, but this notice has been interpreted differently by officials in NASA Headquarters, a NASA center, and the OIG. Procurement notices are drafted by NASA Headquarters, reviewed and approved by NASA general counsel and NASA’s Office of Procurement. The NASA centers, acting through their procurement offices and, as needed their legal counsel, review and implement the notices. After the procurement notice was issued, some NASA officials interpreted it differently. For example, in one instance, a NASA center Chief Counsel’s office attorney advised a center procurement official that reprisal protections found in the 2013 amendments extend to contractors’ employees working on contracts awarded before the effective date of the amendments. This is true, he said, regardless of whether the contract contains any clause explicitly making the 2013 amendments applicable. However, both the OIG and the Administrator’s counsel have expressed a different understanding of the statute conveyed in the notice, stating that a clause making the 2013 amendments applicable must be in a contract in order for the complainant to be protected under the statute. Later, the attorney from the center Chief Counsel’s office revised his understanding of the statute and concluded the procurement notice was not accurate as written. Second, NASA personnel have different understandings about whether the NFS clause is sufficient for contractor employees to be covered by the statute. The NFS clause instructs contractors to inform their employees in writing of contractor whistleblower employee rights; but, unlike the FAR clause that is used to implement similar legislation for other agencies, the NFS clause does not state that employees working on the contract are subject to the whistleblower rights and remedies. The attorney from a NASA center said that the NFS clause is enough to ensure contractor employees are given rights under the statute. However, OIG officials have said that without including that element of the clause, employees working under NASA contracts awarded prior to the effective date of the 2013 amendments may not be covered by those amendments. See table 2 for description of the clauses and their differences. Third, the lack of agency-wide guidance for when to include the clause in major modifications leads to different implementation of the requirement. The 2013 amendments require that NASA makes best efforts to include a whistleblower clause in contracts undergoing a major modification. NASA’s July 2014 procurement notice also encourages contracting officers to include the NFS whistleblower clause when issuing major modifications to contracts awarded before July 29, 2014. However, it does not specify what a major modification is under this statute, and the statute itself does not define “major.” According to NASA procurement officials at headquarters and at two NASA centers, it is at the discretion of the NASA Centers’ offices of procurement and contracting officers to decide if a clause is inserted into modifications, and whether they are considered major. Procurement officials and the contracting officers we spoke with told us that there is no definition of major modifications in the law, regulation, or NASA Headquarters or Center policies or guidance. NASA procurement officials said this is because it could be different for each contract and the contracting officer makes the determination based upon the facts related to the situation. Nevertheless, without communicating the factors to consider when determining whether a modification is major and whether that contract should or should not include the clause, NASA and the Centers’ procurement officials are at risk of potential inconsistent incorporation of the clause among applicable contracts. One attorney in NASA’s General Counsel’s Office said there may be costs associated with asking a contractor to insert new clauses—such as the whistleblower clause—into an existing contract during a major modification because it would require a bilateral negotiation between the contractor and the agency. However, one contractor we spoke with said that there would be no cost to adding the clause and that doing so would not be an issue because the whistleblower clause is consistent with the internal whistleblower policies and practices of the institution. Further, he said that the institution he represents would be hesitant to argue against inclusion of the NFS clause in its contracts with NASA. Internal control standards require that an entity should internally communicate necessary quality information in order to meet requirements of the mission. These 3 areas of potential confusion related to NASA’s current guidance could result in different application of the law, unless they are clarified. NASA Has Not Established a Mechanism to Communicate Whistleblower Protections to Grantees Although whistleblower protections are now extended to grantee employees by statute, NASA does not have a mechanism in place to communicate the protections to grantees or subgrantee employees. Unlike the requirement for NASA to ensure contractors communicate whistleblower reprisal rights to their employees in writing and in the employees’ predominant language, the statute does not prescribe a similar requirement for NASA to ensure that grantees communicate whistleblower reprisal rights to their employees. During the grant application process, NASA requires grantees to attest that they will not require grantee employees to sign confidentiality agreements that would prohibit them from reporting fraud, waste, and abuse. NASA officials said that grant awards do not include a mechanism, such as a term or condition, to encourage NASA grantees to notify their employees of their whistleblower reprisal protections. In the 10 NASA grants from fiscal year 2016 that we reviewed, there was no requirement included for grantees to communicate these protections to employees. However, we found that all 10 grants included a statement that each award was subject to all applicable laws and regulations of the United States in effect on the date of award, including the Uniform Guidance. For federal grants in general, the Uniform Guidance provides a government- wide framework for grants management. Within this guidance, there is a reference to the whistleblower protections in the statute; however, it does not explicitly describe the statute’s requirements. The grant advocacy group and representatives of three NASA grantees we spoke with were aware that some protections exist and noted that many grantees have their own whistleblower policies, but were not aware of the specific protections provided by the statute, which indicates that opportunities exist for improving communications between NASA and its grantees about these protections. Further, representatives of the grant advocacy group noted that the whistleblower protections for grantee employees were not specifically mentioned at recent annual meetings where grantees and federal officials discuss issues that affect grantees. Internal controls require that management externally communicate the necessary quality information to achieve the entity’s objectives. Without additional communication about the protections provided by the statute, grantees may not fully understand or appreciate the significance of the rights afforded to their employees, and grantee employees may not be aware of their whistleblower reprisal protections, which could hinder their willingness to report instances of fraud, waste, and abuse. Conclusions Because contractor and grantee employee whistleblowers risk reprisal after disclosing potential fraud, waste, abuse and mismanagement, ensuring they are protected from retaliation or adverse consequences is critical. Without monitoring and evaluating the timeliness of reviewing and responding to reprisal complaints, the Administrator may not be prepared to determine reprisal on future cases within the statutorily required 30 days. Additionally, although NASA has developed guidance related to contractor protections, this guidance has led to inconsistent interpretation of the law and could potentially lead to inconsistent application of how contractor protections for employees are conveyed. More clear guidance would help contracting officers determine when to incorporate the NFS clause into major modifications to ensure consistency throughout the agency. Finally, because unlike contracts, there is no similar clause for grants, NASA is in the position to help ensure grantees know their employees’ rights against reprisal if they observe and disclose fraud, waste, abuse or mismanagement. However, NASA has not effectively communicated to grantees information about these provisions and as a result grantees and their employees may not be fully aware of these protections. Consequently, if they witness fraud, waste, abuse or mismanagement, they may not be willing to disclose those for fear of reprisal. Recommendations for Executive Action: We are making three recommendations to NASA: The Administrator should monitor, evaluate, and make appropriate corrective actions, such as a documented process, to ensure it reviews reprisal complaints in a timely manner. (Recommendation 1) The Administrator should review NASA’s guidance or develop other guidance, including defining major modification, to clarify when whistleblower protections are conveyed. (Recommendation 2) The Administrator should communicate whistleblower protections to grantees and subgrantees and their employees. (Recommendation 3) Agency Comments And Our Evaluation We provided a draft of this product to NASA for review and comment. NASA provided written comments on a draft of this report. In its written comments, reprinted in appendix II, NASA concurred with all three recommendations. In its response to our recommendations NASA agreed to develop and document a process to ensure it reviews reprisal complaints in a timely manner to ensure all parties’ due process rights are protected, review existing procurement policy and clarify guidance as appropriate, and update NASA grant guidance to communicate whistleblower protections to grantees, sub-grantees and their employees. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees and members. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology To assess the extent to which National Aeronautics and Space Administration’s (NASA) Office of Inspector General (OIG) has investigated contractor and grantee whistleblower reprisal complaints and developed guidance for the investigations, we reviewed data provided by the NASA OIG on the total number of whistleblower allegations of fraud, waste, abuse, misconduct, or mismanagement and reprisal claims. We also reviewed the number of contractor and grantee employee whistleblower allegations and reprisal complaints provided by the OIG and the outcomes or decisions reached by the OIG of a reprisal complaint from fiscal years 2008 through 2017. We assessed the reliability of these data by asking the NASA OIG to describe the source(s) of information used and steps taken to identify the numbers provided, and limitations and caveats that would affect GAO’s use of the data—such as the data being self-reported by the OIG and Office of General Counsel. Based on these steps, we determined the data to be sufficient for our purposes of determining how the complaints were addressed. Additionally, we reviewed relevant documentation to assess the extent to which the NASA OIG was conducting investigations and communicating findings to the NASA Administrator within required time frames. To determine the extent NASA OIG developed guidance, we interviewed or obtained written answers from OIG officials about their processes and practices for investigating whistleblower reprisal complaints. We reviewed the guidance and training and other materials that NASA OIG uses to implement whistleblower protection investigations. We also visited Johnson Space Center (JSC)—selected because it had the highest number of reprisal cases from 2008 through 2017—to discuss policies and procedures specific to that center with OIG investigators and the OIG program manager for whistleblower protections. Because they are also a part of the Investigators’ Central Field Office, we also spoke with investigators at Marshall Space Flight Center and Kennedy Space Center. To assess the extent to which NASA’s Administrator meets the statutory timeliness requirements to review reprisal complaints, we reviewed the timeliness of the Administrator’s final determination to ensure that NASA was meeting statutory requirements. Specifically, we reviewed relevant documentation to assess the extent to which the Administrator was making final determination of reprisal in 30 days—the required review period specified by statute. We reviewed the Administrator’s documentation on the final disposition of reprisal investigations and compared the date of the Administrator’s final decision to the date of receipt of the reprisal investigations from the NASA OIG. We also conducted interviews with the Office of General Counsel, who spoke on behalf of the Administrator. To assess the extent to which NASA communicated the applicable whistleblower reprisal protections externally with contractors, we reviewed a generalizable sample of NASA contracts to determine the extent a required whistleblower clause was included. We used the Federal Procurement Data System-Next Generation (FPDS-NG) to generate a sample of contract actions over $300,000 that were awarded by NASA in fiscal year 2016. We selected contracts that were not only over the simplified acquisition threshold (generally $150,000), but were over $300,000 to account for possible exceptions and to ensure that we were sampling contracts that would be required to include a whistleblower reprisal clause. From the 270 contracts identified, for purposes of examining the inclusion of NASA Federal Acquisition Regulation Supplement (NFS) clause 1852.203-71 (or other potentially applicable clauses) in NASA contracts, a legal requirement, we selected a generalizable random sample of 100 contracts. The sample is projectable to NASA fiscal year 2016 contracts; however, we did not make a case by case legal determination for contracts not in our sample. We randomly selected 10 contracts from each center that awarded new contracts in 2016, and for those centers that did not have 10 contracts, we selected all contracts. The remaining contracts were then pulled from the NASA Shared Services Center (NSSC) because that center does a majority of NASA’s contracting. We asked for contracts awarded in fiscal year 2016 to ensure we were sampling contracts that are required to have the clause and would be reasonably accessible by NASA. We excluded interagency contracts and task or delivery orders awarded using blanket purchase agreements to ensure we sampled base contracts awarded by NASA, not other agencies. We estimated the percentage of NASA contracts expected to include whistleblower clause(s) as the weighted average of results from the 10 contracting centers. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that could have been drawn. Because each sample could have provided different estimates, we express the uncertainty associated with any particular estimate as a 95 percent confidence interval. This is the interval that, with repeated sampling, would be expected to contain the actual population value for 95 percent of the samples we could have drawn. As a result, we are 95 percent confident that this confidence interval contains the true percentage of contracts expected to include whistleblower clause(s); however, to assess legal compliance we would have to make a case by case determination, which we did not do. We conducted data reliability checks on the FPDS-NG dataset by comparing it to contract documentation obtained from contract files and determined it was sufficiently reliable for our purposes. Additionally, we conducted interviews with NASA procurement officials and contracting officers at multiple locations including NASA Headquarters, NSSC and JSC to discuss any additional measures NASA takes to communicate whistleblower protections to its contractors and their contractor employees. To further assess internal communication, we reviewed relevant documentation, including guidance, and conducted interviews with procurement officials, NASA’s Office of General Counsel, and Chief Counsels at JSC, NSSC, and Marshall Space Flight Center. To assess the extent to which NASA communicated the applicable whistleblower reprisal protections with grantees, we reviewed a non- generalizable sample of grants awarded by NASA in fiscal year 2016 to determine whether NASA grants included a mechanism notifying grantees of their employees’ whistleblower rights and reprisal protections. We used FPDS-NG to identify a non-generalizable random sample of 10 grants awarded by NASA in fiscal year 2016 for review to determine whether any of the selected grants included a mechanism to communicate whistleblower reprisal protections to grantee employees. We conducted data reliability checks on the FPDS-NG data by comparing it to grant documentation obtained from grant awards and determined it was sufficiently reliable for our purposes. Additionally, we conducted interviews with NASA grant making officials to discuss any additional measures NASA takes to communicate whistleblower reprisal protections to its grantees and their grantee employees. Finally, in order to learn about contractor and grantee experiences during NASA’s implementation of enhanced whistleblower protections, we conducted interviews with or received written answers to questions from a selected group of NASA contractors and grantees. Using FPDS-NG data, we selected institutions with the highest and lowest contracts (including small business contracts) and grants by obligations in 2016. Using these selection criteria, we selected three contractors and three grantees to meet with based on the amount of funds obligated in 2016. We ultimately interviewed or obtained written answers from all selected contractors and grantees. Additionally, we spoke with two advocacy groups, one about grants and one about contracts. We conducted this performance audit from March 2017 to March 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the National Aeronautics and Space Administration Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Penny Berrier (Assistant Director), Mary Diop, Lorraine Ettaro, Alexandra Gebhard, Kurt Gurka, Stephanie Gustafson, Julia Kennon, Jordan Kudrna, Kate Lenane, Roxanna Sun, and Khristi Wilkins made key contributions to this report.

NASA obligated over $18 billion in contracts and more than $1 billion in grants in fiscal year 2016, and it relies on a significant number of contractor and grantee employees to accomplish its work. These employees are legally protected from reprisal—such as demotion or firing—for whistleblowing. GAO was asked to review NASA's whistleblower reprisal protections for contractor and grantee employees. This report addresses, among other things, the extent to which (1) NASA's Inspector General investigated contractor and grantee whistleblower reprisal complaints; (2) NASA's Administrator reviewed reprisal complaints in a timely manner; and (3) NASA communicated the applicable whistleblower reprisal protections to contractors. GAO reviewed NASA and its Inspector General's policies and guidance; reviewed a generalizable sample of 100 contracts from all NASA centers with contracts in fiscal year 2016; and interviewed relevant officials and contractors, grantees, and advocacy groups. From 2008 through June 2017, National Aeronautics and Space Administration (NASA) contractor and grantee employees submitted 48 reprisal complaints such as alleged firing or demotion for reporting fraud, waste, or abuse within the government. NASA's Inspector General addressed all 48 complaints, completed investigations for 6 of those complaints, and forwarded investigation reports to the NASA Administrator, who is responsible for making a final determination of whether reprisal occurred. The Administrator determined that none of the complaints qualified for protection under the law. Further, in 5 of the 6 cases forwarded by the OIG, the Administrator was required by statute to make a final determination of reprisal within 30 days. GAO found that the Administrator did not meet this required time frame for all 5 cases and had no documented response for one of them (see figure for all 5 cases). According to officials from NASA's Office of General Counsel, each case must be handled on a case by case basis to ensure due process and 30 days is insufficient time to issue an order of final determination of reprisal. However, in order to ensure that whistleblower reprisal complaints are handled within required timeframes, NASA would have to monitor and evaluate its processes for making final determinations of reprisal, but it has not yet taken this step. Consequently, NASA does not know what changes may be needed to ensure that it is meeting the statutory 30-day requirement. NASA communicates whistleblower protections to contractors through inclusion of a required contract clause. For example, GAO found that almost all—98 percent—of contracts would be expected to include a whistleblower clause as required by statute. However, certain elements of NASA whistleblower protection guidance have contributed to a different understanding of reprisal protections among officials at headquarters, a NASA center, and the Inspector General. For example, a July 2014 procurement notice and contract clause language resulted in different interpretations about when the protections apply. Federal internal control standards require that an entity should communicate necessary quality information internally to meet the objectives of its mission. Without additional clarity in its guidance on when the protections apply, NASA centers and procurement officials will be at risk of inconsistent implementation of the law.

GAO_GAO-18-115

Background Stakeholders Involved in the Federal Restitution Process Victims of federal crimes may be compensated for their losses through criminal proceedings when a federal court orders restitution pursuant to statute. Restitution is part of the sentencing process for federal offenders and there are four key groups of stakeholders involved: Judges and court officials. The federal judiciary consists of a system of courts that has the critical responsibility of ensuring the fair and swift administration of justice in the United States and handles all federal civil, criminal, and bankruptcy cases and reviews of federal administrative agency cases throughout the country. The federal courts have various responsibilities in the restitution process. Federal judges are responsible for ordering the proper amount and type of restitution, including payment schedules and modifications. Federal probation officers are responsible for the presentence report, which must include information for the court to use in fashioning a restitution order, including, among other things, a complete accounting of the losses to each victim and information about the economic circumstances of each defendant. Following a defendant’s sentencing and the imposition of restitution, probation officers supervise offenders to ensure compliance with orders for restitution, including conducting ongoing financial investigations, supporting U.S. Attorneys’ Offices in the collection and enforcement of restitution orders, notifying the federal court of an offender’s failure to pay outstanding restitution, and making recommendations to amend orders based on changes in an offender’s ability to pay. Clerks of federal courts are responsible for receipting and disbursing restitution payments and notifying DOJ of such. In addition, the Director of the Administrative Office of the U.S. Courts has statutory responsibilities related to the restitution process, including establishing procedures and mechanisms within the judicial branch for processing fines, restitution, forfeitures of bail bonds or collateral, and assessments. The Judicial Conference of the United States, a body of 27 judges over which the Chief Justice of the United States presides, is the judiciary’s principal policymaking body and operates through a network of committees created to address and advise on a wide variety of subjects such as budget, criminal law, and court administration. Given the role of the judiciary in the restitution process, the Judicial Conference has taken policy positions on various restitution-related issues and has supported various legislative proposals to improve the process. Prosecutors and DOJ officials. DOJ officials are responsible for prosecuting federal offenses, identifying victims of crime and informing them of restitution to which they may be entitled, identifying victim losses and harms that are subject to restitution after consulting with victims and providing that information to probation officers, demonstrating the amount of loss sustained by the victim, enforcing orders of restitution, and collecting criminal debt, including unpaid restitution. Various entities and officials within DOJ are responsible for these activities, including federal prosecutors in the Criminal Division and the U.S. Attorneys’ Offices, and their respective Financial Litigation Units. Victims. A federal crime victim is a person directly and proximately harmed as the result of a federal offense. Federal crime victims are entitled to full and timely restitution as provided in law. Victims may provide information to prosecutors, probation officers, and to the court about their losses and have a right to be heard at sentencing, but are not required to participate in any phase of the restitution proceedings. Defendants and their counsel. Defendants who commit federal crimes where an identifiable victim suffered a physical injury or monetary loss are generally required to pay restitution. Defendants are required to submit information about their financial resources and the financial needs and earning ability of their dependents to the court and have the burden of demonstrating these resources and needs in any restitution proceedings. Defendants are generally represented by counsel in criminal proceedings and according to the judiciary approximately 90 percent qualify for court-appointed counsel under the Criminal Justice Act because they are financially unable to retain counsel in federal criminal proceedings. Court-appointed counsel is provided by Federal Defender Organizations and panel attorneys. A defendant may be convicted pursuant to plea agreement with the government or after a trial; more than 90 percent of defendants plead guilty rather than go to trial. A defendant is referred to as an offender following conviction of an offense. Compensation in the Restitution Process Restitution is only available to victims and for harms as statutorily authorized. Congress passed the MVRA in 1996, which substantially revised the restitution process. The legislative history reflects the balancing of competing interests—including ensuring that the loss to crime victims is recognized, that they receive the restitution that they are due, and also that the offender realizes the damages caused by the offense and pays the debt owed to the victim as well to society. As provided in the legislative history, one of the ways that the law sought to balance the application of mandatory restitution was by limiting it to the instances where a named identifiable victim suffered a physical injury or monetary loss as a direct and proximate result of the defendant’s offense of conviction. This means that the victim would not have been harmed “but for” the conduct underlying the offense of conviction and also that the harm was proximately caused by the conduct. Proximately caused means that the causal nexus between the conduct and the loss is not too attenuated either factually or temporally. As such, a defendant is not held liable for downstream effects of an act where there were additional, intervening causes not sufficiently related to the offense. For example, a rapist would not be held responsible for the death of a hospitalized rape victim who died in a hospital fire. In addition, the loss caused by the defendant’s conduct underlying the offense of conviction establishes the outer limits of the restitution order. This means that harms caused by the defendant’s conduct that were related to, but outside the scope of, the crime of conviction cannot be compensated through restitution. For example, a defendant who was convicted of illegally possessing a firearm but acquitted of using the firearm to shoot someone would not be liable for restitution for medical costs for the shooting victim. The restitution statutes specify the types of harm that may be compensated, and federal case law interpreting these statutes provides guidance to courts when ordering restitution. For example, when a crime results in bodily injury to a victim, compensable expenses include the costs of medical and other services related to physical, psychiatric, and psychological care; costs for necessary physical and occupational therapy and rehabilitation; and reimbursement for lost income as a result of the offense, among other enumerated losses. Courts have also ordered restitution for a victim’s actual losses that were proximately caused by the defendant’s conduct even when not explicitly listed in statute. When restitution is ordered by the court, it is to be in the full amount of each victim’s losses without consideration of the economic circumstances of the defendant. During a defendant’s sentencing, additional hearings may be held to examine losses to victims for restitution and prosecutors are responsible for proving and litigating issues related to victims’ losses. Restitution may be imposed by the federal courts up to 90 days after sentencing if additional time is needed by the court to locate victims and calculate losses. In some cases, courts can decline to order restitution, such as when the court determines that fashioning an order of restitution would complicate or prolong the sentencing process so much that the need to provide restitution is outweighed by the burden on the sentencing process. Separate from criminal restitution, victims may seek compensation from the offender by pursuing litigation at their own expense through a civil proceeding in a federal, state, or local court. In the United States, criminal and civil proceedings are separate legal systems subject to different laws, standards, and rules of procedure. The types of harms for which a victim may receive compensation differ in a civil proceeding. For example, federal criminal courts may order restitution to reimburse a victim for medical expenses, but cannot order compensation for pain and suffering caused by a crime. However, a victim may seek compensation for pain and suffering by filing a civil action against the defendant, as well as for other types of damages that are not available through restitution. Other types of civil remedies not compensable as criminal restitution include intended harm, punitive damages, breach of contract, and disgorgement of ill-gotten gains, among others. Figure 1 below outlines the steps taken for compensation of victims of federal crimes through federal criminal restitution and civil proceedings. Total Restitution Ordered Since 1996 According to USSC data for fiscal years 1996 through 2016, the percentage of offenders ordered to pay restitution by federal courts has remained fairly steady. From fiscal years 1996 through 2016, an average of 15 percent of individual offenders and 32 percent of organizational offenders annually were ordered to pay restitution by the federal courts (see fig. 2). For more information on the restitution imposed by the federal courts from fiscal years 1996 through 2016, see appendix II. Collection of Restitution We have previously reported on issues related to the collection of federal restitution and currently have ongoing work on DOJ’s collection of restitution pursuant to the Justice for All Reauthorization Act of 2016. According to data DOJ provided to us, the total outstanding restitution debt owed in federal cases as of the end of fiscal year 2016 was $110.2 billion. DOJ, through its U.S. Attorneys’ Offices’ Financial Litigation Units, is responsible for collecting restitution debt from offenders. This collection typically begins after offenders are sentenced and ordered to pay restitution and includes enforcement actions such as filing garnishments and liens. We noted in our 2001 and 2004 reports that collection of outstanding restitution debt is inherently difficult due to a number of factors, such as offenders who may be incarcerated or have minimal earning capacity and the MVRA requirement that the assessment of restitution be based on actual loss and not on an offender’s ability to pay. In 2005, we reported that court-ordered restitution amounts far exceed likely collections for crime victims in selected financial fraud cases. Specifically, we found that these offenders, who had either been high-ranking officials of companies or operated their own businesses, pleaded guilty to crimes for which the courts ordered restitution totaling about $568 million to victims. As of the completion of our fieldwork, which was up to 8 years after the offenders’ sentencing, court records showed that amounts collected for the victims in these cases totaled only about $40 million, or about 7 percent of the ordered restitution. Stakeholders Identified Various Factors Related to the Potential Expansion of Federal Courts’ Authority to Order Restitution Stakeholders we interviewed identified various factors related to the potential expansion of federal courts’ authority to order restitution in the four areas listed in the Justice for All Reauthorization Act of 2016: (1) to apply to victims who have suffered harm, injury, or loss that would not have occurred but for the defendant’s related conduct; (2) in the case of an offense resulting in the victim’s death, to allow the court to use its discretion to award the income lost by the victim’s surviving family members or estate as a result of the victim’s death; (3) to require that the defendant pay to the victim an amount determined by the court to restore the victim to the position he or she would have been in had the defendant not committed the offense; and (4) to require the defendant compensate the victim for any injury, harm, or loss, including emotional distress, that occurred as a result of the offense. Stakeholders also identified additional factors to consider, beyond the ones identified for the four provisions above, for potential broadening of courts’ authority to order restitution generally. For a summary of the provisions and factors cited by stakeholders, see appendix I. Factors to Consider in a Potential Expansion of Restitution Authority if it were to Include a Defendant’s Related Conduct and Eliminate the Proximate Cause Requirement Related Conduct Federal courts have the authority to order defendants to pay restitution for a victim’s losses that resulted from the defendant’s conduct underlying the offense of conviction. However, at times, a defendant’s related conduct can be broader than the offense of conviction and can include criminal conduct for which the defendant’s guilt was not established either by trial or plea agreement with the government. For example, in a case before the Fourth Circuit where restitution was not allowed for conduct that was broader than the offense of conviction, the government asserted that the defendant was the ringleader of a nationwide pickpocketing ring and submitted a list of victims for restitution that included five financial institutions and four individuals who had suffered losses. However, because the defendant had pleaded guilty to, and was convicted for, fraudulent use of a credit card related to one individual on one date—and the defendant’s offense did not involve as an element a scheme, conspiracy, or pattern—the court determined that restitution was not proper for the additional victims because they were not harmed by the conduct underlying the offense of conviction. On the other hand, when a defendant has been convicted of an offense that involves as an element a scheme, conspiracy, or pattern, the court may order restitution for direct harm caused by that scheme, conspiracy, or pattern. For example, in another case involving credit card fraud, because the defendant pleaded guilty to and was convicted of conspiracy to traffic in counterfeit credit cards—in contrast to the previous case where the defendant was convicted of only one fraudulent use—the Eleventh Circuit held that the sentencing court could order a defendant to pay restitution for losses from additional credit card fraud that were to advance the conspiracy. Stakeholders we interviewed identified the following factors to consider if federal courts’ authority were to be broadened to allow a defendant’s related conduct to be included in an order for restitution: Constitutional issues. Eight of 10 stakeholders we spoke with identified potential constitutional issues if the federal courts could order restitution for a defendant’s related conduct. For example, two stakeholders representing defendants and an association representing federal prosecutors told us that including a defendant’s related conduct in orders for restitution could result in potential violations of a defendant’s rights under the Fifth Amendment’s Due Process Clause, which provides that no person shall be deprived of life, liberty, or property without due process of law. This was also a concern noted in the legislative history of the MVRA, and an individual knowledgeable about restitution we interviewed noted that the Supreme Court has also suggested that due process could be a concern if the court were to order federal criminal restitution beyond the conduct underlying the conviction. Increased complexity to determine losses. Four of 10 stakeholders we spoke with stated that if the authority of federal courts to order restitution were broadened to allow inclusion of harms for a defendant’s related conduct, there would be increased complexity to determine losses for restitution. For example, DOJ officials told us that inclusion of a defendant’s related conduct would allow restitution to be open to a larger pool of potential victims, and identifying and calculating losses for all victims with a nexus to the offense of conviction could become an impossible task. An association representing federal prosecutors stated that this increased complexity could have the effect of federal courts ordering less restitution through the exception for complex cases, which would negatively impact victims. DOJ’s practices for plea bargaining. In contrast, two individuals we spoke with who represent victims stated that prosecutors could more consistently follow DOJ’s guidelines to include a defendant’s related conduct in plea agreements without expanding federal courts’ authority to order restitution. DOJ guidelines, which are based on statutory direction, provide that prosecutors must consider requesting full restitution to all victims for all charges contained in the indictment, without regard to the counts to which the defendant actually pleaded guilty. In other words, when DOJ and the defendant agree to certain terms as part of a plea agreement in which the defendant pleads guilty to one or more charged offenses, or lesser or related offenses, prosecutors must consider requesting the defendant pay restitution for all of the charges, not just the ones to which the defendant is pleading guilty. As a result, federal courts may order restitution pursuant to the plea agreement for losses sustained by crime victims for related conduct or criminal conduct that is not part of the offense of conviction. Proximate Cause Federal courts currently have the authority to order an offender to pay restitution to victims who have suffered harms as a direct and proximate consequence of the crime of conviction. This means that the harm must have been not only caused by the offense, as a matter of fact, but also that it was reasonably foreseeable as a result of the offense. For example, courts have allowed damage caused by the escape from a robbery—such as damage to police cars hit during a car chase—to be compensable as restitution because the flight was casually related to the bank robbery. Although 5 of 10 stakeholders stated that the proximate harm requirement does not generally present challenges related to federal courts’ authority to order restitution, stakeholders identified additional factors to consider if the federal courts’ authority were to be expanded to eliminate the proximate cause requirement: Additional sentencing-related hearings and litigation. Three of 10 stakeholders we interviewed stated that eliminating the proximate harm requirement could result in prolonged sentencing for defendants due to additional sentencing-related hearings and litigation. For example, judiciary officials and an association representing federal prosecutors stated that if federal courts’ authority to order restitution were expanded to eliminate the proximate harm requirement, more litigation would be required during sentencing to examine harms to victims and to determine how losses related to the offense of conviction. Plea bargaining could be affected. Two of 10 stakeholders we interviewed stated that eliminating the proximate harm requirement would impact plea bargaining between defendants and DOJ. For example, an individual knowledgeable about federal restitution stated that eliminating proximate harm would hinder plea bargaining as during plea agreement negotiations a defendant would no longer have a sense of how much federal criminal restitution could be ordered. At the time the MVRA was passed, Congress also recognized the central role of plea bargaining in the federal criminal justice system with the legislative history of the MVRA noting the intent that the legislation not impair the role of plea bargaining. Factors to Consider in the Potential Expansion of Restitution to Include Income Lost by Deceased Victims and Their Family Members In cases involving the death of a crime victim, federal courts may order restitution for losses to be paid to a deceased crime victim’s surviving family members or estate, including for funeral expenses, as applicable. Further, according to 6 of 10 stakeholders we interviewed, federal courts currently have the authority to order compensation for future lost income of a deceased crime victim’s family member or estate due to precedent established in case law. For example, the Tenth Circuit held that restitution for the future lost income of a three-month-old victim of voluntary manslaughter was not precluded by the MVRA; thus a court may exercise its discretion in declining to grant an award, or, as it did in this case, undertake such proceedings. In a Ninth Circuit case, the court held that “restitution for future lost income may be ordered under the MVRA so long as it is not based upon speculation, but is reasonably calculable,” and returned the case to the district court to redetermine the amount of restitution to be awarded. Stakeholders we interviewed also identified the following factors to consider if federal courts’ authority were to be expanded to include compensation for the future lost income of a deceased crime victim and to compensate the deceased victim’s surviving family members for their lost income as a result of the victim’s death: Increased victim compensation awards. Four of 10 stakeholders we interviewed stated that expanding federal courts’ authority to include compensation for future lost income of a deceased crime victim could result in more compensation awarded through restitution. For example, three stakeholders representing victims stated if this provision were specified or made explicit in statute, it would be more likely that federal courts would order compensation for the future lost income of a deceased crime victim. One of the stakeholders added that having such loss specified and enumerated in restitution statutes would ensure it is considered during the restitution process and is less likely to be challenged during appeal. Further, another stakeholder representing victims stated that including the surviving family members’ lost income in a restitution order could allow for compensation of those family members who lost income prior to a victim’s death, such as in cases where those family members provided care to a victim prior to the victim’s death. Complexity of calculation and need for experts. Three of 10 stakeholders we interviewed stated that determining a deceased crime victim’s future and family members’ lost income would add complexity to the restitution process. For example, an association representing federal prosecutors stated that it would be difficult for federal probation officers and prosecutors to determine the amount of future lost income for deceased victims as that area of specialization is currently in civil law. In addition, DOJ officials stated that the complexity and need for experts to make these specialized calculations could increase the cost of prosecution given the government’s burden to prove victim losses. Suitability of criminal versus civil proceedings. Three of 10 stakeholders we interviewed stated that compensation for a deceased crime victim’s future and family members’ lost income is more appropriate for litigation through civil proceedings rather than combining or merging such litigation in a federal criminal proceeding. For example, an association representing defendants stated that federal criminal proceedings are not suitable venues to fairly vet and litigate this type of victim issue. This stakeholder further stated that issues of this type are routinely litigated vigorously in civil proceedings and involve extensive discovery practices, such as taking of depositions, exchanges of documents, and assessments by competing experts. An association representing federal prosecutors additionally noted that federal prosecutors are not well positioned to handle typical civil losses in criminal trials. Sentencing of defendants could be prolonged. Two of 10 stakeholders we interviewed stated that including a deceased crime victim’s future and family members’ lost income in an order for restitution could result in a defendant’s sentencing being prolonged. For example, judiciary officials stated that the sentencing of defendants could take more time due to the need for multiple hearings to examine losses and calculate a deceased crime victim’s future lost income. Collectability of debt due to these offenders’ ability to pay. Two of 10 stakeholders stated that the potential collectability of restitution from offenders for a deceased crime victim’s future and family members’ lost income should be considered. For example, an association representing federal prosecutors stated that these offenders are most likely to be incarcerated with the least ability to pay. As a result, the amount of resources needed to order restitution compared to collectability of the debt for a deceased crime victim’s future lost income should be considered. Further, according to that stakeholder, resources—such as prosecutorial expertise, money to hire experts, judicial resources like probation officers—need to be weighed against the collectability of the debt. This issue was also described in the legislative history of the MVRA: significant number of defendants required to pay restitution…will be indigent … many…may also be sentenced to prison terms as well, making it unlikely that they will be able to make significant payments… At the same time, these factors do not obviate the victim’s right to restitution or the need that defendants be ordered to pay restitution. Factors to Consider in the Potential Expansion of Restitution to Restore the Victim to His or Her Position Had the Offense Not Been Committed According to 6 of 10 stakeholders we interviewed, the provision “to require that the defendant pay to the victim an amount determined by the court to restore the victim to the position he or she would have been in had the defendant not committed the offense” is already the goal of federal restitution. These stakeholders stated that this is established in case law and is not an expansion of federal courts’ current authority. Other stakeholders we interviewed identified the following factor to consider if federal courts’ authority were to be expanded to include the provision “to require that the defendant pay to the victim an amount determined by the court to restore the victim to the position he or she would have been in had the defendant not committed the offense”: Expansion of authority to include general restitution. Three of 10 stakeholders we interviewed stated that the provision would expand federal courts’ authority to order restitution by allowing general restitution, meaning courts would have more discretion to determine awards for all harms that victims suffered in order to restore the victim to his or her pre-offense condition. Further, an association representing victims stated that federal courts’ authority to order restitution is listed as elements or categories of losses. For example, losses such as the cost of necessary physical and occupational therapy and rehabilitation, and necessary funeral and related services, among others. This association explained that by including a provision for general restitution, the courts would be able to order restitution to victims for any losses outside of those categories, which would function as a catchall for all victim harm. Factors to Consider in the Potential Expansion of Restitution to Include Any Injury, Harm, or Loss, Including Emotional Distress That Occurred as a Result of an Offense Federal courts may order restitution for actual losses—in other words, these must be tangible or “out-of-pocket” losses, and they must be supported by the record. This includes, for example, reimbursement of medical expenses for bodily injuries resulting from the victimizing offense. However, federal courts are not authorized to order restitution for losses such as pain and suffering and emotional distress to crime victims. For example, in a case where the defendant was convicted of committing a brutal hate crime against the victim, leaving him with severe physical injuries and depression, among other harms, the sentencing court acknowledged that it did not have authority to award restitution for pain and suffering and noted that the victim would be allowed to pursue civil remedies. Stakeholders we interviewed identified the following factors to consider if federal courts’ authority were expanded to allow any injury, harm, or loss, including emotional distress, to be included in an order for restitution: Suitability of criminal versus civil proceedings. Five of 10 stakeholders we interviewed stated that including compensation to victims for any injury, harm, or loss, including emotional distress, in restitution orders raises issues related to the types of harms that should be compensated in civil versus criminal proceedings. For example, a stakeholder representing defendants stated that federal criminal law is not suited to determine injuries such as emotional distress and pain and suffering, whereas the civil system is set up to handle these kinds of issues and losses. Further, an association representing federal prosecutors stated that federal prosecutors and federal probation officers in criminal cases lack the specialized skills to determine losses for cases involving compensation for pain, suffering, and emotional distress. This was an issue that was considered during passage of the MVRA as well, as the report accompanying the MVRA provides, “It is the committee’s intent that courts order full restitution to all identifiable victims of covered offenses, while guaranteeing that the sentencing phase of criminal trials do not become fora for the determination of facts and issues better suited to civil proceedings.” Increased complexity to determine losses. Four of 10 stakeholders we interviewed stated that determining losses such as emotional distress and pain and suffering would add complexity to the restitution process. For example, DOJ officials stated that pain and suffering and emotional distress are not easily quantified and restitution hearings to examine such losses would involve experts trying to prove these kinds of losses. Stakeholders Identified Additional Factors to Consider Related to the Potential Expansion of Courts’ Authority to Award Restitution Stakeholders we interviewed identified the following factors to consider related to the potential broadening of courts’ authority to order restitution generally, in addition to the factors discussed above associated with particular expansions of federal courts’ authority to order restitution: Increased restitution debt and collection challenges. Seven of 10 stakeholders we interviewed told us that increased restitution debt and collectability challenges should be considered in the potential broadening of federal courts’ authority to order restitution. For example, two stakeholders representing defendants stated that offenders often lack the financial resources to pay restitution. Under the MVRA, federal courts must order mandatory restitution without consideration of a defendant’s financial resources which has resulted in large amounts of uncollected federal restitution debt. These two stakeholders stated that by broadening federal courts’ authority to order restitution, the amount of uncollected restitution debt owed to victims would continue to increase. One of these stakeholders further suggested that the addition of secondary restitution (i.e., additional victims entitled to compensation) could have the effect of reducing the amount paid to the primary victims because all classes of victims will be forced to compete for payment on restitution awards that will often far exceed an offender’s ability to pay. According to judiciary officials, adding to the uncollected restitution debt would lead to further collection challenges, including the additional DOJ efforts needed to collect more restitution debt and additional supervision of offender restitution payments by probation officers. These issues were also observed during the passage of the MVRA. The report accompanying the law states that the Chair of the Criminal Law Committee of the Judicial Conference of the United States had testified before the Senate Judiciary Committee that 85 percent of all federal defendants are indigent at the time of sentencing and mandatory restitution would not lead to an appreciable increase in victim compensation; however, the report noted the Committee’s view of the benefits of even nominal payments to victims as well as the potential penalogical benefits of requiring the offender to be accountable for the harm caused to the victim. Suitability of criminal versus civil proceedings. Seven of 10 stakeholders we interviewed told us that the suitability of criminal versus civil proceedings should be considered in the potential broadening of federal courts’ authority to order restitution. According to judiciary officials, a system has been developed with rules to litigate damages in civil proceedings which are not included within criminal trials. Further, an association representing defendants told us that attorneys who directly represent alleged victims in civil proceedings are more appropriate parties to pursue this type of litigation. The association said this is because the prosecutor represents the public at large instead of an individual client, whereas a private attorney has an obligation to obtain a maximum recovery for the client. Comparing the process for the compensation of victims through restitution and civil proceedings, a stakeholder knowledgeable about federal restitution told us that the restitution process to compensate victims is more efficient for victims compared to civil proceedings which can last longer and result in victims incurring costs for ligation. Further, this individual stated that through the federal criminal restitution process in contrast to civil proceedings, victims receive help collecting funds through the federal courts, prisons, and probation officers during offender supervision. Other stakeholders did not consider the civil forum to be a suitable alternative for victims. One stakeholder representing victims stated that civil proceedings are inadequate for compensating victims and should not be considered. Additionally, another stakeholder representing victims also stated that victims may lack access to evidence to pursue civil litigation against an offender in cases where the conduct was not part of an offense of conviction or listed in a plea agreement. The legislative history of the MVRA also acknowledged the need for a balance, providing, as noted above, the intent that courts order full restitution but also that sentencing not become a forum for issues better suited to civil proceedings; to that end, the MVRA restricted mandatory restitution requirements to the specified set of crimes. Impacts to federal resources. Five of 10 stakeholders we interviewed told us that impacts to judiciary and DOJ resources— including increased workloads, additional legal services, and the need for more experts—should be considered in the potential broadening of federal courts’ authority to order restitution. According to judiciary officials, broadening federal courts’ authority to order restitution could result in increased workloads by probation officers who could have to conduct more investigations to support additional restitution orders. As discussed above, federal probation officers could also be required to track and supervise more restitution payments. Officials from Federal and Community Defenders told us that if federal courts’ authority to order restitution were broadened, additional legal services would need to be provided to offenders. For example, these officials stated that larger restitution orders could require increased workloads for federal defenders to work on behalf of offenders to modify payment schedules and their level of supervision by probation officers. Likewise, an association representing defendants stated that increased collection efforts could be required by U.S. Attorneys’ Offices’ Financial Litigation Units if the number of victims eligible for restitution increased. According to DOJ officials, prosecutors could experience increased workloads as they would be identifying more victims, thereby having to spend more time investigating and determining losses. Moreover, an association representing defendants told us that additional federal experts could be needed as sentencing courts and probation officers lack the resources and expertise to examine the harms that would result from broadening restitution authority. Attention to the costs to the justice system for mandatory restitution was considered in 1995, with the legislative history of the MVRA noting the attempt to reduce costs by limiting mandatory restitution to offenses in which an identifiable victim suffered a physical injury or monetary loss. Concerns about offenders’ reentry into society. Two of 10 stakeholders we interviewed told us that offenders’ reentry into society should be considered in the potential broadening of federal courts’ authority to order restitution. These two stakeholders, an association that represents defendants and officials from Federal and Community Defenders, told us that if the authority of the federal courts to order restitution were broadened to include non-monetary harms, offenders would be further burdened in their ability to reenter society due to excessive monetary sanctions from restitution orders. Further, these two stakeholders stated that offenders with large restitution orders face challenges obtaining employment, securing housing, and satisfying other financial obligations, which could increase their risk for recidivism and reduce their ability to pay any restitution. Agency Comments We provided a draft of this report for review and comment to DOJ, USSC, the Administrative Office of the U.S. Courts, and the Federal Judicial Center. The Administrative Office of the U.S. Courts provided technical comments that we incorporated as appropriate. We are sending copies of this report to the Attorney General, the Judicial Conference of the United States, the Directors of the Administrative Office of the U.S. Courts and the Federal Judicial Center, the Staff Director of USSC, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you and your staff have any questions about this report, please contact me at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions are listed in appendix III. Appendix I: Overview of Restitution Provisions for Potential Expansion in the Justice for All Reauthorization Act of 2016 Table 2 summarizes and describes the provisions included in the Justice for All Reauthorization Act of 2016 for potential expansion of federal courts’ authority to order restitution and the factors cited by stakeholders that Congress should consider in broadening existing restitution statutes. . Appendix II: Restitution Imposed by the Federal Courts from Fiscal Years 1996 through 2016 Table 3 and 4 summarize restitution imposed by the federal courts from fiscal years 1996 through 2016 for individual and organizational offenders. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the contact named above, Dawn Locke (Assistant Director); Carl Potenzieri; Janet Temko-Blinder; David Alexander; Sasan J. “Jon” Najmi; Amber Edwards; Kathleen Donovan; and Emily Hutz, made key contributions to this report.

Victims of federal crimes may be compensated for their losses through criminal proceedings when federal courts order restitution during a defendant's sentencing. Federal law dictates the crimes for which restitution is mandatory versus discretionary and what types of losses may be compensated. Federal prosecutors and Department of Justice officials are responsible for proving and litigating issues related to victims' losses for restitution orders, enforcing orders of restitution, and collecting criminal debt, including unpaid restitution. The Justice for All Reauthorization Act of 2016, Pub. L. No. 114-324, contains a provision for GAO to conduct a review on the factors that should be considered when broadening restitution provisions. This report describes factors stakeholders believe should be considered for a potential expansion of federal courts' authority to award restitution. To gather information on factors, GAO interviewed a non-generalizable group of stakeholders knowledgeable about the restitution process, including individuals and entities representing federal judges and court officials, federal prosecutors and Department of Justice officials, victims, and defendants and their counsel. GAO also reviewed relevant federal laws, legal cases, agency documentation, summary data on orders for restitution from fiscal years 1996 through 2016, and the amount of outstanding restitution debt owed in federal cases as of the end of fiscal year 2016. Federal courts have authority to award restitution for authorized losses to eligible victims. Generally, victims are those directly and proximately harmed as a result of a defendant's offense of conviction and they may be awarded compensation for their actual or “out-of-pocket” losses. Provisions for the potential expansion of restitution contained in the Justice for All Reauthorization Act of 2016 that GAO reviewed could allow for courts to award restitution to additional victims and for a greater scope of losses. Stakeholders GAO interviewed identified various factors to consider related to these potential expansion provisions, for example: Restitution for related conduct and no proximate cause requirement . A factor stakeholders stated should be considered in potentially allowing restitution for conduct that is broader than the offense of conviction was that it could be a violation of a defendant's constitutional right to due process because restitution could be awarded for conduct for which the defendant's guilt was not established. In addition, they said it could lead to increased complexity to determine victim losses, which could create challenges for federal prosecutors and could result in less restitution being awarded. For a potential expansion of restitution to compensate harm that was not proximately caused by the defendant (i.e., harm that was not reasonably foreseeable as a result of the offense) stakeholders said factors that should be considered include that the current proximate harm requirement does not present challenges and that such an expansion could lead to additional sentencing-related hearings and litigation. Restitution to restore victims to their position had the offense not been committed . Stakeholders said this provision is already a goal of federal restitution, but that a potential expansion could allow judges more discretion to order restitution for victim losses not specified by statute, which could help restore the victim to his or her pre-offense condition. Restitution for any injury, harm, or loss, including emotional distress . A factor stakeholders identified in potentially expanding restitution to cover intangible losses, including emotional distress, included that it could increase the complexity of the restitution process because these are not easily quantified losses. Relatedly, stakeholders said that the suitability of criminal versus civil proceedings should be considered because the civil system, through which crime victims may seek compensation at their own expense, is set up to handle these issues and losses, whereas officials involved in criminal cases lack the specialized skills to determine these kinds of losses. Stakeholders GAO interviewed identified additional factors related to the potential broadening of courts' authority to order restitution generally; for example, they told GAO that increased restitution debt and collectability challenges should be considered. According to the Department of Justice, the amount of outstanding restitution debt owed in federal cases as of the end of fiscal year 2016 was $110.2 billion. Stakeholders stated that defendants often lack the financial resources to pay restitution and adding to the uncollected restitution debt through a potential expansion of authority could lead to further collection challenges.

GAO_GAO-18-615

Background U.S. Law Requires State to Convene an ARB after Certain Types of Incidents Federal law generally requires the Secretary of State to convene an ARB not later than 60 days after the occurrence of an incident that resulted in serious injury, loss of life, or significant destruction of property at, or related to, a U.S. mission abroad unless the Secretary determines the incident clearly involves only causes unrelated to security. This time period can be extended for an additional 60-day period if the Secretary determines that the additional period is necessary for the convening of the board. Whenever the Secretary convenes an ARB, the Secretary shall promptly inform the Chairman of the Committee on Foreign Relations in the Senate and the Speaker of the House of Representatives. Federal law specifies that an ARB will consist of five members appointed by the Secretary of State and one appointed by the Director of National Intelligence. It also states that the ARB shall submit its findings to the Secretary of State. According to State’s FAM, the ARB is a mechanism to foster more effective security of U.S. missions and personnel abroad by ensuring a thorough and independent review of security-related incidents. Through its investigations and recommendations, the ARB seeks to determine accountability and promote and encourage improved security programs and practices. M/PRI Is Responsible for Conducting the ARB Incident Vetting Process M/PRI—the central management analysis organization of State’s Under Secretary of State for Management—is responsible for initiating and shepherding the incident vetting process to identify incidents that may warrant an ARB, according to the FAM. The FAM states that M/PRI will begin the ARB incident vetting process once M/PRI becomes aware of an incident abroad that could involve loss of life, injury, or destruction of property. This process includes consultation with the Office of the Legal Adviser (Legal), DS, and other offices as appropriate to evaluate whether the ARB statute criteria apply. If the ARB statute criteria are deemed applicable or if the applicability is questionable, M/PRI is responsible for calling a meeting of State’s ARB Permanent Coordinating Committee. See figure 1 for members of the Permanent Coordinating Committee and other State offices and bureaus involved in responding to the incidents in Cuba. If M/PRI decides the ARB statute criteria are not applicable, M/PRI will notify committee members in writing, providing a summary of the incident and an explanation as to why the criteria do not apply. If any member disagrees, M/PRI will call a Permanent Coordinating Committee meeting. According to the FAM, the committee will review the available facts and recommend to the Secretary of State whether or not to convene an ARB as quickly as possible after an incident occurs. The Secretary of State makes the final decision on whether to convene an ARB. The U.S. Embassy in Havana Is Supported by Several State Entities WHA, DS, and MED, among other State entities, support the U.S. Embassy in Havana by providing advice and guidance on policy, security, and other issues. WHA. Reporting to the Under Secretary of State for Political Affairs, WHA oversees the U.S. Embassy in Havana and is responsible for managing and promoting U.S. interests in the region. Embassy officials, including senior leadership, report to WHA and its Office of the Coordinator for Cuban Affairs through diplomatic cables, email, and phone calls. DS. Reporting to the Under Secretary of State for Management, DS oversees security at diplomatic posts and is responsible for providing a safe and secure environment for the conduct of U.S. foreign policy. Embassy Regional Security Officers are required to report security incidents through different systems, including diplomatic cables, SPOT Reports, or the Security Incident Management Analysis System, depending on the type of incident. Regional Security Officers are also in regular contact with DS via phone and email, according to State officials. MED. Reporting to the Under Secretary of State for Management, MED ensures that U.S. government employees and their families who are assigned to diplomatic posts have access to healthcare and advises State management about health issues around the world. The U.S. Embassy in Havana has a medical unit, including U.S. direct-hire and locally hired staff. MED approves requests to medically evacuate U.S. personnel and family members from diplomatic posts. Other State entities. Other State entities provide support to the U.S. embassy in Havana on specific issues. For example, CMS, within State’s Executive Secretariat, gathers, assesses, and disseminates information to State senior management about events that threaten the security of U.S. missions and their personnel. The Office of Foreign Missions, which reports to the Under Secretary of State for Management, seeks fair treatment for U.S. personnel abroad while ensuring that foreign diplomats based in the United States receive the same treatment that their respective governments provide to U.S. personnel abroad in return. State’s ARB Policy Does Not Ensure that the Office Responsible Is Made Aware of Incidents That May Meet ARB Criteria, Such as Those That Occurred in Cuba Although M/PRI is responsible for initiating and leading State’s ARB incident vetting process, State’s ARB policy does not define how M/PRI should become aware of incidents that may involve injury, loss of life, or destruction of property. Regarding Cuba, the U.S. embassy and several State entities responded to incidents that were later associated with various injuries in early 2017. As of June 2018, State officials remained uncertain of the cause or perpetrator of the incidents and injuries. M/PRI officials said they did not know about the incidents in Cuba until August 2017, when the media began to report on the incidents. State’s ARB Policy Does Not Define How M/PRI Should Become Aware of Incidents That May Involve Injury Although M/PRI is responsible for initiating and leading the ARB incident vetting process, State’s polices do not define responsibilities for internal communication to M/PRI of incidents that may involve injury, loss of life, or destruction of property. According to the FAM, M/PRI and the Permanent Coordinating Committee are responsible for evaluating whether incidents meet the ARB statute criteria. However, M/PRI can only initiate the process after it is made aware of potentially qualifying incidents, and the FAM does not outline how M/PRI should be notified of these types of incidents or which, if any, State entities are responsible for notifying M/PRI. In contrast, the FAM outlines other specific reporting responsibilities for Regional Security Officers. According to State officials and our analysis, State’s FAM and Foreign Affairs Handbooks do not establish a policy, procedure, or process for internal communication of such incidents to M/PRI. In 2006, the Under Secretary of State for Management issued a cable requiring U.S. diplomatic posts to report potential ARB incidents directly to M/PRI. However, the cable did not identify who at post was responsible for reporting, and instructed posts to report to an individual who is no longer in M/PRI. Moreover, State officials we met with were unaware of the cable. M/PRI officials said that information about potentially qualifying incidents is not directed to them through State’s established reporting mechanisms, such as diplomatic cables. State’s cable system does not have a caption, channel, or tag that would direct information to M/PRI about incidents that may involve injury, loss of life, or damage to property. State’s Office of the Inspector General previously found deficiencies in State’s internal communication of incidents that may meet ARB criteria. Despite the 2006 cable on potential ARB incident reporting, in 2013, State’s Inspector General found that State had no systematic process ensuring immediate notification of security-related incidents to M/PRI, and that DS did not routinely provide security reports to M/PRI. The Inspector General made an informal recommendation that DS should include M/PRI as an addressee on all security-related incident reports. In 2015, the Inspector General noted that DS, in response to the recommendation, said that such a blanket inclusion of M/PRI on all security-related incident reports would result in M/PRI being inundated with a large number of irrelevant reports. Because State has no policy that ensures M/PRI becomes aware of incidents that may involve injury, loss of life, or destruction of property, M/PRI officials said they typically become aware of potentially qualifying incidents—such as explosions at diplomatic facilities—when such incidents are discussed internally and widely publicized. M/PRI officials also told us they occasionally became aware of potentially qualifying incidents through informal communication, such as during senior staff meetings with the Under Secretary of State for Management. If M/PRI officials are not aware of incidents, they cannot initiate State’s ARB incident vetting process. This situation puts State at risk of not meeting statutory time frames for convening an ARB and could result in State being unable to improve security programs and practices at other U.S. diplomatic posts, which could affect the response to similar incidents elsewhere. Standards for Internal Control in the Federal Government call for internal communication to achieve the entity’s objectives and note that management should document responsibilities through policy. The FAM requires internal controls, which includes as an objective that programs are efficiently and effectively carried out in accordance with applicable law and management policy. The FAM also states that the Under Secretary of State for Management is responsible for, among other things, developing and executing management policies; the organization, operations, and assignment of functions within State; and directing and administering worldwide information resources. The U.S. Embassy in Havana and Several State Entities Responded to Unexplained Incidents in Cuba Associated with Serious Injury to U.S. Personnel In January 2017, U.S. embassy and State officials began responding to incidents in Cuba that were later associated with various injuries. In June 2018, the Secretary of State noted that the precise nature of the injuries and the cause had not yet been established. According to congressional testimony by State officials, in late 2016, U.S. personnel in Havana first reported incidents, typically involving sounds and resulting in various medical symptoms, to the embassy’s Regional Security Officer and Chief of Mission. Embassy officials reported the incidents to DS and the National Security Council as a new type of harassment in early January 2017, according to State documents. The embassy’s Medical Officer first evaluated a U.S. official related to the incidents on December 30, 2016, and others in January 2017. Starting in late March 2017, the embassy held several meetings with U.S. personnel to share the limited information it had about the incidents, according to State officials. In April 2017, the embassy held Emergency Action Committee meetings regarding the incidents. CMS communicated with State senior management about the incidents beginning in April 2017. To ensure that State senior management were aware of how the embassy was responding, CMS distributed among various State entities, including M/PRI, one of the embassy’s April 2017 diplomatic cables reporting on an Emergency Action Committee meeting. According to CMS officials, the cable that CMS distributed was unclear about what incidents had occurred and did not include detailed information about the incidents or associated injuries. According to M/PRI officials, M/PRI was on CMS’s distribution list because M/PRI was responsible for monitoring the implementation of a previous ARB recommendation that called for State to review embassy risk management decisions. According to a former M/PRI official, M/PRI did not review these CMS communications for other purposes, including to identify incidents that may meet ARB statute criteria. In addition, in April and May 2017, CMS included multiple cables on the situation in Cuba in its daily Safety Overseas Summary for State senior management. In response to the incidents, U.S. embassy and WHA officials met with Cuban officials to emphasize to the Cuban government its responsibilities to ensure the safety of foreign diplomats in Cuba, according to testimony by State officials. In mid-February 2017, U.S. officials met with Cuban officials in Havana and Washington, D.C., about the incidents, citing the Vienna Convention requirements to provide for the safety and security of diplomats, according to State officials. Following additional incidents reported in March and April 2017, U.S. officials met again with Cuban officials in Havana and Washington, D.C. In May 2017, State expelled two Cuban diplomats from the United States to underscore the Cuban government’s responsibility to protect U.S. personnel in Cuba, according to testimony by State officials. In September 2017, State ordered the departure from Cuba of non-emergency U.S. embassy personnel and, in October, expelled 15 Cuban diplomats from Washington, D.C. to underscore to Cuba its obligations to protect U.S. personnel, according to testimony by State officials. According to State officials, by May 2017, the embassy, WHA, DS, and MED were aware of 16 U.S. personnel and family members in Havana who had been injured, although unable to determine the cause. In January 2018, State’s Medical Director testified to Congress that by May 1, 2017, State had determined that several of those individuals had serious injuries. Between February and May 2017, a specialist at the University of Miami evaluated 80 members of the embassy community. MED arranged for the medical evacuations of about 40 U.S. personnel from Cuba to Miami, Florida, for evaluations with the specialist, and the specialist subsequently conducted additional evaluations at the embassy in Havana. According to State testimony to Congress, the specialist identified 16 individuals who had symptoms and medically verifiable clinical findings similar to mild traumatic brain injury. In June 2018, the Secretary of State noted that the precise nature of the injuries and the cause had not yet been established. M/PRI Became Aware of the Incidents in Cuba after Media Reports M/PRI officials said they became aware of the incidents in Cuba after media reports in August 2017. According to M/PRI officials, a State official—who previously worked in M/PRI—contacted M/PRI in early August after seeing media reports to inquire whether they were aware of the incidents in Cuba. Although several State entities were aware of the incidents, WHA, DS, and MED did not report the incidents to M/PRI and it was unclear whether the incidents met the criteria for convening an ARB, according to officials. However, our analysis shows that State’s policies do not instruct State entities to evaluate whether incidents meet the ARB criteria before reporting such incidents to M/PRI. Instead, State’s FAM requires M/PRI to lead the process for evaluating incidents that may involve injury, loss of life, or destruction of property. According to the FAM, M/PRI will call a Permanent Coordinating Committee meeting if the ARB statute criteria apply or if the applicability is questionable. The committee will, as quickly as possible after an incident occurs, review the available facts and recommend to the Secretary whether to convene an ARB. M/PRI initiated State’s incident vetting process in August 2017, as shown in figure 2 below. As a result of the incidents in Cuba, M/PRI officials told us they realized that they may not be aware of all incidents that may involve injury to U.S. diplomats. In an initial attempt to address this concern, M/PRI officials said they requested that CMS add M/PRI officials to the distribution list for the Safety Overseas Summary to try to increase M/PRI’s awareness of potential incidents. CMS told us that it added M/PRI officials to the distribution list in October 2017. According to M/PRI officials and a timeline provided by M/PRI, once these officials became aware of the incidents in August 2017, the office began the ARB incident vetting process, as described in the FAM. In August 2017, these officials initially consulted with DS and MED about the incidents. In further discussion with Legal, the officials determined that they did not have sufficient information to determine whether the incidents met the ARB statute criteria. Given the uncertainties surrounding the incidents, in mid-September 2017, they decided to call a meeting of the Permanent Coordinating Committee, which included representatives from M/PRI, WHA, DS, MED, Legal, the Bureau of Intelligence and Research, the Bureau of Counterterrorism, and the Intelligence Community. The committee initially met on September 28, 2017, to review the available facts against the ARB statute criteria, and concluded that it needed additional time to determine whether the ARB statute criteria had been met. On November 28, 2017, the committee met again and recommended to the Secretary of State that an ARB be convened. The Secretary of State concurred with the recommendation on December 11, 2017, and convened the ARB on January 12, 2018. The ARB officially began its work in early February 2018. Conclusions An ARB is intended to result in improved security programs and practices at U.S. missions abroad. While State has directed M/PRI to initiate the incident vetting process—including convening the Permanent Coordinating Committee to evaluate the facts—State’s policies do not define responsibilities for internal communication to M/PRI of incidents that may involve injury, loss of life, or destruction of property at U.S. missions abroad. Although M/PRI officials may receive information through informal channels, this approach does not ensure that M/PRI will be made aware of relevant incidents. With regard to the incidents in Cuba, M/PRI could not begin the incident vetting process for determining whether the ARB statute criteria had been met until it became aware of them in August 2017. When M/PRI is not aware of incidents that may meet the ARB statute criteria, it cannot initiate the incident vetting process for convening ARBs. Until State establishes policies that ensure the appropriate office is promptly aware of potentially relevant incidents—for example, policies that identify formal internal communication procedures and document responsibilities for such communication—State is at risk of failing to comply with the ARB statute. Improving its security programs at U.S. diplomatic posts is all the more imperative given recent reports of similar incidents, such as in Guangzhou, China. Recommendation for Executive Action To ensure that State’s process allows it to initiate its ARB incident vetting process in a timely manner, the Secretary of State should revise State’s policies to define responsibilities for internal communication to M/PRI of incidents that may involve injury, loss of life, or destruction of property at, or related to, U.S. missions abroad. (Recommendation 1) Agency Comments and Our Evaluation We provided a draft of this report to State. In its written comments, State concurred with our recommendation. State said it will improve its processes for ensuring effective internal communication. We have reprinted State’s comments in their entirety in appendix I. State also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of State. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you and your staff have any questions about this report, please contact me at (202) 512-5130 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. Appendix I: Comments from the Department of State Appendix II: GAO Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Judith McCloskey (Assistant Director), Ashley Alley, Debbie Chung, Thomas Costa, Marcia Crosse, Neil Doherty, Justin Fisher, Christopher Hayes, Brandon Hunt, Joseph Kirschbaum, and George Ogilvie made key contributions to this report.

U.S. diplomats and their families in Havana, Cuba, were affected by incidents that were associated with injuries, including hearing loss and brain damage. Over State has reported that over 20 U.S. diplomats and family members in Havana have suffered from medical conditions believed to be connected to the incidents, which began in late 2016 and have continued into 2017. By law, State is generally required to convene an ARB within 1260 days of incidents that result in serious injury at, or related to, a U.S. mission abroad, but the Secretary of State can determine that a 60 day extension is necessary. According to State's policy, M/PRI is responsible for initiating and leading State's ARB incident vetting process. This report is part of a broader request to review State's response to the incidents in Cuba. In this report, GAO examines the extent to which State's ARB policy ensures that M/PRI is made aware of incidents that may meet the ARB statute criteria. GAO analyzed relevant federal laws, State policies, and other State documents. GAO also interviewed cognizant State officials. The Department of State's (State) Accountability Review Board (ARB) policy does not ensure that the responsible office—State's Office of Management Policy, Rightsizing, and Innovation (M/PRI)—is made aware of incidents that may meet the ARB statute criteria, such as those that occurred in Cuba and were associated with injuries to U.S. personnel. According to State policy, as soon as M/PRI becomes aware of potentially qualifying incidents, M/PRI will start the process for considering whether the incident warrants an ARB. M/PRI relies on informal communication to identify potentially qualifying incidents to begin the vetting process because State does not have a policy, procedure, or process for internal communication of such incidents to M/PRI, according to State officials and GAO analysis. As illustrated in the figure below, other State entities began responding to the incidents in early 2017, but M/PRI was not made aware of the incidents until mid-August 2017, when a former M/PRI official contacted the office after seeing media reports. If M/PRI is not aware of incidents, it cannot initiate State's ARB incident vetting process. This situation puts State at risk of not meeting statutory time frames for convening an ARB and could result in State being less able to improve security programs and practices at other U.S. diplomatic posts. Standards for Internal Control in the Federal Government call for internal communication to achieve the entity's objectives and note that management should document responsibilities through policy.

GAO_GAO-18-431T

Executive Branch Agencies Have Made Progress Reforming the Security Clearance Process, but Long-Standing Key Initiatives Remain Incomplete The PAC Has Made Progress Reforming the Personnel Security Clearance Process The PAC has made progress in reforming the personnel security clearance process and implementing various security clearance reform initiatives. For example, the PAC has taken action on 73 percent of the recommendations of a February 2014 review conducted in the wake of the Washington Navy Yard shooting. Actions in response to these recommendations included ODNI and OPM jointly issuing Quality Assessment Standards in January 2015, which establish federal guidelines for assessing the quality of investigations. Additionally, ODNI developed the Quality Assessment Reporting Tool, through which agencies will report on the completeness of investigations. Similarly, the PAC reported quarterly on the status and progress of key initiatives, as part of the Insider Threat and Security Clearance Reform cross-agency priority goal. This reporting included the milestone due date and status for each initiative. According to PAC Program Management Office officials, although the data are no longer publicly reported, they have continued to track the status of these milestones internally, and identified almost half of the initiatives—16 of 33—as complete as of the third quarter of fiscal year 2017. Additionally, the PAC has issued three documents that serve as its updated strategic framework for the next 5 years. In July 2016, it issued its Strategic Intent for Fiscal Years 2017 through 2021, which identifies the overall vision, goals, and 5-year business direction to achieve an entrusted workforce. In October 2016, it issued an updated PAC Enterprise IT Strategy, which provides the technical direction to provide mission-capable and secure security, suitability, and credentialing IT systems. According to PAC program management officials, the third document—PAC Strategic Intent and Enterprise IT Strategy Implementation Plan—was distributed to executive branch agencies in February 2017. Further, we reported in December 2017 that PAC members noted additional progress in reforming the personnel security clearance process, such as the development of Security Executive Agent Directives, the identification of executive branch—wide IT shared service capabilities, and the standardization of adjudicative criteria. Long-Standing Key Reform Initiatives Remain Incomplete Although the PAC has reformed many parts of the personnel security clearance process, the implementation of certain key initiatives, including the full implementation of the 2012 Federal Investigative Standards and the development of government-wide performance measures for the quality of investigations, remain incomplete. The Federal Investigative Standards outline criteria for conducting background investigations to determine eligibility for a security clearance, and are intended to ensure cost-effective, timely, and efficient protection of national interests and to facilitate reciprocal recognition of the resulting investigations. However, the standards also changed the frequency of periodic reinvestigations for certain clearance holders and include continuous evaluation as a new requirement for certain clearance holders. Continuous evaluation is a key executive branch initiative to more frequently identify and assess security-relevant information, such as criminal activity, between periodic reinvestigations. Continuous evaluation is a process to review the background of an individual who has been determined to be eligible for access to classified information or to hold a sensitive position at any time during the period of eligibility. Continuous evaluation involves automated record checks conducted on a more frequent basis, whereas periodic reinvestigations are conducted less frequently and may include, among other things, subject and reference interviews. The types of records checked as part of continuous evaluation are the same as those checked for other personnel security purposes. Security-relevant information discovered in the course of continuous evaluation is to be investigated and adjudicated under the existing standards. Efforts to implement an executive branch continuous evaluation program go back to at least 2008, with a milestone for full implementation by the fourth quarter of fiscal year 2010. In November 2017, we reported that while ODNI has taken an initial step to implement continuous evaluation in a phased approach across the executive branch, it had not determined when the future phases of implementation will occur. We recommended, among other things, that the Director of National Intelligence develop an implementation plan. ODNI generally concurred with that recommendation. Regarding government-wide measures for the quality of background investigations, as noted earlier, ODNI and OPM issued the Quality Assessment Standards and ODNI issued the Quality Assessment Reporting Tool. The Quality Assessment Standards established federal guidelines for assessing the quality of investigations. The Quality Assessment Reporting Tool is a tool through which agencies will report on the completeness of investigations. However, measures for quality have not been developed, and it is unclear when this key effort will be completed. The original milestone for completing government-wide measures was fiscal year 2010, and no new milestone has been established. In our December 2017 report, we recommended that the Director of National Intelligence, in his capacity as the Security Executive Agent, and in coordination with the other PAC Principals, establish a milestone for the completion of government-wide performance measures for the quality of investigations. ODNI disagreed with the recommendation, stating that it is premature to establish such a milestone and that it will do so once the Quality Assessment Reporting Tool metrics have been fully analyzed. We continue to believe that setting a milestone, which takes into consideration the amount of time needed to analyze Quality Assessment Reporting Tool data, will help to ensure that the analysis of the data is completed, initial performance measures are developed, and agencies have a greater understanding of what they are being measured against. Agencies Meeting Timeliness Objectives for Clearances Decreased, and a Government-Wide Approach Has Not Been Developed to Improve Timeliness or Address the Backlog Our analysis of government-wide and agency-specific data shows a decline in the number of executive branch agencies meeting the timeliness objectives for processing clearances. While ODNI has taken steps to address timeliness challenges, it has not developed a government-wide approach to help agencies improve the timeliness of initial personnel security clearances. Additionally, the backlog of background investigations conducted by NBIB—the primary entity responsible for conducting background investigations—has steadily increased since 2014 and as of February 2018 exceeds 710,000 cases. NBIB personnel are attempting to decrease the backlog by making the background investigation process more effective and efficient and increasing investigator capacity. However, NBIB faces challenges in developing a plan to reduce the size of the investigation backlog to a manageable level. Agencies Meeting Timeliness Objectives Decreased Our analysis showed that the percentage of executive branch agencies meeting timeliness objectives for investigations and adjudications decreased from fiscal years 2012 through 2016. The Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) established an objective for each authorized adjudicative agency to make a determination on at least 90 percent of all applications for a personnel security clearance within an average of 60 days after the date of receipt of the completed application by an authorized investigative agency. The objective includes no longer than 40 days to complete the investigative phase and 20 days to complete the adjudicative phase. In assessing timeliness under these objectives, executive branch agencies exclude the slowest 10 percent and report on the average of the remaining 90 percent (referred to as the fastest 90 percent). As part of the Insider Threat and Security Clearance Reform cross- agency priority goal, the PAC reported quarterly on the average number of days to initiate, investigate, adjudicate, and complete the end-to-end process for initial secret and initial top secret cases and periodic reinvestigations for the executive branch as a whole from fiscal year 2014 through 2016. For fiscal year 2016, the PAC reported that the government-wide average for executive branch agencies did not meet the 40-day investigation objective for the fastest 90 percent of initial secret clearances for any quarter; the averages ranged from 92 days to 135 days; did not meet ODNI’s revised investigation objective for the fastest 90 percent of initial top secret clearances for any quarter; the averages ranged from 168 days to 208 days; did not meet the goal of conducting the investigative portion of periodic reinvestigations within 150 days for the fastest 90 percent of cases for any quarter; the averages ranged from 175 days to 192 days; and did not meet the goal of completing periodic reinvestigations—the end-to-end goal—within 195 days for any quarter of fiscal year 2016; the averages ranged from 209 days to 227 days. Our analysis of timeliness data for specific executive branch agencies showed that the percentage of agencies meeting established investigation and adjudication timeliness objectives for initial secret and top secret personnel security clearances and periodic reinvestigations decreased from fiscal year 2012 through 2016. We found that agencies with delegated authority to conduct their own investigations and those that use NBIB as their investigative provider experienced challenges in meeting established investigative timeliness objectives. Specifically, in fiscal year 2012, we found that 73 percent of the agencies, for which we obtained data, did not meet investigation and adjudication objectives for at least three of four quarters for initial secret clearances, 41 percent did not meet those objectives for initial top secret 16 percent did not meet the investigative goal for at least three of four quarters for the fastest 90 percent of periodic reinvestigations. By fiscal year 2016, the percentage of agencies that did not meet these same objectives had increased to 98 percent, 90 percent, and 82 percent, respectively. Furthermore, ODNI requests individual corrective action plans from agencies not meeting security clearance timeliness objectives. However, the executive branch has not developed a government-wide plan, with goals and interim milestones, to meet established timeliness objectives for initial security clearances that takes into consideration increased investigative requirements and other stated challenges. In our December 2017 report, we recommended that the Director of National Intelligence, as Security Executive Agent, develop a government-wide plan, including goals and interim milestones, to meet timeliness objectives for initial personnel security clearance investigations and adjudications. Although the DNI did not specifically comment on this recommendation, we continue to believe a government-wide plan would better position ODNI to identify and address any systemic government-wide issues. We also recommended that the Director of National Intelligence conduct an evidence-based review of the investigation and adjudication timeliness objectives and take action to adjust the objectives if appropriate. He did not agree with this recommendation and stated that it is premature to revise the existing timeliness goals until NBIB’s backlog is resolved. We continue to believe that our recommendation to conduct an evidence- based review, using relevant data, is valid. As we noted in our report, even agencies with delegated authority to conduct their own investigations are experiencing challenges meeting established timeliness objectives. We also noted that ODNI has not comprehensively revisited the investigation or adjudication timeliness objectives for initial security stemming from the implementation of the 2012 Federal Investigative Standards. Backlog of Background Investigations Has Steadily Increased since 2014 The executive branch’s challenges in meeting investigation timeliness objectives for initial personnel security clearances and periodic reinvestigations have contributed to a significant backlog of background investigations at the primary entity responsible for conducting background investigations, NBIB. NBIB personnel are attempting to decrease the backlog by making the background investigation process more effective and efficient. To do so, NBIB conducted a business process reengineering effort that was intended to identify challenges in the process and their root causes. Specifically, NBIB officials cited efforts that have been implemented to reduce the number of personnel hours necessary to complete an investigation, such as centralizing interviews and using video-teleconferencing for overseas investigations (to decrease travel time), automated record checks, and focused writing (to make reports more succinct and less time-consuming to prepare). However, NBIB has not identified how the implementation of the business process reengineering effort will affect the backlog or the need for additional investigators in the future. In December 2017, we recommended that the Director of NBIB develop a plan, including goals and milestones, that includes a determination of the effect of the business process reengineering efforts on reducing the backlog to a “healthy” inventory of work, representing approximately 6 weeks of work. NBIB concurred with this recommendation. NBIB documentation shows that the backlog of pending investigations increased from about 190,000 in August 2014 to more than 710,000 as of February 2018, as shown in figure 1. NBIB’s Key Performance Indicators report states that a “healthy” inventory of work is around 180,000 pending investigations, representing approximately 6 weeks of work, and would allow NBIB to meet timeliness objectives. ODNI officials stated that several significant events contributed to agency challenges in meeting timeliness objectives over the past 5 fiscal years, including a government shutdown, the 2015 OPM data breach, a loss of OPM contractor support, and OPM’s review of the security of its IT systems, which resulted in the temporary suspension of the web-based platform used to complete and submit background investigation forms. In addition, executive branch agencies noted the increased investigative requirements stemming from the 2012 Federal Investigative Standards as a further challenge to meeting established timeliness objectives in the future. While NBIB has taken steps to increase its capacity to conduct background investigations by increasing its own investigator staff as well as awarding new contracts, in our December 2017 report we noted that NBIB officials have assessed four scenarios, from the status quo— assuming no additional contractor or federal investigator hires—to an aggressive contractor staffing plan beyond January 2018. The two scenarios that NBIB identified as most feasible would not result in a “healthy” inventory level until fiscal year 2022 at the earliest. In our December 2017 report, we recommended that the Director of NBIB establish goals for increasing total investigator capacity—federal employees and contractor personnel—in accordance with the plan for reducing the backlog of investigations, as noted above. NBIB concurred with this recommendation. The Potential Effects of Continuous Evaluation on Executive Branch Agencies Are Unknown We reported in November 2017 that the potential effects of continuous evaluation on executive branch agencies are unknown because future phases of the program and the effect on agency resources have not yet been determined. ODNI has not yet determined key aspects of its continuous evaluation program, which has limited the ability of executive branch agencies to plan for implementation in accordance with ODNI’s phased approach. For example, while ODNI has initiated the first phase of continuous evaluation in coordination with implementing executive branch agencies, it has not yet determined what the future phases of implementation will entail, or when they will occur. As we reported in November 2017, the uncertainty regarding the requirements and time frames for the future phases of the program has affected the ability of executive branch agencies to plan to implement continuous evaluation and estimate the associated costs. Although executive branch agencies have identified increased resources as a risk associated with implementing continuous evaluation, and ODNI has acknowledged that risk, ODNI, in coordination with the PAC, has not assessed the potential effects of continuous evaluation on an agency’s resources. Further, ODNI has not developed a plan, in consultation with implementing agencies, to address such effects, including modifying the scope or frequency of periodic reinvestigations or replacing periodic reinvestigations for certain clearance holders. Moreover, the potential effect of continuous evaluation on periodic reinvestigations is unknown. Executive branch agencies have expressed varying views about potential changes to the periodic reinvestigation model: DOD officials stated that with workload and funding issues, they see no alternative but to replace periodic reinvestigations for certain clearance holders with continuous evaluation, as the record checks conducted are the same for both processes. State Department officials expressed concerns that relevant information, such as state and local law-enforcement records that are not yet automated, would be missed if it did not conduct periodic reinvestigations. State Department officials, along with officials from the Departments of Justice and Homeland Security, stated it may be possible to change the frequency or scope of periodic reinvestigations at some point in the future. The Security Executive Agent Directive for continuous evaluation, issued since our report, clarified that continuous evaluation is intended to supplement but not replace periodic reinvestigations. In our November 2017 report, ODNI officials stated that ODNI is not opposed to further improving the security clearance process, and that once continuous evaluation is operational, it plans to determine the efficiencies and mitigation of risks associated with the approach. Specifically, these officials stated that once continuous evaluation is further implemented and ODNI has gathered sufficient data—which they estimated would take about a year from May 2017—they can perform analysis and research to determine whether any changes are needed to the periodic reinvestigation model. We recommended that the Director of National Intelligence assess the potential effects of continuous evaluation on agency resources and develop a plan, in consultation with implementing agencies, to address those effects, such as modifying the scope of periodic reinvestigations, changing the frequency of periodic reinvestigations, or replacing periodic reinvestigations for certain clearance holders. ODNI generally concurred with this recommendation. Finally, the National Defense Authorization Act for Fiscal Year 2018, enacted in December 2017, will have a significant impact on the personnel security clearance process. Among other things, the act authorized DOD to conduct its own background investigations and requires DOD to begin carrying out a related implementation plan by October 1, 2020. It also requires the Secretary of Defense, in consultation with the Director of OPM, to provide for a phased transition. These changes could potentially affect timeliness, the backlog, and other reform initiatives but the effect is unknown at this time. DOD’s investigations represent the majority of the background investigations conducted by NBIB. Chairman Burr, Vice Chairman Warner and Members of the committee, this concludes my prepared testimony. I look forward to answering any questions. GAO Contact and Staff Acknowledgements If you or your staff have any questions about this testimony, please contact Brenda S. Farrell at (202) 512-3604 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. GAO staff who made key contributions to this testimony are Kimberly Seay (Assistant Director), James Krustapentus, Michael Shaughnessy, and John Van Schaik. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The government-wide personnel security clearance process was designated as a high-risk area in January 2018 because it represents one of the highest management risks in government. This testimony focuses on, among other things, the extent to which executive branch agencies (1) made progress reforming the security clearance process, and (2) are meeting timeliness objectives and reducing NBIB's investigative backlog. GAO's statement is based on information from public versions of its reports issued in November 2017 on continuous evaluation of clearance holders and in December 2017 on clearance reform efforts. Information that ODNI and OPM deemed sensitive was omitted. For those reports, GAO reviewed Executive Orders and PAC strategic documents; obtained data from the Office of the Director of National Intelligence (ODNI) on the timeliness of initial clearances and periodic reinvestigations; and interviewed officials from ODNI, NBIB, and other agencies. Executive branch agencies have made progress reforming the security clearance process, but long-standing key initiatives remain incomplete. Progress includes the issuance of federal adjudicative guidelines and updated strategic documents to help sustain the reform effort. However, agencies still face challenges in implementing aspects of the 2012 Federal Investigative Standards—criteria for conducting background investigations—and in implementing a continuous evaluation program. In addition, while agencies have taken steps to establish government-wide performance measures for the quality of investigations, neither the Director of National Intelligence (DNI) nor the interagency Security, Suitability, and Credentialing Performance Accountability Council (PAC) have set a milestone for completing their establishment. GAO's analysis of timeliness data for specific executive branch agencies showed that the number of agencies meeting investigation and adjudication timeliness objectives for initial secret and top secret security clearances and periodic reinvestigations decreased from fiscal years 2012 through 2016. For example, while 73 percent of agencies did not meet timeliness objectives for initial clearances for three of four quarters in fiscal year 2012, 98 percent of agencies did not meet these objectives in fiscal year 2016. The DNI has not developed a government-wide plan, including goals and milestones, to help agencies improve timeliness. Agencies' challenges in meeting timeliness objectives have contributed to a significant backlog of background investigations at the agency that is responsible for conducting the majority of investigations, the National Background Investigations Bureau (NBIB). NBIB documentation shows that the backlog of pending investigations increased from about 190,000 in August 2014 to more than 710,000 as of February 2018, as shown below. NBIB leadership has not developed a plan to reduce the backlog to a manageable level.

GAO_GAO-18-59

Background Electronic health records that are interoperable and contain all relevant patient information are crucial for optimizing the health care provided to patients. Historically, patient health information has been scattered across paper records kept by different caregivers in many different locations, making it difficult for a clinician to access all of a patient’s health information at the time of care. Lacking access to these critical data, a clinician may be challenged in making the most informed decisions on treatment options, potentially putting the patient’s health at risk. Thus, the move toward collecting, storing, retrieving, and transferring these records electronically can significantly improve the quality and efficiency of care. This is especially true in the case of military personnel and veterans, such as those in the Coast Guard, because they tend to be highly mobile and may have health records at multiple facilities both within and outside the United States. Therefore, EHRs that are interoperable among health care systems of providers such as the Coast Guard, the Department of Defense (DOD), and the Department of Veterans Affairs (VA) are key to improving the care these patients receive. In April 2004, the President called for widespread adoption of interoperable EHRs by 2014. Similarly, in August 2006, the President instructed agencies, as they implemented, acquired, or upgraded health information technology (IT) systems, to utilize systems and products that met recognized interoperability standards. For nearly two decades both DOD and VA have been working to implement interoperable health care systems, although with little success. The Coast Guard Has Historically Relied on EHRs and Related Systems to Support Health Care Efforts The Coast Guard’s HSWL Directorate is responsible for ensuring the readiness and health of nearly 50,000 members throughout the United States. In this regard, the Office of Health Services within HSWL is charged with providing healthcare to Coast Guard members, other military active duty and reserve members, retired personnel, and eligible family members. The Coast Guard’s healthcare services are supported by 41 U.S. based health clinics and 125 sick bays. In an effort to meet the need for interoperable EHRs, in 2002, the Coast Guard implemented DOD’s Composite Health Care System (CHCS) at its clinics and sickbays. According to the Coast Guard’s medical manual, the clinics and sickbays used CHCS for various health care-related activities, including scheduling patient appointments; documenting patient consults and referrals; storing prescriptions; tracking and controlling prescribed medications; and tracking laboratory orders. CHCS interfaced with the DOD Defense Eligibility Enrollment Reporting System, which provided verification of the identity and benefit eligibility of Coast Guard members; other military active duty, reserve, and retired personnel; and their eligible family members. CHCS also interfaced with other health care-related systems, such as a DOD prescription repository, a patient lab delivery system used by health care providers, a system that provided eyewear-related services, and the military’s health insurance provider’s system. To provide a more user-friendly way of accessing CHCS, the Coast Guard implemented DOD’s Provider Graphical User Interface (PGUI) in 2004. This interface also provided clinics and sick bays with additional system functionality, such as the ability to create and store medical notes electronically. According to HSWL staff, although CHCS and PGUI provided the Coast Guard with a way to manage health records electronically, these systems were outdated and lacked key functionality such as billing, scheduling, and case management. Therefore, the Coast Guard intended to transition from CHCS and PGUI to DOD’s more modernized Armed Forces Health Longitudinal Technology Application (AHLTA) in 2009 to achieve interoperability with DOD and VA and comply with executive orders and statutes that called for efficient health care initiatives. However, HSWL staff stated that the cost of adopting and maintaining AHLTA, as well as the need for the Coast Guard to meet its unique mission requirements, led the agency to move forward with implementing a new system of its own in 2010. The new system was intended to be interoperable with both DOD’s and VA’s health information systems. Toward this end, on September 30, 2010, the Coast Guard awarded a 5- year, $14 million contract to acquire a commercial off-the-shelf (COTS) EHR system. According to the Coast Guard’s EHR business case, the system was to provide ambulatory services, including online management of patient health records; patient scheduling and billing services; dental and radiology modules; management of prescribed medications and tracking laboratory orders, among other capabilities. However, while working to implement the COTS EHR system, HSWL staff determined that many other Coast Guard health care-related IT systems were outdated and also needed modernization. As a result, the HSWL Directorate began an effort to expand the original EHR modernization effort to integrate these other necessary and outdated services. This expanded project was called IHiS. According to the HSWL Directorate, IHiS was to provide additional services such as work-life and safety data management, work-life case management, wireless access, and an integrated patient portal that was intended to allow patients to access their medical records at any time. The project consisted of various contracts with 25 different vendors and was estimated to cost approximately $56 million to implement, which included the original $14 million COTS EHR contract. HSWL staff stated that, at the time that the IHiS project was being planned and designed, the Department of State was also planning to develop an EHR system. In order to reduce the overall cost to both parties, in 2012, the Department of State signed an interagency agreement with the Coast Guard to utilize IHiS for that department’s personnel. The system was to be implemented in phases with beta testing at two to three selected Coast Guard clinics in October 2015, and then subsequent implementation at the other clinics, sick bays, and Department of State locations. However, on October 19, 2015, the Coast Guard decided to terminate the IHiS project and decommissioned PGUI in 2015 and CHCS in 2016. The Coast Guard Attributed IHiS Termination to Financial and Other Risks, after Spending Approximately $60 Million on the Project According to the Director of HSWL, who was appointed to the position in August 2015, financial, technical, schedule, and personnel risks led the Coast Guard’s EOC to decide to terminate the IHiS project. Specifically, the Director of HSWL provided us a written summary of information on the IHiS project risks that she said she had verbally communicated to the EOC during meetings on September 24, 2015, and October 6, 2015. The financial risks that the Director presented were based on internal investigations initiated in January 2015 and May 2015 to determine whether the HSWL Directorate had violated the Antideficiency Act by using incorrect funding sources and incorrect fiscal year funds for the IHiS project. In this regard, the Coast Guard ordered project management and contractor staff to cease work on IHiS until a determination was made regarding the antideficiency violation. In addition, the Director stated that she relayed technical risks to the EOC. These risks were identified in an e-mail in late August 2015 by Coast Guard project management staff who participated in the design and development efforts for IHiS. The Director and the related e-mail identified the following technical risks: Lack of testing. IHiS lacked an independent security assessment to verify that the system’s security infrastructure was adequate. In addition, full interface testing with systems such as the Defense Eligibility Enrollment Reporting System had yet to be completed to ensure security and data integrity. Limited system functionality. The system that was to provide user verification and IHiS role management services was not yet complete. In addition, Coast Guard workstations could not yet access IHiS from the network and the patient portal lacked two-factor authentication. Further, the service that was to register new IHiS users in the system had yet to be completed. The Director also presented schedule and personnel risks to the EOC: Delays in the implementation timeline. The Director stated that between August 2015 and September 2015, she requested that the DOD’s Defense Health Agency Solution Delivery IT team independently validate the IHiS timelines and the status of the project. The Director said she requested this review because of the technical risks identified in the August 2015 e-mail and concerns as to whether IHiS would be ready to be piloted at the first clinic in the fall of 2015. According to the Director, the Defense Health Agency team projected the timeline for the first clinic implementation to be approximately 1 year later than originally estimated. The Director added that Defense Health Agency team members stated that the timeline was delayed, in part, because critical IHiS interfaces and workflows were not complete or operational. The Director told us that these estimations were provided by the Defense Health Agency team verbally and that the team did not provide the Coast Guard any written documentation outlining its findings. Changes in project management staff. Although HSWL staff had been managing the IHiS project since it was initiated in 2010, C4&IT was directed to assume the oversight responsibilities for IHiS implementation in May 2015 due to concerns about the project’s adherence to established governance processes raised by the internal investigators looking into the potential Antideficiency Act violations. By August 2015, the key project management personnel that had overseen the project since 2010 had been removed. According to C4&IT staff, IHiS was cancelled during the transition of project managers. As a result of the changes in staff, one vendor noted that it was unclear as to who were stakeholders, responsible parties, and decision makers. According to the Director, these risk factors had demonstrated that the project was far from ready for deployment and that continuing IHiS could cause significant stewardship and reputational harm to the Coast Guard. As a result of the risks presented by the Director, the EOC members made the decision to cancel IHiS, and did not consider any other alternatives to its cancelation. Subsequent to the project’s cancelation, the Deputy Commandant for Mission Support conducted an analysis of the amount of money that had been obligated for and spent on the project. According to the analysis, which included obligations and expenditures from September 2010 to August 2017, the Coast Guard had obligated approximately $67 million and, of that amount, had spent approximately $59.9 million on the IHiS project at the time of its cancelation. Further, according to Office of Budget and Programs staff members, no equipment or software from the IHiS project could be reused for future efforts. In addition, according to senior staff within the Acquisition Directorate, the Coast Guard continued to pay millions of dollars to vendors over 2 years after the project’s cancelation to satisfy existing contractual obligations. For example, according to staff within the Acquisition Directorate: $102,993 was paid in November 2017 to one vendor for leased equipment that was damaged or missing, as part of closing out the contract. $460,352 was paid in November 2017 to an equipment vendor because the Coast Guard was obligated to do so after it had exercised the contract option period just prior to canceling IHiS. Approximately $872, 000 was paid to various vendors by November 2017 as part of closing out other contractual obligations for items such as software licensing and support and a data storage center. Approximately $2.4 million is to be paid to one vendor by February 2018 for software and licensing products. Approximately $2.8 million is to be paid by February 2018 for removal and shipment of equipment. However, the amount spent on the project is likely underestimated because the Coast Guard’s analysis of spending did not include labor costs for the agency’s personnel (civilian or military) who spent approximately 5 years managing, overseeing, and providing subject matter expertise on the project. It also did not include any travel costs incurred by these personnel. The Coast Guard Could Not Demonstrate Effective Project Management, Lacked Governance Mechanisms, and Did Not Document Lessons Learned for the IHiS Project The Coast Guard could not demonstrate that it effectively managed and oversaw the IHiS project prior to its discontinuance. Specifically, although the Coast Guard was to follow the SDLC Practice Manual to guide its management and oversight of the project, the agency could not provide complete evidence that it had addressed 15 of the 30 SDLC practices we selected for evaluation. In addition, project team members provided inconsistent explanations regarding whether or not documentation existed to demonstrate the actions taken to manage and oversee the IHiS project. Further, although the Coast Guard developed charters for various governance boards to provide project oversight and direction, the boards were not active and the Chief Information Officer (CIO) was not included as a member of the boards, further contributing to a lack of key governance mechanisms for IHiS. Finally, the Coast Guard did not document and share lessons learned from the failed project to help prevent similar outcomes for future IT projects. The Coast Guard Could Not Demonstrate That Selected Project Management Practices Were Addressed In an effort to institute disciplined, repeatable practices for IT development and acquisition, the Coast Guard developed the SDLC Practice Manual, which establishes the seven-phase methodology for developing the Coast Guard’s Assistant Commandant for C4&IT systems, such as IHiS. The practice manual is intended to guide project management teams through a progression of activities for managing and overseeing IT projects from conceptual planning to disposition. (Appendix II provides a discussion of each SDLC phase included in the practice manual and the 30 selected practices that we evaluated.) Although IHiS was to adhere to the SDLC practices established in the manual, the Coast Guard could not demonstrate that the staff providing day-to-day management of the project had always done so. Specifically, of the 30 selected project management practices that we evaluated for the initial four SDLC phases of IHiS—Conceptual Planning, Planning and Requirements, Design, and Development and Testing—Coast Guard officials provided documentation that the project management team fully addressed 15 practices and partially addressed 5 practices. The agency could not provide documentation that the project team had addressed 10 other practices. Table 1 provides a complete listing of the SDLC project management practices that we selected for evaluation and the extent to which the Coast Guard could demonstrate that it completed each practice. For this phase, the Coast Guard demonstrated that steps had been taken to address five of the seven selected project management practices for IHiS. Specifically, it assigned project management roles, such as the project manager, asset manager, and the system’s sponsor. The agency also documented the initial IHiS business case and acquisition strategy, as well as the designation memorandum that identified IHiS as a C4&IT system. However, the Coast Guard could not demonstrate that the project management team had validated the project’s alignment with the agency’s enterprise architecture and that the project had received the required phase exit approval. As a result, the Coast Guard could not provide evidence that the necessary steps were taken to ensure that the project would align with the agency’s business objectives and that project management staff had received approval to proceed to the next SDLC phase. Planning and Requirements Phase For this phase, the Coast Guard demonstrated that 8 of the 11 selected project management practices were performed for the IHiS project. Specifically, the agency provided evidence that it had completed the tailoring plan that detailed the SDLC processes that would be required throughout the IHiS system’s lifecycle, developed an initial risk management plan that included a list of vulnerabilities and the measures to overcome or lessen them, and conducted a cost benefit analysis. The Coast Guard also documented functional requirements; reviewed external mandates, such as those mentioned earlier; created an initial training plan; and designated the system development and system support agents. Finally, the Acting CIO approved the project to move to the next phase and stated in a memorandum that the project had met all the requirements of the planning and requirements phase. However, the Coast Guard could not demonstrate that it had fully completed all of the requirements of this phase. For example, the Coast Guard provided documentation that partially met the requirement to develop a project management plan. Specifically, the agency created a project management plan that included certain required elements, such as a project description, work breakdown structure, and a life cycle cost estimate. However, it did not complete other required elements. Specifically, although the Coast Guard developed a project schedule for IHiS, it was not well-constructed, which made the overall quality of the IHiS schedule unreliable. For example, the IHiS schedule allowed for many activities to slip a significant number of days before impacting the dates of key events. Further, the Coast Guard could not demonstrate that it had created a communication plan—another element of the project management plan—that is essential to identifying how system development progress is to be communicated across the project management team. The Coast Guard also could not demonstrate that two other selected practices were addressed. Specifically, the agency could not provide an integrated logistics support plan that is intended to document processes for ensuring IHiS data management and records management, among other things. In addition, the Coast Guard could not demonstrate that it had developed an information assurance plan that is intended to articulate the information security controls required to ensure the availability, integrity, authentication, and confidentiality of the patient health information that was to be stored in IHiS. As a result, the Coast Guard could not demonstrate that it had performed key steps to construct a reliable schedule for IHiS, plan for how the project’s progress was to be communicated to key stakeholders, ensure appropriate data and records management for information stored in IHiS, and plan for the controls necessary to secure patient health information. Design Phase The Coast Guard demonstrated that actions had been taken to partially address three of the eight selected project management practices for the design phase. In this regard, the agency partially addressed the requirement to develop a detailed system design. Specifically, the system design documentation included a description of the operating system, external and internal system interfaces, inputs and outputs of each subsystem, administrative components that are intended to connect systems, and system security requirements. However, the system design documentation did not include information on the system architecture components, system timing and sizing, and system auditing requirements. The documentation also did not address all IHiS functional requirements as required by the SDLC. The Coast Guard also partially addressed the requirement to develop an operational analysis plan. For example, the plan included performance and operating measures related to availability, maintainability, and training. It also included support measures related to system utilization, incident management, and problem management. However, the Coast Guard had not included mission-related performance measures; operating measures related to reliability, user satisfaction, and effectiveness of technology; and other system support measures related to change management. In addition, the agency partially addressed the requirement to create the test and evaluation master plan. Specifically, the test and evaluation master plan included required elements, such as the scope, content, methodology, and sequence of testing, as well as the management of and responsibilities related to testing activities. However, the plan did not define activities for integration and security testing, both of which are intended to validate that the integrated system components function properly. The Coast Guard could not demonstrate that five other selected practices were addressed for the IHiS project. In this regard, it could not demonstrate that the project team had: held review sessions with the user community to ensure that the requirements and the design were consistent with the new or enhanced business requirements; developed contingency and disaster recovery plans to document the steps necessary to continue IHiS operations in the event of a disruption; completed the privacy impact analysis to describe what information was to be collected by IHiS, why the information was being collected, intended use of the information, and how the information was to be secured, among other things; tested the system design to ensure that it would have met requirements and support business processes; and obtained exit approval for the design phase to demonstrate that all requirements of the phase were met. As a result, no evidence was provided that the Coast Guard performed all of the required steps to translate detailed system requirements into the system design and develop plans for life cycle support, such as those that address contingencies, disaster recovery, and testing for IHiS. Development and Testing Phase The Coast Guard demonstrated that actions had been taken to address two of the four selected practices and partially addressed one practice for the development and testing phase. For example, the agency developed the IHiS implementation plan that specified key activities, such as system training and monitoring, and included a schedule of activities that were to be accomplished during implementation. In addition, the Coast Guard created a diagram of the IHiS system layout as part of its effort to address one practice—to develop system documentation. However, it could not demonstrate that other required system documentation, such as system and user manuals that specify how to use and operate the system, had been created. Further, the Coast Guard could not demonstrate that it had conducted IHiS system testing, although the agency granted an authority to operate (ATO) and indicated in the ATO memorandum that the system had undergone some form of testing. The Coast Guard’s SDLC specifies that system testing is to take place prior to the issuance of an ATO. However, according to a memorandum signed by the IHiS authorizing official, a short-term ATO was granted for the system on March 30, 2015, in an attempt to ensure there would be a functioning replacement system in place prior to the decommissioning of CHCS. Nevertheless, the Coast Guard could not provide complete evidence that it took the necessary steps intended to ensure that the system would function as expected, such as conducing system testing. Relevant Documentation Was Often Not Available Over the course of our review, Coast Guard project team members provided inconsistent explanations regarding the availability of documentation to support the project management activities for IHiS. For example, with regard to the SDLC practices that we identified as not having been implemented, the former IHiS project manager and a knowledgeable representative for the contractor responsible for providing engineering and acquisition technical assistance for IHiS stated that the agency had developed most of the supporting documentation which would demonstrate that actions consistent with the SDLC practices had been taken. In addition, annotations within the IHiS acquisition strategy indicated that required SDLC artifacts, such as enterprise architecture documentation; plans for integrated logistics support, contingency, and disaster recovery; and a privacy impact assessment, among many others, were documented, available, and maintained within a document management tool. However, staff within the HSWL Directorate, the Office of Budget and Programs, and the Office of Enterprise Applications Management told us that the documentation either did not exist or could not be located because several of the key project management team members were no longer employees of the Coast Guard. The absence of the various documents and other artifacts that would support the required SDLC activities raises doubts that the Coast Guard took the necessary and appropriate steps to ensure effective management of the IHiS project. Carrying out established procedures for effective management and oversight of IT projects will be important for supporting any system development and acquisition effort that the Coast Guard undertakes to implement a future EHR system. The Coast Guard Lacked Governance Mechanisms for IHiS Oversight According to the IT Investment Management Framework, efforts to build a foundation for IT governance involve establishing specific critical processes, such as instituting investment boards and controlling investments as they are developed. In addition, we have long reported that federal IT projects have failed due, in part, to a lack of oversight and governance especially at an executive-level, such as the CIO. The Coast Guard documented charters for four governance bodies that were intended to provide oversight to the IHiS project: The Executive Steering Committee was to provide executive oversight of the design, implementation, operation, and long term direction for IHiS. Responsibilities of the committee were to include monitoring the overall acquisition, integration, and operation of IHiS; authorizing major changes in the project’s objectives, scope, and requirements; and reviewing the reliability, availability, and affordability of the project, among other things. Members of the committee were to include representatives from the Coast Guard’s HSWL Directorate, the Office of Enterprise Applications Management, and Department of State representatives. The User Group was to make recommendations to the IHiS Program Management Office on functionality and system design and to ensure that decisions were based on end-user needs. Responsibilities of the group were to include making suggestions on improving IHiS for the user, participating in planning for future changes or upgrades to the system, and evaluating strategies to maintain and improve system efficiency. The IHiS project manager was to serve as chair of the group, and the Coast Guard and Department of State were to nominate user representatives from each functional area of IHiS as additional group members. The Change Control Board was to evaluate change proposals in regard to technical, user, and cost impact to the system and recommend change requests to the IHiS baseline. Members of the board were to include representatives from the Coast Guard’s Office of Enterprise Applications Management, the Business Operations Division, and the Department of State. The System Security Committee was to manage the risk to IHiS and identify and mitigate security vulnerabilities. Responsibilities of the committee were to include reviewing IHiS security configurations, changes to those configurations, and proposed changes to IHiS to ensure that the system’s security would not be compromised. Members of the committee were to include representatives from the Coast Guard’s Office of Enterprise Applications Management, the Business Operations Division, and Department of State security and privacy representatives. While the Coast Guard chartered these various governance bodies for IHiS oversight, the agency could not provide evidence that the boards had ever been active in overseeing the project prior to its cancelation. As a result, the IHiS project lacked important oversight mechanisms to ensure the project’s success. In addition, the CIO (Deputy Assistant Commandant for C4&IT) was not included as a member of any of the IHiS governance bodies. According to a memorandum signed by the Acting CIO in 2011, C4&IT was responsible for ensuring that the IHiS project was compliant with SDLC requirements. However, the Coast Guard could not provide evidence that demonstrated how C4&IT and the CIO were involved in ensuring compliance with the requirements. Taking steps to fully implement governance boards that include the CIO will be important to the Coast Guard’s oversight efforts in implementing a future EHR system and may decrease the risk of IT project failure. The Coast Guard Did Not Document Lessons Learned from the IHiS Project We developed the IT Investment Management Framework that stresses the importance of identifying lessons learned to support future investment decisions. We have also previously reported that mechanisms for documenting, sharing, and disseminating lessons learned serve to communicate acquired knowledge more effectively and ensure that beneficial information is factored into planning, work processes, and activities. Lessons learned provide a powerful method of sharing good ideas for improving work processes, facility or equipment design and operation, quality, safety, and cost-effectiveness. They can be based on positive experiences or on negative experiences that result in undesirable outcomes, such as the cancelation of the IHiS project. Additionally, it is important to disseminate lessons learned since lessons are of little benefit unless they are distributed and used by people who will benefit from them. Although Coast Guard officials stated that lessons learned had been identified throughout the process of developing IHiS, as of 2 years after its cancelation, the agency had not documented and shared any lessons learned from the project and does not have established plans for doing so. According to an official from the Office of Budget and Programs, the Coast Guard had not yet documented lessons learned because the agency views the lessons learned process as ongoing. While the Coast Guard may view the lessons learned process as ongoing, the IHiS project was canceled in 2015, and it is important to document and share the lessons already identified so that this beneficial information can be factored into the planning activities for future systems and projects. Until the Coast Guard takes steps to document and share identified lessons learned with individuals charged with developing and acquiring its IT systems, opportunities to protect future systems against the recurrence of mistakes that contributed to the failure of IHiS will likely be missed. The Coast Guard Is Managing Health Records Using a Predominately Paper Process; Many Challenges Hinder Service Delivery In the absence of an EHR system, the Coast Guard currently relies on a predominately paper health record management process to document health care services for its nearly 50,000 military members. After canceling the IHiS project in October 2015, the agency could not return to managing health records using its legacy electronic capabilities because PGUI was decommissioned in 2015 and CHCS was decommissioned in January 2016. Thus, the Coast Guard directed clinics and sick bays to remove relevant information from CHCS and PGUI and maintain all health records for its members using a predominately paper process. The Coast Guard supplements its current paper process by using applications that various other agencies operate and maintain. For example, the Coast Guard uses the Navy’s Medical Readiness Reporting System to, among other things, track immunizations, periodic health assessments, dental exams, dental status, and required physical exams. In addition, the agency uses the Army’s Aeromedical Electronic Resource Office electronic tracking system to document aviation physical exams and aero medical summaries. However, while these systems hold valuable information, they are separate applications requiring separate logins and do not encompass comprehensive Coast Guard health beneficiary information. Currently, the Coast Guard’s clinical staff (i.e., clinic administrators and clinicians) are to generally perform the following steps to process each paper health record: Schedule an appointment for patient using Microsoft Outlook’s calendar feature. Provide the patient with the required forms for completion upon his or her arrival. Verify that all required paper forms are complete and correct. Handwrite clinical notes in a paper health record during the appointment. Complete referrals on an internal referral form and fax the form to the external provider. Handwrite prescription. Review and initial all lab and x-ray reports before filing them in the paper health record. File forms in their assigned sequence within the health record. Store all paper health records in secure cabinets or other secure areas of the facility. Conduct an accuracy and completeness check of the health record upon notification that an individual will be transferred to another facility and correct any identified deficiencies. Mail patient’s paper health record to a new facility if there is a permanent change of station, or provide the patient his or her health record in a large sealed envelope to carry by hand. Figure 1 generally depicts the required steps for managing paper health records. The Coast Guard Faces Numerous Challenges in Managing Its Paper Health Records and Has Adopted a Number of Manual Steps to Deliver Services In response to our survey, the 12 HSWL Regional Managers identified a number of challenges that clinics and sick bays in their regions had experienced in managing and maintaining paper health records. These challenges were grouped into 16 categories. Further, the 120 clinic and sick bay administrators that subsequently responded to a separate survey reported varying degrees to which they viewed each category as challenging. Figure 2 provides the clinic and sick bay respondents’ views of the challenges. The following summarizes clinic and sick bay responses for each identified challenge with managing and maintaining paper health records: Incomplete records. Ninety-eight (82 percent) of the respondents reported incomplete records as challenging. In this regard, 34 of the survey respondents reported that not all CHCS and PGUI records were printed out and included in patients’ paper health records as required before the systems were retired; therefore, they had no way to ensure the patients’ paper records were complete. According to one respondent, paper records are also often incomplete due to parts of the record being dispersed across different medical facilities, thus, making it difficult to put together a complete patient history and sometimes resulting in the need to repeat testing and treatment of patients. Penmanship. Among the 91 (76 percent) survey respondents that reported penmanship as challenging, several noted that it is difficult for staff to read illegible handwritten medical notes. This, in turn, results in difficulty determining the accurate diagnosis, the required prescription, or a referral. Tracking medications. According to 89 (76 percent) of the respondents, it is challenging to track medications without an EHR. For example, one administrator stated that the lack of an EHR makes the management of patient medication use difficult, as staff are unable to verify what medications a patient is taking, what medications have been prescribed from an outside location, and/or the effectiveness of medications. Another administrator stated that staff members rely heavily on patients to remember what medications they are taking—potentially causing harm if patients cannot remember what medications they are taking and the medications have dangerous interactions. Amount of time to manage records. According to 86 (72 percent) of the respondents, managing paper health records is challenging and requires more time for staff to complete and file paperwork. Several respondents stated that the size of the paper health records has increased, resulting in additional time required to review and file records. Ability to search within records. Eighty-three (70 percent) of the respondents reported the ability of clinical staff to search within paper health records for information as challenging. For example, one respondent stated that providers must flip through individual pages of a record to search for necessary information. Another respondent reported that some patients have up to three volumes of a health record and it can take up to 2 or 3 days to find requested information if the patient does not recall when or where the medical care was performed. Figure 3 shows a large paper health record and the multiple storage cabinets used to store them, which illustrates the difficulty in manually searching for information within the records. Missing records. Eighty-three (69 percent) of the survey respondents stated that missing records are challenging. According to one administrator, repeat evaluations that may not be required for chronically ill patients are being conducted due to missing records. Another administrator stated that information can often get misfiled in the record of a patient with a similar name. Availability of records. Seventy-eight (65 percent) of the respondents reported that the availability of records is challenging. For example, one administrator reported that many records are located in different locations, making it difficult to access the necessary information. Another administrator stated that delays occur when clinic staff have to wait for patients to bring records in for review or wait for updated notes from a previous location. Amount of time for patient encounters. According to 65 (55 percent) of the respondents, the lack of an EHR has resulted in an increase in the amount of time required to check-in patients, complete patient appointments, and enter information in the patient record. According to one administrator, clinical documentation has to be completed by hand and some clinicians wait until the end of the day to complete notes. Another administrator reported that the clinician stays after the clinic closes to complete notes. Conducting consultations. Sixty-one (51 percent) of the respondents reported conducting consultations with paper records as challenging. Several administrators stated that patient information is faxed or scanned and submitted for the consulting provider to review. According to one administrator, there are times when documentation must be faxed or scanned multiple times in order to produce a legible copy, resulting in increased time spent gathering and submitting information. Health trends. According to 59 (50 percent) of the respondents, the use of paper records makes combining data to understand population health trends challenging. According to one survey respondent, accomplishing this without an EHR requires manually searching through every paper health record. Ability to view and print laboratory reports. Fifty-six (47 percent) of the survey respondents reported that the inability to view and print laboratory reports without an EHR is challenging. One administrator stated that their clinic could view and print the results from one particular laboratory, but if a patient received services from any other lab the clinic staff would have to request that the patient bring the laboratory results to the clinic. Another administrator stated that it could take 2 or more days to receive requested lab results because there was no way to easily obtain them via a centralized system. Sending referrals. Forty-two (35 percent) of the respondents stated that sending referrals is challenging. One administrator reported facing challenges with faxed referral forms not being received after obtaining a fax confirmation. Another respondent reported having to spend an increased amount of time on the referral process with each referral necessitating at least 20 minutes to complete the required forms and fax them to the external provider—with 10–25 referrals being sent each day. Cost of maintaining records. Thirty-nine (33 percent) of the respondents reported that the cost of maintaining paper health records is challenging. For example, one administrator reported that health records are frequently mailed to other medical locations or to the National Archives (for those separated or retired), which is a large expense for the Coast Guard. Another administrator stated that the time taken to gather paperwork, wait for civilian providers to send notes, and coordinate and execute health record updates is costly to the Coast Guard. Lastly, several administrators reported that expenditures for paper and printing products have increased due to the lack of an EHR. For example, one administrator reported that the clinic had increased its expenditure for paper by 50 percent. Scheduling of appointments. Thirty-eight (32 percent) of the respondents reported that the time it takes to schedule appointments is challenging. One administrator stated that, due to the lack of a scheduling system, patient appointments are being scheduled using the Outlook calendar function, which is time consuming when there are network slowdowns or freezes during high rates of utilization. Another administrator reported that appointments are sometimes double scheduled or occasionally disappear from the calendar and, in one instance, a patient received an appointment reminder for an appointment that the patient had never scheduled. Security/privacy of records. According to 34 (28 percent) of the respondents, the security and privacy of health records is challenging. One administrator reported that paper records are more prone to be within reach of individuals that should not have access to them because they are not stored in a secure EHR that has protections built in. Ordering x-rays. Thirty-one (26 percent) of the respondents reported that the process for ordering x-rays is challenging. According to several administrators, the current process for ordering x-rays involves submitting a referral by fax, which takes additional time for processing and waiting for results to be returned by fax. Several administrators reported that it is difficult to know if all x-ray results have been received and filed. The responding clinic and sickbay administrators described a range of alternative work-around processes that they have developed to help alleviate several of the challenges. Specifically, they reported having developed additional forms, tracking methods, and alternative processes, as well as having notified Coast Guard HSWL management of the challenges they face. Regarding developing forms, approximately 31 percent of the survey respondents noted that they had developed additional forms in order to more easily obtain the information that they would have had available to them with an EHR in place. According to one administrator, these forms are based on the most common patient encounter needs and capture information such as medications, allergies, chronic issues, and family history. In addition, these administrators reported developing electronic file versions, such as a Microsoft Word document, of the standard health forms so that they can e-mail them to patients and reduce the number of paper forms that have to be completed by hand and scanned. According to the administrators, these steps help address handwriting and space challenges. In addition, approximately 37 percent of the respondents reported developing tracking methods, such as Microsoft Excel spreadsheets and logs, to collect data and assist in tracking patient and provider information. One administrator reported that a spreadsheet was created to track patients with conditions that require monitoring, since there is no longer a system that has the data in one place. Another administrator reported creating a spreadsheet to track referrals, numbers of physicals, patient encounters, and medical readiness. Based on the survey responses, these tracking methods have helped address the challenges related to combining data to understand health trends, and tracking medications and referrals. Further, 30 percent of the survey respondents noted that they have also developed alternative processes to mitigate some of the challenges with managing paper health records. For example, one administrator stated that the clinic started conducting weekly reconciliations of referrals to ensure that all treatment records from outside referrals were obtained by the clinic and placed in the paper health record. Another administrator stated that the clinic had begun e-mailing patient encounter notes to the medical officer for review in an effort to ensure patient records are complete. Finally, approximately 55 percent of the respondents reported that they have notified HSWL senior management of the challenges encountered with managing and maintaining paper records. According to an official within the Acquisitions Directorate, the Coast Guard plans to mitigate many of the challenges identified by the Regional Managers with a new EHR system initiative. However, these alternative processes may not provide sustained solutions to overcoming these challenges. Until Coast Guard implements a new EHR solution, the challenges inherent in a predominantly paper process will likely remain. The Coast Guard Intends to Acquire a New EHR System, but Has Not Yet Chosen a Solution The Coast Guard has begun taking steps to acquire a new EHR system referred to as the Electronic Health Record Acquisition (eHRa). According to the Acquisitions Directorate, the Coast Guard plans to manage and oversee the acquisition of eHRa through its non-major acquisition process (NMAP), as described in its Non-Major Acquisition Process (NMAP) Manual. The NMAP requires formal approval reviews at three discrete knowledge points called acquisition decision events (ADE) and includes three phases to assess the readiness and maturity of the acquisition. Figure 4 graphically represents the ADEs and phases of the NMAP. (Appendix V provides a more detailed discussion of each ADE and each of the three phases that make up the NMAP process.) Once the Coast Guard identifies the need for a new acquisition program, the program’s sponsor is to seek ADE-1 approval. ADE-1 occurs when the program is designated as a non-major acquisition by the Deputy Commandant for Mission Support. If an acquisition receives ADE-1 approval, it proceeds to the analyze/select phase of the NMAP. The analyze/select phase is the first of three phases of the process, and includes required work activities such as preparing a requirements document, conducting market research to identify available alternatives, developing an acquisition strategy, developing a life cycle cost estimate, and preparing a project plan. The Coast Guard formally identified the need for a new EHR system on February 1, 2016, and obtained ADE-1 approval on February 13, 2016. Subsequent to the ADE-1 approval, the Coast Guard initiated the following activities associated with the analyze/select phase: Requirements development. As part of its efforts to develop new system requirements for eHRa, the Coast Guard identified its capability gaps as a result of the lack of an EHR in a Capability Analysis Report. The report offered two courses of action to address the capability gaps: (1) business process re-engineering to enhance the current paper-based process, or (2) transition to a system-based solution. According to the Acquisitions Directorate, the Coast Guard plans to use the report to inform its effort in developing requirements for eHRa. Market research. The Coast Guard issued a request for information in April 2017 to assess industry capabilities as part of market research for the new system. The request for information asked that the solutions fall into one of four categories that the Coast Guard was considering: Federal shared service. This option would allow the Coast Guard to use a system that is already in use by another federal agency. In addition, this option aligns with the Office of Management and Budget’s Federal Information Technology Shared Services Strategy, issued in May 2012, which highlighted the prevalence of redundancy in federal IT systems. Managed by the Coast Guard, but externally hosted. This solution would require the Coast Guard to acquire a COTS system and manage its implementation. However, the system would be maintained by a vendor at an externally hosted data center. Commercial software as a service. This option involves purchasing commercial software for an EHR solution that is operated and maintained by a commercial vendor. In-house. With this solution, the Coast Guard would manage the implementation and maintenance of a COTS system with support from a commercial vendor. As a result of the Coast Guard’s request for information, the agency collected cost, schedule, and capabilities information from commercial and government solution providers, including DOD and VA. The Coast Guard used the providers’ responses to develop an alternatives analysis report that was completed in October 2017. The report recommended a solution based on performance, risk, cost, and schedule advantages. The report indicated that the Coast Guard plans to use the results of the alternatives analysis to refine the acquisition strategy, and to support the development of artifacts which are required to successfully achieve the ADE-2 milestone. Staff within the Acquisitions Directorate stated that they were also in the process of finalizing a life cycle cost estimate and a project plan for eHRa—documents necessary for ensuring that appropriate business decisions will be made regarding eHRa’s logistics, affordability, and resources, among other things. As of December 2017, the Coast Guard had not yet made a final determination as to which option would be chosen as the solution for the eHRa acquisition. Until a solution is chosen and successfully implemented, the Coast Guard and its thousands of members will continue to face the many challenges inherent with managing and maintaining paper health records. Conclusions The Coast Guard abruptly discontinued the IHiS project in 2015, citing financial, technical, schedule, and personnel risks. Coast Guard officials estimate this failed project has thus far cost the agency about $60 million. Further, this effort left the Coast Guard without any reusable system components for future EHR efforts. The Coast Guard could not demonstrate that it had fully implemented effective management and oversight for the IHiS project prior to its discontinuance. Specifically, the Coast Guard could not fully show key project management actions were taken for IHiS, lacked governance mechanisms, and did not document lessons learned for the failed project. By not doing so, the agency reduced the probability of the project’s success. The Coast Guard’s decision to revert to a predominately paper process has created a number of challenges for its many clinics and sick bays. These challenges are hindering their ability to deliver services. To help alleviate several of these challenges, the Coast Guard’s clinics and sick bays have developed alternative work-around processes. However, these alternative processes will likely not provide sustained solutions. The Coast Guard is currently taking steps to plan for a new EHR system, but as of December 2017—over 2 years after the cancelation of the IHiS project—it had not yet selected another solution. Successfully and quickly implementing an EHR system is vital to overcoming the challenges the Coast Guard currently faces in managing paper health records. The expeditious and judicious implementation of such a system can significantly improve the quality and efficiency of care to the thousands of Coast Guard active duty and reserve members that receive health care. Recommendations for Executive Action We are making the following four recommendations to the Coast Guard: The Commandant should direct the Chief Information Officer and the Chief Acquisition Officer to expeditiously and judiciously pursue the acquisition of a new EHR system. (Recommendation 1) The Commandant should direct the Chief Information Officer and the Chief Acquisition Officer to ensure established processes required for the future acquisition or development of an EHR are effectively implemented and adequately documented. (Recommendation 2) The Commandant should direct the Chief Information Officer and the Chief Acquisition Officer to establish and fully implement project governance boards for the future EHR effort that include the Chief Information Officer. (Recommendation 3) The Commandant should direct the Chief Information Officer and the Chief Acquisition Officer to document any lessons learned from the discontinued IHiS project, share them with the new project management team, and ensure lessons learned are utilized for the future EHR effort. (Recommendation 4) Agency Comments and Our Evaluation The Department of Homeland Security provided written comments on a draft of this report. In its comments (reprinted in appendix VI), the department concurred with our four recommendations and identified actions being taken or planned to implement them. Among these actions, the department stated that it is judiciously pursuing an EHR solution, called eHRa, through its acquisition process, which is currently in the analyze/select phase of the NMAP process. The department also stated that a contract award for eHRa is planned for later this fiscal year. In addition, the department stated that it established a designated acquisition program with a dedicated program management office team and oversight council for EHR activities, and that the EOC monitors eHRa’s progress through the acquisition process. The department further added that governance boards for eHRa have been established that include the CIO as required by the NMAP manual. Finally, the department said that it plans to compile lessons learned from the discontinued IHiS project by March 30, 2018. Given the actions identified, the department requested that we consider the first three of our four recommendations to be closed. However, while the Coast Guard is taking positive steps with regard to initiating the eHRa program, the department noted that key decisions related to analyzing, selecting, and acquiring the new system remain to be made. Further, the Coast Guard has not yet awarded a contract for an EHR solution and is not planning to do so until later this fiscal year. Thus, the extent to which it establishes and effectively implements processes and governance boards throughout the project, and expeditiously and judiciously pursues the acquisition of the new system, remain to be seen. Accordingly, we will not yet close any of the recommendations. The department also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Homeland Security, the Commandant of the Coast Guard, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9286 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology The objectives of this study were to (1) describe what led the United States Coast Guard (Coast Guard) to the decision to terminate further Integrated Health Information System (IHiS) development, and how much was spent on the project; (2) evaluate the Coast Guard’s management and oversight actions for the discontinued electronic health records (EHR) modernization project and what, if any, lessons learned were identified; (3) describe the Coast Guard’s current process for managing health records and the challenges, if any, it is encountering; and (4) determine the Coast Guard’s plans for effectively implementing a new EHR system and the current status of its efforts. To address the first objective, we reviewed relevant IHiS project documentation, such as key contracts, the project plan, presentations by the project management team, and IHiS-related memorandums. We also reviewed project expenditures documentation developed by the Deputy Commandant for Mission Support and the Acquisitions Directorate. We supplemented our review with interviews of agency officials within the Health Safety and Work-Life (HSWL) Directorate, Office of Budget and Programs, Office of Resource Management, Office of Contract Operations, and the Office of Acquisition Support, as well as six key contractors. To address the second objective, we reviewed relevant policies and guidance, such as the Coast Guard’s Command, Control, Communications, Computers and Information Technology (C4&IT) System Development Life Cycle (SDLC) Policy and the SDLC Practice Manual intended to guide the management and oversight of development and acquisition projects at the Coast Guard. We evaluated available IHiS project management documentation, such as project plans, the project’s schedule, decision memorandums, charters for IHiS governing bodies, and Executive Oversight Council (EOC) meeting minutes, which demonstrated actions taken by project management staff during the IHiS project, and assessed them against selected practices identified in the Coast Guard’s SDLC Practice Manual. The practices we selected are fundamental to effective information technology (IT) management and oversight. These included practices for conceptual planning, planning and requirements, design, and development and testing. We selected the practices from each applicable phase that had an associated artifact or called for the agency to take specific action(s) that we were able to validate through evidentiary review. If an artifact was applicable to multiple practices in multiple phases of the SDLC, we evaluated the artifact in only one phase and one practice. We also interviewed agency officials from Coast Guard offices such as the HSWL Directorate, Office of Budget and Programs, and Office of Resource Management regarding their role in managing and overseeing the IHiS project. In addition, we interviewed or received written responses from knowledgeable representatives for six key contractors tasked with providing the ambulatory care system and patient portal, safety data management and user credentialing system, software, and engineering and acquisition technical assistance. These interviews focused on the contractor’s role in the IHiS project, any issues they experienced, and the status of the services they were providing at the time of cancelation. Lastly, we interviewed Coast Guard officials within the HSWL and Acquisition Directorates to determine whether lessons learned were obtained and documented to inform future decisions for the new EHR project. Our methodology to determine the extent to which the Coast Guard demonstrated the completion of the selected SDLC phase practices included three levels of assessment: (1) the Coast Guard provided documentation that demonstrated that the IHiS project satisfied all of the elements of the required SDLC project management practice; (2) the Coast Guard provided documentation that demonstrated that the IHiS project partially satisfied some but not all elements of the required SDLC project management practice; and (3) the Coast Guard could not provide documentation that demonstrated that the IHiS project satisfied any of the elements of the required SDLC project management practice. To address the third objective, we reviewed Coast Guard medical records management documentation, such as medical manuals, workflow procedures, and standard operating policies and procedures for clinics and sick bays. We also administered a survey via e-mail questionnaire to all of the 12 HSWL Regional Managers and a web-based survey to all of the 166 clinic and sick bay administrators. The survey to Regional Managers included questions on whether the clinics and sick bays in their region faced challenges in managing health records without an EHR system in place and whether all the records from decommissioned EHR systems had been included in the paper records. The survey to clinic and sick bay administrators included questions on the challenges reported by Regional Managers and the mitigation strategies, if any, employed for the challenges identified. Before administering the surveys we pretested them by interviewing 1 Regional Manager and 5 clinic and sick bay administrators to ensure that our survey questions and skip pattern were clear and logical and that respondents could answer the questions without undue burden. We administered the survey to the 12 Regional Managers from March 2017 to April 2017; therefore, the corresponding responses reflect information and views as of that time period. We received 12 responses, for a 100 percent response rate. We administered the survey to the clinic and sick bay administrators from April 2017 to August 2017; therefore, the corresponding responses reflect information and views as of that time period. We received 120 responses, for a 72 percent response rate. To address the fourth objective, we identified the process through which the Coast Guard is managing its acquisition of its new system, the Non- Major Acquisition Process (NMAP) Manual. We then obtained planning documentation, such as relevant memorandums that described the Coast Guard’s need for an EHR, the Coast Guard’s request for information to assess industry capabilities for market research purposes, and a capabilities analysis study plan to identify gaps in the Coast Guard’s EHR capabilities. We also reviewed a capabilities analysis report which details required capabilities for improving patient care, and an alternatives analysis report which details solutions the Coast Guard should consider based on performance, risk, cost, and schedule. We assessed these documentation against requirements identified in the NMAP, specifically within the first phase of the acquisition process. We also interviewed officials within the Acquisition Directorate to determine the status of the efforts to acquire or develop a new EHR system. We conducted this performance audit from October 2016 to January 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Summary of the Coast Guard’s SDLC Phases and Selected Project Management Practices The Coast Guard implemented the Systems Development Life Cycle (SDLC) process for non-major information technology (IT) acquisitions in 2004 to help ensure IT projects are managed effectively and meet user needs. The process, as described in the Coast Guard’s SDLC Practice Manual, consists of seven phases and related practices—30 of which we selected for evaluation for the initial four SDLC phases of Integrated Health Information System (IHiS). The following is a summary of each SDLC phase and a description of the project management practices we selected for review: Phase 1: Conceptual Planning This phase is the first step of the development or significant enhancement process. During this phase, high-level business needs are identified, a concept for fulfilling the business needs is proposed and validated, and resources are committed. Activities (or practices) we selected for review in this phase include formalizing SDLC role designations, such as the project manager, asset manager, and sponsor; developing the initial business case with information regarding the background, system justification, and project risk management, among other things; validating alignment with the enterprise architecture; identifying the funding source and providing a rough order of magnitude cost estimates as part of developing the acquisition strategy; designating the system as a Command, Control, Communications, Computers, and Information Technology (C4&IT) system; and obtaining approval to exit the conceptual planning phase. Phase 2: Planning and Requirements This phase begins after the project has been defined and appropriate resources have been committed. During this phase, business requirements are collected, defined, and validated. More specifically, as part of the phase practices we selected for review, the SDLC tailoring plan is completed; and initial life cycle management plans for project management, risk management, integrated logistics support, training, and information assurance are developed. In addition, a cost benefit analysis is conducted; functional requirements are documented; external mandates are reviewed; the system development agent and system support agent are designated; and approval to exit the planning and requirements phase is obtained. During this phase, business requirements are translated into system requirements to develop the detailed system design. Selected practices for this phase include developing the detailed system design to specify the operating system, architecture components, timing and sizing, and interfaces, among other things; developing the operational analysis plan to document system performance measures, system operating measures that address reliability, maintainability, availability, training, and user satisfaction; and system support measures containing the level of effort needed to support the system; conducting review sessions with the user community to ensure that the system design sufficiently met all functional requirements; developing contingency and disaster recovery plans; completing the privacy impact analysis; documenting the test and evaluation master plan with the scope, content, methodology, sequence, management of, and responsibilities for test activities; testing the system design according to the operational test and evaluation plan and capturing design test results in the test and evaluation master plan; and obtaining approval to exit the design phase. Phase 4: Development and Testing The system is developed or acquired based on detailed system design specifications and validated through a variety of tests during this phase. The objective is to ensure that the system functions as expected and that sponsor and user requirements are satisfied. More specifically, as part of the phase practices that we selected, system testing is conducted; system documentation, such as system manuals, user manuals, and diagrams of the system is developed; an implementation plan is developed; and an authority to operate is obtained. During this phase, the system is placed in the production environment and system users are trained. It also includes efforts required to implement the system and resolve problems identified during the system’s transition from development to deployment. We did not select practices to evaluate in this phase since the system was discontinued before implementation. Phase 6: Operations and Maintenance The system becomes operational during this phase, and its main purpose is to ensure that the system continues to perform according to specifications. In addition, routine hardware and software maintenance and upgrades are performed to ensure effective system operations; user training continues as needed; and additional user support is provided to help resolve reported problems. We did not select practices to evaluate in this phase since the system was discontinued before implementation. This phase represents the end of the system’s life cycle. It provides for the systematic termination of a system to ensure that vital information is archived. The emphasis of this phase is to ensure that the system (e.g., equipment, software, data, procedures, and documentation) is packaged and disposed of in accordance with appropriate regulations and requirements. We did not select practices to evaluate in this phase since the system was discontinued before implementation. Appendix III: Copy of the Survey That GAO Administered to Coast Guard Health Safety and Work-Life Regional Managers The questions we asked in our survey of the 12 Health Safety and Work- Life (HSWL) Regional Managers from March 2017 to April 2017 are shown below. For a more detailed discussion of our survey methodology see appendix I. Appendix IV: Copy of the Survey That GAO Administered to Coast Guard Clinic and Sick Bay Administrators The questions we asked in our survey of the 166 clinic and sick bay administrators from April 2017 to August 2017 are shown below. For a more detailed discussion of our survey methodology see appendix I. Appendix V: Summary of the Coast Guard’s Non-Major Acquisition Process Acquisition Decision Events and Phases Coast Guard’s Non-Major Acquisition Process (NMAP) Manual defines the process for the designation, management, and oversight of non-major acquisitions. The NMAP requires formal approval reviews at three discrete knowledge points called acquisition decision events (ADE) and includes three phases to assess the readiness and maturity of the acquisition. The phases represent work that must be accomplished to demonstrate readiness to proceed to the next phase. The following is a summary of each ADE and subsequent phase within the NMAP: ADE-1 occurs when the Deputy Commandant for Mission Support designates the procurement as a non-major acquisition and approves the acquisition to enter the analyze/select phase. Following ADE-1 approval, the Chief Acquisition Officer or Chief Information Officer (CIO) designates a project manager. The analyze/select phase includes project management activities such as conducting market research to identify available alternatives, preparing a requirements document, developing an acquisition strategy, developing a life cycle cost estimate, and preparing a project plan. The primary purpose of ADE-2 is to approve the alternatives identified through market research and to assess the readiness of the acquisition for a contract award in which the acquisition moves into the obtain phase. The CIO is the decision authority and provides oversight for ADE-2. The obtain phase includes activities such as evaluating whether the proposed solution can effectively meet the functional requirements, initiating deployment planning, and conducting usability testing. The primary purpose of ADE-3 is to assess the readiness of the acquisition to be deployed and supported by authorizing the acquisition to enter the produce/deploy and support phase. The CIO is the decision authority and provides oversight for ADE-3. The produce/deploy and support phase includes activities such as ensuring the delivered product meets cost, schedule, and performance baselines as described within the project plan, as well as executing production contracts. VI: Comments from the Department of Homeland Security Appendix VII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, key contributors to this report were Nicole Jarvis (Assistant Director), Ashfaq Huda (Analyst in Charge), Chris Businsky, Juana Collymore, Sharhonda Deloach, Rebecca Eyler, Andrea Harvey, Gina Hoover, Jason Lee, Rob Letzler, Monica Perez- Nelson, Kelly Rubin, and Andrew Stavisky.

In 2010, the Coast Guard initiated an effort—known as IHiS—to replace its aging EHR system with a suite of modernized systems that was to automate various health care services for its nearly 50,000 military members. However, in October 2015, the Coast Guard announced that the modernization project would be canceled. GAO was asked to review the Coast Guard's efforts to develop a modernized EHR system. GAO's objectives were to (1) describe what led the Coast Guard to terminate further IHiS development, and how much was spent on the project; (2) evaluate the Coast Guard's management and oversight for the discontinued project and what, if any, lessons learned were identified; (3) describe the Coast Guard's current process for managing health records and the challenges, if any, it is encountering; and (4) determine the Coast Guard's plans for effectively implementing a new EHR system and the current status of its efforts. To do so, GAO reviewed project expenditures, analyzed key project management documentation, surveyed Regional Managers and clinical staff, and interviewed knowledgeable staff. Financial, technical, schedule, and personnel risks led to the United States Coast Guard's (Coast Guard) decision to terminate the Integrated Health Information System (IHiS) project in 2015. According to the Coast Guard (a military service within the Department of Homeland Security), as of August 2017, $59.9 million was spent on the project over nearly 7 years and no equipment or software could be reused for future efforts. In addition, the Coast Guard could not fully demonstrate the project management actions taken for IHiS, lacked governance mechanisms, and did not document lessons learned for the failed project. As a result of the cancelation of the IHiS project and the decommissioning of the two legacy electronic health record (EHR) systems IHiS was to replace, the Coast Guard directed its clinics to revert to maintaining health records using a predominantly paper process. Coast Guard Regional Managers and clinic and sick bay administrators informed GAO of the many challenges encountered in returning to a paper process. These challenges include the inability for some clinics to adequately track vital information such as the medications members are taking—potentially causing harm to them. To help alleviate several of these challenges, the Coast Guard has developed alternative work-around processes. However, these alternative processes may not provide sustained solutions to overcoming these challenges. In February 2016, the Coast Guard initiated the process for acquiring a new EHR system. As of November 2017, agency officials had conducted research and recommended a solution based on performance, risk, cost, and schedule advantages. However, 2 years after canceling IHiS and moving toward a predominately manual process, the agency has not yet made a final determination on this. Successfully and quickly implementing an EHR system is vital to overcoming the challenges Coast Guard currently faces in managing paper health records. The expeditious implementation of such a system can significantly improve the quality and efficiency of care to the thousands of Coast Guard active duty and reserve members that receive health care.

CRS_R44533

Brief History Prior to 1867, Qatar was ruled by the family of the leaders of neighboring Bahrain, the Al Khalifa. That year, an uprising in the territory led the United Kingdom, then the main Western power in the Persian Gulf region, to install a leading Qatari family, the Al Thani, to rule over what is now Qatar. The Al Thani family claims descent from the central Arabian tribe of Banu Tamim, the tribe to which Shaykh Muhammad ibn Abd Al Wahhab, the founder of Wahhabism, belonged. Thus, Qatar officially subscribes to Wahhabism, a conservative Islamic tradition that it shares with Saudi Arabia. In 1916, in the aftermath of World War I and the demise of the Ottoman Empire, Qatar and Britain signed an agreement under which Qatar formally became a British protectorate. In 1971, after Britain announced it would no longer exercise responsibility for Persian Gulf security, Qatar and Bahrain considered joining with the seven emirates (principalities) that were then called the "Trucial States" to form the United Arab Emirates. However, Qatar and Bahrain decided to become independent rather than join that union. The UAE was separately formed in late 1971. Qatar adopted its first written constitution in April 1970 and became fully independent on September 1, 1971. The United States opened an embassy in Doha in 1973. The last U.S. Ambassador to Qatar, Dana Shell Smith, resigned from that post in June 2017, reportedly over disagreements with the Trump Administration. Mary Catherine Phee has been nominated as a replacement. Governance Qatar's governing structure approximates that of the other GCC states. The country is led by a hereditary Amir (literally "prince," but interpreted as "ruler"), Shaykh Tamim bin Hamad Al Thani. He became ruler in June 2013 when his father, Amir Hamad bin Khalifa Al Thani, relinquished power voluntarily. The Amir governs through a prime minister, who is a member of the Al Thani family, and a cabinet, several of whom are members of the Al Thani family or of prominent allied families. Amir Tamim serves concurrently as Minister of Defense, although most of the defense policy functions are performed by the Minister of State for Defense, a position with less authority than that of full minister. In November 2014, Amir Tamim appointed a younger brother, Shaykh Abdullah bin Hamad, to be deputy Amir and the heir apparent. The Prime Minister, Shaykh Abdullah bin Nasir bin Khalifa Al Thani, also serves as Interior Minister. There is dissent within the Al Thani family—mostly from those of lineages linked to ousted former Qatari rulers—but no significant challenge to Tamim's rule is evident. There were no significant protests in Qatar during the "Arab Spring" uprising of 2011 or since. Political parties are banned, and unlike in Kuwait and Bahrain, there are no well-defined "political societies" that act as the equivalent of parties. Political disagreements in Qatar are aired mainly in private as part of a process of consensus building in which the leadership tries to balance the interests of the various families and other constituencies. Then-Amir Hamad put a revised constitution to a public referendum on April 29, 2003, achieving a 98% vote in favor. Nevertheless, it left in place significant limitations: for example, it affirms that Qatar is a hereditary emirate. Some Western experts also criticize Qatar's constitution for specifying Islamic law as the main source of legislation. The constitution stipulates that elections will be held for 30 of the 45 seats of the country's Advisory Council ( Majlis Ash-Shura ), a national legislative body, but elections have been repeatedly delayed. The elected Council is also to have broader powers, including the ability to remove ministers (two-thirds majority vote), to approve a national budget, and to draft and vote on proposed legislation that can become law (two-thirds majority vote and concurrence by the Amir). In 2008, it was agreed that naturalized Qataris who have been citizens for at least 10 years will be eligible to vote, and those whose fathers were born in Qatar will be eligible to run. Qatar is the only GCC state other than Saudi Arabia not to have held elections for any seats in a legislative body. The country holds elections for a 29-seat Central Municipal Council. Elections for the fourth Council (each serving a four-year term) were held on May 13, 2015. The Central Municipal Council advises the Minister of Municipality and Urban Affairs on local public services. Voter registration and turnout—21,735 voters registered out of an estimate 150,000 eligible voters, and 15,171 of those voted—were lower than expected, suggesting that citizens viewed the Council as lacking influence. The State Department stated that "observers considered [the municipal council elections] free and fair." Human Rights Issues7 Recent State Department reports identify the most significant human rights problems in the country as limits on the ability of citizens to choose their government in free and fair elections; restrictions on freedoms of assembly and association, including prohibitions on political parties and labor unions; restrictions on the rights of expatriate workers; and criminalization of consensual same-sex sexual activity. A nominally independent, government-funded National Human Rights Committee (NHRC) investigates allegations of human rights abuses in the country. It is under the authority of the Qatar Foundation that was founded and is still run by the Amir's mother, Shaykha Moza. The NHRC also monitors the situation of about 1,000-2,000 stateless residents (" bidoons "), who are able to register for public services but cannot own property or travel freely to other GCC countries. Although the constitution provides for an independent judiciary, the Amir, based on recommended selections from the Supreme Judicial Council, appoints all judges, who hold their positions at his discretion. Freedom of Expression As have the other GCC states, Qatar has, since the 2011 "Arab Spring" uprisings, issued new laws that restrict freedom of expression and increase penalties for criticizing the ruling establishment. In 2014, the government approved a new cybercrimes law that provides for up to three years in prison for anyone convicted of threatening Qatar's security or of spreading "false news." A November 2015 law increased penalties for removing or expressing contempt at the national flag or the GCC flag. In July 2017, the country held a national conference on freedom of expression at which, according to the State Department, members of international human rights organizations were able to criticize the country's human rights record. Al Jazeera. The government owns and continues to partially fund the Al Jazeera satellite television network, which has evolved into a global media conglomerate that features debates on controversial issues, as well as criticism of some Arab leaders. The State Department quotes "some observers and former Al Jazeera employees" as alleging that the government "influences" Al Jazeera content. Some Members of Congress have asserted that Al Jazeera is an arm of the Qatar government and that its U.S. bureau should be required to register under the Foreign Agents Registration Act (FARA). Women's Rights According to the State Department, social and legal discrimination against women continues, despite the constitutional assertion of equality. No specific law criminalizes domestic violence, and a national housing law discriminates against women married to noncitizen men and divorced women. The laws criminalizes rape. Court testimony by women carries half the weight of that of a man. On the other hand, women in Qatar drive and own property, and constitute about 15% of business owners and more than a third of the overall workforce, including in professional positions. Women serve in public office, such as minister of public health, chair of the Qatar Foundation, head of the General Authority for Museums, permanent representative to the United Nations, and ambassadors to Croatia and the Holy See. In November 2017, the Amir appointed four women to the national consultative council for the first time in the legislative body's history. However, most of the other small GCC states have more than one female minister. Trafficking in Persons and Labor Issues11 The State Department's Trafficking in Persons report for 2018 upgraded Qatar's ranking to Tier 2 from Tier 2: Watch List, on the basis that the government has made significant efforts to comply with the minimum standards for the elimination of trafficking over the past year. Qatar enacted a Domestic Worker Law to better protect domestic workers and, in recent years, it also established a coordinating body to oversee and facilitate anti-trafficking initiatives and enacting a law that reforms the sponsorship system to significantly reduce vulnerability to forced labor. But Qatar remains a destination country for men and women subjected to forced labor and, to a much lesser extent, forced prostitution. Female domestic workers are particularly vulnerable to trafficking due to their isolation in private residences and lack of protection under Qatari labor laws. In the course of the January 2018 U.S.-Qatar "Strategic Dialogue," the two countries signed a memorandum of understanding to create a framework to combat trafficking in persons. The State Department assesses Qatar's labor rights as not adequately protecting the rights of workers to form and join independent unions, conduct legal strikes, or bargain collectively. Qatari law does not prohibit antiunion discrimination or provide for reinstatement of workers fired for union activity. The single permitted trade union, the General Union of Workers of Qatar, is assessed as "not functioning." International scrutiny of Qatar's labor practices has increased as Qatar makes preparations to host the 2022 FIFA World Cup soccer tournament; additional engineers, construction workers, and other laborers have been hired to work in Qatar. Some workers report not being paid for work and a lack of dispute resolution, causing salary delays or nonpayment. Some human rights groups have criticized Qatar for allowing outdoor work (primarily construction) in very hot weather. Yet, the State Department credits the country with taking steps to protect labor rights, including for expatriate workers. In December 2016, a labor reform went into effect that offers greater protections for foreign workers by changing the " kafala " system (sponsorship requirement for foreign workers) to enable employees to switch employers at the end of their labor contracts rather than having to leave Qatar when their contracts end. In 2018, the government established and is funding several housing sites to replace unsafe temporary housing for expatriate workers. The government also has stepped up arrests and prosecutions of individuals for suspected labor law violations, and has increased its cooperation with the ILO to take in worker complaints and better inform expatriate workers of their rights. Religious Freedom14 Qatar's constitution stipulates that Islam is the state religion and Islamic law is "a main source of legislation," but Qatari laws incorporate secular legal traditions as well as Islamic law. The law recognizes only Islam, Christianity, and Judaism. The overwhelming majority (as much as 95%) of Qatari citizens are Sunni Muslims, possibly explaining why there have been no signs of sectarian schisms within the citizenry. The government permits eight registered Christian denominations to worship publicly at the Mesaymir Religious Complex (commonly referred to as "Church City"), and it has allowed the Evangelical Churches Alliance of Qatar to build a church. Jews and adherents of unrecognized religions—such as Hindus, Buddhists, and Baha'is—are allowed to worship privately but do not have authorized facilities in which to practice their religions. Qatari officials state that they are open to considering the creation of dedicated worship spaces for Hindus, Jews, and Buddhists and that any organized, non-Muslim religious group could use the same process as Christians to apply for official registration. Members of at least one group reportedly filed for land in previous years to build their own complex but received no response from the government. Foreign Policy Qatar uses its financial resources to implement a foreign policy that engages a wide range of regional actors, including those that are at odds with each other. Qatari officials periodically meet with Israeli officials while at the same hosting leaders of the Palestinian militant group, Hamas. Qatar maintains consistent ties to Iran while at the same time hosting U.S. forces that contain Iran's military power. Qatar hosts an office of the Afghan Taliban movement that facilitates U.S.-Taliban talks. Its policies have enabled Qatar to mediate some regional conflicts and to obtain the freedom of captives held by regional armed groups. Yet, Qatar often backs regional actors at odds with those backed by de facto GCC leader Saudi Arabia and other GCC states, causing Saudi Arabia and its close allies in the GCC to accuse Qatar of undermining the other GCC countries. As have some of the other GCC states, Qatar has shown an increasing willingness to use its own military forces to try to shape the outcome of regional conflicts. Qatar and the Intra-GCC Dispute A consistent source of friction within the GCC has been Qatar's embrace of Muslim Brotherhood movements as representing a moderate political Islamist movement that can foster regional stability. Qatar hosts Islamists who adhere to the Brotherhood's traditions, including the aging, outspoken Egyptian cleric Yusuf al-Qaradawi. In 2013-2014, differences over this and other issues widened to the point where Saudi Arabia, UAE, and Bahrain withdrew their ambassadors from Doha in March 2014, accusing Qatar of supporting "terrorism." The Ambassadors returned in November 2014 in exchange for a reported pledge by Qatar to fully implement a November 2013 "Riyadh Agreement" that committed Qatar to noninterference in the affairs of other GCC states and to refrain from supporting Muslim Brotherhood-linked organizations. These differences erupted again following the May 20-22, 2017, visit of President Donald Trump to Saudi Arabia, during which expressed substantial support for Saudi leaders. On June 5, 2017, Saudi Arabia, UAE, and Bahrain, joined by Egypt and a few other Muslim countries, severed diplomatic relations with Qatar, expelled Qatar's diplomats, recalled their ambassadors, and imposed limits on the entry and transit of Qatari nationals and vessels in their territories, waters, and airspace. They also accused Qatar of supporting terrorist groups and Iran. On June 22, 2017, the Saudi-led group presented Qatar with 13 demands, including closing Al Jazeera, severing relations with the Muslim Brotherhood, scaling back relations with Iran, closing a Turkish military base in Qatar, and paying reparations for its actions. Amir Tamim expressed openness to negotiations but said it would not "surrender" its sovereignty. The Saudi-led group subsequently reframed its demands as six "principles," among which were for Qatar to "combat extremism and terrorism" and prevent their financing, suspend "all acts of provocation," fully comply with the commitments Qatar made in 2013 and 2014 (see above), and refrain "from interfering in the internal affairs of states." President Trump initially responded to the crisis by echoing the Saudi-led criticism of Qatar's policies, but later sought to settle the rift. Then-Secretary of State Rex Tillerson, working with Kuwait, took the lead within the Trump Administration to mediating the dispute, including by conducting "shuttle diplomacy" in the region during July 10-13, 2017. President Trump facilitated a phone call between Amir Tamim and Saudi Crown Prince Mohammad bin Salman on September 9, 2017, but the direct dialogue faltered over a dispute about which leader had initiated the talks. No subsequent meetings between President Trump and the leaders of the parties to the dispute, or subsequent actions or proposals, have produced any significant progress toward resolution of the rift. Secretary of State Pompeo's visit to the Gulf states in January 2019 produced no evident movement, and the U.S. envoy who was assigned to work on this issue, General Anthony Zinni (retired), resigned as envoy in early January 2019. Yet, there are signs that Saudi Arabia and the UAE, facing criticism over the Kashoggi issue and their involvement in Yemen, might want to de-escalate the dispute. Qatari forces and commanders have been participating in GCC "Gulf Shield" military exercises and command meetings in Saudi Arabia and other GCC states. Amir Tamim was invited by Saudi Arabia to the annual GCC summit in Dammam, Saudi Arabia, during December 7-9, 2018, but he did not attend. Qatar asserts that the blockading countries are seeking to change Qatar's leadership and might take military action to force Qatar to accept their demands. In December 2017, Saudi Arabia "permanently" closed its Salwa border crossing into Qatar, and some press reports say that Saudi Arabia is contemplating building a canal that would physically separate its territory from that of Qatar. Qatari officials assert that the country's ample wealth is enabling it to limit the economic effects of the Saudi-led move, but that the blockade has separated families and caused other social disruptions. Qataris reportedly have rallied around their leadership to resist Saudi-led demands. The dispute has to date thwarted U.S. efforts to assemble the a new "Middle East Strategic Alliance" to counter Iran and regional terrorist groups. This alliance – to consist of the United States, the GCC countries, and other Sunni-led states, is reportedly to be formally unveiled at U.S.-GCC summit that has been repeatedly postponed since early 2018 and is not scheduled. The MESA has also been hampered by the global criticism of Saudi de facto leader Crown Prince Mohammad bin Salman for his possible involvement in the October 2018 killing of U.S.-based Saudi journalist Jamal Kashoggi at the Saudi consulate in Istanbul, and Egypt's April 2019 decision to refrain from joining the Alliance. Qatar's disputes with other GCC countries have come despite the resolution in 2011 of a long-standing territorial dispute between Qatar and Bahrain, dating back to the 18 th century, when the ruling families of both countries controlled parts of the Arabian peninsula. Qatar and Bahrain referred the dispute to the International Court of Justice (ICJ) in 1991 after clashes in 1986 in which Qatar landed military personnel on a disputed man-made reef (Fasht al-Dibal). In March 2001, the ICJ sided with Bahrain on the central dispute over the Hawar Islands, but with Qatar on ownership of the Fasht al-Dibal reef and the town of Zubara on the Qatari mainland, where some members of the ruling Al Khalifa family of Bahrain are buried. Two smaller islands, Janan and Hadd Janan, were awarded to Qatar. Qatar accepted the ruling as binding. Iran Even though the Saudi-led bloc asserts that Qatar had close relations with Iran, Qatar has long helped counter Iran strategically. Qatar enforced international sanctions against Iran during 2010-2016, and no Qatar-based entity has been designated by the United States as an Iran sanctions violator. Amir Tamim attended both U.S.-GCC summits (May 2015 at Camp David and April 2016 in Saudi Arabia) that addressed GCC concerns about the July 2015 U.S.-led multilateral agreement on Iran's nuclear program (Joint Comprehensive Plan of Action, JCPOA). Qatar withdrew its Ambassador from Tehran in January 2016 in solidarity with Saudi Arabia over the Saudi execution of a dissident Shiite cleric, and Qatar joined the February 2016 GCC declaration that Lebanese Hezbollah is a terrorist group. Yet Qatari leaders have always argued that dialogue with Iran is key to reducing regional tensions. Qatar and Iran have shared a large natural gas field in the Persian Gulf without incident, although some Iranian officials have occasionally accused Qatar of cheating on the arrangement. In February 2010, as Crown Prince, Shaykh Tamim, visited Iran for talks with Iranian leaders, and as Amir, he has maintained direct contact with Iran's President Hassan Rouhani. Apparently perceiving that the June 2017 intra-GCC rift provided an opportunity to drive a wedge within the GCC, Iran supported Qatar in the dispute and has exported additional foodstuffs to Qatar to help it compensate for the cutoff of Saudi food exports. It has permitted Qatar Airways to overfly its airspace in light of the Saudi, UAE, and Bahraini denial of their airspace to that carrier. In August 2017, Qatar formally restored full diplomatic relations with Iran. Qatar did not directly support the May 8, 2018, U.S. withdrawal from the JCPOA, instead issuing a statement hoping that efforts to "denuclearize" the region will not lead to "escalation." Saudi official statements also cited Qatar's alleged support for pro-Iranian dissidents in Bahrain as part of the justification for isolating Qatar in June 2017. Contributing to that Saudi perception was Qatar's brokering in 2008 of the "Doha Agreement" to resolve a political crisis in Lebanon that led to clashes between Lebanon government forces and Hezbollah. Qatar's role as a mediator stemmed, at least in part, from Qatar's role in helping reconstruct Lebanon after the 2006 Israel-Hezbollah war, and from then-Amir Hamad's postwar visit to Hezbollah strongholds in Lebanon. Further fueling Saudi and UAE suspicions was a 2017 Qatari payment to certain Iraqi Shiite militia factions of several hundred million dollars to release Qatari citizens, including royal family members, who were kidnapped in 2016 while falcon hunting in southern Iraq. Egypt In Egypt, after the fall of Egyptian President Hosni Mubarak in 2011, a Muslim Brotherhood-linked figure, Muhammad Morsi, won presidential elections in 2012. Qatar contributed about $5 billion in aid, aggravating a split between Qatar and the other GCC states over the Muslim Brotherhood. Saudi Arabia and the UAE backed Morsi's ouster by Egypt's military in 2013. Because of its support for Morsi, Qatar's relations with former military leader and now President Abdel Fattah el-Sisi have been strained, and Egypt joined the 2017 Saudi-led move against Qatar. Libya In Libya, Qatar joined the United States and several GCC and other partner countries in air operations to help oust Qadhafi in 2011. Subsequently, however, Qatar has supported Muslim Brotherhood-linked factions in Libya opposed by the UAE, Egypt, and Saudi Arabia. This difference in approaches in Libya among the GCC states contributed to the intra-GCC rift. As of April 2019, it appears that the UAE and Egypt-backed ex-military commander Khalifa Hifter, who has consolidated his control of much of Libya over the past four years, is poised to reunite the country by force. Yemen In 2015, Qatar joined the Saudi-led military coalition that is battling Iran-backed Zaidi Shiite Houthi rebels in Yemen, including conducting air strikes against Houthi and allied positions. This was a departure from Qatar's 2006-2007 failed efforts to mediate between the Houthis and the government of President Ali Abdullah Saleh, who left office in 2012 following an "Arab Spring"-related uprising in Yemen. In September 2015, Qatar deployed about 1,000 military personnel, along with armor, to Yemen. Four Qatar soldiers were killed fighting there. As a result of the intra-GCC rift, in mid-2017 Qatar withdrew from the Saudi-led military effort in Yemen. Syria, Iraq, and Anti-Islamic State Operations In Syria, Qatar provided funds and weaponry to rebels fighting the regime of President Bashar Al Asad, including those, such as Ahrar Al Sham, that competed with and sometimes fought anti-Asad factions supported by Saudi Arabia and the UAE. Qatar also built ties to Jabhat al Nusra (JAN), an Al Qaeda affiliate that was designated by the United States as a Foreign Terrorist Organization (FTO), although Qatari officials assert that their intent was to induce the group to sever its ties to Al Qaeda, which it formally did in July 2016. Qatari mediation also obtained the release of Lebanese and Western prisoners captured by that group. However, Asad regime recent gains in Syria likely render Qatar's involvement moot. Qatar has not, to date, followed Kuwait or Bahrain in reopening its embassy in Damascus; its Foreign Minister stated in January 2019 that Qatar saw "no reason" to do so. According to the State Department, Qatar has allowed 20,000 Syrians fleeing the civil war there to retain residency in Qatar. Qatar is a member of the U.S.-led coalition combating the Islamic State. In 2014, Qatar flew some airstrikes in Syria against Islamic State positions. However, after several weeks, the coalition ceased identifying Qatar as a participant in coalition strikes inside Syria. Neither Qatar nor any other GCC state participated in coalition air operations against the Islamic State inside Iraq. In April 2017, Qatar reportedly paid ransom to obtain the release of 26 Qatari ruling family members abducted Iraqi Shia militiamen while on a hunting trip in southern Iraq in 2015. The Iraqi government said in June 2017 that it, not Shia fighters, received the ransom. Lebanon Qatar has sought to exert some influence in Lebanon, possibly as a counterweight to that exerted by Saudi Arabia. In January 2019, Amir Tamim was one of the few regional leaders to attend an Arab League summit held in Beirut. In late January 2019, Qatar announced a $500 million investment in Lebanon government bonds to support that country's ailing economy. Israeli-Palestinian Issues/Hamas Qatar has attempted to play a role in Israeli-Palestinian peace negotiations by engaging all parties. In directly engaging Israel, in 1996, then-Amir Hamad hosted a visit by then-Prime Minister of Israel Shimon Peres and allowed Israel to open a formal trade office in Doha—going beyond the GCC's dropping in 1998 of the secondary Arab League boycott of Israel. In April 2008, then-Foreign Minister Tzipi Livni attended the government-sponsored Doha Forum and met with Amir Hamad. Qatar ordered the Israeli offices in Doha closed in January 2009 at the height of an Israel-Hamas conflict and the offices have not formally reopened. Still, small levels of direct Israel-Qatar trade reportedly continue; Israeli exports to Qatar consist mostly of machinery and technology, and imports from Qatar are primarily plastics. Amir Tamim regularly accuses Israel of abuses against the Palestinians and expresses consistent support for Palestinian efforts for full United Nations membership and recognition, while at the same time backing negotiations between the Palestinians and Israel. Qatar has also engaged the Islamist group Hamas, a Muslim Brotherhood offshoot that has exercised de facto control of the Gaza Strip since 2007. Qatari officials assert that their engagement with Hamas can help broker reconciliation between Hamas and the Fatah-led Palestinian Authority (PA). U.S. officials have told Members of Congress that Qatar's leverage over Hamas can be helpful to reducing conflict between Hamas and Israel and that Qatar has pledged that none of its assistance to the Palestinians goes to Hamas. Qatar reportedly asked former Hamas political bureau chief Khalid Meshal to leave Qatar after the intra-GCC rift erupted, apparently to accommodate the blockading states. Qatar's critics assert that Hamas leaders are too often featured on Al Jazeera and that Qatar's relations with Hamas constitute support for a terrorist organization. In the 115 th Congress, the Palestinian International Terrorism Support Act of 2017 ( H.R. 2712 ), which was ordered to be reported to the full House on November 15, 2017, appeared directed at Qatar by sanctioning foreign governments determined to be providing financial or other material support to Hamas or its leaders. As have the other Gulf states, Qatar has sought to compensate for a curtailment of U.S. contributions to the U.N. Relief Works Agency (UNRWA). In April 2018, Qatar donated $50 million to that agency. In December 2018, Qatar reached a two-year agreement with UNRWA to donate to that agency's programs in education and health care. Afghanistan/Taliban Office Qatari forces did not join any U.S.-led operations inside Afghanistan, but its facilities and forces support U.S. operations there, and Qatar has brokered talks between the United States and Taliban representatives. Unlike Saudi Arabia and UAE, Qatar did not recognize the Taliban as the legitimate government of Kabul when the movement ruled during 1996-2001. In June 2013, the Taliban opened a representative office in Qatar, but it violated U.S.-Qatar-Taliban understandings by raising a flag of the former Taliban regime on the building and Qatar, at U.S. request, immediately closed the office. Taliban officials remained in Qatar, and revived U.S.-Taliban talks led to the May 31, 2014, exchange of captured U.S. soldier Bowe Bergdahl for five Taliban figures held by the United States at the prison facility in Guantanamo Bay, Cuba. The five were banned from traveling outside Qatar until there is an agreed solution that would ensure that they could not rejoin the Taliban insurgency. In November 2018, the five joined the Taliban representative office in Doha. Qatar permitted the Taliban office in Qatar to formally reopen in 2015. Deputy Assistant Secretary of State for South and Central Asia Alice Wells met with Taliban figures from the office in Doha in July 2018 for discussions about a future peace settlement in Afghanistan. Since mid-2018, further talks, with increasing levels of intensity, have taken place in Doha between Taliban negotiators and the U.S. envoy for Afghanistan, Ambassador Zalmay Khalilzad. Qatar might also have some contacts with the Haqqani Network, a U.S.-designated Foreign Terrorist Organization (FTO) that is allied with the Taliban. In January 2016, Qatari mediation reportedly caused the Haqqani Network to release a Canadian hostage, Colin Rutherford. The mediation did not, as Qatar had hoped, lead to the freedom of the Coleman family, also held by that group, who were rescued from the group by a U.S. and Pakistani operation in October 2016. In January 2018, Qatar's air force completed the first two flights of its C-17 (Globemaster) cargo aircraft to Afghanistan and back. According to then-Defense Secretary Mattis, the flights provided logistical support to the NATO "counterterrorism" campaign there. Other Qatari Relationships and Mediation Efforts39 Somewhat outside the traditional Middle East: Qatar has played an active role in mediating conflict over Sudan's Darfur region. In 2010, Qatar, including through grants and promises of investment, helped broker a series of agreements, collectively known as the Doha Agreements, between the government and various rebel factions. In March 2018, Qatar and Sudan signed an agreement to jointly invest $4 billion to develop the Red Sea port of Suakin off Sudan's coast. Qatar has forged relationships with several countries in Central Asia, possibly in an effort to shape energy routes in the region. Amir Tamim has exchanged leadership visits with the President of Turkmenistan, Gurbanguly Berdymukhamedov in 2016 and 2017. The two countries are major world gas suppliers. The leader of Tajikistan, Imamali Rahmonov, visited Doha in February 2017 to reportedly discuss Qatari investment and other joint projects. Qatar funded a large portion of a $100 million mosque in Dushanbe, which purports to be the largest mosque in Central Asia. U.S.-Qatar Defense and Security Cooperation U.S.-Qatar defense and security relations are long-standing and extensive—a characterization emphasized by senior U.S. officials in the course of the two U.S.-Qatar "Strategic Dialogue" sessions—in Washington, DC, in January 2018, and in Doha in January 2019. Senior U.S. officials have praised Qatar as "a longtime friend and military partner for peace and stability in the Middle East and a supporter of NATO's mission in Afghanistan." The U.S-Qatar defense relationship emerged during the 1980-1988 Iran-Iraq war. The six Gulf monarchies formed the GCC in late 1981 and collectively backed Iraq against the threat posed by Iran in that war, despite their political and ideological differences with Iraq's Saddam Hussein. In the latter stages of that war, Iran attacked international shipping in the Gulf and some Gulf state oil loading facilities, but none in Qatar. After Iraq invaded GCC member Kuwait in August 1990, the GCC participated in the U.S.-led military coalition that expelled Iraq from Kuwait in February 1991. In January 1991, Qatari armored forces helped coalition troops defeat an Iraqi attack on the Saudi town of Khafji. The Qatari participation in that war ended U.S.-Qatar strains over Qatar's illicit procurement in the late 1980s of U.S.-made "Stinger" shoulder-held antiaircraft missiles. U.S.-Qatar defense relations subsequently deepened and the two countries signed a formal defense cooperation agreement (DCA). U.S. Central Command (CENTCOM) Commander General Joseph Votel testified on February 27, 2018, that U.S. operations have not been affected by the intra-GCC rift. Qatar, one of the wealthiest states in the world on a per capita gross domestic product (GDP) basis, receives virtually no U.S. military assistance. At times, small amounts of U.S. aid have been provided to help Qatar develop capabilities to prevent smuggling and the movement of terrorists or proliferation-related gear into Qatar or around its waterways. Defense Cooperation Agreement (DCA) The United States and Qatar signed a formal defense cooperation agreement (DCA) on June 23, 1992. The DCA was renewed for 10 years, reportedly with some modifications, in December 2013. The text of the pact is classified, but it reportedly addresses U.S. military access to Qatari military facilities, prepositioning of U.S. armor and other military equipment, and U.S. training of Qatar's military forces. Up to 13,000 U.S. troops are deployed at the various facilities in Qatar. Most are U.S. Air Force personnel based at the large Al Udeid air base southwest of Doha, working as part of the Coalition Forward Air Component Command (CFACC). The U.S. personnel deployed to Qatar participate in U.S. operations such as Operation Inherent Resolve (OIR) against the Islamic State organization and Operation Freedom's Sentinel in Afghanistan, and they provide a substantial capability against Iran. The U.S. Army component of U.S. Central Command prepositions armor (enough to outfit one brigade) at Camp As Sayliyah outside Doha. U.S. armor stationed in Qatar was deployed in Operation Iraqi Freedom that removed Saddam Hussein from power in Iraq in 2003. The DCA also reportedly addresses U.S. training of Qatar's military. Qatar's force of about 12,000 is the smallest in the region except for Bahrain. Of that force, about 8,500 are ground forces, 1,800 are naval forces, and 1,500 are air forces. A 2014 law mandates four months (three months for students) of military training for males between the ages of 18 and 35, with a reserve commitment of 10 years (up to age 40). General Votel's February 2018 testimony, referenced above, stated that Qatar is seeking to expand its military both in size and capacity. Al Udeid Expansion/Permanent U.S. Basing in Qatar?46 Since 2002, Qatar has contributed over $8 billion to support U.S. and coalition operations at Al Udeid. The air field, which also hosts the forward headquarters for CENTCOM, has been steadily expanded and enhanced not only with Qatari funding but also about $450 million in U.S. military construction funding since 2003. In March 2018, the State Department approved the sale to Qatar of equipment, with an estimated value of about $200 million, to upgrade the Air Operation Center at Al Udeid. The January 2018 Strategic Dialogue resulted in a number of U.S.-Qatar announcements of expanded defense and security cooperation, including Qatari offers to fund capital expenditures that offer the possibility of an "enduring" U.S. military presence in Qatar and to discuss the possibility of "permanent [U.S.] basing" there. To enable an enduring U.S. presence, Qatar is expanding and enhance Al Udeid over the next two decades—an effort that would facilitate an enduring U.S. presence there. On July 24, 2018, the U.S. and Qatari military attended a groundbreaking ceremony for the Al Udeid expansion, which will include over 200 housing units for families of officers and expansion of the base's ramps and cargo facilities. On January 24, 2019, in the course of the second U.S.-Qatar Strategic Dialogue, the Qatar Ministry of Defense and the U.S. Department of Defense signed a memorandum of understanding that DOD referred to as a "positive step towards the eventual formalization of Qatar's commitment to support sustainment costs and future infrastructure costs at [Al Udeid Air Base]." Qatar has also extended the Hamad Port to be able to accommodate U.S. Navy operations were there a U.S. decision to base such operations in Qatar. U.S. Arms Sales to Qatar Qatar's forces continue to field mostly French-made equipment, such as the AMX-30 main battle tank, but Qatar is increasingly shifting its weaponry mix to U.S.-made equipment. According to General Votel's February 27, 2018, testimony, Qatar is currently the second-largest U.S. Foreign Military Sales (FMS) customer, with $25 billion in new FMS cases. And, Qatar is "on track" to surpass $40 billion in the next five years with additional FMS purchases. The joint statement of the U.S.-Qatar Strategic Dialogue in January 2018 said that Qatari FMS purchases had resulted in over 110,000 American jobs and the sustainment of critical U.S. military capabilities. Tanks. Qatar's 30 main battle tanks are French-made AMX-30s. In 2015, Germany exported several "Leopard 2" tanks to Qatar. Qatar has not purchased U.S.-made tanks, to date. Combat Aircraft. Qatar currently has only 18 combat aircraft, of which 12 are French-made Mirage 2000s. To redress that deficiency, in 2013 Qatar submitted a letter of request to purchase 72 U.S.-made F-15s. After a long delay reportedly linked to the U.S. commitment to Israel's "Qualitative Military Edge" (QME), on November 17, 2016, the Defense Security Cooperation Agency (DSCA) notified Congress of the potential sale, which has an estimated value of $21 billion. The FY2016 National Defense Authorization Act (Section 1278 of P.L. 114-92 ) required a DoD briefing for Congress on the sale, including its effect on Israel's QME. On June 14, 2017, the United States and Qatar signed an agreement for a reported 36 of the F-15 fighters, which predated (and therefore were not covered by) then-Senate Foreign Relations Committee Chairman Senator Bob Corker's June 26, 2017 announcement that he would not provide informal concurrence to arms sales to the GCC countries until the intra-GCC rift was resolved. That blanket hold was dropped on February 8, 2018. In December 2017, the Defense Department announced that Qatar would buy the second group of 36 F-15s under the sale agreement. Deliveries of all aircraft are to be completed by the end of 2022. Qatar signed a $7 billion agreement in May 2015 to purchase 24 French-made Rafale aircraft, and, in September 2017, a "Statement of Intent" with Britain to purchase 24 Typhoon combat aircraft. Heli copters . In 2012, the United States sold Qatar AH-64 Apache attack helicopters and related equipment; UH-60 M Blackhawk helicopters; and MH-60 Seahawk helicopters. The total potential value of the sales was estimated at about $6.6 billion, of which about half consisted of the Apache sale. On April 9, 2018, DSCA announced that the State Department had approved a sale to Qatar of 5,000 Advanced Precision Kill Weapons Systems II Guidance Sections for use on its Apache fleet, with an estimated sale value of $300 million. Short-Range Missile and Rocket Systems. Qatar is not known to have any extended-range missiles, but various suppliers have provided the country with short-range systems that can be used primarily in ground operations. During 2012-2013, the United States sold Qatar Hellfire air-to-ground missiles, Javelin guided missiles, the M142 High Mobility Artillery Rocket System (HIMARS), the Army Tactical Missile System (ATACMS), and the M31A1 Guided Multiple Launch Rocket System (GMLRS). The total potential value of the sales was estimated at about $665 million. On April 22, 2016, the Defense Security Cooperation Agency notified to Congress a potential sale to Qatar of 252 RIM-116C Rolling Airframe Tactical Missiles and 2 RIM 116C-2 Rolling Airframe Telemetry Missiles, plus associated equipment and support, with an estimated sale value of $260 million. On May 26, 2016, DSCA notified to Congress an additional sale of 10 Javelin launch units and 50 Javelin missiles, with an estimated value of $20 million. On November 27, 2018, DSCA notified Congress of a State Department approval of a commercial sale by Raytheon of 40 National Advanced Surface-to-Air Missile Systems (NADSAMS) at an estimated value of $215 million. Ballistic Missiles . At its national day parade in Doha in mid-December 2017, the Qatari military displayed its newly purchased SY 400-BP-12A ballistic missile, which has a 120-mile range and is considered suited to a surface attack mission. The display was widely viewed as an effort to demonstrate to the Saudi-led bloc Qatar's capabilities to resist concerted pressure. Ballistic Missile Defense (BMD) Systems . Qatar has purchased various U.S.-made BMD systems, consistent with U.S. efforts to promote a coordinated Gulf missile defense capability against Iran's missile arsenal. In 2012, the United States sold Qatar Patriot Configuration 3 (PAC-3, made by Raytheon) fire units and missiles at an estimated value of nearly $10 billion. Also that year, the United States agreed to sell Qatar the Terminal High Altitude Area Air Defense (THAAD), the most sophisticated ground-based missile defense system the United States has made available for sale. However, because of Qatar's budget difficulties and operational concerns, the THAAD sale has not been finalized. In February 2017, Raytheon concluded an agreement to sell Qatar an early warning radar system to improve the capabilities of its existing missile defense systems, with an estimated value of $1.1 billion. In December 2017, the Defense Department awarded Raytheon a $150 million contract to provide Qatar with services and support for its PAC-3 system. Naval Vessels . In August 2016, DSCA transmitted a proposed sale to Qatar of an unspecified number of U.S.-made Mk-V fast patrol boats, along with other equipment, with a total estimated value of about $124 million. In August 2017, Qatar finalized a purchase from Italy of four multirole corvette ships, two fast patrol missile ships, and an amphibious logistics ship, with an estimated value of over $5 billion. Other Defense Partnerships Qatar has also developed relations with NATO under the "Istanbul Cooperation Initiative" (ICI). Qatar's Ambassador to Belgium serves as the interlocutor with NATO, the headquarters of which is based near Brussels. In June 2018, Qatar's Defense Minister said that his country's long-term strategic "ambition" is to join NATO. France As noted above, Qatar has historically bought most of its major combat systems from France. On March 28, 2019, French Prime Minister Edouard Phillipe visited Doha and signed with Qatar's Defense and Interior Minister five agreements to boost ties. The agreements focused on defense information exchange, cooperation to combat cybercrime, and culture and education agreements. Turkey Qatar's defense relationship with Turkey has become an element in Qatar's efforts to resist the Saudi-led pressure in the intra-GCC crisis. In 2014, Qatar allowed Turkey—a country that, like Qatar, often supports Muslim Brotherhood—to open a military base (Tariq bin Ziyad base) in Qatar, an initiative that might have contributed to Turkey's support for Qatar in the June 2017 intra-GCC rift. One of the "13 demands" of the Saudi-led bloc has been that Qatar close the Turkish base in Qatar—a demand Qatari officials say will not be met. Turkey has demonstrated its support for Qatar by sending additional troops there and conducting joint exercises in August 2017 and by increasing food exports to replace those previously provided by Saudi Arabia. Turkey further added to its Qatar troop contingent in December 2017. Russia Qatar has broadened its relationship with Russia since early 2016 in conjunction with efforts to resolve the conflict in Syria and in recognition of Russia's heightened role in the region. One of Qatar's sovereign wealth funds has increased its investments in Russia, particularly in its large Rosneft energy firm. Amir Tamim has made several visits to Russia, the latest of which was in March 2018. During the visit, it was announced that Qatar Airways would buy a 25% stake in the Vnukovo International Airport, one of Moscow's airports. Qatar is also reportedly considering buying the S-400 sophisticated air defense system. Qatar-Russia discussions about the purchase have apparently caused a degree of alarm among the Saudi-led states, with Saudi Arabia going so far as to threaten military action against Qatar if it buys the system. Saudi officials also reportedly asked French President Emmanuel Macron to persuade Qatar not to buy the weapon. Were Qatar to purchase the S-400, it might be subject to U.S. sanctions under Section 231 of the Countering America's Adversaries through Sanctions Act ( P.L. 115-44 ). That section sanctions persons or entities that conduct transactions with Russia's defense or intelligence sector. It mandates the imposition of several sanctions that might include restrictions on certain exports to Qatar, restrictions on Qatari banking activities in the United States, restrictions on Qatari acquisition of property in the United States, and a ban on U.S. investments in any Qatari sovereign debt. Counterterrorism Cooperation63 U.S.-Qatar's cooperation against groups that both countries agree are terrorist groups, such as the Islamic State organization, is extensive. However, some groups that the United States considers as terrorist organizations, such as Hamas, are considered by Qatar to be Arab movements pursuing legitimate goals. Perhaps in part as a means to attract U.S. support in the context of the intra-GCC rift, on July 10, 2017, Qatar's foreign minister and then-Secretary Tillerson signed in Doha a Memorandum of Understanding on broad U.S.-Qatar counterterrorism cooperation, including but going beyond just combatting terrorism financing. The United States and Qatar held a Counterterrorism Dialogue on November 8, 2017, in which they reaffirmed progress on implementing the MoU. The joint statement of the January 2018 Strategic Dialogue noted "positive progress" under the July 2017 MoU, and thanked Qatar for its action to counter terrorism. The statement also noted the recent conclusion of a memorandum of understanding between the U.S. Attorney General and his Qatari counterpart on the fight against terrorism and its financing and combating cybercrime. In an effort to implement the U.S.-Qatar MoU, and perhaps also as a gesture to the blockading states, on March 22, 2018, the Qatar Ministry of Interior issued list of 19 individuals and eight entities that it considers as "terrorists." The list includes 10 persons who are also are also named as terrorists by the blockading GCC states. On April 2-5, 2018, Qatar held a conference attended by international experts and security professionals from 42 countries. Qatar participates in the State Department's Antiterrorism Assistance (ATA) program to boost domestic security capabilities, and it has continued to participate in and host Global Counterterrorism Forum events. Under the ATA program, participating countries are provided with U.S. training and advice on equipment and techniques to prevent terrorists from entering or moving across their borders. However, Qatari agencies such as the State Security Bureau and the Ministry of Interior have limited manpower and are reliant on nationals from third countries to fill law enforcement positions—a limitation Qatar has tried to address by employing U.S. and other Western-supplied high technology. In the past, at least one high-ranking Qatari official provided support to Al Qaeda figures residing in or transiting Qatar, including suspected September 11, 2001, attacks mastermind Khalid Shaykh Mohammad. None of the September 11 hijackers was a Qatari national. Terrorism Financing Issues U.S. officials have stated that Qatar is taking steps to prevent terrorism financing and the movement of suspected terrorists into or through Qatar. The country is a member of the Middle East North Africa Financial Action Task Force (MENAFATF), a regional financial action task force that coordinates efforts combatting money laundering and terrorism financing. In 2014, the Amir approved Law Number 14, the "Cybercrime Prevention Law," which criminalized terrorism-linked cyber offenses, and clarified that it is illegal to use an information network to contact a terrorist organization or raise funds for terrorist groups, or to promote the ideology of terrorist organizations. In 2017, the country passed updated terrorism financing legislation. In February 2017, Qatar hosted a meeting of the "Egmont Group" global working group consisting of 152 country Financial Intelligence Units. Qatar is a member of the Terrorist Financing Targeting Center (TFTC), a U.S.-GCC initiative announced during President Trump's May 2017 visit to Saudi Arabia. In October 2017, and despite the intra-GCC rift, Qatar joined the United States and other TFTC countries in designating terrorists affiliated with Al Qaeda and ISIS. The State Department's 2017 report on international terrorism says that, in 2017, Qatar took sweeping measures to monitor and restrict the overseas activities of Qatari charities. According to the State Department's report on international terrorism for 2015, entities and individuals within Qatar continue to serve as a source of financial support for terrorist and violent extremist groups, particularly regional Al Qa'ida affiliates such as the Nusrah Front." The State Department report for 2017 stated: "While the Government of Qatar has made progress on countering the financing of terrorism, terrorist financiers within the country are still able to exploit Qatar's informal financial system." The United States has imposed sanctions on several persons living in Qatar, including Qatari nationals, for allegedly raising funds or making donations to both Al Qaeda and the Islamic State. Countering Violent Extremism Qatar has hosted workshops on developing plans to counter violent extremism and has participated in similar sessions hosted by the UAE's Hedayat Center that focuses on that issue. Also in 2015, Qatar pledged funding to the U.N. Office on Drugs and Crime (UNODC) to help address violent extremism and radicalization among youth and vulnerable populations. However, some experts have noted that the government has violated a pledge to the United States not to allow Qatari preachers to conduct what some consider religious incitement in mosques in Education City, where several U.S. universities have branches. Education City was established by the Qatar Foundation, which is at the core of Qatar's strategy to counter violent extremism through investment in education. Economic Issues Even before the June 2017 intra-GCC rift, Qatar had been wrestling with the economic effects of the fall in world energy prices since mid-2014—a development that has caused GCC economic growth to slow, their budgets to fall into deficit, and the balance of their ample sovereign wealth funds to decline. Oil and gas reserves have made Qatar the country with the world's highest per capita income. Qatar is a member of the Organization of the Petroleum Exporting Countries (OPEC), along with other GCC states Saudi Arabia, Kuwait, and UAE and other countries. However, on December 3, 2018, Qatar announced it would withdraw from OPEC in early 2019 in order to focus on its more high-priority natural gas exports. Some observers attributed the decision, at least in part, to the ongoing intra-GCC rift, insofar as rival Saudi Arabia is considered the dominant actor within OPEC. The economic impact on Qatar of the June 2017 intra-GCC rift is difficult to discern. About 40% of Qatar's food was imported from Saudi Arabia precrisis, and there were reports of runs on stocks of food when the blockade began. However, the government's ample financial resources enabled it to quickly arrange substitute sources of goods primarily from Turkey, Iran, and India. The effects on Qatar's growing international air carrier, Qatar Airways, have been significant because of the prohibition on its overflying the blockading states. In November 2017, Iran and Turkey signed a deal with Qatar to facilitate the mutual transiting of goods. Qatar's main sovereign wealth fund, run by the Qatar Investment Authority (QIA), as well as funds held by the Central Bank, total about $350 billion, according to Qatar's Central Bank governor in July 2017, giving the country a substantial cushion to weather its financial demands. QIA's investments consist of real estate and other relatively illiquid holdings, such as interest in London's Canary Wharf project. In May 2016, Qatar offered $9 billion in bonds as a means of raising funds without drawing down its investment holdings. In April 2018, the country raised $12 billion in another, larger, bond issue. Qatar also has cut some subsidies to address its budgetary shortfalls. In early October 2017, it was reported that QIA is considering divesting a large portion of its overseas assets and investing the funds locally—a move that is at least partly attributable to the economic pressures of the intra-GCC rift. The intra-GCC rift has not harmed Qatar's ability to earn substantial funds from energy exports. Oil and gas still account for 92% of Qatar's export earnings, and 56% of government revenues. Proven oil reserves of about 25 billion barrels are far less than those of Saudi Arabia and Kuwait, but enough to enable Qatar to continue its current levels of oil production (about 700,000 barrels per day) for over 50 years. Its proven reserves of natural gas exceed 25 trillion cubic meters, about 13% of the world's total and third largest in the world. Along with Kuwait and UAE, in November 2016 Qatar agreed to a modest oil production cut (about 30,000 barrels per day) as part of an OPEC-wide production cut intended to raise world crude oil prices. Qatar is the world's largest supplier of liquefied natural gas (LNG), which is exported from the large Ras Laffan processing site north of Doha. That facility has been built up with U.S.-made equipment, much of which was exported with the help of about $1 billion in Export-Import Bank loan guarantees. Qatar is a member and hosts the headquarters of the Gas Exporting Countries Forum (GECF), which is a nascent natural gas cartel and includes Iran and Russia, among other countries. State-run Qatar Petroleum is a major investor in the emerging U.S. LNG export market, with a 70% stake (Exxon-Mobil and Conoco-Phillips are minority stakeholders) in an LNG terminal in Texas that is seeking U.S. government approval to expand the facility to the point where it can export over 15 million tons of LNG per year. In June 2018, Qatar Petroleum bought a 30% state in an Exxon-Mobil-run development of an onshore shale natural gas basin in Argentina (Vaca Muerta). Qatar is the source of the gas supplies for the Dolphin Gas Project established by the UAE in 1999 and which became operational in 2007. The project involves production and processing of natural gas from Qatar's offshore North Field, which is connected to Iran's South Pars Field (see Figure 2 ), and transportation of the processed gas by subsea pipeline to the UAE and Oman. Its gas industry gives Qatar some counter leverage against the Saudi-led group, but Qatar has said it will not reduce its gas supplies under existing agreements with other GCC states. Both the UAE and Qatar have filed complaints at the WTO over their boycotting each other's goods; the United States reportedly has backed the UAE's arguments that the WTO does not have the authority to adjudicate issues of national security. Because prices of hydrocarbon exports have fallen dramatically since mid-2014, in 2016 Qatar ran its first budget deficit (about $13 billion). As have other GCC rulers, Qatari leaders assert publicly that the country needs to diversify its economy, that generous benefits and subsidies need to be reduced, and that government must operate more efficiently. At the same time, the leadership apparently seeks to minimize the effect of any cutbacks on Qatari citizens. Still, if oil prices remain far below their 2014 levels and the intra-GCC rift continues much further, it is likely that many Qatari citizens will be required to seek employment in the private sector, which they generally have shunned in favor of less demanding jobs in the government. The national development strategy from 2011 to 2016 focused on Qatar's housing, water, roads, airports, and shipping infrastructure in part to promote economic diversification, as well as to prepare to host the 2022 FIFA World Cup soccer tournament, investing as much as $200 billion. In Doha, the result has been a construction boom, which by some reports has outpaced the capacity of the government to manage, and perhaps fund. A metro transportation system is under construction in Doha. U.S.-Qatar Economic Relations In contrast to the two least wealthy GCC states (Bahrain and Oman), which have free trade agreements with the United States, Qatar and the United States have not negotiated an FTA. However, in April 2004, the United States and Qatar signed a Trade and Investment Framework Agreement (TIFA). Qatar has used the benefits of the more limited agreement to undertake large investments in the United States, including the City Center project in Washington, DC. Also, several U.S. universities and other institutions, such as Cornell University, Carnegie Mellon University, Georgetown University, Brookings Institution, and Rand Corporation, have established branches and offices at the Qatar Foundation's Education City outside Doha. In 2005, Qatar donated $100 million to the victims of Hurricane Katrina. The joint statement of the January 2018 U.S.-Qatar Strategic Dialogue "recognized" QIA's commitment of $45 billion in future investments in U.S. companies and real estate. According to the U.S. Census Bureau's "Foreign Trade Statistics" compilation, the United States exported $4.9 billion in goods to Qatar in 2016 (about $600 million higher than 2015), and imported $1.16 billion worth of Qatari goods in 2016, slightly less than in 2015. U.S. exports to Qatar for 2017 ran about 40% less than the 2016 level, but U.S. imports from Qatar were about the same as in 2016. U.S. exports to Qatar rebounded to $4.4 billion in 2018 and imports were about $1.57 billion. U.S. exports to Qatar consist mainly of aircraft, machinery, and information technology. U.S. imports from Qatar consist mainly of petroleum products, but U.S. imports of Qatar's crude oil or natural gas have declined to negligible levels in recent years, reflecting the significant increase in U.S. domestic production of those commodities. Qatar's growing airline, Qatar Airways, is a major buyer of U.S. commercial aircraft. In October 2016, the airline agreed to purchase from Boeing up to another 100 passenger jets with an estimated value of $18 billion—likely about $10 billion if standard industry discounts are applied. However, some U.S. airlines challenged Qatar Airways' benefits under a U.S.-Qatar "open skies" agreement. The U.S. carriers asserted that the airline's privileges under that agreement should be revoked because the airline's aircraft purchases are subsidized by Qatar's government, giving it an unfair competitive advantage. The Obama Administration did not reopen that agreement in response to the complaints, nor did the Trump Administration. However, the United States and Qatar reached a set of "understandings" on civil aviation on January 29, 2018, committing Qatar Airways to financial transparency and containing some limitations on the airline's ability to pick up passengers in Europe for flights to the United States. Some assert that Qatar Airway's 2018 purchase of Air Italy might represent a violation of those limitations. U.S. Assistance As one of the wealthiest countries per capita in the world, Qatar gets negligible amounts of U.S. assistance. In FY2016, the United States spent about $100,000 on programs in Qatar, about two-thirds of which was for counternarcotics programming. In FY2015, the United States spent $35,000 on programs in Qatar, of which two-thirds was for counternarcotics.

The State of Qatar has employed its ample financial resources to exert regional influence separate from and independent of Saudi Arabia, the de facto leader of the Gulf Cooperation Council (GCC: Saudi Arabia, Kuwait, Qatar, United Arab Emirates, Bahrain, and Oman), an alliance of six Gulf monarchies. Qatar has intervened in several regional conflicts, including in Syria and Libya, and has engaged both Sunni Islamist and Iran-backed Shiite groups in Lebanon, Sudan, the Gaza Strip, Iraq, and Afghanistan. Qatar has maintained consistent dialogue with Iran while also supporting U.S. and GCC efforts to limit Iran's regional influence. Qatar's independent policies, which include supporting regional Muslim Brotherhood organizations and hosting a global media network often critical of Arab leaders called Al Jazeera, have caused a backlash against Qatar by Saudi Arabia and some other GCC members. A rift within the GCC opened on June 5, 2017, when Saudi Arabia, the UAE, and Bahrain, joined by Egypt and a few other governments, severed relations with Qatar and imposed limits on the entry and transit of Qatari nationals and vessels in their territories, waters, and airspace. The Trump Administration has sought, unsuccessfully to date, to mediate a resolution of the dispute. The rift has hindered U.S. efforts to hold another U.S.-GCC summit that would formalize a new "Middle East Strategic Alliance" of the United States, the GCC, and other Sunni-led countries in the region to counter Iran and other regional threats. Qatar has countered the Saudi-led pressure with new arms buys and deepening relations with Turkey and Iran. As do the other GCC leaders, Qatar's leaders have looked to the United States to guarantee their external security since the 1980s. Since 1992, the United States and Qatar have had a formal Defense Cooperation Agreement (DCA) that reportedly addresses a U.S. troop presence in Qatar, consideration of U.S. arms sales to Qatar, U.S. training, and other defense cooperation. Under the DCA, Qatar hosts about 13,000 U.S. forces and the regional headquarters for U.S. Central Command (CENTCOM) at various military facilities, including the large Al Udeid Air Base. U.S. forces in Qatar participate in all U.S. operations in the region. Qatar is a significant buyer of U.S.-made weaponry, including combat aircraft. In January 2018, Qatar and the United States inaugurated a "Strategic Dialogue" to strengthen the U.S.-Qatar defense partnership, which Qatar says might include permanent U.S. basing there. The second iteration of the dialogue, in January 2019, resulted in a U.S.-Qatar memorandum of understanding to expand Al Udeid Air Base to improve and expand accommodation for U.S. military personnel. Qatar signed a broad memorandum of understanding with the United States in 2017 to cooperate against international terrorism. That MOU appeared intended to counter assertions that Qatar's ties to regional Islamist movements support terrorism. The voluntary relinquishing of power in 2013 by Qatar's former Amir (ruler), Shaykh Hamad bin Khalifa Al Thani, departed from GCC patterns of governance in which leaders generally remain in power for life. However, Qatar is the only one of the smaller GCC states that has not yet held elections for a legislative body. U.S. and international reports criticize Qatar for failing to adhere to international standards of labor rights practices, but credit it for taking steps in 2018 to improve the conditions for expatriate workers. As are the other GCC states, Qatar is wrestling with the fluctuations in global hydrocarbons prices since 2014, now compounded by the Saudi-led embargo. Qatar is positioned to weather these headwinds because of its small population and substantial financial reserves. But, Qatar shares with virtually all the other GCC states a lack of economic diversification and reliance on revenues from sales of hydrocarbon products. On December 3, 2018, Qatar announced it would withdraw from the OPEC oil cartel in order to focus on its natural gas export sector.

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Introduction Persistent annual budget deficits and a large and increasing federal debt have generated discussions over the long-term sustainability of current budget projections. Federal budget deficits declined from 9.8% of gross domestic product (GDP) in FY2009 to 3.8% of GDP in FY2018. However, recent estimates forecast that the government will run deficits (i.e., federal expenditures will exceed revenues) in every year through FY2029. Federal debt totaled $21.516 trillion at the end of FY2018, and as a percentage of GDP (106.0%) was at its highest value since FY1947; $15.761 trillion of that debt (or 77.8% of GDP) was held by the public. This report explores distinctions in the concept and composition of deficits and debt and explains how they interact with economic conditions and other aspects of fiscal policy. Background What Is a Deficit? A deficit describes one of the three possible outcomes for the federal budget. The federal government incurs a deficit (also known as a net deficit) when its total outgoing payments (outlays) exceed the total money it collects (revenues). If instead federal revenues are greater than outlays, then the federal government generates a surplus. A balanced budget describes the case where federal receipts equal federal expenditures. The size of a deficit or surplus is equal to the difference between the levels of spending and receipts. Deficits are measured over the course of a defined period of time—in the case of the federal government, a fiscal year. Federal budget outcomes incorporate both "on-budget" activities, which represent the majority of federal taxes and spending, and "off-budget" government activities, which include revenues and outlays from Social Security trust funds and the Postal Service. For federal credit programs, the subsidy cost of government activities is included in deficit and surplus calculations. The federal budget is constructed in a manner that provides for lower net deficits in more robust economic conditions, attributable to higher revenues (from taxes on increased output) and, to a smaller degree, lower spending levels (from reduced demand for programs like unemployment insurance). The federal government incurred a deficit of $779 billion in FY2018, equivalent to 3.8% of GDP. From FY1969 to FY2018, the average net deficit equaled 2.9% of annual GDP ($587 billion in 2018 dollars). Over the FY1969-FY2018 period, the government generated a surplus on five occasions: in FY1969 and in each year from FY1998 through FY2001. In all other years, the federal government incurred a net deficit. What Is the Debt? The federal debt is the money that the government owes to its creditors, which include private citizens, institutions, foreign governments, and other parts of the federal government. Debt measurements may be taken at any time and represent the accumulation of all previous government borrowing activity. Federal debt increases when there are net budget deficits, outflows made for federal credit programs (net of the subsidy costs already included in deficit calculations), and increases in intragovernmental borrowing. Federal credit programs include loans issued for college tuition payments, small business programs, and other activities the government may seek to support. In those cases, debt levels increase as additional loans are granted and decrease as money for such programs is repaid. Intragovernmental debt is generated when trust funds, revolving funds, and special funds receive money from tax payments, fees, or other revenue sources that is not immediately needed to make payments. In those cases the surpluses are used to finance other government activities, and Government Account Series (GAS) securities are issued to the trust fund. GAS securities may then be redeemed when trust fund expenditures exceed revenue levels. Intragovernmental debt may be thought of as money that one part of the government owes another part. The Department of the Treasury is responsible for managing federal debt. The primary objective of Treasury's debt management strategy is to fulfill the government's borrowing needs at the lowest cost over time. Treasury finances federal borrowing activities by issuing government-backed securities that generate interest payments for their owners. Treasury securities are typically sold to the public through an auction process, and have maturity periods (the length of time that they are held before repayment) of anywhere from several weeks to 30 years. Comparing Debt Held by the Public and Intragovernmental Debt Federal debt may be divided into two major categories: (1) debt held by the public, which is the sum of accrued net deficits and outstanding money from federal credit programs; and (2) intragovernmental debt. As of February 28, 2019, the amount of federal debt outstanding was $22.087 trillion, with 73.6% of that debt held by the public and 26.4% held as intragovernmental debt. Table 1 summarizes the composition of debt held by the public and intragovernmental debt. Individuals, firms, the Federal Reserve, state and local governments, and foreign governments are all eligible to purchase publicly held debt. Debt may be acquired directly through the auction process, from which most publicly held debt is initially sold, or on the secondary market if the debt is deemed "marketable" or eligible for resale. The total amount of publicly held debt outstanding was $16.251 trillion as of February 28, 2019. The majority of publicly held debt is marketable, and includes all Treasury Notes, Bonds, Bills, Treasury Inflation Protected Securities (TIPS), and Floating Rate Notes (FRNs) issued by Treasury. Nonmarketable debt held by the public is composed of U.S. Savings Bonds, State and Local Government Securities (SLGS), and other, smaller issues. As of February 28, 2019, 96.8% of publicly held issues, or $15.741 trillion, was marketable. Intragovernmental debt is debt where the federal government is both the creditor and the borrower. Intragovernmental debt issuances are almost exclusively nonmarketable, as marketable debt comprised only $0.029 trillion (0.5%) of the $5.836 trillion in total intragovernmental debt on February 28, 2019. The majority of nonmarketable intragovernmental debt was held by trust funds devoted to Social Security and military and federal worker retirement. Marketable intragovernmental debt is composed primarily of debt held by the Federal Financing Bank, which is a government corporation created to reduce the cost of federal borrowing. Since intragovernmental debt is held only in government accounts, such debt cannot be accessed by institutions outside the federal government. Conversely, the bonds that finance publicly held debt activity may compete for assets in private and financial markets. Public debt issues may be a particularly attractive collateral option on the secondary market if the federal government is perceived as a safe credit risk. Deficit and Debt Interaction Federal deficit and debt outcomes are interdependent; budget deficits increase federal debt levels, which in turn increase future net deficits because of the need to service higher interest payments on the nation's debt. The nature of the relationship between deficits and debt varies depending on the type of debt considered. This section describes the relationship between federal deficits and debt. How Deficits Contribute to Debt Budget deficits are the principal contributor to debt held by the public. To finance budget deficits, Treasury sells debt instruments. The value of those debt holdings (which include interest payments) represents the vast majority of publicly held debt. From FY1969 to FY2018, annual nominal budget deficits and surpluses of the federal government summed to $13.745 trillion; over the same period, total debt held by the public increased by $15.473 trillion. Publicly held debt has been the biggest determinant of historical changes in the total stock of federal debt. Figure 1 shows changes in federal debt levels from FY1969 through FY2018. Though there has been a gradual increase in intragovernmental debt in recent decades, the decline in real debt following World War II and subsequent increase in debt levels beginning in the late 1970s were each caused primarily by similar changes in the stock of publicly held debt over those time periods. How Debt Contributes to Deficits Present borrowing outcomes affect future budgeting outcomes. Publicly held debt contributes directly to federal deficits through interest payments on debt issuances. Interest payments are made to both debt held by the public and intragovernmental debt. As the government serves as buyer and seller of intragovernmental debt, interest payments on those holdings do not affect the federal budget deficit. However, interest payments made on publicly held debt represent new federal spending, and are recorded in the budget as outlays when payments are made. The government incurs interest costs when it opts to finance spending through borrowing rather than through increased revenues. Net interest payments represent the amount paid from the government to debt holders in a given time period , less interest payments received for federal loan programs . For investors, purchasing a debt issuance represents both a loss of liquidity relative to currency holdings (money paid for the debt holding can be used immediately, while the debt issuance may only be resold on the secondary market or held until the date of maturity) and an opportunity cost (the money used for the purchase could have been spent on other items, invested elsewhere, or saved). Debt holders are compensated for those costs by receiving interest payments from Treasury on their issuances. From FY1969 to FY2018 net interest payments averaged 2.0% of annual GDP, equivalent to about $407 billion annually in 2018 dollars. High interest rates and increasing debt levels caused the net interest burden to peak in the 1980s and 1990s. Recent net interest payments have been lower than their long-term averages; in FY2018, net interest payments were $325 billion, or 1.6% of GDP. FY2018 payments were the product of real low interest rates and relatively high levels of real debt. Unless the federal debt is reduced, net interest payments will likely increase if interest rates shift toward their long-term averages. In its most recent forecast, the Congressional Budget Office (CBO) projects that real net interest payments will increase to 3.0% of GDP by FY2029. One way to measure the effect of debt on future deficits is to examine the relationship between total federal deficits and the primary deficit , which measures the balance of revenues and expenditures with net interest payments excluded. Figure 2 shows total and primary budget outcomes from FY1969 through FY2018. The gap between the total and primary outcomes in a given year is explained by net interest payments. The primary deficit averaged 0.9% of GDP from FY1969 to FY2018, as compared to the average total budget deficit of 2.9% of GDP recorded over the same time period. While the federal government recorded a budget surplus five times from FY1969 to FY2018, in nine other years it registered a primary surplus, most recently in 2007. Economic Theory, Deficits, and Debt: In Brief This section provides a primer of how government deficits and debt are integrated into the larger economy in both the short and long run, and provides some ways to measure such interactions. The nature of interaction between fiscal outcomes and economic performance may have ramifications for how Congr ess wishes to distribute its activity both within a recession or expansion and for what fiscal targets it wishes to set in the long run. How Deficits and Debt Contribute to the Economy: Short-Run Effects In the short run, when economic output is assumed to be fixed, output is a function of both private and public activity. Equation (1), also known as the national accounting identity , shows the different choices that can be made with all economic output in a given time period. It states that output ( Y ) in a given economy is equal to the sum of private consumption ( C ), private investment ( I ), net government investment ( G ), and net exports ( X ). Put another way, equation (1) asserts that output is the sum of private consumption, private saving, and net government activity. The net government deficit, or G , is shown in equation (2) as spending ( S ) less revenues ( R ). Absent a monetary policy intervention by the Federal Reserve (which makes monetary decisions independently), G must be obtained through government borrowing, or debt. (1) Y = C + I + G + X (2) G = S - R Since the levels of output ( Y ) and consumption ( C ) in a given time period are fixed, increases in government investment ( G ) will reduce private investment ( I ), net exports ( X ), or some combination thereof. Government borrowing increases that reduce private investment are commonly categorized as "crowding out," and represent a shift from private investment to public investment. Increased government borrowing that reduces net exports (generated by borrowing from foreign sources) represents an expansion of the short-term money supply, as money is being brought into the economy now at the expense of the future stock of money (as foreign borrowing is repaid). Such a fiscal expansion increases the quantity of money demanded, which drives up interest rates (or cost of borrowing). The federal government may choose to generate short-run budget deficits for a few reasons. Deficit financing, or payment for federal government activity at least partly through debt increases, increases the total level of spending in the economy. Most economists believe that the implementation of deficit financing can be used to generate a short-term stimulus effect, either for a particular industry or for the entire economy. In this view, increases in expenditures and tax reductions can be used to generate employment opportunities and consumer spending and reduce the intensity of stagnant economic periods. Deficit financing is a less effective countercyclical strategy when it leads to "crowding out," or when government financing merely replaces private-sector funding instead of inducing new economic activity, and is more likely to occur in periods of robust economic growth. Deficit reduction when the economy is operating near or at full potential can help prevent the economy from overheating and avoid "crowding out" of private investment, which could have positive implications for intergenerational equity and long-term growth. Deficit financing may also be used as part of a structurally balanced budget strategy, which alters government tax and spending levels to smooth the effect of business cycles. Smoothing budgetary changes may reduce the economic shocks deficits induce among businesses and households. Governments may also use federal deficits or surpluses to spread the payment burden of long-term projects across generations. This sort of intergenerational redistribution is one justification for the creation of long-run trust funds, such as those devoted to Social Security. How Deficits and Debt Contribute to the Economy: Long-Run Effects In the long run, when economic output is affected by supply-side choices, the effect of government borrowing on economic growth depends on how amounts borrowed are used relative to what would have otherwise been done with those savings (i.e., an increase in private investment or net exports) if such borrowing had not taken place. As shown in equation (3), economic growth, or the change ( Δ ) in output ( Y ), is a function ( f ) of the stock of labor ( L , or the number of people working and hours that they work), the stock of capital ( K , which includes equipment, machines, and all other nonlabor factors), and the knowledge and technological capability (A) that determines the productivity of labor and capital. (3) ΔY= f(ΔL, ΔK, ΔA) Assuming that the stock of labor is insensitive to fiscal policy choices, the effect of federal debt on economic growth depends on how the additional government activity affects the capital stock and productivity of labor and capital relative to what would have happened had amounts borrowed been invested privately or increased net exports. If that government activity (debt-financed spending) contributes to those factors more than the economic activity it replaced, than that debt financing will have had a positive effect on future economic growth (or potential). Alternatively, if such activity contributes less to those factors than the replaced private investment and net exports, it will reduce long-term economic potential. Changes in federal debt levels shift economic resources across time periods, a process sometimes described as an intertemporal transfer . Federal debt issuances represent an increase in the current level of federal resources and a decrease in future federal resources. Net interest payments, or the total interest payments made by the federal government (to creditors) on borrowed money less interest payments received (from individuals and institutions borrowing from the federal government or debtors), may be thought of as the total expense associated with past federal borrowing. Those resources cannot be allocated to other government services. Total borrowing is constrained by the money available for investment (savings in dollars) at a given point in time. This limit means that the amount of federal debt relative to output cannot increase indefinitely. The trajectory of federal debt is therefore thought to be unsustainable if debt taken as a share of output (measured in this report with gross domestic product, or GDP) rises continuously in long-term projections. This happens when growth in the stock of debt outpaces total economic growth, which can cause a variety of adverse outcomes, including reduced output, increased unemployment, higher inflation, higher private interest rates, and currency devaluation. Recent international experiences speak to the complexity of borrowing capacity. Both Greece and Japan experienced rapid growth in government debt in the past decade. Organization for Economic Co-operation and Development (OECD) data on general government debt (including municipal government debt) indicate that Greek debt rose from 115% of GDP in 2006 to 189% of GDP in 2017, while Japanese debt rose from 180% of GDP to 234% of GDP over the same time period. A loss in market confidence in Greek debt led to a severe recession, with GDP contracting by 9 percentage points in 2011 and long-term interest rates reaching 22% in 2012. Japanese borrowing was viewed to be more sustainable despite being higher, with relatively flat GDP levels and long-term interest rates close to zero in recent years. Among 31 OECD countries, the United States had the fifth-largest level of general government debt (136% of GDP, including debt from state and local governments) in 2017, the most recent year for which full data are available. How the Economy Contributes to Deficits The deficit's cyclical pattern can be attributed in part to "automatic stabilizers," or spending programs and tax provisions that cause the budget deficit to move in tandem with the business cycle without any change in law. More robust economic periods generally produce lower net deficits (or higher net surpluses), due to increases in receipts (from greater tax revenues) and reduced expenditures (from decreased demand for public assistance). The opposite effect occurs during recessions: as incomes and employment fall, the existing structure of the federal tax system automatically collects less revenue, and spending on mandatory income security programs, such as unemployment insurance, automatically rises. CBO estimates that the share of the deficit attributable to automatic stabilizers fell from 1.9% of GDP in FY2010 to 0.0% of GDP in FY2018. In other words, the budget deficit recorded in FY2018 (3.8% of GDP) is nearly identical to the "structural deficit" that economists would expect with automatic stabilizer effects removed from the budget. Figure 3 shows the real economic growth (as a percentage on the horizontal axis) and the federal budget outcome (as a percentage of GDP, on the vertical axis) in each fiscal year from FY1969 through FY2018. The positive correlation between economic outcomes and budget outcomes is picked up by the general direction of the trend line from the lower left part of the graph to the upper right area. How the Economy Contributes to Debt All else equal, higher levels of nominal GDP make a given amount of debt easier to repay by eroding its real value. For example, the highest measurement of debt since 1940 occurred in 1946, when the federal debt level was 118.9% of GDP, or $271 billion in (nominal) FY1946 dollars. In contrast, $271 billion was equivalent to only 1.3% of GDP in FY2018. Increases in nominal GDP may be caused by productivity increases, economic inflation—which measures the purchasing power of currency—or a combination of each factor. Though changes in economic growth rates typically have a relatively small effect on real debt levels in the short run, long-run changes in economic productivity can have a significant effect on the trajectory and sustainability of the debt burden. For instance, from FY2009 through FY2018, federal deficits averaged 5.3% of GDP, and real economic growth averaged 1.76% per year over the same period; those factors combined to increase federal publicly held debt from 39% of GDP at the beginning of FY2008 to 78% of GDP at the end of FY2018. Though real deficits were actually larger from FY1943 to FY1952 (averaging 7.3% of GDP), robust real economic growth over that period (3.6% per year) meant that the change in publicly held debt in that decade was smaller (45% of GDP to 60% to GDP) than in the FY2009-FY2018 period. Deficit and Debt Outlook The FY2018 real deficit equaled 3.8% of GDP, which was higher than the average federal deficit from FY1969 to FY2018 (2.9% of GDP). Both real deficits and real debt are projected to increase over the course of the 10-year budget window, which runs through FY2029. In its latest economic forecast, the CBO projected that the total burden of U.S. debt held by the public would steadily increase over the course of the budget window, from 77.8% of GDP in FY2018 to 92.7% of GDP in FY2029. Table 2 provides the most recent forecasts for publicly held debt issued by the CBO. Each forecast projects an increase in publicly held debt over the next 5, 10, and 25 fiscal years. The CBO baseline assumes that current law continues as scheduled. Specifically, the CBO baseline assumes that discretionary budget authority from FY2020 through FY2021 will be restricted by the caps created by the Budget Control Act (BCA; P.L. 112-25 ), as amended, and that certain tax policy changes enacted in the 2017 tax revision ( P.L. 115-97 ) and in other laws will expire as scheduled under current law. CBO also provides alternative projections where such assumptions are revised. If discretionary spending increases with inflation after FY2019, instead of proceeding in accordance with the limits instituted by the BCA, and if tax reductions in the 2017 tax revision are extended, CBO projects that federal debt held by the public would increase to 97% of GDP by FY2029. CBO also produces a long-term baseline that uses a number of additional assumptions to extend its standard baseline an additional 20 years (thus the 2018 long-term baseline runs through FY2049). The current long-term forecast projects that publicly held federal debt will equal 147% of GDP in FY2049, which would exceed the highest stock of federal debt experienced in the FY1940-FY2018 period (106% of GDP in FY1946). CBO projects increases in both interest rates and publicly held federal debt over the next 10 years, leading to a significant rise in U.S. net interest payments. As noted above, CBO projects that publicly held federal debt will rise from 77.8% of GDP in FY2018 to 92.7% of GDP in FY2029, and projects that the average interest rate on three-month Treasury bills will rise from 1.66% in FY2017 to 2.81% in FY2029. Those factors combine to generate federal net interest payments of 3.0% of GDP in FY2029 under the CBO projections, which would be just under the highest amount paid from FY1940 through FY2017 (3.2% of GDP in FY1991). International Context It may be useful to compare the recent U.S. federal borrowing trajectory with the practices of international governments, because future interest rate and fiscal space considerations will both be affected by the behavior of other major actors. Table 3 includes the general government debt history and projections for G-7 countries and the European Area from FY2000 to FY2023. The worldwide impact of the Great Recession led to increased general gross debt levels for all G-7 countries in 2013 relative to their 2000-2009 average. As shown in Table 3 , U.S. debt levels rose by 40% of GDP over that time period, which was larger than increases in Canada and the European Area but smaller than rises in the United Kingdom and Japan. General debt levels largely stabilized from 2013 to 2018, with decreases in Germany and the European Area and small increases in other countries. Future projections of debt included in Table 3 are characterized by a divergence between U.S. general gross debt levels and those in other G-7 countries. The IMF forecast projects that U.S. general gross debt will rise from 106% to 117% from 2018 to 2023, while those same projections forecast a decrease in debt owed by all other G-7 governments and in the European Area. Addressing the potential consequences of those projections will likely involve policy adjustments that reduce future budget deficits, either through tax increases, reductions in spending, or a combination of the two. Under CBO's extended baseline, maintaining the debt-to-GDP ratio at today's level (78%) in FY2048 would require an immediate and permanent cut in noninterest spending, increase in revenues, or some combination of the two in the amount of 1.9% of GDP (or about $400 billion in FY2018 alone) in each year. Maintaining this debt-to-GDP ratio beyond FY2047 would require additional deficit reduction. If policymakers wanted to lower future debt levels relative to today, the annual spending reductions or revenue increases would have to be larger. For example, in order to bring debt as a percentage of GDP in FY2048 down to its historical average over the past 50 years (40% of GDP), spending reductions or revenue increases or some combination of the two would need to generate net savings of roughly 3.0% of GDP (or $630 billion in FY2018 alone) in each year.

The federal government incurs a budget deficit when its total outgoing payments (outlays) exceed the total money it collects (revenues). If instead federal revenues are greater than outlays, then the federal government generates a surplus. Deficits are measured over the course of a defined period of time—in the case of the federal government, a fiscal year. Debt measurements may be taken at any point in time, and represent the accumulation of all previous government borrowing activity from private citizens, institutions, foreign governments, and other parts of the federal government. Federal debt increases when there are net budget deficits and outflows made for federal credit programs, which combine to represent debt held by the public. Federal debt also rises through increases in intragovernmental debt, which is generated by trust fund surpluses that are used to finance other government activity. Federal debt declines when there are budget surpluses, a reduction in the federal credit portfolio, or decreases in intragovernmental borrowing. Federal deficit and debt outcomes are interdependent: budget deficits increase federal debt levels, which in turn increase future net deficits. The nature of the relationship between deficits and debt varies depending on the type of debt considered. Budget deficits are the principal contributor to debt held by the public. The effect of deficits on intragovernmental debt is less certain than their contribution to debt held by the public. All else equal, increases in net trust fund deficits will lead to increases in total budget deficits but decreases in intragovernmental debt. Interest payments made on publicly held debt instruments contribute directly to federal deficits. Holders of federal debt are compensated by receiving interest payments from Treasury. Intragovernmental debt does not contribute to future deficits. Persistent budget deficits and a large and increasing federal debt have generated discussions over the long-term sustainability of current budget projections. Federal budget deficits declined from 9.8% of gross domestic product (GDP) in FY2009 to 2.4% of GDP in FY2015, and subsequently increased to 3.8% of GDP in FY2018. Recent estimates forecast that the government will run deficits in every year through FY2029. Federal debt totaled $21.516 trillion at the end of FY2018, which as a percentage of GDP (106.0%) was its highest value since FY1947; of that debt, $15.761 trillion (or 77.8% of GDP) was held by the public. Over time, persistent budget deficits can hamper economic growth. Deficits represent an intertemporal transfer from later generations to the current one, as money borrowed now will eventually require repayment with interest. The effect of deficit financing on economic output depends on the nature of the government activity being financed and the private activity that would have otherwise taken place. Federal debt is constrained by the willingness of investors to finance borrowing. While the amount of federal borrowing investors will finance may be affected by economic growth and other factors, real federal debt cannot increase indefinitely. There are no signs that federal borrowing capacity will be exhausted in the short term. However, the consequences of exhausted fiscal space may be worth considering when examining the medium- and long-term trajectory of the federal budget.

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CMS Delegated Monitoring of Beneficiaries who Receive Opioid Prescriptions to Plan Sponsors, but Did Not Have Sufficient Information on Those Most at Risk for Harm CMS Delegated Monitoring of Individual Beneficiaries’ Opioid Prescriptions to Plan Sponsors Our October 2017 report found that CMS provided guidance to Medicare Part D plan sponsors on how they should monitor opioid overutilization problems among Part D beneficiaries. The agency included this guidance in its annual letters to plan sponsors, known as call letters; it also provided a supplemental memo to plan sponsors in 2012. Among other things, these guidance documents instructed plan sponsors to implement a retrospective drug utilization review (DUR) system to monitor beneficiary utilization starting in 2013. As part of the DUR systems, CMS required plan sponsors to have methods to identify beneficiaries who were potentially overusing specific drugs or groups of drugs, including opioids. Also in 2013, CMS created the Overutilization Monitoring System (OMS), which outlined criteria to identify beneficiaries with high-risk use of opioids, and to oversee sponsors’ compliance with CMS’s opioid overutilization policy. Plan sponsors may use the OMS criteria for their DUR systems, but they had some flexibility to develop their own targeting criteria within CMS guidance. At the time of our review, the OMS considered beneficiaries to be at a high risk of opioid overuse when they met all three of the following criteria: 1. received a total daily MED greater than 120 mg for 90 consecutive 2. received opioid prescriptions from four or more health care providers in the previous 12 months, and 3. received opioids from four or more pharmacies in the previous 12 months. The criteria excluded beneficiaries with a cancer diagnosis and those in hospice care, for whom higher doses of opioids may be appropriate. We found that through the OMS, CMS generated quarterly reports that list beneficiaries who met all of the criteria and who were identified as high- risk, and then distributed the reports to the plan sponsors. Plan sponsors were expected to review the list of identified beneficiaries, determine appropriate action, and then respond to CMS with information on their actions within 30 days. According to CMS officials, the agency also expected plan sponsors to share any information with CMS on beneficiaries that they identified through their own DUR systems. We found that some actions plan sponsors may take included the following: Case management. Case management may include an attempt to improve coordination issues, and often involves provider outreach, whereby the plan sponsor will contact the providers associated with the beneficiary to let them know that the beneficiary is receiving high levels of opioids and may be at risk of harm. Beneficiary-specific point-of-sale (POS) edits. Beneficiary-specific POS edits are restrictions that limit these beneficiaries to certain opioids and amounts. Pharmacists receive a message when a beneficiary attempts to fill a prescription that exceeds the limit in place for that beneficiary. Formulary-level POS edits. These edits alert providers who may not have been aware that their patients are receiving high levels of opioids from other doctors. Referrals for investigation. According to the six plan sponsors we interviewed, the referrals can be made to CMS’s National Benefit Integrity Medicare Drug Integrity Contractor (NBI MEDIC), which was responsible for identifying and investigating potential Part D fraud, waste, and abuse, or to the plan sponsor’s own internal investigative unit, if they have one. After investigating a particular case, they may refer the case to the HHS-OIG or a law enforcement agency, according to CMS, NBI MEDIC, and one plan sponsor. Based on CMS’s use of the OMS and the actions taken by plan sponsors, CMS reported a 61 percent decrease from calendar years 2011 through 2016 in the number of beneficiaries meeting the OMS criteria of high risk—from 29,404 to 11,594 beneficiaries—which agency officials considered an indication of success toward its goal of decreasing opioid use disorder. In addition, we found that CMS relied on separate patient safety measures developed and maintained by the Pharmacy Quality Alliance to assess how well Part D plan sponsors were monitoring beneficiaries and taking appropriate actions. In 2016, CMS started tracking plan sponsors’ performance on three patient safety measures that were directly related to opioids. The three measures were similar to the OMS criteria in that they identified beneficiaries with high dosages of opioids (120 mg MED), beneficiaries that use opioids from multiple providers and pharmacies, and beneficiaries that do both. However, one difference between these approaches was that the patient safety measures separately identified beneficiaries who fulfill each criterion individually. CMS Did Not Have Sufficient Information on Most Beneficiaries Potentially at Risk for Harm Our October 2017 report also found that CMS tracked the total number of beneficiaries who met all three OMS criteria as part of its opioid overutilization oversight across the Part D program. However, the agency did not have comparable information on most beneficiaries who receive high doses of opioids—regardless of the number of providers and pharmacies used—and who therefore may be at risk for harm, according to CDC’s 2016 guidelines. These guidelines noted that long-term use of high doses of opioids—those above a MED of 90 mg per day—are associated with significant risk of harm and should be avoided if possible. Based on the CDC guidelines, outreach to Part D plan sponsors, and CMS analyses of Part D data, CMS has revised its current OMS criteria to include more at-risk beneficiaries beginning in 2018. The new OMS criteria define a high user as an individual having an average daily MED greater than 90 mg for any duration; receiving opioids from four or more providers and four or more pharmacies, or from six or more providers regardless of the number of pharmacies, for the prior 6 months. Based on 2015 data, CMS found that 33,223 beneficiaries would have met these revised criteria. While the revised criteria would help identify beneficiaries who CMS determined are at the highest risk of opioid misuse and therefore may need case management by plan sponsors, they did not provide information on the total number of Part D beneficiaries who may be at risk of harm. In developing the revised criteria, CMS conducted a one-time analysis that estimated there were 727,016 beneficiaries with an average MED of 90 mg or more, for any length of time during a 6 month measurement period in 2015, regardless of the number of providers or pharmacies used. According to the CDC guidelines, these beneficiaries may be at risk of harm from opioids, and therefore tracking the total number of these beneficiaries over time could help CMS to determine whether it is making progress toward meeting the goals specified in its Opioid Misuse Strategy to reduce the risk of opioid use disorders, overdoses, inappropriate prescribing, and drug diversion. However, CMS officials told us that the agency did not keep track of the total number of these beneficiaries, and did not have plans to do so as part of OMS. (See fig. 1.) We also found that in 2016, CMS began to gather information from its patient safety measures on the number of beneficiaries who use more than 120 mg MED of opioids for 90 days or longer, regardless of the number of providers and pharmacies. The patient safety measures identified 285,119 such beneficiaries—counted as member-years—in 2016. However, this information did not include all at-risk beneficiaries, because the threshold was more lenient than indicated in CDC guidelines and CMS’s new OMS criteria. Because neither the OMS criteria nor the patient safety measures included all beneficiaries potentially at risk of harm from high opioid doses, we recommended that CMS should gather information over time on the total number of beneficiaries who receive high opioid morphine equivalent doses regardless of the number of pharmacies or providers, as part of assessing progress over time in reaching the agency’s goals related to reducing opioid use. HHS concurred with our recommendation. CMS Oversees Providers through its Contractor and Plan Sponsors, but Efforts Did Not Specifically Monitor Opioid Prescriptions Our October 2017 report found that CMS oversees providers who prescribe opioids to Medicare Part D beneficiaries through its contractor, NBI MEDIC, and the Part D plan sponsors. NBI MEDIC’s data analyses to identify outlier providers. CMS required NBI MEDIC to identify providers who prescribe high amounts of Schedule II drugs, which include but are not limited to opioids. Using prescription drug data, NBI MEDIC conducted a peer comparison of providers’ prescribing practices to identify outlier providers—the highest prescribers of Schedule II drugs—and reported the results to CMS. NBI MEDIC’s other projects. NBI MEDIC gathered and analyzed data on Medicare Part C and Part D, including projects using the Predictive Learning Analytics Tracking Outcome (PLATO) system. According to NBI MEDIC officials, these PLATO projects sought to identify potential fraud by examining data on provider behaviors. NBI MEDIC’s investigations to identify fraud, waste, and abuse. NBI MEDIC officials conducted investigations to assist CMS in identifying cases of potential fraud, waste, and abuse among providers for Medicare Part C and Part D. The investigations were prompted by complaints from plan sponsors; suspected fraud, waste, or abuse reported to NBI MEDIC’s call center; NBI MEDIC’s analysis of outlier providers; or from one of its other data analysis projects. NBI MEDIC’s referrals. After identifying providers engaged in potential fraudulent overprescribing, NBI MEDIC officials said they may refer cases to law enforcement agencies or the HHS-OIG for further investigation and potential prosecution. Plan sponsors’ monitoring of providers. CMS required all plan sponsors to adopt and implement an effective compliance program, which must include measures to prevent, detect, and correct Part C or Part D program noncompliance, as well as fraud, waste, and abuse. CMS’s guidance focused broadly on prescription drugs, and did not specifically address opioids. Our report concluded that although these efforts provided valuable information, CMS lacked information necessary to adequately oversee opioid prescribing. CMS’s oversight actions focused broadly on Schedule II drugs rather than specifically on opioids. For example, NBI MEDIC’s analyses to identify outlier providers did not indicate the extent to which they may be overprescribing opioids specifically. According to CMS officials, they directed NBI MEDIC to focus on Schedule II drugs, because these drugs have a high potential for abuse, whether they are opioids or other drugs. However, without specifically identifying opioids in these analyses—or an alternate source of data—CMS lacked data on providers who prescribe high amounts of opioids, and therefore cannot assess progress toward meeting its goals related to reducing opioid use, which would be consistent with federal internal control standards. Federal internal control standards require agencies to conduct monitoring activities and to use quality information to achieve objectives and address risks. As a result, we recommended that CMS require NBI MEDIC to gather separate data on providers who prescribe high amounts of opioids. This would allow CMS to better identify those providers who are inappropriately and potentially fraudulently overprescribing opioids. HHS agreed, and in April 2018 reported that it is working with NBI MEDIC to separately identify outlier prescribers of opioids. In addition, our 2017 report found that CMS also lacked key information necessary for oversight of opioid prescribing, because it did not require plan sponsors to report to NBI MEDIC or CMS cases of fraud, waste, and abuse; cases of overprescribing; or any actions taken against providers. Plan sponsors collected information on cases of fraud, waste, and abuse, and could choose to report this information to NBI MEDIC or CMS. While CMS receives information from plan sponsors who voluntarily reported their actions, it did not know the full extent to which plan sponsors had identified providers who prescribed high amounts of opioids, or the full extent to which sponsors had taken action to reduce overprescribing. We concluded that without this information, it was difficult for CMS to assess progress in this area, which would be consistent with federal internal control standards. In our report, we recommended that CMS require plan sponsors to report on investigations and other actions taken related to providers who prescribe high amounts of opioids. HHS did not concur with this recommendation. HHS noted that plan sponsors have the responsibility to detect and prevent fraud, waste, and abuse, and that CMS reviews cases when it conducts audits. HHS also stated that it seeks to balance requirements on plan sponsors when considering new regulatory requirements. However, without complete reporting—such as reporting from all plan sponsors on the actions they take to reduce overprescribing—we believe that CMS is missing key information that could help assess progress in this area. Due to the importance of this information for achieving the agency’s goals, we continue to believe that CMS should require plan sponsors to report on the actions they take to reduce overprescribing. Conclusions In conclusion, a large number of Medicare Part D beneficiaries use potentially harmful levels of prescription opioids, and reducing the inappropriate prescribing of these drugs has been a key part of CMS’s strategy to decrease the risk of opioid use disorder, overdoses, and deaths. Despite working to identify and decrease egregious opioid use behavior—such as doctor shopping—among Medicare Part D beneficiaries, CMS lacked the necessary information to effectively determine the full number of beneficiaries at risk of harm, as well as other information that could help CMS assess whether its efforts to reduce opioid overprescribing are effective. It is important that health care providers help patients to receive appropriate pain treatment, including opioids, based on the consideration of benefits and risks. Access to information on the risks that Medicare patients face from inappropriate or poorly monitored prescriptions, as well as information on providers who may be inappropriately prescribing opioids, could help CMS as it works to improve care. Chairman Toomey, Ranking Member Stabenow, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contacts and Staff Acknowledgements If you or your staff members have any questions concerning this testimony, please contact me at (202) 512-7114 or [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions to this testimony include Will Simerl (Assistant Director) and Carolyn Feis Korman (Analyst-in-Charge). Also contributing were Amy Andresen, George Bogart, Andrew Furillo, Drew Long, and Vikki Porter. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Misuse of prescription opioids can lead to overdose and death. Medicare and Medicaid, two of the nation's largest health care programs, provide prescription drug coverage that can include opioids. GAO and others have reported on inappropriate activities and risks associated with these prescriptions. This statement is based on GAO's October 2017 report (GAO-18-15) and discusses (1) CMS oversight of Medicare beneficiaries who receive opioid prescriptions under Part D, and (2) CMS oversight of providers who prescribe opioids to Medicare Part D beneficiaries. For the October 2017 report, GAO reviewed CMS opioid utilization and prescriber data, CMS guidance for plan sponsors, and CMS's strategy to prevent opioid misuse. GAO also interviewed CMS officials, the six largest Part D plan sponsors, and 12 national associations selected to represent insurance plans, pharmacy benefit managers, physicians, patients, and regulatory and law enforcement authorities. In October 2017, GAO found that the Centers for Medicare & Medicaid Services (CMS) provided guidance on the monitoring of Medicare beneficiaries who received opioid prescriptions to plan sponsors—private organizations that implement the Medicare drug benefit, Part D—but it lacked information on most beneficiaries at risk of harm from opioid use. Specifically, GAO found that CMS provided guidance to plan sponsors on how they should monitor opioid overutilization among Medicare Part D beneficiaries, and required them to implement drug utilization review systems that use criteria similar to CMS's. Prior to 2018, the agency's criteria focused on beneficiaries who did all the following: (1) received prescriptions of high doses of opioids, (2) received prescriptions from four or more providers, and (3) filled prescriptions at four or more pharmacies. According to CMS, this approach focused actions on beneficiaries the agency determined to have the highest risk of harm. For 2018, CMS revised the criteria to include more at-risk beneficiaries. CMS's criteria, including recent revisions, did not provide sufficient information about the larger population of potentially at-risk beneficiaries. CMS estimated that, in 2015, 727,016 beneficiaries would have received high doses of opioids regardless of the number of providers or pharmacies, but only 33,223 would have met its revised criteria. In 2016, CMS began to collect information on some of these beneficiaries using a higher dosage threshold for opioid use. However, based on Centers for Disease Control and Prevention guidelines, CMS's approach also missed some who could be at risk of harm. As a result, CMS had limited information to assess progress against the goals of the Medicare and Medicaid programs' Opioid Misuse Strategy, which includes activities to reduce risk of harm to beneficiaries. CMS provided oversight on prescribing of drugs at high risk of abuse through a variety of projects, but did not analyze data specifically on opioids. According to CMS officials, CMS and plan sponsors identified providers who prescribed large amounts of drugs with a high risk of abuse, and those suspected of fraud or abuse may be referred to law enforcement. However, GAO found that CMS did not identify providers who may be inappropriately prescribing large amounts of opioids separately from other drugs, and did not require plan sponsors to report actions they take when they identified such providers. As a result, CMS lacked information that it could use to assess how opioid prescribing patterns are changing over time, and whether its efforts to reduce harm are effective.

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Introduction Since the founding, the federal courts have played a critical role in adjudicating legal disputes, including ones involving executive action. As the Supreme Court stated in Marbury v. Madison , "where a specific duty is assigned by law . . . the individual who considers himself injured[] has a right to resort to the laws of his country for a remedy." Naturally, Congress and its Members have an interest in litigating in federal court, for example, to vindicate their institutional priorities, to argue that the Executive is violating their legislative prerogatives, or to advance their legislative policy interests. During the Obama Administration, for instance, legislative entities brought or joined litigation in federal court for a host of reasons, such as to challenge the Executive's decision to allegedly expend money without a congressional appropriation, to defend the Defense of Marriage Act from constitutional challenge in lieu of the Executive, and to challenge the Executive's decision to engage in military action in Libya. Likewise, during the Trump Administration, legislators have become involved in lawsuits that challenge the President's alleged unconstitutional acceptance of emoluments, suits demanding the production of documents from the Administration, and, in an amicus capacity, challenges to legality of the so-called travel ban. Congressional interest in litigation may increase in salience under the current divided government, as illustrated by the House of Representatives' resolution to authorize the House to participate in ongoing litigation in Texas involving the Affordable Care Act and a recent lawsuit brought by several Members of Congress challenging the President's appointment of an acting Attorney General. However, whenever any party seeks to invoke the power of the federal courts, it must first show that its dispute belongs there. For nearly its entire history, the Supreme Court has emphasized that the role of courts is in "decid[ing] on the rights of individuals." By contrast, "[v]indicating the public interest (including the public interest in Government observance of the Constitution and laws) is the function of Congress and the Chief Executive." The federal courts apply a number of doctrines, known as justiciability doctrines, to ensure that they do not step beyond their bounds and decide issues more properly reserved for the other branches. Foremost among these doctrines is the requirement that a party seeking judicial relief from a federal court demonstrate "standing." This report provides an overview of the standing doctrine as it applies to lawsuits involving legislators, committees, and houses of Congress. First, the report lays out the general rules of standing as they apply in every case in the federal courts and the main purpose behind the doctrine. One central purpose of the standing doctrine—protecting the court's role in the constitutional balance of powers—is a theme that underlies this report, as many of these cases involve courts deciding whether they have the power to adjudicate high-profile political disputes between the other two branches of the federal government. Next, the report considers the relatively few Supreme Court cases to discuss legislator standing, explaining the general principles that courts have drawn from those cases. The report then analyzes how lower courts have interpreted the limited Supreme Court case law on the issue, beginning with cases involving individual legislators, and following with cases brought by entire institutions, such as committees or houses of a legislature. The report then considers other issues relating to legislator participation in litigation, such as intervention under the Federal Rules of Civil Procedure or participation purely as an "amicus curiae," or a "friend of the court." The report concludes by identifying unresolved doctrinal questions and offering takeaways for prospective congressional litigants. Legal Background of Article III Standing Article III of the Constitution limits the exercise of the federal courts' judicial power to "cases" and "controversies." The Supreme Court has interpreted this "case or controversy" language to impose various restrictions on the "justiciability" of disputes in the federal courts—that is, constraints on the federal courts' power to adjudicate and resolve disagreements between parties. One aspect of justiciability requires a party seeking judicial relief from a federal court to have "standing," such that the party has "a personal stake in the outcome of the controversy as to warrant [the] invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf." Further, a litigant must demonstrate standing for each claim he seeks to press and each form of relief that he seeks to obtain. The Supreme Court articulated a three-part test for standing in its seminal 1992 decision Lujan v. Defenders of Wildlife . To establish standing under that test, a party must show that it has a genuine stake in the relief sought because it has personally suffered (or will suffer) (1) a concrete and particularized and actual or imminent injury-in-fact (2) that is traceable to the allegedly unlawful actions of the opposing party and (3) that is redressable by a favorable judicial decision. While each of these requirements is complex and can blend into each other, courts generally regard the injury-in-fact requirement to be the "central focus" of the inquiry. A party that seeks to demonstrate standing must show that his injury is "concrete"—meaning an injury that is "real" and not "abstract." Nonetheless, an injury can be intangible in nature, as the deprivation of a constitutional right, like freedom of speech or the free exercise of one's religion, constitutes an injury-in-fact absent any tangible economic loss. While it may sometimes be difficult to draw a distinction between an "intangible" injury and an "abstract" injury, the Court has provided some guidance. For example, the Court has held that an alleged injury sufficient for standing may be one similar to those that have "traditionally been regarded as providing a basis for a lawsuit in English or American courts," such as the interest of a qui tam relator in the outcome of his suit. The Court has also stated that Congress can build on common law conceptions of injury, as Congress is "well positioned" to "identify intangible harms that meet minimum Article III requirements" and establish new causes of action to remedy such harms. Finally, the Court has explicitly considered and rejected several types of abstract injuries in previous cases. For instance, in Valley Forge Christian College v. Americans United for Separation of Church and State , the Supreme Court held that a public interest organization lacked standing to challenge the transfer of federal land to a religiously affiliated school, as the only injuries identified by the plaintiffs were the "psychological consequence[s] presumably produced by observation of conduct with which one disagrees." A claim based only on this sort of psychological discomfort will generally not support an injury-in-fact. Along with the requirement of concreteness, a plaintiff's alleged injury must be "particularized." This requirement focuses on whether the alleged injury affects the plaintiff in a "personal and individual way." Significantly, the need for particularization bars plaintiffs from seeking redress for so-called "generalized grievances." Under this doctrine, a plaintiff "claiming only harm to his and every citizen's interest in proper application of the Constitution and laws" does not state a sufficiently particularized injury. This principle does not mean, however, that injuries suffered by many are not justiciable. Rather, particularization only requires plaintiffs to connect to the injury they allege in some particular way, even if that injury is widely shared. For instance, in Federal Election Commission v. Akins , the Supreme Court recognized that individual voters had suffered a justiciable injury based on the Federal Election Commission's allegedly unlawful decision to not obtain and disclose certain information about a political organization. The Court concluded that even though that injury was "widely shared," the deprivation of a statutory right granting access to information "directly related to voting" was sufficiently "specific" to allow Congress to authorize individuals to vindicate that right. These limitations on the courts, as they are rooted in the Constitution, are not easily circumvented. For example, subject to "limited exceptions," a litigant must assert "his or her own legal rights and interests, and cannot rest a claim to relief on the legal rights or interests of third parties." To illustrate, in Hollingsworth v. Perry , the Court held that the proponents of a California voter initiative lacked standing to defend that initiative from constitutional challenge when the California Attorney General declined to do so. In that case, the Court agreed that a "political corporate body" can designate an agent to proceed in court on its behalf, but held that the proponents could not simply assert to be acting in such a capacity. Rather, some evidence of actual agency, such as the principal's right to control the agent, must be present. Because this control was lacking in Hollingsworth —the State of California had no power to control or authority over the proponents of the initiative—the proponents could not claim to be proceeding on behalf of the State, and had to rely upon their own interests, which were not sufficiently concrete or particularized to amount to an injury-in-fact. The requirement of concrete and particular injury is essential in every case, but it is especially significant in cases involving the constitutionality of government action because of the important role that the standing doctrine plays in preserving the separation of powers. As one prominent treatise explains, difficult standing decisions often depend on "the importance of having the issues decided by the courts" versus "the importance of leaving the issues for resolution by other means." In other words, "[s]eparation of powers concerns" often "control the seemingly precise concept of injury." Accordingly, the Supreme Court has long recognized that the separation of powers is the driving force behind the standing doctrine. As the Court explained in Lujan , "the Constitution's central mechanism of separation-of-powers depends largely upon common understanding of what activities are appropriate to legislatures, to executives, and to courts." The doctrine of standing, the Court explained, serves to identify those disputes that are "appropriately resolved in the judicial process." Thus, while the formal standing doctrine has some requirements that express "merely prudential considerations," its "core" is in ensuring that the courts do not stray beyond their essential role. The doctrine of standing, therefore, forces the courts to police their own jurisdiction, preventing individuals from enlisting the courts in fights that should be resolved through the political process. This conception of standing helps explain why the Court has said that the standing inquiry is "especially rigorous" in cases involving the constitutionality of government action. In such cases, the courts are being asked to participate in a dispute that may particularly involve the constitutional balance of power, placing the court's role in resolving that dispute under significant scrutiny. Legislative Standing at the Supreme Court Separation of powers is logically the central focus when the plaintiff is a branch of government, such as a legislature. Although the Supreme Court has decided relatively few cases involving legislative standing, in those cases it articulated several principles that apply specifically when the plaintiff is a legislative entity. The first significant Supreme Court case to involve legislators filing a lawsuit challenging a governmental action was the 1939 case Coleman v. Miller . Coleman involved the Kansas legislature's then-recent approval of the proposed Child Labor Amendment to the U.S. Constitution, which Congress had submitted to the states for ratification 15 years prior. A bare majority of the Kansas legislature voted to ratify the amendment, with the Kansas lieutenant governor casting the tie-breaking vote in favor of ratification in the Kansas Senate. Seeking to undo this ratification, the plaintiffs, individual members of the Kansas legislature who had voted against the amendment, challenged the lieutenant governor's right to cast his tie-breaking vote. The plaintiffs argued that the lieutenant governor was not a part of the "legislature" and so his vote could not be counted to ratify the amendment under Article V of the Constitution. The Coleman plaintiffs also argued that the passage of time had sapped the amendment of its vitality. They sued to compel the Kansas secretary of state to annul the ratification. The Supreme Court splintered and issued three opinions, none of which obtained five votes. However, a majority of the Court concluded that the plaintiff legislators had standing. Chief Justice Charles Evans Hughes, writing the "opinion of the Court" for himself and two other Justices, concluded that the petitioners had an "adequate interest to invoke [the Court's] jurisdiction" because the senators' votes "would have been sufficient to defeat ratification" if they had been right that the lieutenant governor's vote was invalid. As a result, their votes had been "held for naught" and "overridden," which ran contrary to the senators' "plain, direct and adequate interest in maintaining the effectiveness of their votes." Justices Butler and McReynolds dissented from the majority's disposition of the case on the merits, but implicitly agreed with its conclusion that the plaintiffs had standing. Justice Frankfurter, writing for four Justices, would have held that the legislators lacked standing. He argued that so-called "intra-parliamentary disputes" should be left to parliaments, and that the injuries suffered here "pertain[ed] to legislators not as individuals but as political representatives executing the legislative process." If these interests were recognized, Frankfurter feared that the courts would end up "sit[ting] in judgment on the manifold disputes engendered by procedures for voting in legislative assemblies." Despite these arguments, Justice Frankfurter's view did not control, and Coleman is recognized as the first case in which the Supreme Court acknowledged that legislators' interest in their votes may constitute an injury that could be vindicated in federal court. The Court returned to the issue of legislator standing 30 years later in Powell v. McCormack . In that case, the House Special Subcommittee on Contracts concluded that Representative Adam Clayton Powell Jr., the chairman of the Committee on Education and Labor, had deceived House authorities as to travel expenses. After voters nonetheless reelected Representative Powell to the House of Representatives in 1966, the House adopted a resolution excluding him from taking his seat, and the House Sergeant at Arms refused to pay Representative Powell his salary. Representative Powell sued the Speaker of the House in his official capacity, seeking a declaratory judgment that his exclusion was unconstitutional, an injunction restraining respondents from excluding him from the House, and an injunction commanding the Sergeant at Arms to pay Representative Powell his salary. After the Supreme Court elected to take review of the case, the Congress that had excluded Powell terminated, and Representative Powell was seated in the House in January 1969. The Court concluded that Representative Powell's case was justiciable. In particular, the Court looked to see if Representative Powell had a "legally cognizable interest" in the outcome of the case. The Court concluded that Representative Powell's claim for back salary was itself sufficient to "supply the constitutional requirement of a case or controversy." Powell thus stands for the proposition that legislators—no less than other individuals—have a personal pecuniary interest in their salary (and other personal prerogatives of office) that can amount to an injury to support standing when a defendant threatens that interest. The next case concerning legislative standing to come before the Court was 1997's Raines v. Byrd . Raines concerned a constitutional challenge to the Line Item Veto Act of 1996, which purported to authorize the President to "cancel" certain spending and tax benefit measures after they were signed into law. The statute provided that "[a]ny Member of Congress or any individual adversely affected by [the Line Item Veto Act] may bring an action . . . for declaratory judgment and injunctive relief on the ground that any provision of this part violates the Constitution." Accordingly, the day after the statute was signed into law, four Senators and two Members of the House, including Senator Robert Byrd, all of whom had voted against the act, sued under this provision alleging that the act was unconstitutional. Senator Byrd alleged that the act injured him in his official capacity in three ways: (1) by "alter[ing] the legal and practical effect of all votes" cast in the future on bills that would be subject to the "line item" veto; (2) by divesting him of his constitutional role in the repeal of legislation; and (3) by altering the constitutional balance of powers between the legislative and executive branch. The Supreme Court held that Senator Byrd and the other legislators lacked standing to bring their claims. Chief Justice Rehnquist's opinion for the Court emphasized that the standing inquiry turns, in part, on "whether the plaintiff is the proper party to bring this suit" and the requirement that the alleged injury be "particularized." The Court's opinion also restated the standing doctrine's important role in "keeping the Judiciary's power within its proper constitutional sphere" and the need to "carefully inquire" as to whether the plaintiffs had a sufficiently personal, particular, and concrete interest so as to justify a court's involvement. Chief Justice Rehnquist observed that, in contrast to the plaintiff in Powell , Senator Byrd was not asserting that he was deprived of anything to which he was personally entitled, such as a salary. Instead, Senator Byrd was asserting that he had lost power as a result of the statute because it altered the balance of power between Congress and the President. Thus, the individual legislators were, in the majority's view, impermissibly attempting to assert an "institutional injury" that they shared in common with the entire Congress. Such injuries, in the form of the dilution of the power of the legislative body, could not give rise to standing because they were neither concrete—they were "wholly abstract"—nor were they particularized—they were "widely dispersed." The Court acknowledged that, in Coleman , it had upheld standing for legislators claiming a similar institutional injury—an interest in the effectiveness of their votes. However, unlike the plaintiffs in Coleman , Senator Byrd was not complaining that some illegal action had prevented his vote from counting, causing the bill to be passed in spite of his vote. Rather, Senator Byrd had voted, and he had "simply lost that vote." In other words, as the Chief Justice explained, individual legislators could validly assert the institutional injury in Coleman only because the Kansas senators' votes would have actually been enough to defeat the measure at issue, but were "completely nullified" by the allegedly illegal action. Senator Byrd, in contrast, alleged "wholly abstract and widely dispersed" diminution of his future voting power. The Court went on to explain that Members of Congress had an alternative remedy to their judicial challenge—they could repeal the Line Item Veto Act. Further, the Court noted that the statute was not immune from other judicial challenges—an individual with a cognizable injury could still bring suit. Raines thus greatly limited the ability of individual legislators to sue on behalf of their institutions. Nevertheless, the 1997 decision reaffirmed Coleman , thereby not completely closing off the possibility that an individual legislator could assert an institutional injury. In Raines , the Court found it "of some importance" that the various houses of Congress did not authorize Byrd and the other plaintiffs to bring the suit. Although Congress had created a right to challenge the statute's constitutionality in the Line Item Veto Act itself, the plaintiffs had brought their suit only on their own behalf, and the plaintiffs' respective houses of Congress as a whole had opposed it on the merits. This factor would turn out to be decisive in the next legislative standing case to come before the Court, Arizona State Legislature v. Arizona Independent Redistricting Commission . In that case, the Arizona state legislature—as a whole—sued the Arizona Redistricting Commission (Commission), an independent commission vested by popular initiative with the authority to draw redistricting maps for congressional districts. The Arizona legislature sought to challenge the map adopted by the Commission for the 2012 elections as unconstitutional. The Arizona legislature argued that, under the Elections Clause of the Constitution, the "Legislature" of a state had to have "primary responsibility" to set the manner of elections, and the Commission did not qualify as a legislature. The Court concluded that, in contrast with the individual Member plaintiffs in Raines , the Arizona legislature had standing. The Court found that the key difference between the Arizona legislature and the plaintiffs in Raines was that the former was "an institutional plaintiff asserting an institutional injury [that had] commenced this action after authorizing votes in both of its chambers." The problem with the individual Members asserting institutional injury in Raines , as the Arizona State Legislature Court saw it, was that the injury was "widely dispersed," and no plaintiff in the 1997 case could "tenably claim a personal stake in the suit." In contrast with Raines , the Court concluded, Arizona State Legislature was closer to the Coleman facts, in that the Commission's authority "completely nullif[ied]" any vote by the legislature purporting to adopt a redistricting plan—and that injury was adequately particularized to the plaintiff that was bringing the suit. Importantly, however, the Court stated in a footnote that the standing inquiry might have been different had the suit involved Congress mounting a legal challenge to the President, which would have raised "separation-of-powers concerns absent here." A few key principles can be drawn from this line of Supreme Court cases. With respect to cases brought by individual legislators, Raines drew a fundamental distinction between so-called "institutional injury" and the sort of personal injury that was at issue with the plaintiff's lost salary in Powell . As the Court would go on to explain in Arizona State Legislature , an "institutional injury" is an injury that "scarcely zeroe[s] in on any individual member," but rather "impact[s] all Members of Congress and both Houses . . . equally." The Arizona State Legislature court, interpreting Raines , explained that individual legislators generally cannot assert institutional injuries: "[h]aving failed to prevail in their own Houses, the suitors [in Raines ] could not repair to the Judiciary to complain." However, Raines also determined that there was an exception to this general rule based on the Court's holding in Coleman v. Miller , "[t]he one case in which [the Court] upheld standing for legislators . . . claiming an institutional injury." The Court justified this exception because the plaintiffs in Coleman , if they had been correct on the merits of their claim, would have been in a situation where "their votes not to ratify the amendment were deprived of all validity." The challenge, then, for any individual legislator asserting an institutional injury is to show that the asserted injury is analogous to the "vote nullification" that took place in Coleman . These principles will be discussed in the next section. Individual Legislators and Standing in the Lower Courts Institutional Injury Much of the lower court case law on legislative standing has focused on when an individual can assert an institutional injury akin to the injury asserted by the plaintiffs in Coleman . The courts inside and outside the D.C. Circuit have taken slightly different approaches to analyzing this question. The District of Columbia Circuit Because Members of Congress serve in the federal government in Washington, DC, and because the District is also the site of executive branch actions that could be the subject of a congressional lawsuit, such cases are often initiated in D.C. federal court. As a result, the federal appellate body in DC, the D.C. Circuit—often referred to as the second-most important court in the country —has a significant influence over the case law concerning congressional standing. In a pair of cases following Raines , the D.C. Circuit considered when individual Member plaintiffs can assert institutional injuries: the 1999 case Chenoweth v. Clinton , and the 2000 case Campbell v. Clinton . In Chenoweth , three Members of the House sued to enjoin the American Heritage Rivers Initiative (AHRI), a program promulgated by executive order that required certain federal agencies to support local efforts to preserve certain historically significant rivers and riverside communities. The Member plaintiffs argued that the AHRI violated the Constitution by depriving them of their constitutional role in the passage of legislation by creating the AHRI via executive order. The Members argued that their injury was more severe than the injury at stake in Raines because the President's action had "denied Members of Congress any opportunity to vote for or against the AHRI." The D.C. Circuit disagreed, concluding instead that the injury asserted by the plaintiffs in Chenoweth was fundamentally the same as that asserted in Raines —that their injury was an "alter[ation] [in] the constitutional balance of powers between the Legislative and Executive Branches." Further, the court observed that here, as in Raines , it was "uncontested that the Congress could terminate the AHRI were a sufficient number in each House so inclined," meaning that, as in Raines , Congress had a legislative remedy. The Chenoweth court acknowledged that, following Coleman , it might be a different case if the Representatives alleged that the necessary majorities in Congress had voted to block the AHRI. In such a case, legislators could argue that their votes had been "effectively nullified," but because plaintiffs in Chenoweth made no such allegations, the court dismissed the case for want of standing. The second of the influential post- Raines D.C. Circuit decisions is Campbell v. Clinton , decided the year after Chenoweth . That case challenged the legality of the United States' involvement in NATO air and cruise missile attacks in Yugoslavia. Prior to the lawsuit, Congress had voted on four resolutions related to the conflict, including an "authorization" of the air strikes that failed by a tie vote, 213-213, and a declaration of war that failed 427-2. Congress also voted against requiring the President to immediately end U.S. participation in the conflict and voted to fund the involvement. After these votes, the plaintiffs, 31 Members of Congress who were opposed to U.S. military involvement, filed suit, alleging that the President's use of American forces violated the Constitution's War Powers Clause and the War Powers Resolution. Representative Tom Campbell and the other Member plaintiffs argued that the Executive's action had "completely nullified" the tie vote against the airstrikes and the vote against the declaration of war, equating themselves to the Kansas senators in Coleman . The D.C. Circuit disagreed, concluding that the reason the Coleman plaintiffs' votes had been "nullified" was because of the unique context of a vote against a constitutional amendment, which left them without any alternative remedy. The appellate court argued that, in Coleman , the Kansas senators were in a unique position because they were "powerless" to rescind the ratification by legislative action—according to the court, it was "not at all clear" whether the ratification could have been rescinded once it was deemed ratified. The court saw Raines as having attached critical importance to this absence of legislative remedy; this fact is what "nullified" the Kansas senators' votes and supplied the necessary concrete injury. In contrast, the Campbell plaintiffs had several legislative remedies, including the power to withdraw appropriations and impeachment. As a result, the court concluded that their vote had not been "nullified" in the same manner as the Coleman plaintiffs. Rather, the court viewed the Campbell plaintiffs' argument to essentially be that the President acted illegally in excess of his constitutional authority and in violation of a statute. As a result, the circuit court determined that the case was indistinguishable from Raines , and the plaintiffs had not suffered a concrete and particularized injury. Following these precedents, the trial courts in the D.C. Circuit have generally been hesitant to find concrete and particularized injury in cases involving individual legislators asserting institutional injuries, especially where the legislature as a whole possessed other potential avenues for relief through the legislative process. For example, in 2002, the court concluded that 32 Members of the House of Representatives lacked standing to challenge President George W. Bush's unilateral withdrawal from 1972's Anti-Ballistic Missile Treaty. As in Campbell , the court emphasized the "widely dispersed" nature of the injury and the "extensive self-help" remedies available to Congress that could be used to remedy the President's allegedly illegal actions, such as the appropriations power, or, as a last resort, impeachment. The court concluded that the availability of these alternate remedies, combined with the fact that Congress as a whole had not authorized these individual Members to represent its interests in federal litigation, demonstrated that the plaintiffs could not assert the institutional injury alleged. Similarly, in a 2011 case, a D.C. district court determined that 10 Members of the House lacked standing to challenge President Obama's alleged violation of the War Powers Clause of the Constitution and the War Powers Resolution. In that case, the plaintiffs alleged that the President had pursued military action in Libya without seeking any approval from Congress and had spent funds on an "unauthorized war." The court, again following Campbell , emphasized that "nullification necessitates the absence of a legislative remedy" and found that the plaintiffs had "voted on essentially what the plaintiffs now ask this Court to award . . . . Thus, the plaintiffs' votes were given full effect. They simply lost that vote." The one post- Raines ruling from a D.C. district court to reach a contrary conclusion and find legislative standing was the 2018 case Blumenthal v. Trump . The plaintiffs in Blumenthal —approximately 201 minority Members of the Senate and House—alleged that President Donald Trump, by receiving benefits from his business entities' dealings with foreign governments, had violated the Foreign Emoluments Clause of the Constitution, which prohibits persons holding certain offices from receiving any "present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State." Plaintiffs sought declaratory as well as injunctive relief preventing the President from accepting any further emoluments without the consent of Congress. The plaintiffs argued that they had suffered injury because the President's conduct, in allegedly accepting emoluments and failing to submit those emoluments to Congress, had nullified their votes by "den[ying] them a voting opportunity to which the Constitution entitles them." The district court reasoned that, although this injury was an institutional injury dispersed among all Members of Congress, it nonetheless was comparable to the injury upheld in Coleman because the plaintiffs in Blumenthal , like the plaintiffs in Coleman , were not complaining about dilution of legislative power, but rather about the complete nullification of their votes. This distinction turned decisively on the plaintiffs' lack of a legislative remedy. The Blumenthal court contrasted the case with Raines and Chenoweth , in which the plaintiffs "either lost the vote in Congress or did not have the political influence to bring their bill to a vote." By contrast, in the view of the district court, Senator Blumenthal and the other Member plaintiffs lacked any legislative means to remedy their complaints because the President never provided them with the opportunity to approve the emoluments in the first place. Although the defendants suggested several potential nonjudicial remedies, such as a vote by Congress rejecting specific supposed emoluments, or a bill defining emoluments and prohibiting the receipt of them, the court went on to reject all of these proposed possible legislative remedies as inadequate, asserting that none would require the President to submit his emoluments for congressional consent for prior approval or even force him to provide information about future emoluments to Congress. Further, the court determined that appropriations remedies that the D.C. Circuit saw as adequate in Campbell and Chenoweth would not work in this case, as there are no federal appropriations associated with the President's alleged receipt of emoluments. Finally, the court concluded that impeachment was too "extreme" to be considered an adequate remedy. Institutional Injury to Individual Legislators Outside the D.C. Circuit Whereas the D.C. Circuit and the U.S. District Court for the District of Columbia have generally concluded that whether individual legislators possess standing largely turns on the availability of alternative legislative remedies, other circuits considering the question have not arrived at the same consensus. These courts have generally viewed the Coleman exception even more narrowly than the D.C. Circuit, further limiting the availability of legislative standing. In Baird v. Norton , for example, the Sixth Circuit ruled that Members of the Michigan state legislature lacked standing to challenge the procedures followed by their legislature in approving certain gaming compacts between the State of Michigan and Indian tribes. The plaintiffs alleged that the legislature had unlawfully approved the gaming compacts without complying with certain procedural safeguards required by the Michigan Constitution. First, the court held that the procedural harm inflicted by this neglect of constitutional procedures was only a "generalized grievance shared by all Michigan residents" and could not give rise to standing. Second, in response to the argument that the use of these procedures had "nullified" the plaintiffs' votes in the legislature, the court, analyzing Raines and Coleman , concluded that "[f]or legislators to have standing as legislators, then, they must possess votes sufficient to have either defeated or approved the measure at issue." As this court read Coleman , standing required that the lawsuit be joined by sufficient members of their respective houses to defeat the legislation in order to show that actual nullification occurred. Because the legislators in Baird could not make that showing, the court concluded that they lacked standing without examining the availability of alternative legislative remedies. Reading Raines even more narrowly, the Tenth Circuit has concluded that individual legislators can never bring suit to assert institutional injuries. In Kerr v. Hickenlooper , on remand to the Tenth Circuit after the Supreme Court's decision in Arizona State Legislature , the court considered whether then-current Colorado state legislators could have standing to challenge an amendment to the Colorado Constitution that required voter approval in advance for new taxes. The Tenth Circuit had previously concluded that the legislators had standing because this amendment "deprive[d] them of their ability to perform the legislative core functions of taxation and appropriation," rendering their votes "advisory." On remand, however, the court changed its view, and read Raines and Arizona State Legislature together to conclude that "individual legislators may not support standing by alleging only an institutional injury," which only institutional plaintiffs like the Arizona state legislature could assert. Arizona State Legislature , the court determined, had changed the law such that the nature of the injury—whether it was personal or institutional—was the determinative factor. The Tenth Circuit concluded that Coleman , which Raines had characterized as an institutional injury case, was in fact a case involving a "personal" injury to the senators whose votes were allegedly nullified. This injury was not, in the Tenth Circuit's view, "institutional" as the Supreme Court used that term in Arizona State Legislature because institutional injuries necessarily affect all members of a legislature in equal measure, and in Coleman , the only injured legislators were those who had their votes nullified. As a result, the court concluded that the plaintiffs in Kerr had asserted only institutional injuries to the power of the legislature, and they accordingly lacked standing. The views on institutional injuries announced in Baird and Kerr appear to contrast with the somewhat more receptive standard that has developed in the D.C. Circuit. In both Baird and Kerr , the court interpreted the standing upheld in Coleman , the so-called vote nullification injury, as being about the deprivation inflicted on individual legislators by virtue of their vote being defeated by the allegedly unlawful action. In contrast, after Campbell , the D.C. Circuit has focused on the lack of a legislative remedy and whether the legislature as a whole continues to enjoy "ample legislative power" to remedy the alleged wrong. Personal Injury As the Supreme Court explained in R aines , there may be fewer obstacles for legislators to sue for "something to which they are personally" entitled, such as the loss of salary claimed by Representative Powell in Powell v. McCormack . This section examines how lower courts have distinguished between "personal" and "institutional" injuries and the other justiciability considerations that have been applied to injuries that were undoubtedly personal. Distinguishing Personal from Institutional Injuries In Raines and Arizona State Legislature , the alleged injuries were clearly institutional because the alleged wrongful conduct represented diminution in the power of the legislature as a whole, affecting "all Members of Congress and both Houses . . . equally." However, it is possible for an injury to have apparently unequal effects within the legislature but nonetheless be "institutional." Best illustrating this principle is a pair of cases from different districts considering claims brought under 5 U.S.C. § 2954—which provides that executive agencies, on request of the House Committee on Oversight and Reform or the Senate Homeland Security and Governmental Affairs Committee, or "any seven members thereof," "shall submit any information requested of it relating to any matter within the jurisdiction of the committee." Known as the "Seven-Member Rule," this statute authorizes Members of the minority party to obtain information from the Administration, but does not provide explicitly for judicial enforcement. In Waxman v. Thompson , a 2006 case out of the Central District of California, 18 Members of the House sued under Section 2954 after they had received an allegedly incomplete response from the Executive to their demand for documents relating to the anticipated cost of the Medicare Prescription Drug and Modernization Act of 2003. The court determined that the plaintiffs had not shown that their vote had been nullified within the meaning of Coleman —plaintiffs had alleged only that they "ha[d] been required to vote and legislate without full access to information." The plaintiffs, however, argued that their injury was personal, not institutional, because they had a "distinct legal entitlement not shared by all Members of Congress." The court disagreed. Rather, the court explained, the right the plaintiffs asserted "runs with their congressional and committee seats." Their injury, in the view of the court, was not an injury to themselves personally, but an injury to "Congress, on whose behalf they acted," and it was the same type of institutional injury that the Supreme Court deemed insufficient to confer standing in Raines . This same issue arose again in 2018, in the case Cummings v. Murphy in the U.S. District Court for the District of Columbia. As in Waxman , the Cummings plaintiffs were minority Members of the House Oversight Committee who sought documents from an executive agency under Section 2954. The court observed that the "Plaintiffs tie[d] their injury directly to their constitutional duties as legislators, claiming their alleged harm to be impedance of the oversight and legislative responsibilities that have been delegated to them by Congress" and that the injury alleged ran "in a sense with the Plaintiff's seat." Despite these facts, the plaintiffs argued, as in Waxman , that because their injury was not shared by all Members of Congress equally, their injury was not institutional in nature. The court disagreed. Relying on Raines , the court concluded that the plaintiffs' injury was institutional because it was "rooted in a right granted to them as Members of Congress." Further, because any violation of the "Seven-Member Rule" was an institutional injury, the court determined that, although the Member plaintiffs had a "stronger case" for standing than the plaintiffs had in Raines , historical practice, a lack of congressional authorization, and the availability of alternative remedies demonstrated that the injury was too "wholly abstract" and "widely dispersed" to confer standing on an individual Member. These cases make clear that the difference between a "personal" and an "institutional injury" does not hinge on the issue of particularization. Rather, the difference is the source of the right that has been violated. The Seven-Member Rule cases demonstrate that, even where an injury has a particular effect on certain Members, it can nonetheless be insufficiently "concrete" under Raines if the Member's injury does not deprive him of something to which he is personally entitled. In other words, where the right alleged to have been violated is tied to a right granted to a plaintiff "as [a] Member[] of Congress," all of Congress is harmed equally, as a diminution of that right affects the institution as a whole, even if it is only a single Member who is asserting that right at a given moment. Personal Injury Must Comply with Traditional Standing Requirements Even if a legislator alleges an injury that seems to be genuinely "personal" rather than "institutional," that injury must nonetheless meet the typical standing requirements of particularization and concreteness. Further, that injury must be likely and imminent as opposed to merely speculative, causally connected to the challenged action, and redressable by the court. A number of cases illustrate how an alleged injury to legislators can fail to meet these requirements. For example, post- Raines , federal courts of appeals have generally concluded that a mere possibility of electoral or reputational harm to a legislator is too speculative to support Article III standing. In Schaffer v. Clinton , the Tenth Circuit dismissed a claim brought by Representative Bob Schaffer, a Member of Congress who alleged that the cost of living adjustment (COLA) in the Ethics Reform Act of 1989 violated the Twenty-seventh Amendment to the Constitution. Representative Schaffer, who received an increase in pay based on the COLAs, argued that they were "damaging to his political position and his credibility among his constituency" because the COLAs involved paying him with monies allegedly "appropriated unconstitutionally." This argument relied heavily on a pre- Raines D.C. Circuit case, Boehner v. Anderson . In Boehner , the D.C. Circuit had concluded that Representative John Boehner had standing to challenge the COLAs based on his claim that it undermined his "political position." However, as the Tenth Circuit observed, this case predated Raines , and its analysis was "cursory." Rejecting Boehner , the Tenth Circuit concluded that Representative Schaffer's asserted injury was supported by no concrete evidence of reputational injury and was much like the injury rejected in Raines —an abstract claim that applied to every Member of Congress. As a result, the injury alleged was insufficiently concrete and particularized to give rise to standing. Another pair of cases illustrates how alleged injuries to legislators can fail to meet standing requirements on causation and redressability, even if the injuries alleged are seemingly sufficiently concrete and particular. The first of these cases is a 2018 case from the Middle District of Pennsylvania, Corman v. Torres . Corman involved a challenge brought by several parties to the Pennsylvania Supreme Court's 2018 decision to strike the 2011 redistricting map and issue its own replacement map. Among the challengers were eight Republican Members of Pennsylvania's delegation to the U.S. House of Representatives, who challenged the Pennsylvania Supreme Court's decision as a violation of the Elections Clause of the Constitution. The Members argued that they were injured by the alterations to their districts, thereby reducing their incumbency advantage, and by wasting time, energy, and resources expended in their former districts. The court set aside the question of whether these injuries were sufficiently concrete and particular, but nonetheless observed that no case supported "the proposition that an elected representative has a legally cognizable interest in the composition of his or her electoral district." Irrespective of this question, the court concluded that the Members' claim failed on the causation prong of standing. Because the plaintiff Members conceded that the state supreme court had the authority to order the redrawing of the redistricting map, they could not trace their injuries to the substantive decisions that actually led to the court-drawn map: Even if the Pennsylvania Supreme Court had simply ordered that a new redistricting map be drawn, but had given the General Assembly free substantive rein . . . to accomplish that objective, the . . . injury would persist. In that circumstance, the court would not have committed any of the improprieties alleged in the verified complaint, but district boundaries would still have changed. The court concluded that the plaintiffs could not bridge this "gap" in the causal chain and dismissed the Members' claims. Another case in which a legislator's purported claims could not overcome the second two elements of the standing inquiry is Rangel v. Boehner , a 2013 case out of the District Court for the District of Columbia. R angel arose out of disciplinary proceedings and a vote of censure against Representative Charles Rangel. Representative Rangel alleged that certain improprieties had colored the proceedings of the Ethics Committee that had investigated him. He sued officials of the House, but not the House itself, seeking declaratory relief and an injunction requiring the defendants to "remove the recording of censure." Representative Rangel claimed four separate injuries that he argued gave rise to standing: damage to his reputation, the loss of his status on the House Ways and Means Committee, "political injury," and a violation of his due process rights. On these alleged injuries, the court generally concluded that Representative Rangel's claims failed on grounds of lack of causation and redressability. For example, although the court had no doubt that alleged injury to Representative Rangel's reputation was sufficiently concrete and particularized, the plaintiff's failure to sue the House itself doomed his ability to show causation. After all, the actions of the individual defendant House Members did not cause his injury—it was, as the court noted, the House that censured him, not the individual Member defendants. Similarly, Representative Rangel was unable to demonstrate redressability because the court determined that it had no authority to order the House to rescind his censure, as authority over the House's Journal was constitutionally vested in the House itself. As a consequence, a legislator plaintiff having a concrete and particularized injury is not alone sufficient to establish Article III standing, especially when the plaintiff seeks to involve the court in the internal affairs of the other branches of government. Institutional Standing The Supreme Court's decision in Arizona State Legislature v. Arizona Independent Redistricting Commission reinforces that an institutional plaintiff, like the Arizona state legislature, will typically have standing to assert an "institutional injury." In that case, discussed above, the Court determined that the Arizona state legislature had standing based on the Redistricting Commission's usurpation of its "primary responsibility" for redistricting under the Constitution's Elections Clause. Although the Court concluded that the legislature did not, in fact, have the exclusive authority it alleged, the Court nonetheless determined that this merits determination did not undercut the legislature's claim of injury for the purposes of justiciability. This analysis indicates that an institution, such as a legislature as a whole, may potentially assert an institutional injury and obtain standing in federal court. The Court left open, however, the possibility that separation-of-powers considerations could lead to a different result if the case instead involved Congress suing the President. In addition to the separation-of-powers concerns that might arise, Arizona State Legislature raises questions regarding who constitutes an institutional plaintiff and which institutional injuries are sufficiently concrete and particularized to give rise to standing. These questions are the focus of the following sections. The Significance of Explicit Congressional Authorization Courts have routinely concluded that congressional plaintiffs who obtain authorization to sue before initiating litigation are significantly more likely to have standing. As one court has explained, the presence of authorization is the "key factor" when determining whether a congressional plaintiff possesses standing to vindicate an institutional injury on behalf of the authorizing institution. When a legislative plaintiff possesses authorization to pursue litigation from its respective institution, it decreases the likelihood that the plaintiff is impermissibly attempting to assert the rights of a third party instead of proceeding on the institution's behalf. Although the Arizona State Legislature Court deemed it important that the legislative plaintiffs commenced the lawsuit after "authorizing votes in both of its chambers," that does not mean that a congressional plaintiff must always obtain the imprimatur of both the Senate and the House of Representatives in order to bring suit. Rather, courts have held that a plaintiff may sue on behalf of a single house of Congress to vindicate that particular chamber's unique institutional interests. Several courts have considered what sort of authorization, short of authorizing votes in both chambers leading to a suit being brought by the institution itself, suffices to permit a suit on behalf of a legislative institution. A number of cases prior to Arizona State Legislature considered this question. The most common setting for these cases involved legislative demands for information. The Supreme Court has long recognized "that the power of inquiry—with process to enforce it—is an essential and appropriate auxiliary to the legislative function." In other words, Congress has an interest in obtaining information necessary to fulfill its constitutionally designated role in the tripartite system of American government. At the same time, however, courts have acknowledged a distinction between a chamber of Congress utilizing its own powers to demand and obtain information and invoking the federal courts ' power to enforce its demands. In order to utilize the judicial process—rather than the political process—to enforce congressional demands for information, Supreme Court precedent requires the plaintiffs to show that they are validly acting on behalf of the injured institution. In the 1976 case of United States v. AT&T Co. , for instance, the D.C. Circuit ruled that the chairman of the House Subcommittee on Oversight and Investigations had standing to appear in federal court to challenge the executive branch's objection to a subpoena that the subcommittee had issued to a private party. The court reasoned "that the House as a whole has standing to assert its investigatory power, and can designate a member to act on its own behalf." Crucially, because the House of Representatives had passed a resolution authorizing the chairman to participate in the case "on behalf of the Committee and the House," the chairman did not encounter the standing obstacles that might exist if "a single [M]ember of Congress" attempted "to advocate his own interest in the congressional subpoena power" without the affirmative consent of his or her respective chamber or if "a wayward committee" were "acting contrary to the will of the House." Although AT&T predates Raines and the subsequent D.C. Circuit cases interpreting it, courts have generally concluded that AT&T 's holding—namely, that congressional plaintiffs usually have standing to assert Congress's interests in obtaining information so long as they have congressional authorization to do so—survives Raines . AT&T's holding comports with broader standing principles that a plaintiff may "designate agents to represent it in federal court" without running afoul of the standing requirement. In this vein, courts have held that a house of Congress can authorize a committee to sue on its behalf. For example, in the District Court for the District of Columbia's 2008 opinion in Committee on the Judiciary, U.S. House of Representatives v. Miers , the House Committee on the Judiciary filed suit in federal court to enforce a subpoena it had issued against certain executive officials. Critically, before the committee filed its lawsuit, the full House of Representatives passed a resolution authorizing the chairman of the committee "to initiate a civil action in federal court" to enforce the subpoena. The court therefore ultimately concluded "that the Committee ha[d] standing to enforce its duly issued subpoena through a civil suit." According to the court, the fact that the committee had "been expressly authorized by House Resolution to proceed on behalf of the House of Representatives as an institution " distinguished Miers from cases like Raines in which individual legislators had invalidly attempted to assert injuries to their respective institutions as a whole rather than to themselves personally. In other words, "the fact that the House ha[d] issued a subpoena and explicitly authorized th[e] suit" was "the key factor that move[d Miers ] from the impermissible category of an individual plaintiff asserting an institutional injury . . . to the permissible category of an institutional plaintiff asserting an institutional injury." Thus, the committee, acting on the full House's behalf with the House's imprimatur, could validly sue "to vindicate both its right to the information that [was] the subject of the subpoena and its institutional prerogative to compel compliance with its subpoenas." Where, by contrast, a legislative plaintiff has not obtained congressional authorization to represent his respective house via an authorizing vote, courts have typically determined that the plaintiff lacks standing to sue to enforce subpoenas or otherwise assert an informational injury to Congress as a whole. For instance, in Cummings v. Murphy , the Seven-Member Rule case discussed above, the court concluded that individual Members lacked standing to argue that they were, in fact, validly proceeding on behalf of the institution. As the court explained, "[i]ndividual Members of Congress generally do not have standing to vindicate the institutional interests of the house in which they serve" unless they have obtained affirmative authorization from their respective chambers of Congress. The court opined that "requiring authorization protects Congress' institutional concerns from the caprice of a restless minority of Members." Cummings thus demonstrates that "it is not simply enough" for individual legislators "to point to an informational injury arising from an unmet statutory demand to demonstrate standing"; courts generally also "look to the presence of authorization as a necessary . . . factor in evaluating standing in cases that pit the Executive and Legislative Branches against each other." Significantly, at least one opinion suggests that to validly authorize a plaintiff to pursue litigation on an institution's behalf, that institution must expressly authorize the plaintiff to bring that specific lawsuit prior to the commencement of that suit; a freestanding authorization to pursue litigation may not always suffice to confer standing. Namely, in Walker v. Cheney , the Comptroller General sought a court order requiring the Vice President to produce certain documents. To support his argument that he possessed congressional authorization—and thus standing—to pursue this lawsuit on Congress's behalf, the Comptroller General invoked 31 U.S.C. § 716(b)(2), which purports to authorize the Comptroller General to "bring a civil action in the district court of the United States for the District of Columbia to require the head of [an executive] agency to produce a record." The court, however, rejected that argument, concluding that this " generalized allocation of enforcement power" did not suffice to establish "that the current Congress ha[d] authorized the Comptroller General to pursue a judicial resolution of the specific issues" in the case before the court. To support that conclusion, the court emphasized that no committee requested the documents or issued a subpoena requiring the Vice President to produce them. Thus, in spite of the aforementioned statutory language purporting to empower the Comptroller General to bring suit, the court determined that "neither House of Congress, and no congressional committee, ha[d] authorized the Comptroller General to pursue the requested information through [a] judicial proceeding." When Authorization Is Insufficient for Standing Even where a legislature as a whole has purported to authorize a particular plaintiff to file suit on its behalf, that plaintiff must still satisfy the various requirements of standing, including the requirements of concrete and particular injury as to that institution. To illustrate, whereas a legislative plaintiff acting pursuant to the authorization of its respective institution generally possesses standing to sue to redress concrete and particular informational injuries to that institution, even an entire legislative body proceeding under valid authorization will not have standing to assert abstract or nonparticular injuries. As an example of a putative injury in the latter category, courts have generally rejected the idea that legislatures have standing based on their duty to legislate to challenge allegedly illegal acts by the Executive. In Alaska Legislative Council v. Babbitt , for instance, the D.C. Circuit determined that the Alaska Legislative Council lacked standing to challenge federal management of subsistence taking of fish and wildlife on federal lands in Alaska. The council claimed that it was injured because individual Alaskan legislators had a "duty to legislate for the management of all the State's resources" and the federal program interfered with this duty. Although the Alaska legislature had not explicitly voted to authorize the council to sue, the court assumed the plaintiff possessed such authorization because of its status as a "permanent interim committee and service agency of the legislature." Despite this authorization, the court concluded that the committee lacked standing because its injuries did not belong to it, but rather, belonged to the "State itself," and only the governor could bring that suit on behalf of Alaska. The legislature had thus failed to identify a "separate [and] identifiable" injury entitling it to sue. Additionally, several courts have concluded that legislative plaintiffs lack standing to assert a generalized interest in the proper interpretation or application of a statute irrespective of whether the full legislative body has authorized the plaintiffs to sue. For instance, Newdow v. U.S. Congress involved a challenge brought by an individual plaintiff to the constitutionality of the Pledge of Allegiance's use of the phrase "under God." After the Ninth Circuit had issued a ruling allowing the case to proceed, the Senate moved to intervene in the case pursuant to a provision of the U.S. Code giving the Senate Legal Counsel the right to intervene unless the Senate would lack "standing to intervene under . . . [A]rticle III of the Constitution." The court concluded that this language required it to examine the Senate's putative interest in the case at hand. The Ninth Circuit denied the Senate's motion, concluding that the Senate lacked standing to defend the law's constitutionality. The court explained that a "general desire to see the law enforced as written" did not suffice to give standing to a house of Congress to defend the law. A more recent consideration of institutional standing occurred in the 2015 case of United States House of Representatives v. Burwell . In that case, the House of Representatives asserted two claims against various executive branch entities: (1) a constitutional claim that the defendants "spent billions of unappropriated dollars to support the Patient Protection and Affordable Care Act" (ACA) in violation of the Appropriations Clause of the U.S. Constitution; and (2) a statutory claim that the Secretary of the Treasury, "under the guise of implementing regulations," had "effectively amended" certain aspects of the ACA "by delaying its effect and narrowing its scope." The court concluded that the House possessed standing to pursue the constitutional claim but not the statutory claim. The court first determined that the House had standing to pursue its constitutional claim because "Congress (of which the House and Senate are equal) is the only body empowered by the Constitution to adopt laws directing monies to be spent from the U.S. Treasury," and the Executive's alleged circumvention of that structure was a sufficiently concrete and particularized injury as to the House as a whole. However, the district court then ruled that the House lacked standing to pursue its parallel challenges to the Executive's alleged violation of the statutory scheme, reasoning that Article III does not create "general legislative standing" by which the branches of Congress may sue the Executive for any alleged violation of statutes or the Constitution by the Executive. Because the Executive's alleged violation of the ACA would cause the House "no particular harm," the House lacked standing to pursue its statutory claim. Burwell also rejected the argument that separation-of-powers concerns required the dismissal of the House's claims. In Arizona State Legislature , the Court had noted that such concerns might be significant in a dispute between Congress and the President, but the Burwell court dismissed such concerns as dicta and did not find them controlling. Instead, the court determined that the case presented a "plain dispute over a constitutional command" that the judiciary was well suited to resolve. These separation-of-powers concerns, particularly as they relate to Congress's interests with respect to the executive branch's execution of a statutory scheme, play a particularly important role in answering the question of when Congress can intervene in litigation, as discussed below. Congressional Intervention to Defend a Statute's Constitutionality: Adversity and Standing Issues Whereas the analysis above focuses mainly on congressional entities filing their own lawsuits as plaintiffs , legislators or a legislature as a whole may also attempt to participate in ongoing litigation between nonlegislative parties in a variety of ways. The procedural rules governing the federal courts contemplate that, subject to specified conditions, a nonparty may "intervene" in an existing federal case. Generally, if a court permits an entity to intervene in a case, that entity becomes a full party to the litigation and may freely participate in the case to the same extent as the original parties. For instance, subject to certain exceptions and conditions, an intervenor may generally (among other things) file briefs and motions, participate in discovery, and appeal adverse judgments. As relevant here, congressional litigants periodically attempt to intervene in existing federal cases initiated by noncongressional parties. As explained in the following subsections, whether such attempts ultimately succeed depends on a variety of factors that to a large degree mirror the considerations relevant to whether a legislative plaintiff may initiate new litigation in federal court. Justiciability Issues Involved in Intervention One potentially key—albeit infrequent —situation in which a congressional entity may attempt to intervene in an ongoing lawsuit is when the executive branch declines to defend the constitutionality of a federal statute. For instance, the U.S. House of Representatives recently intervened in the case of Texas v. United States to defend the constitutionality of provisions of the Affordable Care Act after the executive branch declined to defend the law in its entirety. As explained below, at least two questions may arise when Congress (or a Member, committee, or house thereof) attempts to intervene to defend a statute's validity: (1) whether the executive branch's refusal to defend the statute renders the original parties insufficiently adverse to create a justiciable controversy; and (2) whether Congress possesses standing to intervene in the case. With regard to the first question, whenever a plaintiff sues the United States to invalidate a federal statute, and the United States does not dispute the plaintiff's assertion that the statute is unconstitutional, the fact that none of the named litigants wishes to defend the statute's validity creates a potential risk that the original parties are not truly adverse to each other. The Supreme Court has ruled that "the business of federal courts" is limited "to questions presented in an adversary context," rather than lawsuits between friendly parties. Like standing, this "adversity" requirement is a justiciability doctrine that the Supreme Court has derived (at least in part) from Article III's "case or controversy" language. The Supreme Court has held that where "both litigants desire precisely the same result" in a particular case, there is generally "no case or controversy within the meaning of [Article] III of the Constitution," and a federal court accordingly lacks jurisdiction over the case. In addition to this constitutional foundation, the Supreme Court has recognized that the adversity requirement also has a prudential dimension. In other words, "even when Article III permits the exercise of federal jurisdiction, prudential considerations" may sometimes counsel against adjudicating a lawsuit where the parties lack that "concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions." With respect to the second question, while the standing doctrine is generally concerned with whether a plaintiff is a proper party to a particular lawsuit, other putative parties who are not plaintiffs, but are seeking distinct judicial relief from a federal court—such as intervenor-defendants or defendant-appellants—likewise need to demonstrate that they possess standing in order to obtain the relief sought. For example, in Diamond v. Charles , the Supreme Court concluded that an intervenor lacked standing to appeal an adverse judgment against the original defendant after that defendant declined to file an appeal of its own. Under Supreme Court precedent, as long as the existing parties to the case present a justiciable controversy on their own, an intervenor need not independently possess standing to participate in the lawsuit so long as the intervenor seeks the same judicial relief as one or more of the existing parties. To the extent an intervenor seeks "relief that is different from that which is sought by a party with standing," however, that intervenor must independently "possess Article III standing to intervene" in the case. The Supreme Court has periodically considered how the adversity and standing doctrines apply in the congressional intervention context and has ultimately concluded that cases in which the executive branch declines to defend a federal statute and Congress steps in to defend the law may potentially be justiciable. For instance, in Immigration and Naturalization Service (INS) v. Chadha , an alien challenged the constitutionality of a particular provision of the Immigration and Nationality Act that had authorized one house of Congress, by resolution, to invalidate the decisions of the executive branch. Because the INS agreed with the alien that this "one-house veto" provision was unconstitutional, the Court needed to examine whether the case presented "a genuine controversy" rather than a nonjusticiable "non-adversary[] proceeding" between two friendly parties. Crucially, however, both the Senate and the House had intervened in the case to defend the statute's constitutionality. The Court therefore held that, because Congress was "a proper party to defend the constitutionality of" this statute, "the concrete adverseness" required by Article III existed "beyond doubt" "from the time of Congress' formal intervention" in the case. Going further, the Court also explained in dicta that "there was adequate [Article] III adverseness" in the case even " prior to Congress' intervention" because the "INS would have deported" the alien against his wishes if the federal courts had rejected the alien's constitutional challenge. In other words, because the INS would have enforced the challenged statute despite its unwillingness to defend the statute's constitutionality in a judicial proceeding, the majority viewed the case as presenting a justiciable controversy between the INS and the alien even if Congress had never intervened. Although the Chadha Court also acknowledged that "there may be prudential, as opposed to [Article] III, concerns about sanctioning the adjudication of th[e] case in the absence of any participant supporting the validity of" the provision's constitutionality, the Supreme Court explained that the lower court had "properly dispelled any such concerns by inviting and accepting briefs from both Houses of Congress." The Court further opined that "Congress is the proper party to defend the validity of a statute when an agency of government, as a defendant charged with enforcing the statute, agrees with [the] plaintiffs that the statute is inapplicable or unconstitutional." Prior to the Supreme Court's 2013 decision in United States v. Windsor , one might plausibly read Chadha to stand for the limited proposition that Congress may intervene to defend an undefended federal law (albeit one that the Executive has continued to enforce) only when the judicial invalidation of that law would directly affect Congress's institutional powers, such as by eliminating Congress's ability to validly utilize a one-house legislative veto. In Windsor , however, the Court appeared to implicitly adopt a broader conception of Chadha by permitting a congressional entity to intervene to defend an undefended law even though the statute at issue had no direct bearing on Congress's institutional powers. The respondents in Windsor challenged the constitutionality of a provision of the Defense of Marriage Act (DOMA) on equal protection grounds. During the course of the litigation, however, "the Attorney General of the United States notified the Speaker of the House of Representatives . . . that the Department of Justice would no longer defend the constitutionality of" the challenged provision. Nevertheless, the Attorney General stated that he would continue to enforce the provision in order to "provid[e] Congress a full and fair opportunity to participate in the litigation" over the provision's validity, and accordingly appealed the lower court's judgment invalidating the statute to the Supreme Court. After the Attorney General announced that he would not defend the statute, the House's Bipartisan Legal Advisory Group (BLAG)—which is "composed of the Speaker and the majority and minority leaderships" of the House —"voted to intervene in the litigation to defend the constitutionality of" the provision. The district court permitted BLAG to intervene. Because "the Government largely agree[d] with the opposing part[ies] on the merits of the controversy," the Supreme Court needed to determine whether the executive branch's "concession that [the challenged provision was] unconstitutional" rendered the case nonjusticiable on adversity grounds. The Court first concluded that the case presented "a justiciable dispute as required by Article III" because (1) the executive branch had announced its "inten[tion] to enforce the challenged law" if the court ultimately deemed the provision constitutional; and (2) the lower court had "order[ed] the United States to pay money" to the challengers "that it would not disburse but for the court's order." The Court accordingly determined that "the United States retain[ed] a stake sufficient to support Article III jurisdiction on appeal and in proceedings before th[e] Court." The Court next concluded that the legislative branch's presence in the case alleviated any purely prudential concerns posed by the executive branch's refusal to defend the provision's validity. The Court explained that "BLAG's sharp adversarial presentation of the issues satisfie[d] the prudential concerns that otherwise might counsel against hearing an appeal from a decision with which the principal parties agree." Critically, because Windsor and the United States presented a justiciable controversy within the meaning of Article III on their own, the Court did not need to resolve whether BLAG would have independently possessed Article III standing to intervene in the case and defend the statute on its own authority. As explained in greater detail below, however, the Court also implied that it might have deemed the case nonjusticiable if the Executive had declined to enforce the challenged statute in addition to merely refusing to defend its constitutionality. Chadha and Windsor thus stand for the propositions that (1) the Executive's refusal to defend a statute will not always render the lawsuit challenging that statute nonjusticiable; and (2) congressional intervention in ongoing federal litigation does not necessarily raise Article III standing problems —at least as long as Congress does not pursue additional relief beyond a judgment in the United States' favor. To that end, lower federal courts have frequently permitted legislative actors to intervene as defendants in cases where the executive branch agreed with the plaintiff that a challenged statute was unconstitutional . Still, the federal courts' Article III jurisdiction to adjudicate such cases may not be unlimited. Although Chadha and Windsor suggest that Congress may help alleviate prudential adversity problems created by the executive branch's nondefense of a statute by intervening to defend the challenged law, neither case says anything definitive about whether a congressional intervenor would have independently possessed Article III standing in those cases, especially in cases where the Executive refuses to enforce the underlying statute. Because the Executive continued to enforce the challenged statutes in Chadha and Windsor despite its refusal to defend their constitutionality, the Court concluded that the "refusal of the Executive to provide the relief sought" by the plaintiff "suffice[d] to preserve a justiciable dispute as required by Article III" regardless of whether or not Congress had intervened to mitigate any purely prudential obstacles to justiciability resulting from the Executive's refusal to defend the law. In other words, because "the United States retains a stake sufficient to support Article III jurisdiction" when it continues to enforce a statute that it declines to defend in court, the existence of a justiciable controversy between the plaintiff and the United States relieved the congressional intervenors in Chadha and Windsor of the burden to independently demonstrate Article III standing of their own before participating in the case. The Windsor Court expressly declined to decide, however, "whether BLAG would have standing to" defend DOMA "on BLAG's own authority" if the Executive had also refused to enforce the statute in addition to merely refusing to defend it. The dissenting Justices in Windsor —who disagreed with the majority on the issue of adversity and therefore had to reach the standing question—could not agree on whether and when a house of Congress possesses standing to defend an undefended statute. Justice Alito, for instance, reasoned that "in the narrow category of cases in which a court strikes down an Act of Congress and the Executive declines to defend the Act, Congress both has standing to defend the undefended statute and is a proper party to do so." According to Justice Alito, "because legislating is Congress' central function," a judicial decision "striking down an Act of Congress" injures each chamber of Congress as an institution by "impair[ing] Congress' legislative power." By contrast, Justice Scalia, joined by Chief Justice Roberts and Justice Thomas, instead suggested that the legislative branch possesses standing to intervene in such lawsuits only when the case implicates "the validity of a mode of congressional action," such as the one-house legislative veto challenged in Chadha . According to Justice Scalia, Congress may only "hale the Executive before the courts . . . to vindicate its own institutional powers to act," not "to correct a perceived inadequacy in the execution of its laws"—which, in Justice Scalia's view, does not constitute an institutional injury to Congress itself. As this exchange between the dissenting Justices in Windsor reflects, the circumstances under which Congress may permissibly intervene to defend the validity of a statute the Executive refuses to enforce remains an unanswered question, and the answer to that question will likely implicate the same sorts of policies and principles that animate the doctrines governing whether and when a plaintiff may sue to vindicate Congress's institutional interests. Other Relevant Considerations in Intervention In addition to the adversity and standing doctrines discussed above, other legal principles may also affect whether a congressional entity may permissibly intervene in a federal case to defend a statute's constitutionality or for some other purpose. For one, just as a legislator ordinarily may not initiate a lawsuit without the affirmative consent of his or her respective house, a congressional entity typically cannot intervene in a preexisting federal case without first obtaining authorization to do so. Where congressional entities have first obtained authorization to participate in an ongoing lawsuit from their respective houses, however, courts have typically allowed those entities to intervene. However, a congressional entity seeking to intervene in ongoing litigation must comply with all applicable statutory and procedural rules governing legislative intervention in federal court. Participation as Amicus Curiae If Congress (or a unit or individual Member thereof) cannot participate as a full party to a particular lawsuit due to one or more of the constitutional, statutory, procedural, and prudential obstacles discussed above, it may still be able to participate in the case in a more limited capacity as an amicus curiae . An amicus curiae —a Latin term for "friend of the court"—is an entity with "a strong interest in the subject matter" of a particular case that may submit legal briefs or other filings to the court in support of (or against) a particular position, but may not otherwise participate in the suit to the same extent as an original party or an intervenor. Members, houses, and committees of Congress have successfully filed amicus briefs in a wide variety of cases. To name just a few salient examples, after the executive branch declined to defend the validity of the independent counsel provision of the Ethics in Government Act, "both houses [of Congress] filed amicus briefs defending the legislation's constitutionality." Similarly, two opposing coalitions of individual Members of Congress filed dueling amicus briefs in a Supreme Court case concerning the continued vitality of Roe v. Wade . The procedural rules governing the submission of amicus briefs may vary from court to court. Ultimately, however, federal courts possess broad discretion to decide whether to allow a nonparty to submit an amicus brief in a particular case. Thus, on rare occasions, some courts have exercised that discretion to reject congressional attempts to file amicus briefs. For instance, the U.S. Court of Federal Claims recently prohibited the House of Representatives from filing an amicus brief in a private party's lawsuit against the United States. The court, noting that "the sole purpose of the House's proposed amicus brief [was] to urge a ground for dismissing [the] plaintiff's complaint that was not raised by the [Department of Justice] in its motion to dismiss," reasoned that allowing the House to participate as an amicus would "improperly intrud[e] on the DOJ's 'exclusive and plenary' authority to litigate the case on the United States' behalf." Considerations for Congress As discussed, courts have identified several considerations that may be relevant when assessing whether a legislative entity has suffered a justiciable injury-in-fact allowing it to seek judicial relief from a federal court, including the presence of congressional authorization; the absence of other legislative or nonlegislative remedies; allegations of vote nullification; historical practice; availability of alternative plaintiffs to bring a judicial challenge; and whether the lawsuit is an attempt to assert an interest other than the generalized interest in the proper application and implementation of the law. While these considerations provide some guidance with regard to the standing inquiry in lawsuits involving a legislative entity, they do not comprehensively resolve every question that may arise. Additionally, the legal principles that courts have articulated in congressional standing cases to date are not always perfectly consistent with each other, making it difficult to predict whether any particular legislative attempt to participate in litigation will overcome the standing hurdle. Further compounding that difficulty is the fact that there are very few cases analyzing the legislative standing doctrine and only a handful of rulings on the issue from the Supreme Court itself. As a consequence, it is important to identify areas of lingering doctrinal uncertainty, as well as measures that Members, committees, and houses of Congress may take to increase the likelihood that any given lawsuit will surmount the standing barrier. Areas of Doctrinal Uncertainty One of the key unanswered questions regarding legislative standing concerns what form of authorization is necessary to empower a legislative plaintiff to assert an institutional injury on behalf of his respective institution. In Raines v. Byrd , for instance, the Supreme Court concluded that the individual Member plaintiffs "ha[d] not been authorized to represent their respective Houses of Congress" for standing purposes even though Congress specifically enacted a statute purporting to authorize "any Member of Congress" to "bring an action . . . for declaratory judgment and injunctive relief on the ground that any provision of [the Line Item Veto Act] violates the Constitution." Similarly, in Walker v. Cheney , the court concluded that 31 U.S.C. § 716(b)(2)—which purports to grant the Comptroller General freestanding authority to "bring a civil action . . . to require the head of [an] agency to produce a record" —nonetheless did not authorize the Comptroller General to sue the Vice President. These cases suggest that a congressional litigant asserting an institutional injury who obtains express authorization to participate in a specifically identified lawsuit is more likely to satisfy the standing requirement than a litigant who does not. It remains uncertain, however, when (if ever) a statute purporting to authorize an entity to litigate on Congress's behalf generally—without a specific vote authorizing that entity to participate in a particular case—would satisfy the authorization prong of the standing analysis. An additional open question that existing precedent does not conclusively resolve is whether and under what circumstances the general availability of blunt legislative remedies—such as impeachment—will deprive a legislative litigant of standing to seek judicial relief against the executive branch. In Campbell v. Clinton , for instance, the D.C. Circuit concluded that individual Members lacked standing to sue the President in part because "there always remains the possibility of impeachment should a President act in disregard of Congress' authority." In Blumenthal v. Trump , by contrast, the court concluded that a group of individual Members did have standing to sue the President, stating (with little explanation) that "the availability of the extreme measure of impeachment to enforce the President's compliance with the [Emoluments] Clause is not an adequate remedy." Further litigation will likely be necessary to resolve these conflicting strands of congressional standing precedent. Perhaps the most difficult open question raised by the legislative standing jurisprudence concerns what sort of institutional injury is sufficient to afford a legislative entity standing. At one end of the spectrum, courts have generally recognized that institutional plaintiffs may sue to remedy discrete injuries, such as informational injuries resulting from an executive branch agency's refusal to comply with a subpoena. At the other end, courts have typically determined that even institutional plaintiffs cannot assert a generalized, nonparticularized interest in the proper application, interpretation, or enforcement of the law. Some recent cases from the district courts, however, appear to envision a broader conception of institutional injury. The court in U.S. House of Representatives v. Burwell , for example, concluded that the House possessed standing to pursue constitutional claims "that the Executive ha[d] drawn funds from the Treasury without a congressional appropriation." Critical to the court's holding was the fact that the Constitution designated "the Congress (of which the House and Senate are equal)" as "the only body empowered . . . to adopt laws directing monies to be spent from the U.S. Treasury." According to the court, the "constitutional structure would collapse, and the role of the House would be meaningless, if the Executive could circumvent the appropriations process and spend funds however it pleases." Similarly, the Blumenthal v. Trump court concluded that the individual Member plaintiffs possessed standing in part because they did not merely "disagree with the manner in which the President [wa]s administering or enforcing the law," but were instead wholly prevented from discharging their constitutionally designated role in the emoluments process. Burwell and Blumenthal thus suggest that Congress could have a justiciable injury when the executive branch violates the Constitution in a way that specifically undermines Congress's authority in a particular governmental process. It is unclear whether the Supreme Court or the federal appellate courts would ultimately endorse the broad conceptions of congressional standing that the Burwell and Blumenthal courts adopted. Because the parties in Burwell ultimately settled their dispute, neither the D.C. Circuit nor the Supreme Court ever determined whether the district court's standing conclusions were correct. Nor has the D.C. Circuit resolved whether the district court correctly concluded that the plaintiffs in Blumenthal possess standing to pursue their Emoluments Clause challenges. Some (though not all) academics have argued, however, that the Burwell and Blumenthal courts' expanded conception of standing may be unsound, as these decisions would appear to authorize congressional litigants to hale executive branch entities into the federal courts in a fairly broad array of factual circumstances that implicate separation-of-powers principles. Burwell , for instance, contains language suggesting that at least some congressional litigants possess standing to sue the executive branch whenever it spends unappropriated funds. Blumenthal likewise contains language suggesting that legislative litigants—including individual Members—could very well possess standing to sue the President in a variety of contexts in which the Constitution offers Congress (or a house thereof) an opportunity to provide prior approval to a particular executive action, such as appointments. Future judicial decisions may provide further guidance on whether, how, and under what circumstances this sort of freestanding congressional authority to summon executive branch entities before a federal judge is consistent with the Supreme Court's admonition that the "standing inquiry" is "especially rigorous when reaching the merits of the dispute would require [a court] to decide whether an action taken by one of the other two branches of the Federal Government was unconstitutional." What Can Congress (or a Member or Committee) Do? The fact that standing is a constitutional requirement circumscribes Congress's ability to alter the aforementioned standing rules by enacting legislation. The Supreme Court has repeatedly reaffirmed "that Congress cannot erase Article III's standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing." At the same time, however, the Court has also recognized "that Congress may 'elevat[e] to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law.'" It is therefore possible that, even though Congress may not "abrogate the Art[icle] III minima," Congress may under presently undefined circumstances enact a statute that grants it standing to pursue a claim in federal court that it could not pursue in that statute's absence. However, whether (and to what extent) Congress possesses such power to do so in the context of legislative standing may need to await further explication from the courts. In the absence of such guidance from the judiciary, a congressional litigant's best strategy may be to attempt to satisfy as many of the considerations listed above—that is, to attempt to obtain authorization to pursue the specific lawsuit in question from one or both houses of Congress; attempt to persuade the court that all possible legislative remedies would be futile; argue that the allegedly unlawful action has deprived Members of Congress of the efficacy of their votes; analogize to historical precedent in which courts entertained similar challenges by congressional litigants; demonstrate that no other litigant would possess standing to vindicate the congressional interest in dispute; and avoid framing the legal theory as a generalized grievance challenging the opposing party's implementation or interpretation of a federal statute. Nonetheless, as several scholars have emphasized, "not all interbranch disputes—even constitutional disputes—need to be resolved in the courts." Indeed, the federal judiciary has in many cases expressed marked hesitance to interpose itself between dueling branches of the U.S. government. The lack of a judicial remedy to a congressional complaint may indicate that Congress's most promising means for resolving disputes with the executive branch may be the political process, where a significant amount of constitutional decisionmaking occurs.

Houses, committees, and Members of Congress periodically seek to initiate or participate in litigation to, among other purposes, advance their legislative objectives, argue that the Executive is violating their legislative prerogatives, or defend core institutional interests. However, the constitutionally based doctrine of "standing"—which requires a litigant seeking federal judicial relief to demonstrate (1) a concrete and particularized and actual or imminent injury-in-fact (2) that is traceable to the allegedly unlawful actions of the opposing party and (3) that is redressable by a favorable judicial decision—may prevent legislators from pursuing litigation in federal court. The U.S. Supreme Court and the lower federal courts have issued several important opinions analyzing whether—and under what circumstances—a legislative entity has standing to seek relief. Although legislative standing jurisprudence defies easy characterization, it is possible to distill several principles from existing precedent. For example, whereas courts commonly allow individual legislators to assert injuries to their own personal interests, following the Supreme Court's seminal opinion in Raines v. Byrd, 521 U.S. 811 (1997), courts have generally (though not universally) been less willing to permit individual legislators to seek redress for injuries to a house of Congress as a whole, at least in the absence of explicit authorization to do so from the legislative body itself. The Supreme Court's case Coleman v. Miller, 307 U.S. 433 (1939), is generally understood as setting forth the lone exception, allowing individual legislators to sue when their vote has been "nullified" by some claimed illegal action. In addition, generally speaking, a congressional plaintiff cannot predicate a federal lawsuit solely on a complaint that the executive branch is misapplying or misinterpreting a statute, as litigants must demonstrate concrete and particularized injury to themselves. In addition to initiating litigation, Congress also occasionally seeks to intervene in preexisting litigation. In cases in which the executive branch has declined to defend a federal statute from a constitutional challenge, for example, congressional entities have attempted to intervene as defendants in support of the law. The Supreme Court, in INS v. Chadha, 462 U.S. 919 (1983) and United States v. Windsor, 570 U.S. 744 (2013), has allowed Congress to intervene to defend a law that the executive branch has declined to defend but still enforces. Nonetheless, neither case resolved whether significant exceptions to this rule exist, let alone explored what rules are in place when the President both declines to defend and enforce a federal law. Moreover, in cases that do not involve the executive branch's refusal to defend a federal statute, Congress's ability to intervene as a full party to the case may be more circumscribed. Even when Congress lacks standing to initiate or intervene in a federal lawsuit as a full-fledged party, Congress may still play a role in litigation by participating as an amicus curiae, or "friend of the court." Courts frequently allow Members, houses, and committees of Congress to file amicus briefs in support of (or opposition to) particular parties or positions.

CRS_R45661

Introduction Since 2002, Canada has been the United States' top agricultural export market. Mexico was the second-largest export market until 2010, when China displaced Mexico as the second-leading market with Mexico becoming the third-largest U.S. agricultural export market. In FY2018, U.S. agricultural exports t otaled $143 billion, of which Canada and Mexico jointly accounted for about 27%. USDA's Economic Research Service estimates that in 2017 each dollar of U.S. agricultural exports stimulated an additional $1.30 in business activity in the United States. That same year, U.S. agricultural exports generated an estimated 1,161,000 full-time civilian jobs, including 795,000 jobs outside the farm sector. U.S. agricultural exports to Canada and Mexico are an important part of the U.S. economy, and the growth of these markets is partly the result of the North American market liberalization under the North American Free Trade Agreement (NAFTA). On September 30, 2018, the Trump Administration announced an agreement with Canada and Mexico for a U.S.-Mexico-Canada Agreement (USMCA) that would possibly replace NAFTA. NAFTA entered into force on January 1, 1994, following the passage of the implementing legislation by Congress ( P.L. 103-182 ). NAFTA was structured as three separate bilateral agreements: one between Canada and the United States, a second between Mexico and the United States, and a third between Canada and Mexico. Provisions of the Canada-U.S. Trade Agreement (CUSTA), which went into effect on January 1, 1989, continued to apply under NAFTA (see Table 1 ). CUSTA opened up a 10-year period for tariff elimination and agricultural market integration between the two countries. The agricultural provisions agreed upon for CUSTA remained in force as provisions of the new NAFTA agreement. While tariffs were phased out for almost all agricultural products, NAFTA (in accordance with the original CUSTA provisions) exempted certain products from market liberalization. These exemptions included U.S. imports from Canada of dairy products, peanuts, peanut butter, cotton, sugar, and sugar-containing products and Canadian imports from the United States of dairy products, poultry, eggs, and margarine. Canada liberalized its agricultural sector under NAFTA, but liberalization did not include its dairy, poultry, and egg product sectors, which continued to be governed by domestic supply management policies and are protected from imports by high over-quota tariffs. Quotas that once governed bilateral trade in these commodities were redefined, under NAFTA, as tariff-rate quotas (TRQs) to comply with the Uruguay Round Agreement on Agriculture (URAA), which took effect on January 1, 1995. A TRQ is a quota for a volume of imports at a favorable tariff rate, which was set at zero under NAFTA. Imports beyond the quota volume face higher over-quota tariff rates. The United States and Mexico agreement under NAFTA did not exclude any agricultural products from trade liberalization. Numerous restrictions on bilateral agricultural trade were eliminated immediately upon NAFTA's implementation, while others were phased out over a 14-year period. Remaining trade restrictions on the last handful of agricultural commodities (such as U.S. exports to Mexico of corn, dry edible beans, and nonfat dry milk and Mexican exports to the United States of sugar, cucumbers, orange juice, and sprouting broccoli) were removed upon the completion of the transition period in 2008. Under NAFTA, Mexico eliminated all the tariffs and quotas that formerly governed agricultural imports from the United States. In addition to directly improving market access, NAFTA set guidance and standards on other policies and regulations that facilitated the integration of the North American agricultural market. For example, NAFTA included provisions for rules of origin, intellectual property rights, foreign investment, and dispute resolution. NAFTA's sanitary and phytosanitary (SPS) provisions made a significant contribution toward the expansion of agricultural trade by harmonizing regulations and facilitating trade. Because NAFTA entered into force before URAA, NAFTA's SPS agreement is considered to have provided the blueprint for URAA's SPS agreement. Regarding trade in agricultural products, the Office of the U.S. Trade Representative (USITC) asserts that USMCA would build upon NAFTA to make "important improvements in the agreement to enable food and agriculture to trade more fairly, and to expand exports of American agricultural products." For USMCA to enter into force, Congress would need to ratify the agreement. It must also be ratified by Canada and Mexico. The timeline for congressional approval of USMCA would likely occur under the Trade Promotion Authority (TPA) timeline established under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ). At various times, President Trump has stated that he intends to withdraw from NAFTA. Some observers have suggested that delays in congressional action on USMCA could make it harder for Canada to consider USMCA approval this year because of upcoming parliamentary elections in October 2019. Provisions of USMCA USMCA seeks to expand upon the agricultural provisions of NAFTA by further reducing market access barriers and strengthening provisions to facilitate trade in North America. An important change in USMCA compared to NAFTA is that the United States agreement with Canada would expand TRQs for imports of U.S. agricultural products into Canada. Other important changes from NAFTA include the agreement between the three countries—Canada, Mexico, and the United States—to further harmonize trade in products of agricultural biotechnology and apply the same health, safety, and marketing standards to agricultural and food imports from USMCA partners as for domestic products. Expansion of Market Access Provisions As agreed upon by the leaders of the United States, Canada, and Mexico, all food and agricultural products that have zero tariffs under NAFTA would remain at zero under USMCA. Under USMCA, agricultural products exempted from tariff elimination under the agreement signed between the United States and Canada would be phased out for further market liberalization. Canada currently employs a supply management regime that includes TRQs on imports of dairy and poultry under its NAFTA and World Trade Organization (WTO) market access commitments. Under NAFTA, U.S. dairy has access into the Canadian market under Canada's WTO commitment provisions. For poultry, NAFTA TRQs were established in accordance with the original CUSTA provisions as a percentage of Canada's domestic production. When Canada joined the WTO in 1995, it committed to provide poultry market access at the level that is the greater of its commitment under the WTO or under NAFTA. For chicken meat, the NAFTA TRQ, set at 7.5% of the previous year's domestic production, is higher than the WTO TRQ set at 39,844 metric tons. Canada's chicken meat NAFTA TRQ was 90,100 metric tons in 2018, and the estimate is 95,000 metric tons for 2019. Both the poultry and dairy TRQs under NAFTA are global rather than specific to U.S. imports. The WTO dairy TRQs often have specific allocations for individual countries. For example, the bulk of Canada's WTO cheese quota is allocated to the European Union (EU), and the entire WTO powdered buttermilk TRQ is allocated to New Zealand. Overall, Canada's TRQs appear to have restricted imports of dairy, poultry, and egg products, as the imported volumes for these products have regularly equaled or exceeded their set quota limits. Under USMCA, Canada agreed to increase market access specifically to U.S. exporters of dairy products via new TRQs that are separate from Canada's existing WTO commitments. These additional TRQs apply only to the United States. For chicken meat and eggs, the USMCA replaces the NAFTA commitment with U.S.-specific TRQs. For turkey and broiler hatching eggs and chicks, Canada's NAFTA commitment would be replaced with a minimum access commitment under USMCA, which is not specific to U.S. imports but applies to imports from all origins. While USMCA would expand TRQs for U.S. exports, U.S. over-quota exports would still face the steep tariffs that currently exist under Canada's WTO commitment. The United States, in turn, agreed to improve access to Canadian dairy products, sugar, peanuts, and cotton. The United States would increase TRQs for Canadian dairy, sugar, and sweetened products. Tariffs on cotton and peanut imports into the United States from Canada would be phased out and eliminated five years after the agreement would take effect. As for U.S.-Mexico trade in agricultural products, under NAFTA, Mexico eliminated all the tariffs and quotas that formerly governed agricultural imports from the United States, and the proposed USMCA provides for no further market access changes for imports by Mexico of U.S. agricultural products. The proposed changes in the market access regime for U.S. agricultural exports to Canada under USMCA are summarized in Table 2 . Canada's import restrictions on U.S. dairy products was a high-profile issue for the United States in the USMCA negotiations, so it is noteworthy that under USMCA, Canada agreed to reduce certain barriers to U.S. dairy exports, a key demand of U.S. dairy groups. For one, Canada would make changes to its milk pricing system that sets low prices for Canadian skim milk solids, which is believed to have undercut U.S. exports. Six months after USMCA goes into effect, Canada would eliminate its Class 7 milk price (which includes skim milk solids and is designated as Class 6 in Ontario) and would set its price for skim milk solids based on a formula that takes into account the U.S. nonfat dry milk price. In the future, the United States and Canada would notify each other if either introduces a new milk class price or changes an existing price for a class of milk products. Under USMCA, Canada would maintain its dairy supply management system, but the TRQs would be increased each year for U.S. exports of milk, cheese, cream, skim milk powder, condensed milk, yogurt, and several other dairy categories. While existing in-quota tariffs for U.S. dairy exports to Canada are mostly zero, the over-quota rates can be as high as 200%-300%. USMCA includes provisions on transparency for the implementation of TRQs, such as providing advance notice of changes to the quotas and making public the details of quota utilization rates so that exporters could monitor the extent to which the quotas are filled. While WTO TRQs are available to U.S. dairy product exporters under the current NAFTA provisions, the new TRQs proposed by Canada under USMCA would expand the access that U.S. dairy products would have into Canada. Large portions of Canada's WTO TRQs are allocated to other countries, such as cheese to the EU and powdered buttermilk to New Zealand. Thus, USMCA TRQs would open additional market opportunities for U.S. dairy exports to Canada. For example, the 64,500 metric ton fluid milk TRQ currently provided under NAFTA is available only for cross-border shoppers, but USMCA would allow up to 85% of the proposed new fluid milk TRQ, which would reach 50,000 metric tons by year 6, to U.S. commercial dairy processors. In response to another concern raised by the U.S. dairy industry, Canada agreed to cap its global exports of skim milk powder and milk protein concentrates and to provide information regarding these volumes to the United States. USMCA includes a requirement that the United States and Canada meet five years after the implementation of the agreement—and every two years after that—to determine whether to modify the dairy provisions of the agreement. Under USMCA, Canada has proposed to replace its NAFTA commitments for poultry and eggs with new TRQs. Under USMCA, the duty-free quota for chicken meat would start at 47,000 metric tons on the agreement's entry into force and would expand to 57,000 metric tons in year six. It would then continue to increase by 1% per year for the next 10 years ( Table 2 ). The United States would also have access to Canada's WTO chicken quota available to imports from all origins of 39,844 metric tons. Under USMCA, Canada's TRQ for imports of U.S. eggs would be phased in over six equal installments, reaching 10 million dozen by year six and then increasing by 1% per year for the next 10 years. The annual TRQ for turkey and broiler hatching eggs and chicks would be set by formulas based on Canadian production (see Table 2 ). The TRQs for turkey and broiler-hatching eggs and chicks are USMCA minimum global access commitments based on the greater of Canada's anticipated current year production or its WTO commitment volume. Improved Agricultural Trading Regime Under USMCA, several key provisions would further expand the Canadian and Mexican market access to U.S. agricultural producers. With the exception of the wheat grading provision between Canada and Mexico, the following provisions, which aim to improve the trading regime, apply to all three countries: Wheat . Canada and the United States have agreed that they shall accord "treatment no less favorable than it accords to like wheat of domestic origin with respect to the assignment of quality grades." Currently, U.S. wheat exports to Canada are graded as feed wheat, which generally commands a lower price. Under USMCA, U.S. wheat exports to Canada would receive the same treatment and price as equivalent Canadian wheat if there is a predetermination that the U.S. wheat variety is similar to a Canadian variety. Canada maintains a list of registered wheat varieties, but the United States does not have a similar list. U.S. wheat exporters would first need to have U.S. varieties approved and registered in Canada before they would be able to benefit from this equivalency provision. According to some stakeholders, this process can be onerous and take several years. Cotton . The addition of a specific textile and apparel chapter to the proposed USMCA may support U.S. cotton production. The chapter promotes greater use of North American–origin textile products such as sewing thread, pocketing, narrow elastics, and coated fabrics for certain end items. Spirits, wine, beer, and other alcoholic beverages . Each country must treat the distribution of another USMCA country's spirits, wine, beer, and other alcoholic beverages as it would its own products. The agreement also establishes new rules governing the listing requirements for a product to be sold in a given country with specific limits on cost markups of alcoholic beverages imported from USMCA countries. SPS provisions . USMCA's SPS chapter calls for greater transparency in SPS rules and regulatory alignment among the three countries. It would establish a new mechanism for technical consultations to resolve SPS issues. SPS provisions provide for increasing transparency in the development and implementation of SPS measures; advancing science-based decisionmaking; improving processes for certification, regionalization and equivalency determinations; conducting systems-based audits; improving transparency for import checks; and promoting greater cooperation to enhance compatibility of regulatory measures. Geographical indicatio ns (GIs) . The United States, Canada, and Mexico agreed to provide procedural safeguards for recognition of new GIs, which are place names used to identify products that come from certain regions or locations. USMCA would protect the GIs for food products that Canada and Mexico have already agreed to in trade negotiations with the EU and would lay out transparency and notification requirements for any new GIs that a country proposes to recognize. The agreement also details a process for determining whether a food name is common or is eligible to be protected as a GI. In a side letter accompanying the agreement, Mexico confirmed a list of 33 terms for cheese that would remain available as common names for U.S. cheese producers to use in exporting cheeses to Mexico. The list includes some terms that are protected as GIs by the EU, such as Edam, Gouda, and Brie. USMCA provisions would protect certain U.S., Canadian, and Mexican spirits as distinctive products. Under the proposed agreement, products labeled as Bourbon Whiskey and Tennessee Whiskey must originate in the United States. Similar protections would exist for Canadian Whiskey, while Tequila and Mezcal would have to be produced in Mexico. In a side letter accompanying the agreement, the United States and Mexico further agree to protect American Rye Whiskey, Charanda, Sotol, and Bacanora. Protections for proprietary food formulas . USMCA signatories agree to protect the confidentiality of proprietary formula information in the same manner for domestic and imported products. The agreement would also limit such information requirements to what is necessary to achieve legitimate objectives. Biotechnology . The agricultural chapter of USMCA lays out provisions for trade in products created using agricultural biotechnology, an issue that was not covered under NAFTA. USMCA provisions for biotechnology cover crops produced with all biotechnology methods, including recombinant DNA and gene editing. USMCA would establish a Working Group for Cooperation on Agricultural Biotechnology to facilitate information exchange on policy and trade-related matters associated with the products of agricultural biotechnology. The agreement also outlines procedures to improve transparency in approving and bringing to market agricultural biotech products. It further outlines procedures for handling shipments containing a low-level presence of unapproved products. While USMCA addresses a number of issues that restrict U.S. agricultural exports to Mexico and Canada, it does not include all of the changes sought by U.S. agricultural groups. For instance, the agreement does not include changes to trade remedy laws to address imports of seasonal produce as requested by Southeastern U.S. produce growers. It also does not address nontariff barriers to market access for U.S. fresh potatoes in Mexico and Canada. Canada's Standard Container Law (part of the Fresh Fruits and Vegetable Regulations of the Canadian Agricultural Products Act) prohibits the importation of U.S. fresh potatoes to Canada in bulk quantities (over 50 kilograms). Finally, the agreement does not address the removal of retaliatory tariffs on U.S. agricultural exports imposed by Canada and Mexico in response to U.S. Section 232 tariffs on steel and aluminum. Some U.S. agriculture stakeholders have expressed concern that the potential benefits of implementing USMCA would be outweighed by the retaliatory tariffs imposed on U.S. agricultural exports by Canada and Mexico. U.S. Agricultural Trade with Canada and Mexico Since 2002, Canada and Mexico have been two of the top three export markets for U.S. agricultural products (competing with Japan until 2009, when China moved into the top three). In recent years, the two countries have jointly accounted for about 40% of the total value of U.S. agricultural exports. Intraregional trade in North America has increased substantially since the implementation of CUSTA and NAFTA and in the wake of Mexico's market-oriented agricultural reforms, which started in the 1980s ( Figure 1 ). The value of total U.S. agricultural product exports to Canada and Mexico rose from under $7 billion at the start of CUSTA in FY1990 to almost $10 billion at the start of NAFTA in FY1994 and peaked at $41 billion in FY2014. The lower level of exports since FY2014 is partly due to a drought-related decline in livestock production in parts of the United States; increased Canadian production of corn, rapeseed, and soybeans; increased use of U.S. corn as ethanol feedstock; growth in U.S. export markets outside of NAFTA; and increased competition from outside of NAFTA. Since mid-2018, U.S. exports of certain products have been adversely affected by the imposition of retaliatory tariffs by Canada and Mexico in response to the Trump Administration's application of a 25% tariff on all U.S. steel imports and a 10% tariff on all U.S. aluminum imports under Section 232 of the Trade Expansion Act of 1962. Similar to the growth in U.S. agricultural exports, U.S. imports of agriculture and related products from Canada and Mexico grew from about $6 billion in FY1990 to $8 billion in FY1994, and U.S. agricultural exports continued to increase after NAFTA came into force on January 1, 1994, reaching $48 billion in FY2018. For FY2019, USDA projects that total U.S. agricultural exports to Canada and Mexico will to decline to $41.2 billion, while U.S. imports from those countries are projected at $49.6 billion. U.S. Agricultural Exports to Canada and Mexico Table 3 presents U.S. agricultural exports to Canada for selected years since 1990, the year after the implementation of CUSTA. The other years in the table include 1995 (the year following the start of NAFTA), 2009 (the year following the full implementation of NAFTA), and the last three years with complete fiscal year data: 2016, 2017, and 2018. U.S. agricultural exports to Canada averaged over $20 billion between FY2016 and FY2018 period ( Table 3 ) and accounted for 14% of the total value of U.S. agriculture exports in FY2018. While the overall value of U.S. agricultural exports to Canada has increased under NAFTA, U.S. exports of consumer-ready food products registered the greatest increase, accounting for almost 80% of the value of all U.S. agricultural exports to Canada in FY2018. Canada accounted for 24% of the value of total U.S. consumer-ready food product exports to all destinations in FY2018. In FY2018, Canada accounted for 72% of the total value of U.S. fresh vegetable exports to all destinations, 54% of nonalcoholic beverage exports to all destinations, 51% of snack food exports to all destinations, 33% of total exports of fresh fruit, 33% of live animal exports, and 26% of total U.S. wine and beer exports to all destinations. Canada is also an important market for bulk agricultural commodities, and Canadian imports of U.S. corn, soybeans, rice, pulses, and wheat have increased since the implementation of NAFTA. Table 4 provides a summary of key U.S. agricultural exports to Mexico for selected years since FY1990. Total U.S. agricultural exports to Mexico grew from $2.7 billion in FY1990 to $3.7 billion in FY1995 after NAFTA came into force, reaching $18.8 billion in FY2018. Grains and meats account for the largest share of exports, but growth has been strong among most products including dairy, prepared food, fruit, tree nuts, sugars and sweeteners, wine and beer, and distillers dry grains. Between FY2016 and FY2018, U.S. agricultural exports to Mexico averaged over $18 billion, accounting for 13% of the total value of U.S. agricultural exports to all destinations in FY2018 ( Table 4 ). Consumer-ready products as a group account for a significant share of U.S. exports to Mexico at 13% of the total value of U.S. agricultural exports in FY2018. Mexico is also a major U.S. export market for a number of bulk agricultural commodities, meat, and dairy products. In FY2018, Mexico accounted for 25% of the total value of U.S. corn exports to all destinations, 24% of the total value of U.S. dairy exports, 22% each of the total value of U.S. pork and poultry exports, 12% of the total value of U.S. wheat exports, and 8% of the total value of U.S. soybeans exports to all destinations. U.S. Imports from Canada and Mexico U.S. agricultural imports from Canada and Mexico have increased in value from $26 billion in FY2009—the first full year since the complete market liberalization under NAFTA in 2008—to over $48 billion in FY2018 ( Table 5 ). Major U.S. imports from Canada include snack foods, meats, and processed fruit and vegetable products. U.S. purchases of hogs and cattle from Canada had increased since NAFTA began, but these imports have declined since FY2016. North American market dynamics and the prevailing hog cycle dynamics in the NAFTA countries have affected live animal trade patterns in recent years. Similarly, U.S. coarse grain imports from Canada have also declined in recent years, likely the result of larger U.S. feed grain supplies. U.S. imports from Mexico mostly consist of fresh fruit and vegetables, alcoholic beverages, snack foods, and processed fruit and vegetable products. Economic Effects of NAFTA versus USMCA Many studies have assessed the effects of NAFTA on agriculture and the possible effects if NAFTA were to be terminated. It is difficult to isolate the effects of NAFTA from the market liberalization begun under CUSTA and from Mexico's unilateral trade liberalization measures in the 1980s and early 1990s, which included joining the General Agreement on Tariffs and Trade in 1986. Nevertheless, NAFTA is credited with facilitating trade in North America by reducing tariffs and other market access barriers and by providing a stable and improved trading environment in the region. Studies conducted by USDA indicate that U.S. agricultural exports to Canada and Mexico have been higher than they would have been in the absence of NAFTA. One such study concluded that NAFTA particularly expanded trade in those commodities that underwent the most significant reductions in tariff and nontariff barriers, including U.S. exports to Canada of wheat products, beef and veal, and cotton and U.S. exports to Mexico of rice, cattle and calves, nonfat dry milk, cotton, processed potatoes, apples, and pears. An October 2018 study commissioned by the Farm Foundation examines the potential economic benefits associated with (1) USMCA compared with the provisions provided under NAFTA, (2) USMCA in an environment with prevailing retaliatory tariffs on U.S. agricultural products in response to U.S. tariff increases on imports of steel and aluminum, and (3) the effect of a complete U.S. withdrawal from USMCA/NAFTA. The methodology used by the study assumes that each of the three trade policy scenarios would need to remain in place for at least three to five years or until the market equilibrium stabilizes following the initial policy shock. Thus, the estimated effects from the study can be considered as the long-run impacts. The study considers only proposed changes under USMCA to market access for U.S. agricultural exports to Canada, such as changes in TRQs and tariff rates. It does not consider other changes proposed for agriculture or for other sectors such as manufacturing and automobiles. The study's conclusions under these three scenarios follow. 1. Comparing USMCA to NAFTA, the study estimates that USMCA would generate a net increase in annual U.S. agricultural exports to Canada of $450 million—about 1% of current U.S. exports under NAFTA. This estimated increase would reflect increases in exports of dairy products (+$280 million) and meat (+$210 million), which would be partially offset by a decline in exports of other agricultural products (-$40 million). 2. Under the scenario where USMCA would enter into force but the retaliatory tariffs imposed by Canada and Mexico on U.S. agricultural exports would remain in place, the study projects U.S. agricultural export losses from the retaliatory tariffs of $1.8 billion annually, which would more than offset the projected gains of $450 million from USMCA ratification. 3. Under the scenario of a U.S. withdrawal from NAFTA without USMCA ratification, tariffs on U.S. exports to Canada and Mexico would be expected to return to the higher WTO most-favored-nation (MFN) rates, the highest level of applied tariffs rates under WTO commitments. In this circumstance, the study finds that U.S. agricultural and food exports to Canada and Mexico would decline by about $12 billion, or 30% of the value of U.S. agricultural exports to these markets in FY2018. This loss is expected to be partially offset by an increase of $2.6 billion in U.S. exports to other countries for a net loss in export revenues of $9.4 billion. A loss of this order would represent a decline of 24% compared with the total value of U.S. agricultural exports to these countries in FY2018. To date, similar studies assessing the effect of USMCA on U.S. agriculture as a whole are not available. U.S. Agricultural Stakeholders on USMCA Individual commodity groups have stated that they expect to benefit from market access gains. For example, the National Turkey Federation stated that USMCA would expand market access resulting in a 29% increase in U.S. turkey exports to Canada. A broad coalition of U.S. agricultural stakeholders is advocating for USMCA's approval, contending that the proposed agreement would further expand market access for U.S. agriculture. Most leading agriculture commodity groups have expressed their support for USMCA. The U.S. wheat industry states that although challenges remain in further opening commerce for U.S. wheat farmers near the border with Canada, USMCA retains tariff-free access to imported U.S. wheat for long-time flour milling customers in Mexico. The American Farm Bureau Federation expressed satisfaction that the USMCA not only locks in market opportunities previously developed but also builds on those trade relationships in several key areas. On the other hand, other farm sector stakeholders, such as the National Farmers Union and the Institute for Agriculture and Trade Policy , have expressed concern that the proposed agreement does not go far enough to institute a fair trade framework that benefits family farmers and ranchers . Some agricultural market observers question whether the benefits to U.S. agriculture of USMCA over NAFTA will be more than incremental. Critics also point out that most U.S. agricultural exports currently enjoy zero tariffs under NAFTA and that the main market access gain under USMCA is through limited quota increases. A researcher for the International Food Policy Research Institute recently concluded that farm production costs would be expected to increase because of domestic content provisions in the agreement in tandem with the new U.S. tariffs on steel and aluminum imports. Upon signing of the USMCA on November 30, 2018, President Trump stated, "This new deal will be the most modern, up-to-date, and balanced trade agreement in the history of our country, with the most advanced protections for workers ever developed." Regarding agriculture, Secretary Perdue echoed the sentiments expressed by most of the agricultural commodity groups: "The new USMCA makes important specific changes that are beneficial to our agricultural producers. We have secured greater access to the Mexican and Canadian markets and lowered barriers for many of our products. The deal eliminates Canada's unfair Class 6 and Class 7 milk pricing schemes, opens additional access to U.S. dairy into Canada, and imposes new disciplines on Canada's supply management system. The agreement also preserves and expands critical access for U.S. poultry and egg producers and addresses Canada's discriminatory wheat grading process to help U.S. wheat growers along the border become more competitive." Outlook for Proposed USMCA The proposed USMCA would have to be approved by Congress and ratified by Mexico and Canada before entering into force. On August 31, 2018, pursuant to TPA, President Trump provided Congress a 90-day notification of his intent to sign a free trade agreement with Canada and Mexico. On January 29, 2019—60 days after an agreement was signed, and as required by TPA—U.S. Trade Representative Robert Lighthizer submitted to Congress changes to existing U.S. laws that would be needed to bring the United States into compliance with the proposed USMCA. A report by the USITC on the possible economic impact of TPA is not expected to be completed until April 20, 2019, due to the 35-day government shutdown. The report has been cited by some Members of Congress as key to their decisions on whether to support the agreement. Some policymakers have stated that the path to ratifying USMCA by Congress is uncertain partially because the three countries have yet to resolve disputes over tariffs on U.S. imports of steel and aluminum, as well as retaliatory tariffs that Canada and Mexico have imposed on U.S. agricultural products. The conclusion of the proposed USMCA did not resolve these tariff disputes. On January 30, 2019, Senator Chuck Grassley called on the Trump Administration to lift tariffs on steel and aluminum imports from Canada and Mexico before Congress begins considering legislation to implement the USMCA. Representatives of the U.S. business community, agriculture interest groups, other congressional leaders, and Canadian and Mexican government officials have also stated that these tariff issues must be resolved before the USMCA enters into force. Other Members of Congress have raised issues regarding labor and environmental provisions of USMCA. Speaker Pelosi has stated that she wants "stronger enforcement language" and that the USMCA talks should be reopened to tighten enforcement provisions for labor and environmental protections. Some trade observers believe that delays in congressional action on USMCA could make it harder for Canada to consider USMCA approval this year because of upcoming parliamentary elections in October 2019.

On September 30, 2018, the Trump Administration announced the conclusion of the renegotiations of the North America Free Trade Agreement (NAFTA) and the proposed United States-Mexico-Canada Agreement (USMCA). If approved by Congress and ratified by Canada and Mexico, USMCA would modify and possibly replace NAFTA, which entered into force January 1, 1994. NAFTA provisions are structured as three separate bilateral agreements: one between Canada and the United States, a second between Mexico and the United States, and a third between Canada and Mexico. Under NAFTA, bilateral agricultural trade between the United States and Mexico was liberalized over a transition period of 14 years beginning in 1994. NAFTA provisions on agricultural trade between Canada and the United States are based on commitments under the Canada-U.S. Trade Agreement (CUSTA), which granted full market access for most agricultural products with the exception of certain products. The agricultural exceptions under NAFTA include Canadian imports from the United States of dairy products, poultry, eggs, and margarine and U.S. imports from Canada of dairy products, peanuts, peanut butter, cotton, sugar, and sugar-containing products. The proposed USMCA would expand market access for U.S. exports of dairy, poultry, and eggs to Canada and enhance NAFTA's Sanitary and Phytosanitary (SPS) provisions. It would also include new provisions for trade in agricultural biotechnology products, add provisions governing Geographical Indications (GIs), add protection for proprietary food formulas, and require USMCA countries to apply the same regulatory treatment to imported alcoholic beverages and wheat as those that govern their domestic products. Since 2002, Canada has been the United States' top agricultural export market, and Mexico was the second-largest export market until 2010, when it became the third-largest market as China became the second-largest agricultural export market for the United States. U.S. agricultural exporters are thus keen to keep and grow the existing export market in North America. If the United States were to potentially withdraw from NAFTA, as mentioned several times by President Trump, U.S. agricultural exporters could potentially lose at least a portion of their market share in Canada and Mexico if the proposed USMCA does not enter into force. If the United States withdraws from NAFTA, U.S. agricultural exports to Canada and Mexico would likely face World Trade Organization (WTO) most-favored-nation tariffs—the highest rate a country applies to WTO member countries. These tariffs are much higher than the zero tariffs that U.S. exporters currently enjoy under NAFTA for most agricultural exports to Canada and Mexico. The proposed USMCA would need to be approved by the U.S. Congress and ratified by Canada and Mexico before it could enter into force. Some Members of Congress have voiced concerns about issues such as labor provisions and intellectual property rights protection of pharmaceuticals. Other Members have indicated that an anticipated assessment by the U.S. International Trade Commission (USITC) will be key to their decisions on whether to support the agreement. Canada, Mexico, and some Members of Congress have expressed concern about other ongoing trade issues with Canada and Mexico, such as antidumping issues related to seasonal produce imports and the recent U.S. imposition of a 25% duty on all steel imports and a 10% duty on all aluminum imports. Both the Canadian and the Mexican governments have stated that USMCA ratification hinges in large part upon the Trump Administration lifting the Section 232 tariffs on imported steel and aluminum. Similarly, some Members of Congress have stated that the Administration should lift tariffs on steel and aluminum imports in order to secure the elimination of retaliatory tariffs on agricultural products before Congress would consider legislation to implement USMCA.

GAO_GAO-19-173

Background Overview of Software Sustainment Activities DOD defines software maintenance and software sustainment synonymously, to comprise any activities or actions that change the software baseline, as well as modifications or upgrades that add capability or functionality. For example, software sustainment activities involve the correction of software errors after the software is released and adaptations to enable interfacing with changing environments. The four categories of software sustainment actions are defined in figure 1 below. A software sustainment activity can be categorized in multiple areas. For example, an Army command is modifying software to incorporate Windows 10. This action may be described as corrective in that it addresses errors in previous versions of Windows; perfective in that it upgrades the software to support new capabilities and functionality provided by Windows 10; adaptive in that it can accommodate changes to firmware and hardware environments; and preventive in that it improves reliability. Sustaining software is normally different from sustaining hardware. For example, when hardware breaks, technicians can remove the broken part—such as tread on a tracked vehicle— and install a working part. In contrast, sustaining software typically requires writing, testing, and deploying lines of code. Software provides critical functionality to nearly every hardware system that DOD uses: surface (for example, mobile network systems); air (for example, secure communications arrays in aircraft); sea (for example, submarine guidance systems); missile (for example, targeting systems); ordnance (for example, Common Remotely Operated Weapon Station); and space (for example, positioning software), as shown in figure 2. Further, a weapon system may comprise numerous software systems, each supporting different components of the system. Hundreds, or even thousands, of software systems can be embedded in a single weapon system. Interoperability and integration within the weapon system as a whole constitute key software considerations for the overall weapon system’s sustainability. For example, the military departments include system-of-systems and family-of-systems considerations. These considerations are defined as a set or arrangement of systems that results when independent systems are integrated within a larger system that delivers unique capabilities. Missions are performed by a system-of- systems arrangement of the platforms and systems that deliver the mission capability. Weapon System Software and the Acquisition Life- Cycle Decisions affecting the software on a weapon system are made throughout the acquisition life-cycle. The life-cycle is outlined in DOD Instruction 5000.02, Operation of the Defense Acquisition System. This instruction includes four basic and two hybrid models that serve as examples of defense program structures. The hybrid models combine models, such as a weapon system development that includes significant software development. The instruction also includes phases and milestones to oversee and manage acquisition programs, including major weapon systems. It outlines considerations affecting software sustainment for each milestone, including, for example, the following: Milestone A: The understanding of the technical, cost, and schedule risks of acquiring the materiel solution; the determination of core requirements; and the development of an intellectual property strategy, to include technical data and computer software deliverables. For example, for incrementally deployed software- intensive programs, the preliminary scope of limited deployment is determined for evaluation prior to a full deployment decision for each capability increment. Milestone B: A standard series of design reviews performed prior to converging on a final design for production. For example, for a hybrid acquisition program such as the combination of a major weapon system’s basic structural hardware development with a simultaneous software-intensive development, criteria establishing maturity for the development of software functional capability are to be identified. Milestone C: The point at which a program or increment of capability is reviewed for entrance into the production and deployment phase or for limited deployment. For example, a general criterion applied during review would be to have a mature software capability consistent with the software development schedule. Figure 3 depicts the milestones and decision points that inform a typical acquisition program. Decisions affecting the software of a weapon system are made throughout the acquisition life- cycle and involve stakeholders across a number of domains. For example, DOD officials are involved in software development, architecture and design, engineering, coding, integration and testing, cost estimation and collection, and intellectual property. Many decisions affecting software sustainment, such as software data rights decisions, typically occur in one of the phases prior to operations and support. Decisions made in the early phases may have long-term effects on a weapon system’s sustainability, especially for systems that endure beyond their originally intended design life. Software sustainment decisions are often revisited during the operations and support phase, as hardware breaks or needs to be replaced, a new capability or requirement is added, or a modification is made due to feedback received after a weapon system is fielded. Software Sustainment as Part of Depot Maintenance, Core Requirements, and Core Sustaining Workloads DOD conducts software sustainment at a variety of depot-level maintenance locations. DOD and military policy refer to these locations variously as DOD depot-level software sustainment activities, Software Engineering Centers, Software Support Activities, and Life-Cycle Software Engineering Centers. For purposes of this report, we will refer to these facilities as DOD software centers. Section 2460 of title 10 of the United States Code defines depot-level maintenance and repair. This term includes all aspects of software maintenance classified by DOD as of July 1, 1995, as depot-level maintenance and repair—regardless of the source of funds for the maintenance or repair, or of the location at which the maintenance or repair is performed. DOD maintains many weapon systems (such as aircraft and ships) and equipment (such as radar) at the depot level because the systems are too complex to maintain exclusively at the unit, or organizational, level. Section 2464 of title10 of the United States Code requires DOD to maintain a core depot-level maintenance and repair capability that is government-owned and -operated. Maintaining this capability provides a ready and controlled source of technical competence and resources to enable effective and timely response to mobilizations, contingencies, or other emergencies. Additionally, DOD must assign these government- owned and -operated facilities (the depots) sufficient workload to ensure cost efficiency and technical competence during peacetime, while preserving the surge capacity and reconstitution capabilities necessary to fully support the strategic and contingency plans prepared by the Chairman of the Joint Chiefs of Staff. Data Rights in DOD The term “data rights” in the DOD context typically refers to the license rights that the department acquires in two types of deliverables: technical data and computer software. These rights are addressed in law, in the Defense Federal Acquisition Regulation Supplement (DFARS), and in DOD guidance. These data rights are defined as follows: Technical data: recorded information, regardless of the form or method of recording, of a scientific or technical nature (including computer software documentation). Computer software: computer programs, source code, source code listings, object code listings, design details, algorithms, processes, flow charts, and related material that would enable the software to be reproduced, recreated, or recompiled. Computer software documentation: owner’s manuals, user’s manuals, installation instructions, operating instructions, and other similar items, regardless of how this documentation is stored, that will explain the capabilities of the computer software or provide instructions for using the software. DOD Has Policies and Organizations within Weapon System Management and Depot Maintenance to Manage Operational System Software Sustainment DOD has policies and organizations in place within weapon system management and depot maintenance to manage the sustainment of operational system software. We found that DOD has policies for managing the life-cycle of weapon systems, including sustainment; and that DOD policy on depot maintenance and cost also considers weapon system software issues. Several organizations, including the Under Secretary of Defense for Acquisition and Sustainment and DOD software centers, play key roles in overseeing and managing software sustainment. Software sustainment activities are conducted at numerous facilities, including military department software centers, weapon system program management offices, government laboratories or software integration laboratories, and contractor facilities. Additionally, while DOD has defined software sustainment and software maintenance activities synonymously, and it defines these functions as part of depot maintenance, we determined that the Navy categorizes and reports software sustainment differently. DOD Has Policies for Life- Cycle Management of Major Weapon Systems That Include Considerations for Software Sustainment DOD has published a directive and an instruction to guide the military departments in life-cycle management of major weapon systems, including considerations relating to software and weapon system sustainability. First, DOD’s acquisition publications provide DOD-wide policy and assign responsibilities to OSD and the military departments for executing weapon system development, production, and sustainment. For example, weapon system software considerations, including cost and access to technical data (for example, product specifications) and computer software (for example, source code), are to be included in required documentation, such as the Life-Cycle Sustainment Plan and the Systems Engineering Plan. Regulatory and reporting requirements differ depending on a system’s cost and acquisition category. These policies are in accordance with statute directing the Secretary of Defense to issue and maintain comprehensive guidance on life-cycle management. Second, DOD includes weapon system software considerations in its instruction regarding depot maintenance core capabilities. DOD-wide policy assigns responsibilities to OSD and the military departments for the performance of DOD core depot-level maintenance, including software. DOD policy states that maintenance tasks are performed to restore safety and reliability when deterioration has occurred. These tasks help to ensure military readiness, including mobilization and surge capabilities, to support national defense strategic and contingency requirements. Additionally, DOD policy states that, for inherently governmental and core capability requirements, maintenance programs are to use organic—or DOD personnel, rather than contractors—in accordance with the law. These DOD policies accord with the statute directing the Secretary of Defense to maintain a core depot-level maintenance and repair capability to ensure technical competence in peacetime while preserving the surge capacity necessary to fully support strategic and contingency needs. Third, DOD includes weapon system software considerations in its cost policy and manuals. These policies assign responsibilities for estimation of costs and collection of costs (including operations and support costs). They also prescribe cost data reporting and software resource data reporting requirements. Several DOD Organizations Play Roles in Weapon System Software Sustainment Policy Several DOD organizations establish policies and procedures for weapon system software sustainment. First, the Under Secretary of Defense for Research and Engineering and the Under Secretary of Defense for Acquisition and Sustainment play key roles in the establishment and maintenance of policy and procedures for software sustainment. For example: Research and Engineering: This office establishes policy and oversees research, system engineering, and developmental test processes, especially during formative stages of programs. It also supports the Joint Federated Assurance Center, a cross-DOD working group with a mission to develop, maintain, and offer software and hardware vulnerability detection, analysis, and remediation capabilities. Acquisition and Sustainment: This office establishes policy and manages acquisition and sustainment of major weapon systems. In April 2018 the Under Secretary appointed the first special assistant for software acquisition to advise and assist in addressing software challenges. According to officials, the special assistant will, among other responsibilities, oversee the development of software development policies and standards across DOD practices, and will advise leadership on best practices in software sustainment and data rights issues. Second, the Deputy Assistant Secretary of Defense for Materiel Readiness, under the Assistant Secretary of Defense (Sustainment), establishes policy for and manages DOD depot-level maintenance, including software sustainment. Third, the Office of Cost Assessment and Program Evaluation analyzes resource allocation and cost estimation, and provides independent analytic advice on, among other things, the cost-effectiveness of defense systems. Figure 4 highlights select organizations that establish and maintain software sustainment policy and procedures. Software Sustainment Activities Are Conducted at DOD Software Centers or Contractor Facilities Software sustainment is conducted either at DOD software centers— which include military department software centers, weapon system program management offices, government laboratories, and software integration laboratories—or at contractor facilities. The specifics of how the software sustainment is conducted vary by weapon system, in accordance with what the program manager negotiates with the DOD software center or contractor. At DOD software centers, software is developed, tested, and distributed by government staff, contractor staff, or both to maintain operational capability, correct faults, improve performance, and adapt the software to environmental changes. Activities range from small fixes for software errors to large releases that provide weapon systems with new capabilities or address cybersecurity vulnerabilities. The DOD software centers sustain a range of different systems. For example, U.S. Army Communications and Electronic Command’s Software Engineering Center sustains software for Army communications systems; and the U. S. Army Aviation and Missile Research Development and Engineering Center sustains software for missiles, space, and aviation; The Oklahoma City Air Logistics Complex’s 76th Software Maintenance Group at Tinker Air Force Base provides DOD with capabilities in operational flight programs, mission planning systems, space systems, ground-based radar, weapons support, mission support, jet engine test, training and simulation systems, and diagnostics and repair; and Space and Naval Warfare Systems Center Pacific supports and maintains Naval systems in the areas of command and control, communications, computers, and intelligence, surveillance, and reconnaissance, as well as cyber and space. This work is necessary to maintain and upgrade weapon system software and to meet immediate military operational needs. During our review, officials at DOD software centers provided additional examples of software sustainment activities they conduct on a wide variety of weapon systems. Appendix II provides these additional examples. DOD Includes Software Sustainment as Part of Depot Maintenance and the Core Logistics Capabilities Determination Process, but Navy’s Approach Differs DOD has defined software sustainment and software maintenance activities synonymously, and it defines these functions as part of depot maintenance and the core logistics process. The Departments of the Army and the Air Force categorize and report software sustainment as part of depot maintenance and the core logistics process. Specifically, the Army and the Air Force have policies that categorize and report software sustainment as part of their core logistics requirements, in accordance with DOD instruction. Contrary to DOD policy, the Department of the Navy does not categorize and report software sustainment as part of depot maintenance Specifically, Navy officials said that the Navy views software sustainment as an engineering function, not a depot maintenance function. They said that Navy policy reflects the Navy’s view of software sustainment as a continuous engineering process that occurs throughout a weapon system’s life-cycle, rather than a discrete set of activities categorized as depot maintenance. These officials stated that while the Navy believes software sustainment to be critical to maintaining its weapon systems, it also believes that managing software sustainment as part of depot maintenance is not the most effective approach for the Navy. In particular, Navy officials expressed several concerns about how reporting and categorizing software sustainment as part of depot maintenance could affect their activities. For example, Navy officials noted that this shift would require software engineering to be reported as depot maintenance, which in turn would require the Navy to carry out a greater portion of the work at Navy depots using DOD’s workforce. Navy officials stated that, in their opinion, the Navy does not have the capacity to conduct this level of effort with the current DOD workforce within the Navy depot structure, and that the Navy’s ability to develop adequate capacity in its DOD software engineering workforce in the future is uncertain. They also stated that shifting this capacity away from private industry to the DOD software engineering workforce could create instability in the management of current and future Navy programs, and would be inconsistent with the Navy’s efforts to broaden private-sector software engineering capability and capacity. We also found that the Department of the Navy does not categorize and report software sustainment as part of its core logistics requirements, in accordance with DOD policy. DOD Instruction 4151.20, Depot Maintenance Core Capabilities Determination Process, assigns responsibilities and prescribes procedures to identify required core capabilities for depot maintenance and the associated workloads needed to sustain those capabilities. It is DOD policy that the core capability requirements determination process underpins the establishment and retention of a broad set of public-sector depot maintenance capabilities necessary for DOD, and that the required core capabilities and depot maintenance workloads necessary to sustain those capabilities will be calculated by military services and then aggregated to determine the overall DOD core requirements. As such, DOD requires the military services to use a computational methodology to identify their essential core capability requirements and their planned workload to support this core maintenance capability. The Navy’s differing approach to categorizing and reporting software sustainment has created challenges for DOD-wide reporting on core logistics capabilities. DOD is required by law to submit a Biennial Core Report to Congress that identifies core logistics capabilities—and DOD has included software sustainment—at depots, and the workload required to maintain those capabilities. The Army and the Air Force included direct labor hours and estimated sustainment costs for DOD depot-level software sustainment in the 2018 DOD Biennial Core Report. However, while the Navy conducted software sustainment activities, it did not consider these activities to be part of depot maintenance or a core logistics capability, as previously discussed. As a result, the Navy reported no direct labor hours or estimated cost of sustaining its software workload for inclusion in the 2018 DOD Biennial Core Report, as shown in table 1. OSD accepted the Navy’s core report submission for the 2018 DOD Biennial Core Report. The Department of the Navy’s position that software sustainment is not part of depot maintenance is contrary to DOD Instruction 4151.20, which specifically includes software sustainment as part of depot maintenance. Without the Department of the Navy’s categorizing and reporting of its software sustainment costs, in accordance with DOD policy on the Depot Maintenance Core Capabilities Determination Process, DOD and Congress are not fully informed of the magnitude and cost of core software sustainment capability requirements for the Navy. Accordingly, DOD is impeded in its efforts to plan for a ready and controlled source of technical competence, and to budget resources in peacetime while preserving the surge capabilities necessary to fully support strategic and contingency needs. Limitations in DOD’s and the Military Departments’ Data Reporting Impede DOD’s Tracking of Weapon System Software Sustainment Costs DOD’s ability to track weapon system software sustainment costs is impeded by limitations in the collection of software data by both the Office of Cost Assessment and Program Evaluation and the military departments. CAPE oversees the primary cost data collection systems: the Cost and Software Data Reporting system and the military departments’ Visibility and Management of Operating and Support Costs system. Further, CAPE has limitations in its cost and software data reporting system for data collected from DOD software centers. We also found that the military departments collect incomplete data on software sustainment costs in their VAMOSC systems. CAPE Has Limitations in Its Cost and Software Data Reporting System CAPE collects software sustainment cost data from contractors on certain major weapon systems through its CSDR system. According to CAPE’s CSDR manual, this system serves as the primary repository of contractor costs for use in most DOD resource analysis efforts, including cost database development, applied cost-estimating, cost research, program reviews, analysis of alternatives, and life-cycle cost estimates. Data from the two principal components of the CSDR system–contractor cost data reporting and software resources data reporting systems—can be used in managing software sustainment costs. Data in the CSDR system may also be used to prepare acquisition and life-cycle cost estimates for weapon system milestone reviews, as well as to estimate and project software sustainment costs. We identified limitations, however, in CAPE’s CSDR system. First, the system has historically not collected information from contractors for weapon system acquisition programs whose spending levels did not reach the major defense acquisition program threshold. Although collecting this information was not a requirement in the past, in 2016 Congress directed DOD to begin to collect additional information necessary to facilitate cost estimation and comparison across acquisition programs, including costs from programs with eventual total expenditures greater than $100 million. In February 2018, as part of its overall efforts to make data collection more robust, CAPE issued a memo stating that the Army, Navy, and Air Force proposed pilot programs to collect contractor cost data from 26 weapon system programs whose spending levels were below the major defense acquisition program threshold. CAPE plans to use the results of these pilot programs to inform future efforts to improve information-gathering on, and visibility into, the actual expenditures for lower-dollar programs. Additionally, CAPE plans to update its cost- collection policies and manual, if necessary, upon completion of the pilot programs. Because the department is in the midst of these pilot programs and has outlined next steps to be taken upon their completion, we are not making a recommendation about this matter at this time. Second, CAPE’s CSDR system does not collect any weapon system cost or software data from DOD software centers. Prior to 2017, CAPE required only contractors—and not DOD software centers—supporting major defense acquisition programs to report software sustainment costs into the CSDR system. However, in January 2017 CAPE recognized that the lack of cost and software data from government-executed elements of acquisition and sustainment programs was impeding accurate compilation of total program costs. Accordingly, it issued a memorandum to the military departments directing that cost and software data efforts on major defense acquisition programs should also be collected and submitted into the CSDR system by government-performed efforts, which include DOD software centers. Also, the Standards for Internal Control in the Federal Government states that management should use quality information to achieve an entity’s objectives, and that management should obtain data from reliable internal and external sources in a timely manner based on the identified information requirements for effective monitoring. According to a CAPE official, as of September 2018, CAPE had not received any inputs into the CSDR system for DOD-performed software sustainment efforts. CAPE officials told us that compliance with this requirement in the memorandum has been very low, and they attributed this to the absence of an implementation plan. The official said that CAPE is currently in the early stages of evaluating cost data systems—that is, CSDR and the military departments’ VAMOSC systems—to determine which is the more effective for use in collecting and submitting cost and software data from DOD software centers. The official acknowledged that after completing this evaluation of the systems, CAPE will develop an implementation plan. However, CAPE is still in the early stages of completing its evaluation. Having a robust implementation plan with time frames for key milestones will be important to executing and monitoring CAPE’s actions to improve the reporting of software sustainment costs. Without cost and software data from the DOD software centers, CAPE is challenged in its ability to accurately compile total program costs for program managers, cost estimators, and Congress, among other information recipients. Military Departments Collect Incomplete Software Sustainment Costs in Operating and Support Cost Systems According to the CAPE cost estimating guide, the software sustainment element excludes the costs of new development or major redesigns that provide new capabilities. However, if the costs of new development or major redesigns that provide new capabilities cannot be isolated, these costs will be considered as part of software sustainment and should be so noted in the estimate documentation. defines cost elements that cover the range of weapon system operating and support costs, including software sustainment. CAPE’s cost guide defines the software sustainment cost element as the labor, material, and overhead costs incurred after deployment to maintain, modify, and integrate software. According to the CAPE cost estimating guide, the software sustainment element excludes the costs of new development or major redesigns that provide new capabilities. However, if the costs of new development or major redesigns that provide new capabilities cannot be isolated, these costs will be considered as part of software sustainment and should be so noted in the estimate documentation. major commands. Therefore, in order to include software sustainment costs for all shipboard systems in the VAMOSC system, Navy officials must manually collect these cost data. This official explained that since the Navy collects these costs manually, officials focus their efforts on the most expensive and most populous shipboard systems. According to the official, they intend to address the Navy VAMOSC system’s incomplete software sustainment data issue by expanding their manual data collection efforts to include additional Navy systems. According to DOD policy, CAPE’s executive oversight responsibilities include annually reviewing the services’ VAMOSC systems to address data accessibility, completeness, timeliness, accuracy, and compliance with CAPE guidance. CAPE formed a VAMOSC task force in partnership with the service cost-analysis agencies and the Product Support Division in the office of the Assistant Secretary of Defense for Sustainment. The task force is aware of gaps in the military departments’ reporting of software sustainment costs within their VAMOSC systems, particularly within the Army and the Navy, and it has included data completeness in the scope of its efforts. However, closing data gaps is not one of the specific purposes of the task force; these purposes include (1) discussing integration of operating and support cost collection across the department and (2) clearly defining the technical differences across the military services’ VAMOSC systems. The task force is concerned with multiple cost-reporting issues. We recognize that the task force can enable DOD to improve the completeness of its software sustainment cost reporting. Further, systematic and institutionalized cost data collection by each military department is important to support credible cost estimates of current and future programs. However, without CAPE taking steps to prioritize obtaining complete information on operating and support costs for software sustainment, it cannot provide reliable life-cycle cost estimates to DOD acquisition or maintenance officials—or Congress— to assist with current and future years funding decisions. DOD Has Begun Addressing Challenges with Data Rights for Weapon Systems’ Software Sustainment but Has Not Yet Reported to Congress on Required Studies DOD Makes Decisions about Securing Data Rights throughout Weapon Systems’ Life-Cycles DOD continuously makes decisions about securing data rights, both early and throughout the life-cycle of a weapon system (see sidebar). DOD may obtain data rights, including access to technical data and computer software related to weapon systems, for a variety of reasons. For example, as we have previously reported, data rights may be obtained to help control costs and maintain flexibility in future acquisition and sustainment of systems and subsystems, including maintenance and upgrade of weapon system software. DOD officials we spoke with emphasized that there is no one-size-fits-all approach. Further, obtaining data rights for software sustainment constitutes only one of many competing priorities that must be considered along with cost, schedule, and performance in the acquisition of weapon systems. technical data or computer software, to be delivered under a contract. DOD officials told us that this was due to cost and proprietary reasons— that is, the contractor retains ownership of the intellectual property, such as the source code. DOD strives to balance the cost of purchasing the rights against the extent of data rights it expects it will need to maintain and support the system for years into the future. For example, DOD obtains data rights for the following reasons: To support its ability to evaluate weapon system design in order to sustain weapon system software. Computer software: computer programs, source code, source code listings, object code listings, design details, algorithms, processes, flow charts, and related material that would enable the software to be reproduced, recreated, or recompiled. owner's manuals, user's manuals, installation instructions, operating instructions, and other similar items, regardless of how this documentation is stored, that will explain the capabilities of the computer software or provide instructions for using the software. upgrades and sustainment activities to achieve cost savings. Re- competing requires complete technical data packages that enable the manufacture of data equipment from specification. During the operating and support phase of a weapon system, DOD may need to reconsider its previous decisions about the extent of data rights it previously acquired. DOD officials we spoke with emphasized that there are situations in which the data rights needed may not be known until years into sustainment. A senior-level DOD official told us that it would be useful if data rights could have a pre-negotiated price and be an option as part of the initial contract. Such an option would give the government the right, but not the obligation, to purchase the data rights at the pre- negotiated price if needed, in the future. DOD Faces Challenges with Data Rights and Has Initiated Steps to Mitigate Them DOD has faced challenges in securing the necessary data rights to sustain weapon system software. Specifically, having either partial or incomplete data, or unclear data rights, or both can impede the government’s ability to support the weapon system as intended. For example, our recent work on the F-35 Joint Strike Fighter Program found that DOD has not defined all of the technical data it needs from the prime contractor, and at what cost, to enable competition of future sustainment contracts. Officials at DOD software centers told us that they take steps to mitigate challenges posed by having either partial or incomplete data, or unclear data rights, or both for decades-old weapon systems and new acquisitions. For decades-old weapon systems, officials at some DOD software centers stated that they use public-private partnerships to bridge gaps for systems that lack access to the necessary data rights. For example, an Air Force official at Robins Air Force Base told us that the C- 5 software sustainment workload has been successful due to a public- private partnership involving the C-5 System Program Office, the 402nd Software Maintenance Group, and the contractor. As part of this partnership, a C-5 software integrated laboratory was established at Robins Air Force Base for DOD personnel to perform software sustainment activities, including deficiency report investigations and testing. In doing so, the 402nd Software Maintenance Group supports $8.4 million in annual C-5 software sustainment requirements. Officials at DOD software centers further explained that they have the expertise to optimize software that is transferred from a contractor to a DOD software center or to reverse-engineer software for weapon systems, if needed. In some cases, for example, a contractor may decide that it is no longer profitable or advantageous to continue performing the software sustainment; the activities can then be transferred to a DOD software center. Air Force officials at the 402nd Software Maintenance Group stated that on many occasions they have worked to take over software from a contractor without any transition period. In 2013 this DOD software center assumed sustainment responsibility from a contractor without any transition period for a radar system on the F-15 aircraft in order to maintain and upgrade its software. After assuming sustainment responsibility, according to an Air Force official, this DOD software center corrected latent defects and added new capabilities to adapt the radar to a changing threat environment. According to the official, this occurred because the contractor shifted focus to newer radar systems. Further, the contractor priced the support for the older radar system above what the Air Combat Command had budgeted for the updates. Officials at some DOD software centers told us that if they have the source code but do not have the computer software documentation— such as manuals or instructions—they may need to reverse-engineer the software. For example, engineers at U.S. Army Research, Development and Engineering Command, Armament Research, Development, and Engineering Center (ARDEC) reverse-engineered a key software function, as shown in figure 5 below. For newer acquisitions, DOD has increased the consideration it affords to the potential needs for access to and delivery of data. For example, Air Force officials said that because of past issues with data rights on legacy systems, they had launched an initiative to ensure that program offices use standardized contract clauses (for example, DFARS software data rights) and contract delivery requirements (for example, models, drawings, associated lists, and specifications) for data rights. To illustrate this, an Air Force official told us that the HH60W Combat Rescue Helicopter program committed early in the life-cycle to securing the necessary data rights for a DOD software center in the 402nd Software Maintenance Group to perform the software sustainment activities. The official told us that the Statement of Work requests that the contractor provide the DOD software center with the source code and full technical data package, to include a complete software-supporting documentation package. DOD Has Begun Establishing Intellectual Property Policy and Experts but Has Not Yet Reported to Congress on Required Studies on Data Rights Provisions in the fiscal years 2016 and 2018 National Defense Authorization acts (NDAA) directed the Secretary of Defense to commission studies related to DOD intellectual property, establish an intellectual property policy, and establish a cadre of intellectual property experts. In response, DOD is in the early stages of developing intellectual property policy and establishing a cadre of intellectual property experts. Also, DOD has commissioned studies to review its access to intellectual property for DOD weapon systems, including necessary data rights. However, the department has missed some required reporting time frames, and it has not yet reported to congressional defense committees on the studies’ findings and recommendations. Congress Directed DOD to Establish Intellectual Property Policy and Identify a Cadre of Intellectual Property Experts In the fiscal year 2018 NDAA, Congress directed the Secretary of Defense, through the Under Secretary of Defense for Acquisition and Sustainment, to (1) develop policy on the acquisition or licensing of intellectual property; and (2) establish a cadre of intellectual property experts to help support the acquisition workforce on intellectual property matters, including acquiring or licensing intellectual property. The law did not include a time frame for completion. The department is in the early stages of addressing these statutory provisions. According to the law, the policy is intended to enable DOD-wide coordination and consistency in strategies for acquiring or licensing intellectual property; to help ensure that program managers are aware of DOD’s rights and consider and use best practices early in the acquisition process; and to encourage customized intellectual property strategies based on the unique characteristics for each system. The cadre of experts is intended to ensure a consistent, strategic, and knowledgeable approach to acquiring or licensing intellectual property by providing expert advice, assistance, and resources to the acquisition workforce on intellectual property matters. While the department is in the early stages of addressing these statutory provisions, senior-level DOD officials have acknowledged a delay in these efforts, primarily due to the department’s recent reorganization. DOD officials stated that the details concerning organizational structure, roles, responsibilities, and realignment of resources had to be finalized in order for the newly formed organizations to implement these provisions. Regarding the intellectual property policy, a senior-level DOD official told us that the Office of Strategy and Design, within the Office of the Secretary of Defense, will facilitate the collaboration of stakeholders to assist in developing the intellectual policy, which the Assistant Secretary of Defense (Acquisition) will then issue and oversee. Senior-level DOD officials spoke with us regarding the complexity of developing this intellectual property policy, as it spans the weapon system life-cycle, including research, development, acquisition, and operating and support considerations. Regarding the intellectual property cadre, a senior-level DOD official told us that the Assistant Secretary of Defense (Acquisition) may house the cadre. As of August 2018 the department had not yet specified details on the potential size or scope of the intellectual property cadre, nor a time frame to guide implementation. Although not required by law, development of a robust implementation plan with time frames for key milestones could help DOD to execute and monitor its actions. DOD Established a Government-Industry Panel to Review Technical Data Rights, but the Panel Has Missed Deadlines for Reporting to Congress In the fiscal year 2016 NDAA Congress directed DOD to establish a Government-Industry Advisory Panel to review technical data rights, and to submit its final report and recommendations to the Secretary of Defense not later than September 30, 2016. The panel, comprising members from both the public and private sectors, was to review defense regulations on technical data and proprietary restrictions to ensure, among other things, that DOD does not pay more than once for the same work, and that contractors are appropriately recompensed for innovation and invention, among several other considerations. The law also directs that the Secretary of Defense submit comments or recommendations to congressional defense committees not later than 60 days after receiving the report. DOD established the panel, as legislatively required. As of November 2018 the panel had submitted its report to DOD but not to Congress. Panel members acknowledged that the panel is late in reporting to the congressional defense committees, and they attributed the lateness to the complexity of the task. Panel members told us that obtaining consensus between DOD and industry has been difficult, in part because of competing interests. For example, panel members discussed balancing DOD’s needed ability to upgrade and support weapon systems—which is difficult to forecast 30 to 40 years into the future—with industry’s need for a fair return on its intellectual property investments. In November 2018 the panel submitted the report to the Under Secretary of Defense for Acquisition and Sustainment. The report includes 19 recommendations for legislative, regulatory, and policy changes that, according to the panel chairman, recognize and seek to balance the equities of both government and industry. As of November 21, 2018, the panel had not yet transmitted the report to Congress, but the panel Chairman stated that it planned to do so before the end of the month. DOD Is Late in Reporting to Congress on a 2017 Study on Access to Intellectual Property for Weapon System Sustainment In the fiscal year 2016 NDAA, Congress directed DOD to contract with an independent entity to review DOD regulations, practices, and sustainment requirements related to government access to and use of intellectual property rights of private-sector firms. The law also directs the Secretary of Defense to submit a report to the congressional defense committees on the findings of the independent entity, along with a description of any actions the Secretary proposed in order to revise and clarify laws, or actions the Secretary may take to revise or clarify regulations, related to intellectual property rights. In response, DOD contracted with the Institute for Defense Analyses to review the intellectual property for weapon system sustainment. In May 2017 the Institute released its report on access to intellectual property for weapon system sustainment. The report made six recommendations, including that DOD establish or expand existing organizational capabilities within the DOD components (with OSD support) to provide expertise in the acquisition of intellectual property data and rights to program managers throughout their programs’ life-cycles, as well as to other staff involved in weapon system acquisition. However, DOD has not yet submitted its report to the congressional defense committees on the study’s findings and recommendations, though it was required to do so by March 1, 2016. OSD officials acknowledged that they are late in reporting to congressional defense committees on the study’s findings and recommendations. They attributed the delay to their intent of awaiting the findings and recommendations on technical data rights, if any, of the Government-Industry Advisory Panel, as discussed above. DOD informed the congressional defense committees twice—most recently in January 2018—that the department would consider the recommendations of the Institute for Defense Analyses and those of the Panel collectively, and would provide its recommendations in a single report after receiving the Panel’s report. In this January 2018 update, DOD noted that the Panel expected to complete its report by March 2018. However, the Panel did not complete its report—for which DOD was waiting before responding to the Institute’s study—until November 2018. DOD’s report to Congress on any actions it might take in response to the study’s findings and recommendations could provide insight into whether laws or regulations related to intellectual property rights need to be revised or clarified. Conclusions Software is essential to the capabilities and operations of a vast range of military systems, including tactical and combat vehicles, aircraft, ships, submarines, and strategic missiles. DOD has policies and organizations within weapon system management and depot maintenance to manage operational system software sustainment. DOD has defined software sustainment and software maintenance activities synonymously, and the department includes software maintenance as part of depot maintenance core capabilities. However, the Department of the Navy does not categorize or report software sustainment as part of depot maintenance. Without the Department of the Navy’s categorizing and reporting of its software sustainment costs, in accordance with DOD policy on the Depot Maintenance Core Capabilities Determination Process, DOD and Congress are not fully informed of the magnitude and cost of core software sustainment capability requirements. As such, DOD is impeded in its efforts to plan for a ready and controlled source of technical competence and to budget resources in peacetime while preserving the surge capabilities necessary to fully support strategic and contingency needs. Limitations exist in DOD’s cost and software data reporting system with regard to its obtaining cost data from DOD software centers, as well as in the military departments’ operating and support cost systems. These limitations impede DOD’s tracking of weapon system software sustainment costs. Without cost and software data from the DOD software centers as well as complete information on the military departments’ operating and support costs for software sustainment, CAPE is challenged in its ability to accurately compile total program costs for program managers, cost estimators, and Congress, among other information recipients. Lastly, while DOD makes decisions about securing data rights both early and throughout the life-cycle of a weapon system, the department faces challenges in balancing the cost of purchasing the rights against the extent of data rights it expects it will need over the life of the system. DOD has begun taking actions to address these challenges. For example, DOD has commissioned several studies, at congressional direction, to examine DOD’s access to and use of intellectual property, including technical data rights and proprietary restrictions. However, Congress has yet to receive two of those studies. Reporting on the findings and recommendations, as well as on any actions DOD may take in response to both studies, would provide insight and would highlight timely issues with technical data rights to keep Congress and DOD informed of government and industry concerns and enable them to use that knowledge in their decision making on weapon systems that may be in operation for decades to come. Recommendations for Executive Action We are making five recommendations to the Department of Defense— one to the Secretary of the Navy and four to the Secretary of Defense. We recommend that the Secretary of the Navy categorize and report the Navy’s software sustainment costs, in accordance with DOD policy on the Depot Maintenance Core Capabilities Determination Process. We recommend that the Secretary of Defense ensure that the Director for Cost Assessment and Program Evaluation complete its evaluation and select the most effective system to obtain cost and software data from DOD software centers, and develop an implementation plan that includes time frames for key milestones to execute and monitor the centers’ submission of required data. We recommend that the Secretary of Defense ensure that the Director for Cost Assessment and Program Evaluation takes steps to prioritize the respective military departments’ obtaining and reporting of complete operating and support costs for software sustainment through its VAMOSC systems. We recommend that the Secretary of Defense develop an implementation plan with time frames for key milestones for establishing a cadre of intellectual property experts. We recommend that the Secretary of Defense submit a report, as required by law, to Congress about the study on access to intellectual property for weapon system sustainment conducted by the Institute for Defense Analyses, along with a description of any actions that the Secretary proposes, or may take, to revise or clarify regulations related to intellectual property rights. Agency Comments and Our Response We provided a draft of this report to the Department of Defense for review and comment. DOD provided written comments, which are reprinted in appendix III. In its comments, DOD concurred with our recommendations and stated it has actions underway or plans to take actions in response to all five of our recommendations. We are sending copies of this report to the appropriate congressional committees and the Acting Secretary of Defense. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9627 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report examines the extent to which (1) DOD has policies and organizations in place to manage the sustainment of operational system software for weapon systems; (2) DOD and the military departments track costs to sustain weapon system software; and (3) DOD has addressed challenges securing necessary data rights to sustain weapon system software. Our scope included software sustainment of operational weapon systems. For objective one, we reviewed DOD policies and organizations in place to manage the sustainment of operational system software for weapon systems. This included DOD Directive 5000.01 and DOD Instruction 5000.02, which establish acquisition program policies; and DOD Directive 4151.18 and DOD Instruction 4151.20, which outline requirements for DOD materiel maintenance and DOD programs’ core capabilities. We reviewed statutory requirements, including 10 United States Code § 2337, which requires the Secretary of Defense to issue and maintain comprehensive guidance on life-cycle management and the development and implementation of product support strategies for major weapon systems. We compared the processes used by DOD and the military departments against those outlined in DOD policy and statute, and against software sustainment activities performed at several DOD software centers. We identified the roles and responsibilities for conducting software sustainment activities among personnel at each level of DOD bureaucracy. We also interviewed officials from the Office of the Secretary of Defense (OSD) and the military departments regarding the department’s guidance and the processes used to collect the data for DOD’s Biennial Core Report. As in our previous reviews of DOD’s biennial core reports, we did not assess the reliability of the underlying data provided by the military services for the 2018 DOD Biennial Core Report. However, we determined that the data were sufficiently reliable for the purpose of determining whether the military services had reported costs of workloads in 2012—2018. We interviewed officials from the Office of the Secretary of Defense (OSD), including within the Office of the Under Secretary of Defense for Research and Engineering and the Office of the Under Secretary of Defense for Acquisition and Sustainment. Using a semi-structured questionnaire, we also interviewed officials from each of the military department headquarters—U.S. Army G4, Air Force Acquisition office, and the Assistant Secretary of the Navy for Research, Development, and Acquisition—to understand policies and organizations in place to manage the sustainment of operational system software for major weapon systems. We also interviewed industry officials, such as from the Center for Strategic and Budgetary Assessments and the Software Engineering Institute at Carnegie Mellon University. We conducted interviews using a semi-structured questionnaire with officials at select DOD depot-level software sustainment activities, also referred to as DOD software centers for the purposes of this report. We used DOD’s Fiscal Year 2016 Maintenance Fact Book to select 11 of 20 DOD depot-level software sustainment activities based on several criteria, including (1) military department, (2) weapon system type, (3) geographical location, and (4) random selection. Although this sample is not generalizable to the population of DOD depot-level software centers, the use of a random sample of software centers helped mitigate any potential selection bias, and the interviews provided valuable information on those sites selected. The officials we interviewed at DOD software centers included a variety of engineers and others who perform software sustainment activities for weapon system software on several DOD weapon systems, including air and sea platforms, targeting systems, and communications systems, among others. We interviewed these officials to gain an understanding of policies and procedures they follow to guide their software sustainment activities, how they are organized, and the activities they undertake to sustain the software. For objective two, we reviewed DOD policy and military department guidance regarding software sustainment cost reporting requirements, including Department of Defense Manual 5000.04, Cost and Software Data Reporting Manual, and applicable financial management regulations. We reviewed the Office of Cost Assessment and Program Evaluation (CAPE) Reports to Congress for Fiscal Years 2016 and 2017 to learn about steps that CAPE is taking to address challenges. We interviewed officials at the DOD software centers responsible for weapon system software on several DOD weapon systems to gain an understanding of how they track cost data. We also interviewed officials from OSD, including officials from CAPE, and officials from the three cost analysis agencies responsible for collecting operating and support costs for the military departments’ Visibility and Management of Operating and Support Costs (VAMOSC) data collection systems. These agencies include Office of the Assistant Secretary of the Army for Cost and Economics, the Air Force Cost Analysis Agency, and the Naval Center for Cost Analysis. For objective three, we reviewed statutes governing DOD intellectual property, including technical data rights, computer software, and computer software documentation. These statutes included, for example, 10 U.S.C. §2320, “Rights in Technical Data,” and 10 U.S.C. §2321, “Validation of Proprietary Data Restrictions.” Both of these statutes are implemented, in part, by the Federal Acquisition Regulation and the Defense Federal Acquisition Regulation Supplement (DFARS), which we also reviewed. Specifically, we reviewed DFARS Subpart 227.71, “Rights in Technical Data,” and DFARS Subpart 227.72, “Rights in Computer Software and Computer Software Documentation.” Both include sections that address DOD definitions of technical data; computer software; and computer software documentation, policy, acquisition, licensure, and delivery rights, among other items. We also reviewed DOD policy and guidance, including DOD 5010.12-M, Procedures for the Acquisition and Management of Technical Data. We reviewed the Defense Acquisition Guidebook, which addresses the acquisition and maintenance of technical data rights to sustain and upgrade software on major weapon systems. We also reviewed guidance put forth on intellectual property strategies, including a checklist arranged by contract phase for key intellectual property management activities and considerations. We interviewed officials from OSD, including from the Office of General Counsel and the Office of Strategic Design, as well as officials from the military department headquarters, to gain an understanding of the necessary technical rights to sustain weapon system software, the reasons that technical data rights are needed, and challenges faced by the department. We interviewed officials at the DOD software centers covering a variety of DOD weapon systems to gain an understanding of what technical data rights they need for their respective weapon systems, and the ways in which they manage issues they may encounter in which contractors own the technical data. We analyzed select weapon systems for which DOD had complete data and rights, as well as weapon systems for which DOD had partial or incomplete data rights, and the actions DOD took for sustainment, such as public-private partnerships. We also interviewed members of the Government-Industry Panel examining technical data rights and proprietary data restrictions to gain an understanding of necessary data rights for sustaining weapon systems coupled with proprietary concerns from industry. Finally, we reviewed statutory provisions in the fiscal years 2016 and 2018 National Defense Authorization acts, which directed the Secretary of Defense to commission studies related to DOD intellectual property, and we interviewed officials to understand DOD’s status on the provisions. Table 2 lists the offices that we visited or contacted during our review. Appendix II: Select Software Sustainment Activities Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact listed above, Sally Newman (Assistant Director), Laura Czohara (Analyst-in-Charge), Steven Bagley, Steven Boyles, Vincent Buquicchio, Amie Lesser, Janine Prybyla, Andrew Stavisky, and Cheryl Weissman made key contributions to this report. Appendix V: Related GAO Products GAO- F-35 Joint Strike Fighter: Development is Nearly Complete, but Deficiencies Found in Testing Need to Be Resolved, GAO-18-321 (Washington, D.C.: June 5, 2018). GAO- F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency, GAO-18-75 (Washington, D.C.: Oct. 26, 2017). GAO, Military Acquisitions: DOD Is Taking Steps to Address Challenges Faced by Certain Companies, GAO-17-644 (Washington, D.C.: July 2017). GAO- F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its Central Logistics System, GAO-16-439, (Washington, D.C., Apr. 14, 2016). GAO- F-35 Joint Strike Fighter: Preliminary Observations on Program Progress, GAO-16-489T (Washington, D.C.: Mar. 23, 2016). GAO, Defense Contracting: Early Attention in the Acquisition Process Needed to Enhance Competition, GAO-14-395 (Washington, D.C.: May 5, 2014). GAO- F-35 Joint Strike Fighter: Problems Completing Software Testing May Hinder Delivery of Expected Warfighting Capabilities, GAO-14-322 (Washington, D.C.: Mar. 24, 2014). GAO- F-35 Joint Strike Fighter: Program Has Improved in Some Areas, but Affordability Challenges and Other Risks Remain, GAO-13-500T (Washington, D.C.: Apr. 17, 2013). GAO, Defense Acquisition: DOD Should Clarify Requirements for Assessing and Documenting Technical-Data Needs, GAO-11-469 (Washington, D.C.: May 11, 2011). GAO, Federal Contracting: Opportunities Exist to Increase Competition and Assess Reasons When Only One Offer Is Received, GAO-10-833 (Washington, D.C.: July 26, 2010). GAO, Weapons Acquisition: DOD Should Strengthen Policies for Assessing Technical Data Needs to Support Weapon Systems, GAO-06-839 (Washington, D.C.: July 14, 2006). GAO, Defense Management: Opportunities to Enhance the Implementation of Performance-Based Logistics, GAO-04-715 (Washington, D.C.: Aug. 16, 2004). GAO, Defense Logistics: Opportunities to Improve the Army’s and the Navy’s Decision-making Process for Weapons Systems Support, GAO-02-306 (Washington, D.C.: Feb. 28, 2002). GAO, Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics Support Approaches, GAO-01-618 (Washington, D.C.: Sept. 7, 2001). GAO, Test and Evaluation: DOD Has Been Slow in Improving Testing of Software Intensive Systems, GAO/ NSIAD-93-198 (Washington, D.C.: September 1993). GAO, Mission Critical Systems, Defense Attempting to Address Major Software Challenges, GAO/IMTEC-93-13 (Washington, D.C.: December 1992). GAO, Risk and Control of the Software Maintenance Process (Washington, D.C.: January 1987). GAO, Federal Agencies’ Maintenance of Computer Programs: Expensive and Undermanaged, AFMD-81-25 (Washington, D.C., Feb. 26, 1981).

Software is integral to the operation and functionality of DOD equipment, platforms, and weapon systems, including tactical and combat vehicles, aircraft, ships, submarines, and strategic missiles. DOD estimates that software sustainment funding will total at least $15 billion over the next 5 fiscal years. DOD carries out software sustainment at various locations, where DOD uses its maintenance capabilities to maintain, overhaul, and repair its military weapon systems. GAO was asked to review several issues relating to the sustainment of operational system software for DOD weapon systems. This report examines, among other things, the extent to which (1) DOD has policies and organizations in place to manage the sustainment of operational system software for weapon systems; and (2) DOD and the military departments track costs to sustain weapon system software. GAO reviewed DOD policies and procedures and interviewed cognizant officials from select DOD software centers, among others, who perform weapon system software sustainment activities. The Department of Defense (DOD) has policies and organizations to manage the sustainment of operational system software. DOD policy defines software sustainment and software maintenance activities synonymously, to comprise any activities or actions that change the software baseline, as well as modifications or upgrades that add capability or functionality. One example of such an action is the Air Force's modifying the security software on the B-52 bomber to better protect against attempted system penetration. The figure below defines the four categories of software sustainment actions. DOD policies on life-cycle management of weapon systems address software sustainment, and several DOD organizations—including DOD software centers—play key roles in overseeing and managing software sustainment. DOD policy includes software maintenance as part of core logistics, and it requires the military departments to report biennially to Congress on their estimated workloads to sustain core logistics capabilities, including estimated costs of these workloads. However, while the Army and Air Force categorize and report software sustainment as part of core logistics, the Navy does not. Without the Navy's categorizing and reporting its software sustainment costs, DOD and Congress are not fully informed of the magnitude and cost of core software sustainment capability requirements. This impedes DOD's efforts to plan for a ready and controlled source of technical competence, and to budget resources in peacetime while preserving necessary surge capabilities. DOD's ability to track weapon system software sustainment costs is impeded by limitations in its collection of software cost data. First, GAO found that the Office of Cost Assessment and Program Evaluation's (CAPE) Cost and Software Data Reporting system did not collect weapon system cost data from DOD software centers. Recognizing this, CAPE directed in January 2017 that cost and software data efforts on major acquisition programs should begin to be collected from government organizations, including DOD software centers. However, CAPE acknowledges that it lacks an implementation plan to execute and monitor the requirement for these centers to submit cost and software data. Second, GAO also found that the military departments' operating and support cost systems have incomplete software sustainment cost data. DOD policy requires the military departments to collect and maintain actual operating and support costs, including software sustainment costs. Without CAPE's taking steps to prioritize obtaining complete information on operating and support costs for software sustainment, CAPE is challenged in its ability to accurately compile total program costs or provide reliable life-cycle cost estimates to DOD and Congress.

GAO_GAO-18-61

Background Skin Cancer and Sunscreen How Sunscreen Works Most sunscreen products work by absorbing, reflecting, or scattering sunlight. Sunscreen contains chemicals that interact with the skin to protect it from ultraviolet (UV) rays. UV rays are an invisible form of radiation from the sun, tanning beds, and sunlamps that can penetrate the skin and change skin cells. The most common kinds of skin cancer, including the deadliest kind of skin cancer (melanoma), are associated with exposure to ultraviolet (UV) light. Sunscreen is one of the most common methods of protection against UV exposure used by Americans. To lower the risk of skin cancer, the Centers for Disease Control and Prevention and FDA recommend that consumers use broad spectrum sunscreens with a sun protection factor (SPF) of 15 or more as directed and in conjunction with other sun- protective measures, such as seeking shade and wearing protective clothing, hats, and sunglasses. Current recommendations also state that sunscreen should be reapplied every 2 hours and after swimming, sweating, and toweling off. When used incorrectly, sunscreen may provide a false sense of protection, which can ultimately lead to increased UV exposure. FDA Regulation of Sunscreens and Other OTC Drugs Because sunscreens are intended to help prevent sunburn and, in some cases, decrease the risks of skin cancer and early skin aging caused by the sun, these products are considered drugs under the Federal Food, Drug, and Cosmetic Act. Sunscreens are regulated as OTC (i.e., nonprescription) drugs, which are drugs considered to be safe for use by consumers without the intervention of a health care professional, such as a physician. Broad Spectrum Sunscreen and Sun Protection Factor (SPF) There are two types of ultraviolet (UV) radiation from which one needs protection— UVA and UVB. UVA radiation penetrates the skin more deeply and can cause skin cancer and other skin damage. UVB radiation can cause sunburn and result in skin damage. Broad spectrum sunscreens provide protection against both UVA and UVB rays. Products labeled as “broad spectrum” have been tested for both UVA and UVB protection. Sunscreens are made in a wide range of SPFs. The SPF value indicates the level of sunburn protection provided by the sunscreen product. Higher SPF values (up to 50) provide greater sunburn protection. Because SPF values are determined from a test that measures protection against sunburn, SPF values primarily indicate a sunscreen’s UVB protection. Most OTC drugs, including nearly all sunscreen products, are marketed in the United States by following the OTC monograph process. An OTC monograph is a regulation that specifies the active ingredients that may be used to treat certain diseases or conditions without a prescription, and the appropriate dose and labeling for use, among other things. OTC drugs that meet a monograph’s requirements may be marketed without FDA’s prior approval, assuming compliance with all other applicable regulations. FDA regulations designate categories of OTC drugs, including antacids, cough and cold products, and sunscreens, to be covered by OTC monographs. OTC drug products that do not fit under an existing monograph must be approved under an NDA to be marketed, which is an application also used for new prescription drugs. See table 1 for a summary of the differences between marketing an OTC drug product, such as a sunscreen product, under the OTC monograph process compared to under an NDA. According to FDA officials, more than 100,000 OTC drugs are marketed under the OTC monograph process, and about 400 are approved to be marketed under NDAs. The sunscreen monograph currently includes 16 active ingredients. The last active ingredients (avobenzone and zinc oxide) were added to the sunscreen monograph in the late 1990s. FDA issued a final sunscreen OTC monograph in 1999; before it could go into effect, however, FDA stayed its effective date indefinitely, because the agency had not yet established UVA/broad spectrum testing and labeling requirements for sunscreen products. To date, the sunscreen monograph is not in effect. While the sunscreen monograph’s effective date is stayed, FDA has indicated that it will not take enforcement action against the marketing of sunscreens using the 16 active ingredients included in the stayed final monograph or some combination thereof, provided the products are marketed in compliance with other applicable regulations and consistent with FDA’s 2011 draft guidance. TEA Process In 2002, FDA created a two-part process, referred to as the TEA process, by which an active ingredient that was not included in OTC drugs marketed in the United States prior to the beginning of the monograph process in the 1970s can be considered for marketing under the OTC monograph process by receiving a GRASE determination. Part 1: Eligibility determination. To be eligible for review under the TEA process, the sponsor must submit an application showing that the active ingredient has been marketed in OTC drugs for a material time and to a material extent, as shown by, for example a minimum of 5 continuous years in the same country, or multiple countries outside the United States, or in an OTC product with an approved NDA in the United States; and a sufficient quantity as measured by the total number of dosage units or weight of active ingredient sold, and in a population reasonably extrapolated to the population of the United States. For ingredients found to meet the eligibility requirements, FDA publically posts this determination in the Federal Register and requests safety and effectiveness data to be submitted for the agency’s review. Part 2: GRASE determination. FDA reviews the safety and effectiveness data submitted by sponsors and other interested parties to determine whether the ingredient is generally recognized as safe and effective for OTC use. Standards for GRASE determinations are established in FDA regulations. General recognition is based upon published studies, which may be corroborated by unpublished studies and other data. Safety means a low incidence of adverse reactions or significant side effects under adequate directions for use and warnings against unsafe use, as well as low potential for harm, which may result from abuse that can occur when the drug is widely available. Effectiveness means a reasonable expectation that, in a significant proportion of the target population, the pharmacological effect of the drug, when used under adequate directions for use and warnings against unsafe use, will provide clinically significant relief of the type claimed. Based on its review, FDA may initially determine that the active ingredient is GRASE or not GRASE for OTC use; a not GRASE determination could result from FDA’s determination that the safety and effectiveness data submitted are insufficient. FDA issues its initial GRASE determination in the Federal Register and provides a period of time for public comments. The agency then reviews any comments received and issues its final GRASE determination in the Federal Register. SIA altered the process FDA is required to use for its review of sunscreen active ingredients and established time frames for the agency’s review. It also established a process for convening the agency’s Nonprescription Drugs Advisory Committee to review and provide recommendations regarding sunscreen applications at certain points in the process, and created a mechanism for sponsors to request FDA’s Office of the Commissioner to review sunscreen applications. At the time SIA was enacted in November 2014, FDA had received TEAs for eight sunscreen active ingredients. For all eight of these ingredients, FDA had deemed the applications eligible for review under the TEA process (that is, the sponsors demonstrated that the ingredients had been marketed for a material time and to a material extent), and the agency had requested data to demonstrate safety and effectiveness. FDA Implemented SIA Requirements for Reviewing Applications for Sunscreen Active Ingredients within Mandated Time Frames FDA implemented requirements for reviewing applications for sunscreen active ingredients within the time frames required by SIA. For example, by November 2016, FDA issued final guidance for applications for sunscreen active ingredients, such as guidance on safety and effectiveness testing standards and on convening the Nonprescription Drugs Advisory Committee to discuss sunscreen active ingredients. In May 2016, FDA also issued its first required report to Congress on specific performance metrics, such as the number of sunscreen applications with pending GRASE determinations. In addition to requiring FDA to issue two additional reports to Congress in 2018 and 2020, SIA requires FDA to finalize the sunscreen monograph by November 26, 2019. See table 2 for the status of FDA’s implementation of SIA requirements and corresponding time frames. FDA also implemented changes to the process for reviewing sunscreen applications as required by SIA. Administrative orders. SIA changed the process for issuing initial and final GRASE determinations for sunscreen applications to administrative orders. FDA officials stated that this approach is more efficient than rulemaking. Agency officials noted that administrative orders are not subject to multiple-stage rulemaking procedures, and generally undergo fewer levels of review outside of FDA. Time frames. SIA established time frames for each step in the review process for sunscreen applications. For example, the agency is required to determine whether a new application for a sunscreen active ingredient is eligible for review and notify the sponsor within 60 days of receipt by the agency. These time frames only include FDA’s review, and do not include the time for the sponsor or other interested parties to prepare and submit safety and effectiveness data, or respond to additional FDA requests. Filing determination. SIA added a step, known as a filing determination, in which FDA reviews the safety and effectiveness data to determine whether it is sufficiently complete for the agency to begin its more substantive review to determine whether an active ingredient is GRASE. If FDA determines that the data are sufficiently complete to determine whether the active ingredient is GRASE, the agency will file the application and further analyze the data. If FDA determines that the data are not sufficiently complete, the agency can refuse-to-file the application, which involves notifying the sponsor and providing reasons for the refusal. Sponsors can protest FDA’s decision to refuse-to-file the application, known as “file over protest,” in which case FDA will proceed with its more substantial review to determine if the active ingredient is GRASE. Office of the Commissioner review. SIA established a mechanism for sponsors to request the Office of the Commissioner to issue GRASE determinations if FDA does not meet required time frames. The mechanism has not been employed to date, because, as of August 2017, FDA had met its required time frames for reviewing and initially responding to sunscreen applications. Figure 1 illustrates the post-SIA process for FDA’s review of pending and new applications for sunscreen active ingredients, including time frames. All Eight Sunscreen Active Ingredient Applications Pending After FDA Determined More Safety and Effectiveness Data Needed; Sponsors Questioned Need for Additional Data FDA completed its review of the safety and effectiveness data for each of the eight sunscreen active ingredient applications that it received prior to the enactment of SIA. The agency concluded that the ingredients were not GRASE because the data were insufficient and additional safety and effectiveness data are needed to determine otherwise. Sponsors questioned FDA’s request for additional data and no data have been provided. FDA’s Review of Sunscreen Active Ingredient Applications Determined Additional Safety and Effectiveness Data Needed, and Most Took More than 8 Years As of February 2015, FDA completed its review of the safety and effectiveness data—that is, the initial GRASE determination—for each of the eight sunscreen applications submitted between the creation of the TEA process in 2002 and SIA’s enactment in 2014. FDA’s review concluded that the eight sunscreen active ingredients were not GRASE, because the data were insufficient to make a determination, and that additional data are needed to determine otherwise. (See fig. 2.) For all eight pending sunscreen applications, FDA requested additional safety and effectiveness data to support a GRASE determination. The data FDA requested include Human clinical safety studies including skin irritation, sensitization, and photosafety studies, as well as human pharmacokinetic tests (which measure the amount of absorption of a drug into the body). Among other studies, FDA specifically recommends that sponsors conduct a Maximal Usage Trial (MUsT), a type of human pharmacokinetic study, to support an adequate assessment of safety. Human safety data from adverse event reports and other safety- related information from marketed products that contain the active ingredient. This includes a summary of all available reported adverse events potentially associated with the ingredient, all available documented case reports of serious side effects, any available safety information from studies of the safety and effectiveness of sunscreen products containing the ingredient in humans, and relevant medical literature describing adverse events. Nonclinical animal studies that characterize the potential long-term dermal and systemic effects of exposure to the active ingredient. These tests include dermal and systemic carcinogenicity studies, as well as toxicokinetic tests (to help determine the relationship between exposure in toxicology studies in animals and the corresponding exposure in humans). In most cases, FDA also recommended developmental and reproductive toxicity studies to evaluate the potential effects of the active ingredient on developing offspring. FDA’s guidance states that if the ingredient is not absorbed into the body past an identified threshold, some of these studies will not be needed. Effectiveness data from at least two SPF studies showing that the active ingredient prevents sunburn. FDA stated these studies should demonstrate protection at an SPF of 2 or higher. FDA’s 2016 guidance on safety and effectiveness data for sunscreen states that its approach for evaluating the safety of sunscreen active ingredients is based on the agency’s current scientific understanding of topical products for chronic use. According to FDA, the standard for determining GRASE has remained the same over time. However, FDA reports that the increase in the amount and frequency of sunscreen usage, coupled with advances in scientific understanding and safety evaluation methods, has changed the agency’s perspective on what it needs to determine if sunscreen active ingredients are GRASE. As a result, the agency stated that these additional tests, such as the MUsT, are necessary to determine whether a sunscreen active ingredient is safe for chronic use. FDA reported that the studies it is requesting are not novel and are consistent with the requirements for chronically used topical drug products approved through the NDA process. For the eight sunscreen applications FDA received since 2002, FDA took between approximately 6 and 13 years to issue initial GRASE determinations starting from the date that the application was submitted. For six of the eight sunscreen applications, it took FDA more than 8 years to issue an initial GRASE determination. (See table 3.) Sponsors or other parties may submit safety and effectiveness data after FDA determines the application is eligible for review. From the most recent date that safety and effectiveness data were submitted for each application, the range of time for FDA to issue an initial GRASE determination was between about 4 and 11 years. According to FDA officials, the delays in reviewing sunscreen applications can be attributed to inadequate resources to carry out the agency’s OTC drug responsibilities and a lengthy multi-step rulemaking process, which the applications were subject to prior to SIA. The officials added that the delays in FDA’s review of sunscreen applications are indicative of the larger issues affecting the OTC monograph process more generally. For example, though the OTC monograph process began over 40 years ago, FDA officials said that the agency has still not been able to complete many monographs, or make timely changes based on emerging safety issues and evolving science, because of the burdensome regulatory process and inadequate resources. FDA officials estimate that as of October 2017 approximately one third of the monographs are not yet final, and several hundred active ingredients, including those used in sunscreen products, do not have a final GRASE determination. Some stakeholders and sponsor representatives said that one effect associated with SIA was that FDA took action on the sunscreen applications that had been pending for many years. Without the act, some of them questioned whether FDA would have reviewed the sunscreen applications or provided feedback to the sponsors. Though the agency has made an initial GRASE determination, the timing of FDA’s final GRASE determination for each of the eight sunscreen active ingredients will be determined, in part, by when each ingredient’s sponsor provides FDA with the additional safety and effectiveness data the agency requested. Sponsors Questioned FDA’s Request for Additional Safety and Effectiveness Data; No Additional Data Have Been Provided Sponsor representatives and some stakeholders questioned the additional safety and effectiveness data requested by FDA citing the following reasons Requested test not previously conducted on sunscreen. Some of the sponsor representatives and stakeholders we interviewed stated that they were not aware of one of the tests FDA requested, the MUsT, ever being conducted on sunscreen active ingredients. Some of these sponsor representatives and stakeholders said there is a lack of knowledge by sponsors and testing laboratories on how to conduct this test, as well as a lack of testing protocols. Further, representatives from some of the sponsors said that the thresholds set by FDA for these test results, which affects whether FDA will recommend additional testing, were unreasonably low or unrealistic. FDA officials stated that a MUsT is a fairly recent term for a pharmacokinetic test under maximum use, which is a test that has been used for dermal products since the 1990s. They added that the threshold FDA established for this test is considered by the agency to minimize risk, and that at or above this threshold, the risk for cancer may increase. According to agency officials, FDA’s draft guidance on conducting a MUsT is expected to be issued in 2018. Equal to or more rigorous than NDA testing requirements. Some of the sponsor representatives and stakeholders said that the additional safety and effectiveness data FDA requested are equal to or more rigorous than what are submitted for an NDA. In particular, a stakeholder noted that FDA requested additional safety and effectiveness testing for an application to market the ingredient under the OTC monograph process from a company that already had an approved NDA for a product containing the same active ingredient (ecamsule). FDA officials indicated that active ingredients under consideration for inclusion in an OTC monograph may require some studies to demonstrate that the ingredient is GRASE for OTC use that would not be required for approval of an individual drug product through an NDA. Specifically, FDA officials said such studies may be needed because once an ingredient is found to be GRASE it can be formulated in many ways (in accordance with the monograph) and marketed in multiple sunscreen products without further agency review. Additionally, the combination of sunscreen active ingredients with other inactive ingredients in a sunscreen spray, for example, may affect the absorption of the sunscreen active ingredient, according to FDA officials. In contrast, NDAs are product-specific and once approved, further changes to the products require FDA approval. Raising the bar. Some of the sponsor representatives and stakeholders said that FDA’s requests for additional safety and effectiveness data equate to FDA raising the bar or otherwise changing what is required to demonstrate GRASE for additional active ingredients in sunscreen. Some stakeholders noted that sunscreen active ingredients that are currently marketed are not subject to this level of scrutiny. According to FDA officials, given the increased usage of sunscreen, coupled with increased knowledge of how drugs are absorbed into the skin, the agency has changed its perspective on what it needs to determine if sunscreen active ingredients are GRASE. FDA officials said that when the OTC monographs first started in the 1970s, it was thought that topical products would remain on the skin rather than be absorbed, but science has shown that some topical drugs, including some active ingredients used in sunscreens, are absorbed through the skin. Because of this knowledge, FDA officials said that the agency now considers potential dermal absorption for every topically applied drug. Lack of access to some requested data. In some cases, the sponsor or another interested party submitted a study’s summary results or summary information on adverse events associated with an active ingredient, but FDA requested more detailed data behind the study or detailed data on adverse events. However, some sponsor representatives and stakeholders said that the sponsor may not have access to this level of detail if it had not conducted the study itself or received the associated adverse event reports. For example, if the sponsor is the company that manufactures the active ingredient, it would not necessarily have access to adverse event reports for specific sunscreen products, because these reports would instead be submitted to the company that manufactures the actual sunscreen product used by consumers. One stakeholder also questioned why FDA has not attempted to obtain relevant adverse event data directly from regulatory agencies in other countries. FDA officials said that the agency does not generally have access to adverse event reports from foreign regulatory agencies, and that the agency relies on sponsors to provide adequate information to support a GRASE determination. Some stakeholders supported FDA’s request that sponsors provide additional safety and effectiveness data to determine if an active ingredient is GRASE for use in sunscreens. In particular, some of the stakeholders we interviewed stated that FDA is justified in requesting additional safety and effectiveness data from the sponsors given that science has evolved and the recommended use of sunscreen has changed over time. As of October 2017, FDA officials said that the agency has not received any of the additional safety and effectiveness data requested for the eight sunscreen active ingredients seeking a GRASE determination. According to sponsor representatives we spoke with, the sponsors are either still considering whether to conduct the additional tests FDA requested or they do not plan to do so. The reasons cited by the sponsor representatives and stakeholders included Return on investment. Sponsor representatives said the testing FDA requested is extensive, would cost millions of dollars, or take several years to conduct. Some of the stakeholders said the profit margins for these types of products can be low, and other stakeholders and sponsors said that once an active ingredient is determined to be GRASE and added to the OTC monograph, then anyone can market products using that active ingredient, as there is no period of market exclusivity granted to sponsors. Additionally, some stakeholders and sponsors added that the sponsors are reluctant to spend money on additional testing, because many of these sunscreen active ingredients have been on the market in other countries for many years. Instead, according to one sponsor representative, sponsors may choose to devote their resources into developing a newer generation of sunscreen active ingredients. Alternatives not accepted. Some sponsor representatives and stakeholders said that when alternative testing methods were proposed to FDA in place of the MUsT and other tests recommended by the agency, FDA rejected the alternatives. Further, when a sponsor asked the agency if the ingredient’s experience being marketed in other countries could be used to waive some of the carcinogenicity studies requested by FDA, the agency said that marketing experience can guide the design of studies, but it is not sufficient to appropriately assess carcinogenicity. The main purpose of carcinogenicity studies, according to FDA, is to detect the potential for cancer risks associated with lifelong exposure to the active ingredient, which are difficult to detect through the adverse event data associated with marketing experience. Animal testing. Some sponsor representatives and one stakeholder mentioned concerns about conducting tests on animals, because of the effect it may have on a company’s ability to market products worldwide. For example, European regulations prohibit cosmetics, including sunscreens, from being tested on animals, though they would not prohibit such testing as required by other countries. Additionally, one sponsor and one stakeholder expressed concern that sunscreen manufacturers may face backlash from animal rights groups and shareholders if animal testing is conducted. Uncertainty if more tests will be requested by FDA in the future. One sponsor representative said that there is uncertainty whether FDA may request additional studies in the future based on the outcomes of the FDA-recommended tests. According to one stakeholder, there is concern that sponsors may spend additional time and money on conducting the tests requested by FDA and the sunscreen active ingredient may still not be determined to be GRASE. Sponsor representatives for the pending sunscreen applications and most stakeholders said that the sponsors and FDA are essentially at a standstill about adding more sunscreen active ingredients to the U.S. market through the OTC monograph process. Sponsor representatives acknowledged that they could have submitted an NDA to market a new sunscreen product instead of seeking a GRASE determination for a sunscreen active ingredient. However, some sponsor representatives and a stakeholder said that NDAs are impractical for sunscreen products, because the formulations are continually changing; for example, sunscreen products may have a new fragrance based on the season. Additionally, many of the sponsors that submitted sunscreen applications manufacture the active ingredient, but not the finished sunscreen products; yet, it is the finished products that receive approval through the NDA process. Though FDA stated that it needs additional resources to complete its work related to the OTC monograph process—and most stakeholders agree—additional resources alone will not lead to additional sunscreen active ingredients on the U.S. market. Movement on sunscreen active ingredients will also depend on sponsors and other interested parties submitting data that FDA determines are sufficient for a GRASE determination. Some stakeholders said that they agree with FDA on the need for testing to ensure the safety and effectiveness of sunscreen ingredients, but some of them said the agency should also consider the potential benefit of preventing skin cancer if new ingredients—which could offer better protection against UVA rays—become available for the U.S. market. Agency Comments We provided a draft of this report to the Department of Health and Human Services for review and comment. The department provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of the Department of Health and Human Services, appropriate congressional committees, as well as other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Steps the FDA Has Taken To Review Applications for Non-Sunscreen Active Ingredients To examine the steps the Food and Drug Administration (FDA) has taken to review time and extent (TEA) applications for non-sunscreen active ingredients, we reviewed the Sunscreen Innovation Act (SIA), applicable FDA regulations and guidance, and other relevant documentation associated with the non-sunscreen TEAs. We also interviewed FDA officials and representatives of the sponsors associated with the six non- sunscreen TEAs submitted prior to the enactment of SIA in 2014. SIA Requirements and FDA Implementation SIA included requirements related to FDA’s review of non-sunscreen TEAs. Specifically, SIA required FDA to provide sponsors of certain non-sunscreen TEAs submitted prior to the enactment of SIA, upon request, with the opportunity to select from among different options for FDA’s review (called a review framework), including corresponding time frames; issue regulations establishing time frames for reviewing non- sunscreen TEAs submitted after SIA was enacted, as well as metrics for tracking the extent to which the time frames are met; and submit a letter to Congress that includes a report on the status of FDA’s review of non-sunscreen TEAs that were pending before SIA’s enactment. FDA implemented these requirements associated with non-sunscreen TEAs by November 2016. For example, FDA provided each sponsor that requested review framework options with the ability to select the process and corresponding time frames to be applied to its pending TEA. The review framework options included FDA using an administrative order or rulemaking process, with or without a filing determination. The time frames FDA established to initially respond to the pending non-sunscreen TEAs ranged from 90 days (when an option with a filing determination is selected) to 3.5 years (when an option without a filing determination is selected) from the date the sponsor selected a review framework. For example, when a sponsor chooses to receive a filing determination with the administrative order process, FDA is to determine within 90 days whether the safety and effectiveness data provided by the sponsor or other interested party are sufficiently complete for the agency to begin its substantive review and issue a filing determination. If FDA determines that the application can be filed, the agency then has 2 years after the filing date to issue a proposed order determining whether the ingredient is generally recognized as safe and effective (GRASE). When a sponsor chooses to not receive a filing determination with the rulemaking process, FDA has 3.5 years to issue a proposed rule with the GRASE determination. Additionally, FDA issued a final rule in November 2016 outlining the process and time frames by which the agency will review and take action on new non-sunscreen TEAs submitted after the enactment of SIA, including time frames for each step in the review process. (See fig. 3.) In establishing these time frames, FDA noted that it considered the agency’s public health priorities and available resources, as required by SIA, and accounted for the anticipated variations in the content, complexity, and format of submissions, as permitted by SIA. The overall time frames for FDA’s review are estimated to be about 6 years from the date FDA receives a TEA to the date a final GRASE determination is issued. Specifically, the approximately 6 years consists of 180 days for an eligibility determination, 90 days for a filing determination, 1,095 days for an initial GRASE determination, and 912 days for a final GRASE determination. These time frames only include FDA’s review, and do not include time for the sponsor or other interested parties to submit safety and effectiveness data, respond to additional FDA requests, or request meetings with the agency before such filing. FDA also established metrics for tracking the extent to which the agency meets the time frames set forth in the regulations, and sent a letter to Congress reporting on the status of the non-sunscreen TEAs submitted prior to SIA. These metrics are included in FDA’s regulation for non- sunscreen TEAs. The metrics include the number of non-sunscreen TEAs that have been submitted post SIA, and the number and percent of these TEAs to which FDA has responded within its required time frames. Agency officials said that FDA has not received any additional non- sunscreen TEAs as of August 2017 beyond the six that were submitted prior to the enactment of SIA, and therefore has not publicly reported metrics for non-sunscreen TEAs. Lastly, FDA submitted a letter to Congress in May 2016 describing the status of the six non-sunscreen TEAs submitted prior to SIA, including the review framework selected by each sponsor, when applicable. Non-Sunscreen Active Ingredient TEAs Submitted before SIA Was Enacted As of August 2017, FDA had not issued a GRASE determination for any of the six TEAs for non-sunscreen active ingredients that were submitted before SIA was enacted. FDA has not made a GRASE determination because FDA refused to file the applications. Two non-sunscreen TEAs were determined by FDA to contain insufficient information to be filed for review in 2016. FDA requested that the sponsors for these applications provide a detailed chemical description of the active ingredients, assessments of carcinogenicity, and safety and efficacy data, among other things. Representatives of sponsors for both ingredients said they do not plan on conducting the additional tests that FDA requested, because of concerns about return on investment. According to FDA officials, the sponsors of these applications did not elect to “file over protest.” Sponsors withdrew their applications. Three non-sunscreen TEAs were withdrawn in 2016. Representatives of the sponsors of these three applications said the companies did so because of increased regulatory scrutiny of the active ingredient, and the additional safety and effectiveness data requested by FDA. TEA is still pending FDA’s initial GRASE determination. One non- sunscreen TEA that was submitted in 2004 to add an anti-dandruff ingredient to the over-the-counter monograph was pending FDA review as of August 2017. The sponsor for this application did not request to select a review framework from the agency and so the application is subject to the regulations that FDA issued in November 2016. In accordance with the time frames established in the regulations, FDA officials expect to issue a proposed rule with a GRASE determination for this TEA in 2019—within 1,095 days (3 years) of when the regulation was finalized. This date is nearly 15 years after the application was originally submitted. For those two non-sunscreen TEAs for which FDA refused to file the applications, FDA’s determination came about 8 and 13 years after the TEA was originally submitted. Sponsors that withdrew the three non- sunscreen TEAs did so 11 or more years after submitting the application. (See table 4.) Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Kim Yamane (Assistant Director), Rebecca Hendrickson (Analyst-in-Charge), Kristin Ekelund, and Toni Harrison made key contributions to this report. Also contributing were George Bogart, Karen Howard, Drew Long, and Vikki Porter.

Using sunscreen as directed with other sun protective measures may help reduce the risk of skin cancer—the most common form of cancer in the United States. In the United States, sunscreen is considered an over-the-counter drug, which is a drug available to consumers without a prescription. Some sunscreen active ingredients not currently marketed in the United States have been available in products in other countries for more than a decade. Companies that manufacture some of these ingredients have sought to market them in the United States by applying to add the ingredients to the sunscreen monograph, which lists ingredients that can be used in sunscreens without FDA's premarket approval. FDA reviews the applications and corresponding safety and effectiveness data for the ingredients. The Sunscreen Innovation Act includes a provision for GAO to examine FDA's implementation of the act. This report examines (1) the extent to which FDA implemented requirements for reviewing applications for sunscreen active ingredients within mandated time frames, and (2) the status of the sunscreen applications. GAO reviewed FDA regulations and guidance documents, Federal Register notices, and FDA and sponsor documents for all eight sunscreen applications. GAO also interviewed FDA officials; sponsors of sunscreen applications; and stakeholders with interests in sunscreen, including health care providers, researchers, and industry groups. Stakeholders were selected based on knowledge of the monograph process and sunscreen active ingredients. The perspectives of these stakeholders are not generalizable. The Food and Drug Administration (FDA), within the Department of Health and Human Services, implemented requirements for reviewing applications for sunscreen active ingredients within time frames set by the Sunscreen Innovation Act, which was enacted in November 2014. For example, the agency issued a guidance document on safety and effectiveness testing in November 2016. As of August 2017, all applications for sunscreen active ingredients remain pending after the agency determined more safety and effectiveness data are needed. By February 2015, FDA completed its initial review of the safety and effectiveness data for each of the eight pending applications, as required by the act. FDA concluded that additional data are needed to determine that the ingredients are generally recognized as safe and effective (GRASE), which is needed so that products using the ingredients can subsequently be marketed in the United States without FDA's premarket approval. To make a GRASE determination, FDA requested that the application sponsors provide additional data, including human clinical studies, animal studies, and efficacy studies. Sponsors of some of the sunscreen applications and some stakeholders GAO interviewed questioned FDA's requests, stating, for example, that the agency's recommended absorption test has never been conducted on sunscreen ingredients and there is a lack of knowledge on how to conduct it. At the same time, other stakeholders support the additional testing FDA requested. FDA reports that the increase in the amount and frequency of sunscreen usage, coupled with advances in scientific understanding and safety evaluation methods, has informed the agency's perspective that it needs additional data to determine that sunscreen active ingredients are GRASE. However, none of the sponsors reported current plans to provide the requested information—that is, they are either still considering whether to conduct the additional tests or they do not plan to do so. They cited the following reasons: Return on investment. The testing FDA requested is extensive, would cost millions of dollars, or take several years to conduct, according to sponsor representatives. Some stakeholders and sponsor representatives said that sponsors are currently working to develop newer sunscreen ingredients and are therefore reluctant to invest in the testing FDA requested for the older ingredients covered by the pending applications. Alternatives not accepted. Some sponsor representatives and stakeholders said that when they proposed alternative testing methods for absorption, for example, the agency rejected the alternatives. Animal testing. One stakeholder and some sponsor representatives reported concerns about the effect that the animal testing requested by FDA may have on companies' marketing of sunscreen products worldwide. Additionally, one stakeholder and representatives from one sponsor expressed concern that sunscreen manufacturers may face backlash from animal rights groups and shareholders if animal testing is conducted. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

GAO_GAO-19-93

Background The 2017 Hurricanes and California Wildfires In 2017, three major hurricanes made landfall in the United States and historic wildfires struck California. According to FEMA, the 2017 hurricanes and wildfires collectively affected 47 million people—nearly 15 percent of the nation’s population. See figure 1 for a timeline of these major disasters. Overview of Federal Disaster Response and Recovery When disasters hit, state and local entities are typically responsible for disaster response efforts. The Robert T. Stafford Disaster Relief and Emergency Assistance Act established a process by which a state may request a presidential disaster declaration to obtain federal assistance. According to the DHS National Response Framework—a guide to how the federal government, states and localities, and other public and private sector institutions should respond to disasters and emergencies—the Secretary of Homeland Security is responsible for ensuring that federal preparedness actions are coordinated to prevent gaps in the federal government’s efforts to respond to all major disasters, among other emergencies. The framework also designates FEMA to lead the coordination of the federal disaster response efforts across federal agencies. The National Response Framework identifies 14 emergency support functions that serve as the federal government’s primary coordinating structure for building, sustaining, and delivering disaster response efforts across more than 30 federal agencies. Each function addresses a specific need—such as communication, transportation, and energy—and designates a federal department or agency as the coordinating agency. For example, the emergency support function for public works and engineering assists DHS by coordinating engineering and construction services, such as temporary roofing or power, and USACE is the primary agency responsible for these functions during disaster response activities. FEMA coordinates disaster response efforts through mission assignments—work orders that FEMA issues to direct other federal agencies to utilize the authorities and the resources granted to it under federal law. Mission assignments are authorized by the Robert T. Stafford Disaster Relief and Emergency Assistance Act and can consist of federal operations support or direct federal assistance, which includes federal contracts. FEMA’s contracting efforts are supported by its Office of the Chief Procurement Officer and its contracting workforce. While the majority of FEMA’s contracting workforce is located in headquarters, contracting officers are also located in each of FEMA’s 10 regional offices. See appendix II for the location of FEMA’s 10 regional offices as well as the states each one is responsible for coordinating with to address National Response Framework responsibilities. PKEMRA Requirements and the Use of Advance Contracts Congress enacted PKEMRA in 2006, which addressed various shortcomings identified in preparation for and response to Hurricane Katrina, which hit the Gulf Coast in 2005 and was one of the largest, most destructive natural disasters in U.S. history. Among the provisions included were requirements for FEMA to identify and establish advance contracts to ensure that goods and services are in place to help FEMA rapidly mobilize resources in immediate response to disasters. Examples of these goods and services are: Goods: construction supplies and tarps; food and water; cleaning and hygiene supplies; and power equipment and generators. Services: engineering; information technology and communication support; transportation of goods; and housing and lodging assistance. As of June 2018, FEMA reported having advance contracts in place for 56 different types of goods and services. Among other contracting requirements, PKEMRA requires FEMA to develop a contracting strategy that maximizes the use of advance contracts to the extent practical and cost effective; coordinate advance contracts with state and local governments; encourage state and local governments to engage in similar pre- planning and contracting; and submit quarterly reports to the appropriate committees of Congress on each disaster contract entered into by the agency using non- competitive procedures. According to FEMA’s advance contracting strategy, the agency will maximize the use of advance contracts to the extent they are practical and cost-effective, which will help preclude the need to procure goods and services under unusual and compelling urgency. When disasters strike, contracting officers may use the unusual and compelling urgency exception to full and open competition to support non-competitive contract awards. FEMA’s strategy also states that advance contracts will help to ensure that goods and services are in place to help FEMA rapidly mobilize resources in immediate response to disasters. USACE also has its own advance contracts in place as a preparedness measure. According to USACE officials, they established advance contract initiatives in 2003, two years prior to Hurricane Katrina, to help facilitate their emergency support function under the National Response Framework—public works and engineering. As of September 2018, USACE reported having advance contracts in place for three services— debris removal, temporary roofing, and temporary power. Appendix III provides details on specific advance contracts established by FEMA and USACE. According to FEMA documentation, most of its advance contracts are indefinite delivery contracts, which can facilitate the goal of having contracts available if there is a disaster. One type of indefinite delivery contract—an indefinite delivery, indefinite quantity contract—can be awarded to single or multiple vendors and provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period. Under these contracts, the government places orders for individual requirements. These contracts also require the government to order and the contractor to provide at least a stated minimum quantity of supplies and services. Additionally, the contracting officer should also establish a reasonable maximum quantity for the contract based on market research, trends in similar recent contracts, or any other rational basis. Minimum and maximum quantity limits can be stated as the number of units or as dollar values, and may also be referred to by contracting officers as minimum guarantees or contract ceilings, respectively. As part of its overall acquisition strategy, FEMA officials identified other vehicles aside from its own advance contracts through which they obtain goods and services. DHS strategic sourcing vehicles: When a disaster occurs, FEMA contracting officers are first required to use any available DHS strategic sourcing vehicles—a broader, aggregate approach for procuring goods and services—with limited exceptions. Blanket purchase agreements: FEMA also relies on blanket purchase agreements, such as those established through the General Service Administration Federal Supply Schedule program, to provide some commercial goods and services needed for disaster response. Interagency Agreements: FEMA may also leverage interagency agreements, by which it obtains needed supplies or services from another agency by an assisted or direct acquisition. FEMA and other agencies may also award new contracts to support disaster response efforts following a disaster declaration. According to FEMA officials, these post-disaster contract awards may be required, for example, if advance contracts reach their ceilings, or if goods and services that are not suitable for advance contracts are needed. FAR Requirements The FAR requires agencies to perform acquisition planning activities for all acquisitions to ensure that the government meets its needs in the most effective, economical, and timely manner possible. Generally, program and contracting officials share responsibility for the majority of acquisition planning activities, which include the following: Pre-Solicitation: The program office identifies a need, and develops key acquisition documents to summarize that need, such as market research, a statement of work defining requirements, cost estimates, and a written acquisition plan. The pre-solicitation process ends when the program office submits these documents, typically referred to as an acquisition package, to the contracting officer to determine what type of contract is appropriate to fulfill the requirements. Solicitation: The contracting officer develops a solicitation, in consultation with other agency stakeholders, to request bids or proposals from contractors. The acquisition planning process ends once a solicitation is issued. Contracting for disaster relief and recovery efforts can also present unique circumstances in which to solicit, award, and administer contracts. Under the FAR, agencies are generally required to use full and open competition when soliciting offers and awarding contracts. However, an agency may award contracts noncompetitively when the need for goods or services is of such unusual and compelling urgency that the federal government faces the risk of serious financial or other type of injury. When it becomes evident that a base contract period and any option periods will expire before a subsequent contract to meet the same need can be awarded, contracting officers may, for example, extend the existing contract, or award a short-term stand-alone contract to the incumbent contractor on a non-competitive basis to avoid a lapse in services, along with sufficient justification and approval. These extensions and new sole source contracts are informally referred to as bridge contracts by some in the acquisition community, and we use that terminology in this report. In October 2015, we established the following definitions related to bridge contracts: Bridge contract: An extension to an existing contract beyond the period of performance (including base and option years), and a new, short-term contract awarded on a sole-source basis to an incumbent contractor to avoid a lapse in service caused by a delay in awarding a follow-on contract. Predecessor contract: The contract that was in place prior to the award of a bridge contract. Follow-on contract: A longer-term contract that follows a bridge contract for the same or similar services. This contract can be competitively awarded or awarded on a sole-source basis. Contracts, orders, and extensions (both competitive and non-competitive) are included in our definition of a “bridge contract” because the focus of the definition is on the intent of the contract, order, or extension. However, the FAR does not formally define bridge contracts or require that they be tracked. We recommended that the Office of Federal Procurement Policy amend the FAR to incorporate a definition of bridge contracts. The Office of Federal Procurement Policy agreed with our recommendation to provide guidance to agencies on bridge contracts and has taken steps to develop that guidance, but has not yet implemented our recommendations. If a contracting officer opts to extend the existing contract in place—often referred to as a predecessor contract—the contracting officer may use a number of different mechanisms to do this. One of these is the “option to extend services” clause. If the contract includes this clause, the contracting officer may use it to extend the contract for up to six months. While this option may be exercised more than once, the total extension of performance shall not exceed 6 months. FEMA and USACE Relied on Advance Contracts to Respond to the 2017 Disasters, but FEMA Lacks an Updated Advance Contracting Strategy and Guidance FEMA and USACE obligations on advance contracts—as of May 31, 2018—accounted for about half of total federal contract obligations for the three hurricanes, and more than three quarters of the contract obligations identified by those agencies for the California wildfires. However, an outdated strategy and lack of guidance to contracting officers resulted in confusion about whether and how to prioritize and use advance contracts to quickly mobilize resources in response to the three 2017 hurricanes and the California wildfires. Advance Contracts Accounted for about Half of Government-wide Contract Obligations for the 2017 Hurricanes, and over Three-Quarters of FEMA and USACE’s Obligations for the California Wildfires Government-wide contract obligations for the three hurricanes were about $8.2 billion as of May 31, 2018. FEMA and USACE obligated 46 percent, or about $3.8 billion, of the $8.2 billion spent government-wide on the three hurricanes through advance contracts. Data on government- wide contract obligations for the California wildfires were not able to be identified because national interest action codes were not established for them in FPDS-NG. However, FEMA and USACE provided information on their contracting activities related to the wildfires. Their use of advance contracts accounted for 86 percent, or about $667 million, of the contract obligations they identified. FEMA and USACE advance contract obligations for the three hurricanes and California wildfires totaled about $4.5 billion, about 56 percent of the total contract obligations made by these agencies for these disasters. See figure 2 for details on FEMA and USACE’s advance and post-disaster contract obligations by event. The greatest proportion of FEMA and USACE’s obligations on advance contracts supported Hurricane Maria disaster relief efforts—41 percent and 59 percent, respectively. About 39 percent of USACE’s obligations on advance contracts were used in support of the California wildfires, compared to less than 1 percent of FEMA’s obligations. FEMA awarded orders against 72 base advance contracts in response to the three 2017 hurricanes and California wildfires, and USACE awarded orders against 15 of its advance contracts. See figure 3 for FEMA and USACE’s obligations on advance contracts by event. Advance Contracts Were Used Primarily for Services FEMA and USACE procured a variety of goods and services through advance contracts in response to the three hurricanes and wildfires, but about 86 percent of obligations, or $3.8 billion, were used to procure services. For example, all of USACE’s $1.7 billion in advance contract obligations were for services, such as debris removal. FEMA obligated about $2.2 billion on services, such as architect and engineering services to rebuild roads and bridges. FEMA’s obligations on goods totaled $624 million and included prefabricated buildings, such as manufactured housing units to provide lodging, and food and water. See figure 4 for examples of obligations on goods or services by event. FEMA Lacks an Updated Strategy and Guidance on the Use of Advance Contracts FEMA lacks an updated strategy and guidance on advance contract use, despite the PKEMRA requirement to develop a contracting strategy that maximizes their use to the extent practical and cost effective. As we found in May 2006 following Hurricane Katrina, and reiterated in our September 2015 report, agencies need to have competitively awarded contracts in place before a disaster to be effective in their response. Our current review found that FEMA has established advance contracts for goods and services to enable it to respond following a disaster. However, FEMA’s lack of an updated strategy and guidance on advance contract use resulted in confusion about whether and how to maximize their use to the extent cost-effective and practical to facilitate a faster response when providing goods and services to survivors. PKEMRA required the FEMA Administrator to identify specific goods and services that the agency could contract for in advance of a natural disaster in a cost-effective manner. PKEMRA also required the FEMA Administrator to develop a contracting strategy that maximizes the use of advance contracts to the extent practical and cost-effective. Following the enactment of PKEMRA, in 2007 FEMA issued the Advance Contracting of Goods and Services Report to Congress, in part to address the requirement for an advance contracting strategy. In addition to the strategy, FEMA provides information on advance contracts in its Disaster Contracting Officer Desk Guide. The 2007 strategy notes that advance contracts will help to preclude the need to procure goods and services for disaster response under the unusual and compelling urgency exception to full and open competition, and allow FEMA to rapidly mobilize resources in immediate response to disasters. Several contracting officials we spoke with said that it is a requirement to use advance contracts before awarding new contracts. Moreover, a senior FEMA contracting official told us that advance contracts are intended to be used before awarding post-disaster contracts, even if the advance contract is not capable of fulfilling all of the requirements for a needed good or service. However, our review of the strategy found that it does not provide any specific direction on how contracting officers should award or use advance contracts to meet PKEMRA’s objectives, or how they should be prioritized in relation to post-disaster contracts. Further, there is no mention in FEMA’s 2017 Disaster Contracting Officer Desk Guide that advance contracts should be considered prior to the award of post-disaster contracts. In September 2015, we found shortfalls with the information available to contracting officers about advance contracts and recommended that FEMA provide new or updated guidance with information on how advance contracts should be used. FEMA agreed with this recommendation and stated that in 2015 it included information on advance contracts and their use in training documentation. However, our review of semi-annual training documentation provided in May 2018 found that it only lists some of the advance contracts that are available, and not guidance on their use. A report by the Senate Committee on Homeland Security and Governmental Affairs identified concerns about FEMA’s use of advance contracts for self-help tarps in response to the 2017 hurricanes. Specifically, the report found that while FEMA ordered some tarps through one of its existing advance contracts, that order was placed after a post-disaster contract for tarps was signed, raising questions about whether FEMA’s actions were informed by an overall strategy for using its advance contracts, in this case, for tarps. Our current review identified similar concerns, and found that the lack of an updated strategy and guidance on the use of advance contracts contributed to challenges in using these contracts to respond to the 2017 disasters. In our review of advance contracts for meals and tarps, we found the following: Meals: Prior to the 2017 disasters, FEMA had advance contracts in place to provide meals with specific nutritional requirements. According to FEMA contracting officials, the advance contract vendors were at capacity for these specific meals following the response to Hurricane Harvey, requiring FEMA to issue a new post-disaster competitive solicitation and award new contracts with less specific nutritional requirements following Hurricane Maria. Based on our review of contract documentation, two of the existing advance contract vendors were awarded these new post-disaster contracts, but at different prices than those negotiated through their advance contracts. FEMA officials told us that contracting officers will negotiate to ensure the price of the contract is fair and reasonable and may utilize historical information or current contract prices to inform this determination. Normally, adequate price competition establishes a fair and reasonable price. According to a contracting officer involved with the award, FEMA relied on competition and historical prices, but not the existing advance contract prices, to determine that the new post- disaster contract meal prices were fair and reasonable. Guidance on the extent to which advance contract prices should be considered when comparing proposed prices to historical prices paid could help to further inform contracting officers’ decision-making during a disaster. Tarps: Our review of FEMA’s use of contracts for tarps is another example of how FEMA lacked an updated advance contracting strategy and guidance to provide goods and services to facilitate a faster response to the 2017 disasters. For example, in September 2014, FEMA awarded multiple award indefinite delivery, indefinite quantity advance contracts to three small businesses for self-help tarps, which are used to cover small areas of roof damage. In November 2014, these contracts were modified by the contracting officer to include delivery requirements for providing tarps to replenish FEMA’s stock during steady state operations or during emergency response operations, such as a natural disaster. The contract modification added that during an emergency response, vendors would be expected to deliver up to 150,000 tarps within 96 hours of being issued a task order. However, these small businesses were not required to meet the emergency response delivery time frames and amounts since they would not be expected to store tarps on FEMA’s behalf, limiting the use of FEMA’s advance tarp contracts for immediate disaster response needs. According to a contracting officer involved with these contracts, the tarp advance contracts are typically used only to replenish tarp stockpiles in FEMA’s distribution centers. However, the contracting officer also noted that not being able to fully use the existing advance contracts for tarps to respond to the three 2017 hurricanes was a challenge and required FEMA to award post- disaster contracts to meet tarp requirements. Furthermore, we found that FEMA awarded post-disaster contracts for tarps before utilizing its advance contracts with the small businesses. Contract file documentation for the post-disaster contracts stated that FEMA’s advance contract holders for tarps had reached their capacity, and that market research had confirmed that it would be difficult for small businesses to meet the urgent delivery timeframes for tarps. Yet, after the award of the post-disaster tarp contracts, FEMA awarded task orders to one of the advance contractors to provide tarps in response to Hurricane Maria. Another small business advance contractor, which according to FEMA’s post-disaster contract documentation had reached its capacity, also submitted a proposal as part of the post-disaster contract solicitation. According to FEMA, neither of the post-disaster contract holders ultimately provided the required tarps. The timing and use of the existing tarp advance contracts raises questions about their ability to provide tarps immediately following a disaster, and whether an updated advance contracting strategy would have enabled FEMA to more quickly provide the needed tarps to survivors, considering the additional time and staff resources needed to award new post-disaster contracts. FEMA established advance contracts to provide critical goods, like meals and tarps, following a disaster; however FEMA’s 2007 contracting strategy does not provide direction on the objectives of advance contracts or how to maximize their use to the extent practical and cost-effective, as required by PKEMRA. According to FEMA officials, they had not considered updating the 2007 advance contracting strategy because they believed the use of advance contracts following PKEMRA had been incorporated into their disaster contracting practices. FEMA has also not communicated specific guidance to program and contracting officials on whether and how advance contracts should be prioritized before issuing new post-disaster solicitations and awarding contracts for the same or similar requirements, or how to maximize their use to the extent practical and cost-effective following a disaster, as required by PKEMRA. FEMA officials also acknowledged that additional guidance regarding advance contracts, including their availability and use during a disaster, could be useful. Without an updated strategy—and clear guidance that is incorporated into training—on the use of advance contracts and how they should be prioritized and used in relation to new post-disaster contract awards, FEMA lacks reasonable assurance that it is maximizing the use of advance contracts to quickly and cost-effectively provide goods and services following a disaster. This places FEMA at risk of continued challenges in quickly responding to subsequent disasters. Improvements Needed in FEMA’s Planning, Management, and Reporting of Advance Contracts While FEMA used a variety of advance contracts to respond to the 2017 disasters, we found weaknesses in the process of awarding and overseeing selected advance contracts in our review. These weaknesses were: (1) challenges in FEMA’s acquisition planning; (2) limited record keeping or management of certain FEMA contracts; and (3) incomplete reporting on FEMA’s advance contract actions to certain congressional committees. Related to USACE, we did not identify any planning or management challenges based on our review of its four selected contracts, and USACE is not required to report on its advance contract actions to the congressional committees. Challenges in FEMA’s Acquisition Planning Resulted in Bridge Contracts FEMA has taken some steps since 2016 to improve competition and develop processes and guidance on the acquisition process for advance contracts, but shortfalls in acquisition planning have resulted in a number of bridge contracts. Bridge contracts can be a useful tool in certain circumstances to avoid a gap in providing products and services. We have previously reported that when non-competitive bridge contracts are used frequently or for prolonged periods, the government is at risk of paying more than it should for products and services. Based on our analysis, 63 of FEMA’s 72 advance contracts used in response to the 2017 disasters were initially competed. All 15 of USACE’s advance contracts used in responding to the three hurricanes and California wildfires in 2017 were initially competed. We found that at least 10 of FEMA’s advance contracts used in 2017 were bridge contracts. Within the 10 FEMA advance contracts we identified as bridge contracts, 6 were part of our selected case studies. The six advance contracts with subsequent bridges in our review obligated roughly $778 million in response to the three hurricanes and California wildfires in 2017. These bridge contracts included five that are associated with two of FEMA’s largest programs used in 2017—the Individual Assistance Program and Public Assistance Program—and one that is associated with a telecommunications program. Three of the six bridge advance contracts we reviewed were awarded to support FEMA’s Individual Assistance Program, which provides mass care services such as food and water as well as financial and direct assistance, among other services, to survivors whose property has been damaged or destroyed and whose losses are not covered by insurance. In 2017, this assistance was supported through the Individual Assistance- Technical Assistance Contract (IA-TAC), known as IA-TAC III. The IA- TAC III predecessor contracts had an original period of performance from a base year starting in May 2009 with four 1-year options that ended in May 2014. However, FEMA program and contracting officials were unable to implement changes to the requirements—recommended by FEMA senior leadership in 2010—prior to expiration. According to FEMA officials, staffing shortfalls, operational tempo, and unrealistic contract requirements led to acquisition planning delays. These challenges, in turn, led to a series of extensions from May 2014 to November 2016 and a new non-competitive bridge contract (base with options) from November 2016 to May 2018. At that point new, competitive follow-on indefinite delivery indefinite quantity contracts—the Individual Assistance Support Contract (IASC) and Logistics Housing Operations Unit Installation, Maintenance, and Deactivation (LOGHOUSE)—were awarded. See figure 5. Two of our six selected advance contracts that were bridge contracts were awarded to support FEMA’s Public Assistance Program, which provides supplemental federal assistance to state, tribal, territorial, and local governments for debris removal, life-saving emergency protective measures, and the repair, replacement, or restoration of damaged facilities. The predecessor Public Assistance-Technical Assistance Contract (PA-TAC) used in 2017, known as PA-TAC III, was awarded with an original period of performance from a base year in February 2012 with four 1-year options that ended in February 2017. FEMA officials noted that changes to the PA-TAC III contract requirements and acquisition strategy were identified in 2015. Yet due to the time needed to incorporate these changes, FEMA was unable to complete required acquisition planning activities, such as finalizing the acquisition plan, prior to the expiration of PA-TAC III. Following 11 months of extensions to complete these activities, FEMA competitively awarded new contracts in December 2017. These awards were protested to the GAO and the protests were denied and are currently under review at the Court of Federal Claims. According to FEMA officials, these events required PA- TAC III to be extended until January 2019, as shown in figure 6. The remaining bridge contract in our sample is associated with the Wireline Services Program, a telecommunication program that provides FEMA employees deployed to respond to a disaster with local and long- distance telephone, high-speed data, and cable television services. The 5 year wireline predecessor contract was awarded in 2003 and again in 2008, but FEMA was unable to award a competed contract when the 2008 contract expired in December 2013 due to the time it took to update program requirements. FEMA contracting officials extended the contract for 6 months before letting it expire altogether. Due to high staff turnover and inconsistent record keeping, at the time of our review FEMA officials were unable to determine the cause for this lapse of service, which occurred after the contract’s expiration in June 2014. Starting in January 2015, FEMA contracting officials used a series of bridge contracts over more than three years to address changing contract requirements and delays in completing acquisition planning documentation, as shown in figure 7. FEMA contracting officials anticipated awarding a competitive contract by the end of fiscal year 2018, but the award has been delayed and the existing contract extended through January 2019. In one of the bridge contracts included in our review, FEMA improperly used FAR clause 52.217-8. According to that clause, an agency may extend a contract’s period of performance for up to 6 months and is generally used in the event of circumstances outside of the contracting officer’s control that prevent the new contract award, such as a bid protest. This clause may be used multiple times to extend the contract so long as the total extension of performance does not exceed 6 months. Our analysis found that FEMA used the clause for a total of 14 months to justify two 6-month extensions and one 2-month extension to the second bridge contract. The FEMA contracting official associated with the advance contract reported uncertainty over the proper use of this clause and what other authorities should have been used instead to extend the contract. FEMA’s Office of Chief Counsel and contracting officials acknowledged this error. While not all bridge contracts that we identified during our review were non-competitive, FEMA officials acknowledged that the use of non- competitive bridge contracts is not an ideal practice as they cannot ensure the government is paying what it should for products and services. In October 2015 we identified delays in the completion of acquisition planning documentation as one of the leading causes of awarding bridge contracts. In an effort to decrease the need for non-competitive bridge contracts and provide ample time for acquisition planning, FEMA began implementing a 5-Year Master Acquisition Planning Schedule (MAPS) in 2016. MAPS is a tracking tool that monitors the status of and provides acquisition planning timeframes for certain FEMA acquisitions over $5 million, as well as for all advance contracts and any acquisition deemed by the agency to be mission critical, regardless of dollar value. As we previously noted, acquisition planning includes both the pre- solicitation and solicitation phases. Based on our review of MAPS documentation, the tool generates a timeline of discretionary acquisition milestones across these two phases, based on certain considerations like the type of acquisition and whether it will be competed. Using this timeline, MAPS sends email alerts to program and contracting staff when certain acquisition milestones should occur. Specific to the solicitation phase, FEMA’s Office of the Chief Procurement Officer has developed annual lead time guidance for how long contracting officers should be given to award new contracts following the completion of the acquisition package, which is then conveyed through MAPS. For example, for acquisitions $150,000 and under, FEMA’s 2018 lead time guidance states contracting officers should be given 60 days to award the contract following completion of the acquisition package. FEMA officials we spoke with acknowledged that these discretionary timeframes are frequently shortened when program office officials are delayed in completing acquisition packages. While FEMA has lead time guidance to establish timeframes for completing the solicitation phase, FEMA currently has no guidance establishing timeframes for the pre-solicitation phase, when program offices complete the acquisition packages. Figure 8 provides an example timeline of the major milestones tracked in MAPS. In its analysis of 12 fiscal year 2017 contracts tracked in MAPS that were awarded late, FEMA found that half were late because contracting officials were not given enough lead time to award a new contract following the program office’s completion of the acquisition package. Not adhering to suggested timeframes can place a burden on contracting officers and increase the likelihood of not awarding the contract on schedule, requiring FEMA to non-competitively extend the existing contract. According to FEMA’s lead time guidance, based on the contract values for the bridge contracts in our review contracting officers should have been given between 240 and 300 days to award a new contract once the acquisition package was completed. However, as we mention earlier, due to delays from changing program requirements and acquisition strategies we found that the acquisition plans for the follow-on contracts related to these bridge contracts were not completed until after the predecessor contract had already expired, as shown in figure 9 below. Timely completion of the acquisition package was a key challenge identified in the contracts we reviewed. However, according to officials from the Office of the Chief Procurement Officer, they do not have the authority to establish guidance for FEMA program officials on completing pre-solicitation phase activities. In August 2011, we identified challenges with acquisition planning across DHS. Specifically, we found that DHS and other agencies did not measure or incorporate into guidance the amount of time it takes to develop and obtain approvals of the acquisition planning documents required during the pre-solicitation phase. We recommended that DHS procurement offices collect information about the timeframes needed for the acquisition planning process to establish timeframes for when program officials should begin acquisition planning. DHS did not concur with this recommendation, stating that its acquisition manual already encourages early planning, and has not implemented the recommendation. At the time, we maintained that program officials needed more guidance to have a better understanding of how much time to allow for completing acquisition planning steps, and that the component procurement offices are best positioned to provide guidance on how long these planning processes may take. Given the current challenges we identified with FEMA’s ability to complete acquisition planning activities in a timely manner and the resulting delays in awarding new contracts for critical advance contract goods and services, additional information and guidance on acquisition planning timeframes remains important. Additionally, while MAPS has been in place since 2016 and FEMA officials have instituted training to communicate the system’s intent, program and contracting officials we spoke with varied in their familiarity with it. For example, officials responsible for MAPS stated that by March 2016, 90 percent of FEMA’s contracting staff had attended an hour long training session and additional training sessions were held for all program office staff at various points in 2016 and 2017. However, most of the program office and contracting officials responsible for the bridge contracts in our review reported limited familiarity with MAPS. While FEMA has taken some positive steps to institute training and has guidance on timeframes for part of the acquisition planning process, program and contracting staff we spoke with were still uncertain how best to utilize MAPS to identify the time needed to effectively complete acquisition planning activities. According to federal internal control standards, agency management should internally communicate the necessary quality information to achieve their objectives. Given FEMA’s emphasis on planning before a disaster and using advance contracts to help reduce the need to award non-competitive contracts during a disaster, establishing clear guidance on the factors that can affect acquisition planning activities, and requiring officials to follow the timeframes needed to complete them to meet the goal of awarding competitive contracts, is essential. Until FEMA provides detailed guidance about timeframes and considerations that affect the entire acquisition planning process—both the pre-solicitation and solicitation phases—to all officials responsible for acquisition planning, and clearly communicates the intent of MAPS, it cannot ensure that MAPS will be effective at reducing the number of non-competitively awarded bridge contracts, as is FEMA’s intent. Current Record-Keeping Practices Limit Visibility into Advance Contract Management While FEMA has procedures regarding the documentation required for its contract files, current practices limited visibility into the advance contracts in our review. Specifically we found that acquisition plans and some other contract documents were unable to be located in certain cases. Acquisition plans provide the program and contract history as well as other information on which acquisition decisions, such as the type of contract required, are based. FEMA contracting officials were unable to locate acquisition plans for 4 of our 10 FEMA selected advance contracts despite FAR and DHS acquisition guidance requiring plans for these particular contracts to be completed and stored in the contract file. Three of these acquisition plans are associated with the IA-TAC bridge contract which, as previously noted, was associated with one of FEMA’s largest programs used in 2017. FEMA contracting officials were also unable to locate the acquisition plans completed for the prior iteration of IA-TAC because they were not in the hard copy contract file or contract writing system, meaning that no acquisition plan guiding the IA-TACs since before its 2009 award could be found. In 2011, the DHS Office of the Inspector General conducted a review of FEMA’s IA-TAC and identified, among other things, incomplete contract files as a problem. Not being able to locate acquisition plans can result in the loss of contract knowledge and lessons learned from prior awards. Additionally, we found instances of contract documentation for advance contracts related to our case studies that contract officials could not locate. For instance, FEMA was unable to confirm whether or not an option year for the last competed Wireline contract included in the contract was exercised due to a lack of documentation. In order to obtain this answer, FEMA officials had to reach out to the vendor for their records. Moreover, the modification exercising the first option year for one of the IA-TAC III predecessor contracts was missing, as were the determination and findings documents exercising the first option year for all three of the predecessor IA-TAC III contracts that were associated with the advance contracts in our review. After we made FEMA officials aware of the missing documentation, they subsequently added clarifying memos to the contract files. FEMA standard operating procedures state that the acquisition documents in the official contract file will be sufficient to constitute a complete history of the entire transaction for the purpose of providing a complete background, and as a basis for informed decisions at each step in the acquisition process. Additionally, these procedures require headquarters staff to place modifications to contracts and orders and associated supporting documentation in the contract file within 5 business days of awarding a contract or issuing an order. FEMA officials stated they are required to follow these procedures until DHS has fully transitioned to an electronic filing system. According to DHS officials, that system is currently in the testing phase and a timeframe for implementation has not yet been finalized. Furthermore, according to these officials, DHS has not yet decided which, if any, existing contracts will be required to be retroactively entered into the system. Until this decision has been made and implementation occurs, FEMA’s official file of record for its advance contracts consists of a hardcopy file, which contracting officers at FEMA headquarters are required to add completed contract documentation to, per the standard operating procedures. A FEMA official told us that some documentation, including some of the missing documentation we identified, has been lost due to staff turnover and an office move in 2016. FEMA officials anticipate some of the challenges associated with managing the hard copy advance contract files will be alleviated after implementation of the Electronic Contract File System. However, DHS officials have not decided whether components will be required to retroactively enter contract information for any contract awarded prior to the implementation date. This would require FEMA and other DHS components to continue to maintain hardcopy files for some contracts— including large strategic sourcing vehicles and advance contracts—for the foreseeable future. For example, FEMA’s $2.7 billion LOGHOUSE, and $14 million IASC advance contracts were awarded in 2018 and have a period of performance lasting until 2023. Until FEMA adheres to existing contract file management requirements, whether the contract files will be transferred into the electronic system or remain in hard copy format, it is at continued risk of having incomplete contract files and a loss of institutional knowledge regarding these advance contracts. Information on Advance Contracts in FEMA’s Disaster Contract Quarterly Reports to Congressional Committees Is Incomplete Since December 2007, FEMA has submitted quarterly reports to congressional committees that list all disaster contracting actions in the preceding three months. These quarterly reports also include details on contracts awarded by non-competitive means, as required by PKEMRA. However, our analysis shows that some reports from fiscal year 2017 and 2018 have been incomplete. In September 2015, we found that FEMA’s quarterly reports to congressional committees in fiscal years 2013 and 2014 did not capture all of FEMA’s noncompetitive orders. At that time, FEMA attributed this to an error in data compilation prior to mid-2013 and explained that it had updated its process for collecting these data and strengthened the review process, resulting in accurate reports starting in the fourth quarter of fiscal year 2013. Despite this change in the data collection process, our current analysis found that 29 contract actions associated with the 10 selected advance contracts in our review were not reported across FEMA’s fourth quarter fiscal year 2017 and first quarter fiscal year 2018 reports. For example, FEMA’s fourth quarter fiscal year 2017 report did not include 13 contract actions equaling about $83 million, or 15 percent, of the $558 million in total obligations associated with the 10 selected advance contracts in our review. Similarly, FEMA’s first quarter fiscal year 2018 report did not include 16 contract actions equaling about $122 million, or 23 percent, of the $532 million in total obligations associated with the 10 selected advance contracts in our review. Figure 10 provides a breakdown of the total contract action obligations by extent of competition. To compile the quarterly reports, FEMA officials told us that their methodology is to pull contract action data that is documented in their contract writing system and FPDS-NG roughly one week after the end of each fiscal quarter. Once the data are pulled from these two sources, officials said they compare the data to ensure all reported actions are captured. However, according to officials, the data may not include all contract actions. Specifically, during disaster response efforts like those in 2017, FEMA policy allows contracting officers to execute what it refers to as “notice to proceed”, which is a notice to a construction contractor to begin work under certain circumstances. FEMA officials responsible for the quarterly reports stated that if notice to proceed documentation is used, information on some contract actions that were issued during the fiscal quarter, but not entered into the systems until after the quarter ended, may be missed during the data compilation process. FEMA policy requires that contracting officers who execute the notice to proceed documentation complete the contract award documentation in the contract writing system within three days of when the contracting officer receivers the contractor’s acceptance of the notice. However, a FEMA policy official acknowledged that during disaster response, this does not always occur. Further, FEMA officials responsible for compiling the reports stated that it is not part of their methodology to review data from prior fiscal quarters to see whether any contract actions have been entered that were not previously reported. By not adhering to FEMA policy that establishes timeframes for entering data in a disaster response scenario, FEMA risks reporting incomplete information. Moreover, without taking steps to ensure its reporting methodology provides complete information on all competed and not competed disaster contract actions, FEMA cannot be certain it is providing the congressional committees with visibility into all of its overall disaster contract awards or the extent of non- competitive contract obligations over time. No Challenges Identified with the Planning and Management of Selected USACE Advance Contracts The four selected USACE advance contracts in our review—one supporting USACE’s temporary power mission and three supporting its debris removal mission—were awarded in 2014 with a period of performance lasting until 2019. Since these contracts have not reached the end of their period of performance, we were unable to assess the effectiveness of USACE planning activities. According to contracting officials, USACE is performing acquisition planning activities for both the temporary power and debris removal advance contracts and anticipates awarding the new contracts prior to the current contracts’ expiration. Additionally, USACE was able to provide the acquisition plans for each of the four advance contracts in our review. Unlike FEMA, which retains hard copy files of its contract documentation, USACE uses three official systems of record to store contract file documentation electronically. Officials acknowledged that while moving between the three official systems to find documents may be time consuming, contract documents are typically able to be located. FEMA and USACE Identified Lessons Learned from the Use of Advance Contracts in 2017, but Reported Challenges with State and Local Coordination Remain Both FEMA and USACE have processes for identifying and assessing lessons learned following a disaster. Contracting officials from these agencies identified several lessons learned from the 2017 major hurricanes and the California wildfires that directly affected their use of advance contracts. These include the need for: (1) additional advance contracts for certain goods and services; (2) flexibility to increase contract ceilings; (3) use of USACE’s debris removal advance contracts to respond to the California wildfires; and (4) federal coordination and information sharing with state and local governments on advance contracts. While officials identified some lessons learned, they also identified challenges related to FEMA’s outreach with state and local governments on advance contracting efforts. FEMA and USACE Have Identified Lessons Learned and Actions to Address Them FEMA and USACE have processes for identifying and assessing lessons learned through after-action reviews and reports following major disasters. According to FEMA and USACE officials, they routinely perform these reviews and then compile after-action reports to identify lessons learned and proposed actions to address them. Due to the concurrent nature of hurricanes Harvey, Irma, and Maria, FEMA headquarters completed one combined after-action review for all three hurricanes in July 2018. The resulting report identified 18 strategic-level key findings across five focus areas, and recommendations for improvement. These recommendations included some that were specific to advance contracts, such as the need for additional advance contracts to support future disaster response efforts, and improved state and local coordination to support state and local contracting and logistics operations. In addition, USACE officials performed after-action reviews following disasters, and have a process in place to discuss challenges and recommendations for improvement on their use of advance contracts for temporary power, temporary roofing, and debris removal. While the scope of FEMA’s and USACE’s after-action reports are broader than just advance contracts, we identified, based on our review of reports and interviews with FEMA and USACE officials, several lessons learned related to advance contracts following the 2017 hurricanes and California wildfires, as shown in table 1. Challenges in Coordinating with and Providing Information to State and Local Governments on the Use of Advance Contracts Continued We also found that while FEMA has updated its guidance to reflect some requirements for state and local coordination over the use of advance contracts, inconsistencies in FEMA’s outreach and information on the use of advance contracts remains a challenge. PKEMRA required that FEMA encourage state and local governments to establish their own advance contracts with vendors for goods and services in advance of natural disasters. In September 2015, we found that FEMA’s outreach with state and local governments to encourage the establishment of advance contracts can result in more efficient contracting after a disaster. PKEMRA also required that FEMA establish a process to ensure that federal advance contracts are coordinated with state and local governments, as appropriate. In our September 2015 report, we also found that these efforts can ensure that states are aware of and can access certain federal advance contracts, such as General Services Administration schedule contracts. However, in the same report, we found that inconsistencies in whether and how the regions perform state and local outreach limited FEMA’s ability to support advance contracting efforts. We recommended that FEMA provide new or updated guidance to ensure that all contracting officers are aware of requirements concerning the need to conduct outreach to state and local governments to support their use of advance contracts. DHS concurred with this recommendation and in 2017 FEMA updated its Disaster Contracting Desk Guide to state that contracting officers should inform their state and local counterparts of the availability and use of federal advance contracts established by FEMA. Our review of the guide found that it does remind contracting officers to coordinate with states and localities over the use of federal advance contracts, but does not provide any details on how often or what types of advance contract information should be shared with states and localities, or provide any instructions to contracting officers on PKEMRA’s requirement to encourage states and localities to establish their own advance contracts for the types of goods and services needed during a disaster. Our current review also found inconsistencies with FEMA’s efforts to encourage states and localities to establish their own advance contracts with vendors and ensure coordination with them on their use of federal advance contracts. For example, some regional FEMA officials explained that they regularly perform outreach, which can assist states and localities with establishing advance contracts for goods and services commonly needed during a disaster, like security, transportation, and office supplies. Regional officials we spoke with said more frequent coordination allows them to avoid overlap across state and federal contracting efforts, and know what resources the states have in place and how long states are capable of providing these resources following a disaster. However, other regional officials reported having less frequent coordination with state and local governments. For example, a FEMA official stated that one of the regions has less frequent meetings with state and local governments because the region is geographically dispersed and has fewer disasters. According to another regional official, coordination between some regional offices and state and local officials over advance contracting was minimal prior to Hurricane Harvey, and in some cases only occurred when FEMA and state and local officials were co-located during a disaster. Officials from some state and local governments and USACE reported examples where increased coordination between FEMA, states, and localities could have improved the use of advance contracts in 2017. For example, in September 2018 we found that some localities were relying on the same contractors to perform debris removal activities following Hurricanes Harvey in Texas and Irma in Florida. As a result, we reported that some contractors that were removing debris in Texas did not honor existing contracts in Florida, leading to delays in debris removal. Additional communication and coordination between FEMA and contracting officials in these states and localities about which contractors they had established advance contracts with could have helped to prevent this overlap and subsequent delay in removing debris. During our current review, USACE and California officials also reported miscommunications about state and local expectations for USACE’s debris removal contracts following the wildfires. Specifically, USACE and state and local officials reported differing expectations about the work to be performed under USACE’s debris removal contracts, such as what structures would be removed from private property and acceptable soil contamination levels. According to USACE officials, they relied on FEMA, as the lead for coordinating federal disaster response, to manage communication with states and localities and to identify and manage expectations about the scope of work to be performed using their advance debris removal contracts. While state and local officials we met with in California reported working closely with some FEMA officials not responsible for regional contracting during the response to the wildfires, FEMA regional contracting officials said that they had no direct coordination with California officials. We also identified inconsistencies in the information available to FEMA’s contracting officials on existing advance contracts, which can be used to facilitate coordination with states and localities on the establishment and use of advance contracts. Our review of FEMA’s advance contract list found that it does not include all of the advance contracts that FEMA has in place, and contracting officers we spoke with cited other resources they also use to identify advance contracts, like biannual training documentation provided to contracting staff. For example, while FEMA officials told us the advance contract list is updated on a monthly basis, our analysis found that 58 advance contracts identified on the June 2018 advance contract list were not included in the May 2018 biannual training documentation, including contracts for telecommunications services, generators, and manufactured housing units. Further, 26 of the contracts included in the May training documentation were not included on the June advance contract list, including contracts for foreign language interpretation services, hygiene items, and short-shelf life meals. Some contracting officers we spoke with said they referred to the advance contract list as the primary resource for identifying advance contracts, while others referenced the biannual training as their primary resource. FEMA has recognized some shortcomings in how it coordinated and communicated with state and local governments over the use of advance contracts following the 2017 disasters, and identified some action to address these issues moving forward. In the 2017 Hurricane Season FEMA After-Action Report, FEMA identified the need to expand its capabilities to support state, local, tribal, and territorial governments in improving their capabilities for advance contracting, among other issues. The report recommends that FEMA should continue efforts to develop a toolkit that will provide state and local governments with recommendations for advance contracts, emergency acquisition guidance, and solicitation templates. According to FEMA contracting officials, the development of the toolkit has been prioritized by FEMA’s Administrator to help better prepare the states and localities and decrease their reliance on FEMA for assistance following a disaster. However, as of August 2018 the specific contents of the toolkit were still being decided. For example, officials familiar with the development of the toolkit originally said they intended for it to include FEMA’s advance contract list, to provide states with recommendations on the types of advance contracts that may be useful. But in subsequent discussions these officials told us they did not plan to provide states and localities with a full list of advance contracts to avoid being overly prescriptive, and because not all of the contracts on the list are relevant for the types of disasters some states experience. Officials further stated that since it is the responsibility of the federal coordinator in each region to communicate available federal advance contracts to states and localities, providing a full list of advance contracts is unnecessary. Federal internal control standards state that agency management should use quality information to achieve their objectives. Agency management should also internally and externally communicate that information to achieve their objective. However, FEMA’s guidance does not clearly communicate its objectives and requirements for contracting officers to encourage states and localities to enter into their own advance contracts, nor is there a consolidated resource listing available advance contracts that states and localities can use to inform their advance contracting efforts. According to FEMA officials, information on advance contracts is fluid, as new contracts are established or old contracts expire. Officials also told us that the advance contract list is updated monthly, yet as mentioned earlier, contracts identified in the May training documentation were not reflected in the list that was updated as of June. Ensuring that advance contract information is complete and updated regularly is important, because differences across FEMA’s resources listing advance contracts could result in FEMA’s contracting officers not being aware of the availability of certain contracts during a disaster, and states not receiving recommendations on what advance contracts may be helpful for them to establish. Without clear guidance on FEMA’s expectations for coordination with states and localities on advance contracting efforts, and a centralized resource listing up to date information on FEMA’s advance contracts, FEMA contracting officers and their state and local counterparts lack reasonable assurance they will have the tools needed to effectively communicate about advance contracts, and use them to respond to future disasters. Moreover, given FEMA’s recent emphasis on the importance of states and localities having the capability to provide their own life-saving goods and services in the immediate aftermath of a disaster, clearly communicating consistent and up to date information on the availability and limitations of federal advance contracts through the toolkit, or other means, is critical to informing state and local disaster response efforts. Conclusions Contracting during a disaster can pose a unique set of challenges as officials face a significant amount of pressure to provide life-sustaining goods and services to survivors as quickly as possible. Advance contracts are a tool that FEMA and others within the federal government can leverage to rapidly and cost-effectively mobilize resources, while also helping to preclude the need to procure critical goods and services non- competitively after a disaster. Given the circumstances surrounding the 2017 disasters and the importance of preparedness for future disasters, it is critical to ensure that the federal government is positioned to maximize its advance contracts to the extent practical and cost-effective to provide immediate disaster response. Although FEMA has identified advance contracts for use during a disaster, without an updated strategy—and guidance that is incorporated into training—on how to maximize their use during a disaster, as well as the development of clear guidance on acquisition planning timeframes, FEMA is at risk of these contracts not being effectively planned and used. Furthermore, FEMA officials have not always maintained complete information on the advance contracts available for them to quickly respond to disasters, or completely reported competitively and non- competitively awarded advance contract information to better help congressional committees evaluate spending over time. Finally, without continued efforts to improve outreach with states and localities and centralize information on available advance contracts, FEMA’s contracting officers and their state and local counterparts may not have the information needed to efficiently respond to a disaster. Recommendations for Executive Action We are making nine recommendations to FEMA. FEMA’s Administrator should update the strategy identified in its 2007 Advance Contracting of Goods and Services Report to Congress to clearly define the objectives of advance contracts, how they contribute to FEMA’s disaster response operations, and whether and how they should be prioritized in relation to new post-disaster contract awards. (Recommendation 1) FEMA’s Administrator should ensure the Head of the Contracting Activity updates the Disaster Contracting Desk Guide to include guidance for whether and under what circumstances contracting officers should consider using existing advance contracts prior to making new post- disaster contract awards, and include this guidance in existing semi- annual training given to contracting officers. (Recommendation 2) FEMA’s Administrator should update and implement existing guidance for program office and contracting officer personnel to identify acquisition planning timeframes and considerations across the entire acquisition planning process, and clearly communicate the purpose and use of MAPS. (Recommendation 3) FEMA’s Administrator should ensure the Head of the Contracting Activity adheres to current hard copy contract file management requirements to ensure advance contract files are complete and up to date, whether they will be transferred into the new Electronic Contract Filing System or remain in hard copy format. (Recommendation 4) FEMA’s Administrator should ensure the Head of the Contracting Activity reminds contracting officers of the three day timeframe for entering completed award documentation into the contract writing system when executing notice to proceed documentation. (Recommendation 5) FEMA’s Administrator should ensure the Head of the Contracting Activity revises its reporting methodology to ensure that all disaster contracts are included in its quarterly reports to congressional committees on disaster contract actions. (Recommendation 6) FEMA’s Administrator should ensure the Head of the Contracting Activity revises the Disaster Contracting Officer Desk guide to provide specific guidance for contracting officers to perform outreach to state and local governments on the use and establishment of advance contracts. (Recommendation 7) FEMA’s Administrator should ensure the Head of the Contracting Activity identifies a single centralized resource listing its advance contracts and ensure that source is updated regularly to include all available advance contracts. (Recommendation 8) FEMA’s Administrator should ensure the Head of the Contracting Activity communicates information on available advance contracts through the centralized resource to states and localities to inform their advance contracting efforts. (Recommendation 9) Agency Comments and Our Evaluation We provided a draft of this report to DOD, DHS, and FEMA for review and comment. DOD did not provide any comments on the draft report. In its comments, reprinted in appendix IV, DHS and FEMA concurred with our nine recommendations. DHS and FEMA also provided technical comments, which we incorporated as appropriate. In its written comments, FEMA agreed to take actions to address our recommendations, such as updating guidance on advance contract use and management, adding an addendum to its quarterly report that captures the contract actions that were previously unreported, and better communicating information on advance contracts to states and localities. In its concurrence with two of our recommendations, FEMA requested that we consider these recommendations resolved and close as implemented based on our actions it had previously taken. For example, in its response to our third recommendation, FEMA agreed to update and implement existing guidance to identify acquisition timeframes and the purpose and use of its 5-Year MAPS program. In its response, FEMA reiterated that it has conducted training sessions for its contracting and program staff on the 5-Year MAPS program and provides notice to program managers when acquisition planning is set to begin, which the agency believes satisfies this recommendation. We acknowledge FEMA’s training in this report; however, we noted that not all program and contracting staff we spoke with were familiar with 5-Year MAPS, and there is no formal guidance on timeframes for the entire acquisition planning process. We continue to believe this recommendation remains open and encourage FEMA to formalize guidance on the timeframes and considerations for planning various types of acquisitions across the entire acquisition planning process, and to document the purpose and use of the 5-Year MAPS program to ensure a uniform understanding of the program. Further, in its concurrence with our eighth recommendation, FEMA stated that it believes its current advance contract list satisfies our recommendation for internally communicating available advance contracts. We acknowledge in this report that the advance contract list is updated monthly; however, we found inconsistencies in the advance contract list and other documentation identifying advance contracts, which could result in FEMA’s contracting officers not having full visibility into available advance contracts. We continue to believe the recommendation remains open and encourage FEMA to identify a centralized resource with all available advance contracts and ensure that it is regularly updated for contracting staff. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the U.S. Army Corps of Engineers Director of Contracting, the Secretary of Homeland Security, the Administrator of the Federal Emergency Management Agency, and the Federal Emergency Management Agency’s Chief Procurement Officer. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology This report reviews the federal government’s contracting efforts for preparedness, response, and recovery efforts related to the three 2017 hurricanes and California wildfires. This report specifically addresses the use of advance contracts, assessing the extent to which (1) the Federal Emergency Management Agency (FEMA) and the U.S. Army Corps of Engineers (USACE) used advance contracts, (2) the planning, management, and reporting of selected FEMA and USACE advance contracts met certain contracting requirements, and (3) FEMA and USACE identified any lessons learned and challenges with their use of these contracts. We also have an ongoing review on post-disaster contracting that is expected to be completed in early 2019. To identify the extent to which FEMA and USACE used advance contracts, we reviewed data on contract obligations for the 2017 disasters from the Federal Procurement Data System-Next Generation (FPDS-NG) through May 31, 2018. We identified hurricane obligations using the national interest code, as well as the contract description. Data on obligations for the California wildfires is limited to those contracts that FEMA and USACE identified as being used to respond to those events because no national interest code was established in FPDS-NG. To determine which obligations were made through the use of advance contracts, we reviewed documentation provided by FEMA and USACE identifying the advance contracts they have in place and that were used in support of the 2017 disasters. We analyzed the FPDS-NG data to identify FEMA and USACE advance contract obligations compared to overall contract obligations by disaster, competition procedures used, and the types of goods and services procured. We assessed the reliability of FPDS-NG data by reviewing existing information about the FPDS-NG system and the data it collects—specifically, the data dictionary and data validation rules—and performing electronic testing. We determined the FPDS-NG data were sufficiently reliable for the purposes of this report. To assess the extent to which FEMA used its advance contracts, we reviewed FEMA contracting policies and guidance, such as FEMA’s 2017 Disaster Contracting Desk Guide and FEMA’s Advance Contracting of Goods and Services Report to Congress to identify available guidance on the use and intent of advance contracts. Based on our review of documentation, we identified examples of goods—tarps and meals—that FEMA had advance contracts in place for, but experienced challenges using in response the 2017 disasters. We reviewed FPDS-NG data to determine whether these goods were procured through post-disaster contracts rather than advance contracts, and selected advance and post- disaster contracts for further review. To identify limitations that affected the use of tarp and meal advance contracts, we gathered and reviewed advance and post-disaster contract documentation and interviewed contracting officials involved in the award and use of the contracts in 2017. To assess the extent to which the planning, management, and reporting of advance contracts used in response to the three hurricanes and California wildfires in 2017 met selected applicable contracting requirements, we reviewed relevant documentation, including the Post- Katrina Emergency Management Reform Act (PKEMRA), the Federal Acquisition Regulation (FAR), and Department of Homeland Security (DHS, FEMA, and USACE contracting policies. We identified a non- generalizable sample of advance contracts based on advance contract obligation data from FPDS-NG as of March 31, 2018. We analyzed the data to identify 10 competed and four h non-competed contracts. To obtain a range of competed contracts, we identified contracts used for goods and services with obligations above $50 million. All of the non- competed contracts used were for FEMA services; to obtain a range of non-competed contracts we identified contracts with obligations above $10 million. Our selected advance contracts included 10 from FEMA and four from USACE. Findings based on information collected from the 14 contracts cannot be generalized to all advance contracts. Additional details on our selected contracts can be found in table 2. To review our selected FEMA and USACE advance contracts, we developed a data collection instrument to gather selected contract information, such as period of performance, contract type, estimated contract value, and the presence of key contract documents, among others. To assess FEMA and USACE’s planning of selected advance contracts, we reviewed information from our data collection instrument on advance contract award date and period of performance, and determined that six of FEMA’s contracts met GAO’s definition of a bridge contract. To identify any planning challenges that contributed to these extensions, we reviewed FEMA acquisition planning policies, timeframes and relevant contract file documentation, such as written acquisition strategies and justification and approval documents, to determine whether acquisition planning activities for the selected advance contracts were completed according to guidance. We interviewed FEMA officials associated with these contracts on acquisition planning efforts, and factors that affected their ability to award new contracts. We also reviewed documentation and interviewed officials on FEMA’s acquisition planning system—the 5 Year Master Acquisition Planning Schedule (MAPS). To assess FEMA and USACE’s management of selected advance contracts, we reviewed information gathered from our data collection instrument on the presence of selected acquisition documents, such as acquisition strategies and contract modifications in the contract file, that typically provide the history of a contract. We reviewed relevant procurement regulations, the DHS Acquisition Manual, and other FEMA and USACE policies, to identify acquisition documentation requirements and record keeping processes. For contracts where documentation was not found in the contract file or system of record, we requested the missing documentation from FEMA and USACE officials to determine whether it had been completed. We also interviewed FEMA and USACE headquarters officials to supplement our understanding of FEMA and USACE’s record keeping policies, practices, and challenges. To assess the reporting of selected advance contracts, we compared advance contract action data identified in FPDS-NG to data reported in FEMA’s Disaster Contracts Quarterly Report Fourth Quarter, Fiscal Year 2017 and Disaster Contracts Quarterly Report First Quarter, Fiscal Year 2018 to congressional committees on disaster contracting to identify any unreported actions. We interviewed FEMA officials to discuss the methodology and data sources for the congressional committee reports, and any limitations to the accuracy of the data reported. To assess what challenges and lessons learned FEMA and USACE identified with the use of advance contracts in 2017, we reviewed PKEMRA advance contract requirements, FEMA and USACE documentation on the use of advance contracts, and after-action reports from 2017 and prior years, including the Hurricane Sandy FEMA After- Action Report, and the 2017 Hurricane Season FEMA After-Action Report, and federal internal control standards for information and communications. As part of our review, we identified FEMA and USACE’s processes for documenting lessons learned following a disaster, lessons learned specific to advance contracts, and any recommendations or actions planned by the agencies to address them. We interviewed FEMA and USACE headquarters officials on reported lessons learned, any other challenges related to the use of advance contracts, and ongoing or completed actions to address them. To describe challenges related to coordination with state and local officials on the use of advance contracts, we interviewed FEMA and USACE regional staff. To obtain perspectives and examples from state and local government officials involved in disaster response efforts we interviewed officials in California on advance contracting efforts. The information gathered from these officials is not generalizable to all officials. We also analyzed information on available advance contracts from FEMA’s June 2018 advance contract list and FEMA’s May 2018 training documentation identifying advance contracts to identify any differences in the information available to FEMA regional contracting officers, and their state and local contracting counterparts. We conducted this performance audit from March 2018 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Federal Emergency Management Agency (FEMA) Regional Offices Appendix III: Federal Emergency Management Agency (FEMA) and U.S. Army Corps of Engineers (USACE)-Identified Advance Contracts Appendix IV: Comments from the Department of Homeland Security Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Katherine Trimble (Assistant Director), Meghan Perez (Analyst in Charge), Erin Butkowski, and Suzanne Sterling were principal contributors. In addition, the following people made contributions to this report: Sonja Bensen, Emily Bond, Lorraine Ettaro, Suellen Foth, Julia Kennon, Elisha Matvay, Carol Petersen, Sylvia Schatz, Alyssa Weir, and Robin Wilson.

Following Hurricane Katrina, Congress required FEMA to establish advance contracts for goods and services to enable the government to quickly and effectively mobilize resources in the aftermath of a disaster, like those that affected the United States in 2017. GAO was asked to review the federal government's response to the three 2017 hurricanes and California wildfires. This report assesses, among other things, (1) FEMA and USACE's use of advance contracts, (2) FEMA's planning and reporting of selected advance contracts, and (3) challenges, if any, with FEMA's use of these contracts. GAO analyzed data from the Federal Procurement Data System-Next Generation through May 31, 2018; selected a non-generalizable sample of 14 FEMA and USACE advance contracts that were competed and obligated over $50 million, or non-competed and obligated over $10 million, in response to the 2017 disasters; and interviewed FEMA and USACE officials. In response to Hurricanes Harvey, Irma, and Maria, as well as the 2017 California wildfires, the Federal Emergency Management Agency (FEMA) and U.S. Army Corps of Engineers (USACE) relied heavily on advance contracts. As of May 31, 2018, FEMA and USACE obligated about $4.5 billion for various goods and services through these contracts, see figure below. GAO found limitations in FEMA's use of some advance contracts that provided critical goods and services to survivors, including an outdated strategy and unclear guidance on how contracting officers should use advance contracts during a disaster, and challenges performing acquisition planning. FEMA also did not always provide complete information in its reports to congressional committees. Specifically, GAO found 29 advance contract actions that were not included in recent reports due to shortcomings in FEMA's reporting methodology, limiting visibility into its disaster contract spending. FEMA identified challenges with advance contracts in 2017, including federal coordination with states and localities on their use. FEMA is required to coordinate with states and localities and encourage them to establish their own advance contracts with vendors. However, GAO found inconsistencies in that coordination and the information FEMA uses to coordinate with states and localities on advance contracts. Without consistent information and coordination with FEMA, states and localities may not have the tools needed to establish their own advance contracts for critical goods and services and quickly respond to future disasters.

GAO_GAO-19-50

Background The Military Health System is responsible for, among other things, assuring the overall oral health of all uniformed DOD personnel. As part of this health system, each service’s dental corps provides dental care for its servicemembers. The Army, the Navy, and the Air Force Dental Corps include approximately 3,000 active duty dentists and approximately 247 (200 in the United States) dental clinics to serve over 1.3 million servicemembers. Unlike their medical counterparts, the services’ dental corps rarely provide beneficiary care, according to service officials. The primary role of military dentists is to ensure the oral health and readiness of servicemembers. Servicemembers’ oral health is evaluated using standardized measures to determine the extent to which they are deployable. Generally, servicemembers with identified urgent, emergent, or unknown dental treatment needs are not considered to be worldwide deployable until their oral health is adequately addressed. Becoming a Military Dentist Most military dentists enter service through the Armed Forces’ Health Professions Scholarship Program (AFHPSP), a scholarship program available to students enrolled in or accepted to dental school. Under the services’ AFHPSP program, DOD pays for tuition, books, and fees, and provides a monthly stipend. In return, the students incur an obligation to serve 6 months of active duty service for each 6 months of benefits received, with a 2-year minimum obligation. AFHPSP dental students can pursue either a Doctor of Dental Surgery or Doctor of Dental Medicine degree to become a general dentist. In addition to the AFHPSP program, the services recruit fully qualified licensed dentists. For example, individuals may become military dentists through direct accessions, either by entering the service as a fully trained, licensed dentist or through the Financial Assistance Program, which provides stipends for dentists accepted or enrolled in a residency program. For additional information on these and other recruitment programs, see appendix I. Regardless of the recruitment program, dentists may begin to practice after obtaining a degree and completing licensure requirements. Military dentists may pursue postgraduate training through a general dentistry program, such as the Advanced Education in General Dentistry Program, a general practice residency, or a specialty dental program offered through the Uniformed Services University of the Health Sciences Postgraduate Dental College. Postgraduate dental college includes training and/or residency within a specific specialty and typically requires between 1 to 6 years of additional training. While in a postgraduate dental college program, participants incur an additional 6 months of active duty service obligation for each 6 months in training, with a minimum of 2 years active duty service obligation. However, this obligation can be served concurrently with obligations already incurred through AFHPSP if incurred through sponsored postgraduate education in a military or affiliated program. Figure 1 portrays the path to becoming a military dentist and the active duty obligation incurred for AFHPSP dental students. Each service takes steps to validate whether the military dentist has the appropriate professional qualifications and clinical abilities. Validation includes ensuring the dentist is credentialed and privileged to practice. See appendix II for more details on service processes for monitoring qualification and performance of dentists. Roles and Responsibilities for the Recruitment and Retention of Military Dentists The Assistant Secretary of Defense for Health Affairs (ASD(HA)) serves as the principal advisor for all DOD health policies and programs. The ASD(HA) issues DOD instructions, publications, and memorandums that implement policy approved by the Secretary of Defense or the Under Secretary of Defense for Personnel and Readiness and governs the management of DOD medical programs. The ASD(HA) also exercises authority, direction, and control over the President of the Uniformed Services University of the Health Sciences (USUHS). Further, ASD(HA) sets the special and incentive pay amounts for all military dentists. The ASD(HA) reports to the Under Secretary of Defense for Personnel and Readiness, who in turn reports to the Secretary of Defense. The Army, the Navy, and the Air Force medical commands and agencies report through their service chiefs to their respective military department secretaries and then to the Secretary of Defense. The Army, the Navy, and the Air Force have the authority to recruit, train, and retain dentists. Each military service has its own organizational structure and responsibilities. See figure 2. In September 2013, the Defense Health Agency was established to support greater integration of clinical and business processes across the Military Health System. The Defense Health Agency, among other things, manages the execution of policies issued by the ASD(HA) and manages and executes the Defense Health Program appropriation, which funds the services medical departments. By no later than September 30, 2021, the Director of the Defense Health Agency will assume responsibility for the administration of each military treatment facility, to include budgetary matters, information technology, and health care administration and management, among other things. Although military treatment facilities include dental clinics, DOD initially intended to exclude dental care (except oral and maxillofacial surgery), from the transfer to the Defense Health Agency. However, as of September 2018, DOD stated it is assessing the extent to which dental care will fall under the Defense Health Agency’s administration. GAO’s Prior Work on Military Treatment Facility Staffing Models and Tools In July 2010, we found that the services’ collaborative planning efforts to determine staffing of medical personnel working in fixed military treatment facilities, including dentists, were limited, and that their staffing models and tools had not been validated and verified in all cases as DOD policy requires. Specifically, we found that some Army specialty modules contained outdated assumptions, and that only a portion of the models had been completely validated. We also found that the Navy did not have a model, but instead employed a staffing tool that used current manning as a baseline and adjusted its requirements based on emerging needs or major changes to its mission. However, the Navy’s tool was not validated or verified in accordance with DOD policy. Further, we found that the Air Force may not know its true medical requirements because the model it relied on also was not validated or verified. We made several recommendations in our 2010 report, two of which were aimed at improving staffing of MTFs. Specifically, we recommended that the services identify common medical capabilities shared across military treatment facilities and develop and implement cross-service medical staffing standards for these capabilities as appropriate. We also recommended that each service update or develop medical personnel requirements determination tools as needed to ensure that they use validated and verifiable processes. The Army, the Navy, and the Air Force have implemented our recommendation related to the development and implementation of validated and verifiable tools for developing medical personnel requirements. Additionally, they identified and developed standardized cross-service staffing standards for over 40 medical specialties and incorporated them into their individual MTF staffing tools. Two of Three Services Use Validated Dental Clinic Staffing Models, and None of the Models Incorporate Cross- Service Standards The Army and the Air Force Use Validated Dental Clinic Staffing Models, and the Navy’s Proposed Model Is under Review The Army and the Air Force have validated the dental clinic staffing models that they use, and the Navy’s draft model is under review. In the absence of a validated model, the Navy uses a general ratio to staff its dental clinics. See table 1 for a description of each of the services’ methodology for staffing dental clinics. The Army and the Air Force models, which were developed in accordance with DOD guidance and service-specific requirements, are subject to the following validation processes: Army. Since 2011, the Army has used the Army Dental Clinic Model, which, according to officials, is intended to determine the minimum number of dentists necessary, by location, to ensure the medical readiness of soldiers. Army staffing models are subject to validation by the U.S. Army Manpower Analysis Agency, which validated the Army’s Dental Clinic Model when it was developed in 2011. According to an Army official, the model’s validation expired in 2014, and was not re-validated until May 2018 due to limited resources. Additionally, Army officials stated that the data used in the model are updated on an annual basis and that the model is subject to revalidation every 5 years. Air Force. Since 2014, according to Air Force officials, the Air Force has used its Dental Manpower Model to determine the minimum number of dentists required, by clinic, to ensure the medical readiness of servicemembers served by Air Force dental clinics. According to Air Force officials, the Air Force Dental Manpower Model is subject to review and validation that includes input from the Air Force Medical Service; Surgeon General’s Manpower, Personnel, and Resources office; Air Force Personnel Center; and consultants. Officials told us the model is reviewed and validated annually and presented to the Dental Operations Panel and Air Force’s medical service corporate structure. The model was most recently validated in April 2018. According to Navy Bureau of Medicine and Surgery (BUMED) officials, the Navy does not yet have a model and therefore instead uses a general ratio of one dentist for every 1,000 sailors as a baseline to initially determine the staffing requirements of its dental clinics. This ratio is adjusted based upon emerging needs or major changes to mission. In 2013, according to Navy officials, BUMED began developing a Dental Services Model that could be used to determine dental clinic staffing needs. In November 2016, BUMED internally released a draft report recommending that the dental corps approve and implement the Dental Services Model as the staffing standard for dental clinics. According to a Navy official, this report was provided to dental corps leadership for review in July 2018 and they are expected to complete their review in October 2018. According to BUMED officials, if the dental corps leadership approves the model for use as an official staffing standard, the model would be subject to official Navy validation processes which, in accordance with DOD policy, would entail verification and validation throughout the model’s lifecycle. Conversely, if the dental corps decides to use the model as an informal staffing tool to supplement its current processes, a BUMED official stated that it will be subject to an ad-hoc internal review every 3 years that mirrors the Navy’s review of its validation process. The Services Have Not Developed Cross-Service Staffing Standards for Dental Care Currently, the Army, the Navy and the Air Force each use different service-specific standards and other factors to determine the number of dentists needed at their respective dental clinics. As previously discussed, the services have developed and are in the process of implementing cross-service staffing standards—that is, a standardized approach to staffing the common day-to-day health needs of the patient population—for certain medical specialties. In response to DOD policy and our 2010 recommendation, the services established a working group to identify and develop common cross-service staffing standards, and in 2017, the tri-service working group established such standards for 42 different medical specialties. These standards are based on actual workload data for common capabilities within selected medical specialties and were incorporated into each service’s staffing tools to provide consistent values for the minimum number of staff required to meet patient needs. However, according to an official involved in the development of the standards, the services have not collaborated to develop a plan to establish a similar set of standards for dental care. DOD guidance directs modeling and simulation management to develop plans and procedures and to pursue common and cross-cutting modeling tools and data across the services. Also, the ASD(HA) has supported the effort to establish consistent workload drivers across services for determining personnel requirements for MTFs. According to a tri-service working group co-chair, they did not develop cross-service staffing standards for dental care because at the time, the quality of available data on dental procedure frequency and duration varied across the services. The same official stated that these data have been improved, but they still do not have plans to develop cross-service staffing standards for dental care. Additionally, service officials maintained that they must operate their respective dental clinics autonomously and in a manner that best supports their service-specific needs and unique command structures. Specifically, officials from each service’s dental corps stated that their primary mission is focused on the medical readiness of servicemembers and generally does not involve beneficiary care. As such, they have not collaborated on staffing efforts with the other services. While we recognize that each service operates under a different command structure, readiness requirements for oral health are standardized across DOD, and all servicemembers are required to meet the same level of oral health in order to be deployable. Additionally, since DOD is currently assessing whether it will consolidate the services’ dental corps staff under the Defense Health Agency’s administration, it remains unclear to us why dental care has been excluded from cross- service efforts to develop a common set of standards for staffing military dental clinics—especially because the services have developed common staffing standards for42 other medical specialties. The Services Generally Have Met Goals for Recruiting Dental Students, but Not for Fully Qualified Dentists and Do Not Know the Extent to Which Certain Programs Are Effective at Helping Recruit and Retain Dentists The Army, the Navy, and the Air Force have generally met their recruitment goals for dental students, but generally have not met their recruitment goals for fully qualified dentists to address oral health needs of the services. Overall, we found that the services maintained their staffing levels for military dentists during fiscal years 2012 through 2016, but experienced gaps within certain specialties. Further, the services rely on various programs and special pays and incentives, to recruit and retain military dentists, but they do not know the extent to which some of these programs are effective at helping them to do so. The Services Generally Met Recruitment Goals for Dental Students, but Faced Challenges Recruiting Fully Qualified Dentists Our analysis of Army, Navy, and Air Force data found that in fiscal years 2012 through 2016, the services generally met their goals for dental students recruited through the Armed Forces Health Professions Scholarship Program (AFHPSP). From fiscal year 2012 through fiscal year 2016, the Army met 94 percent of its goals, the Navy met 100 percent of its goals, and the Air Force met 97 percent of its goals. Figure 3 shows the AFHPSP recruitment goals and achievements, by service for fiscal years 2012 through 2016. To address their immediate need for dental providers, the services also recruit fully qualified general dentists or specialists. However, the services have experienced challenges meeting their recruitment goals for fully qualified dentists. Figure 4 below shows the recruitment goals and achievements for fully qualified dentists from fiscal years 2012 through 2016. As shown in the figure, the Army did not meet its recruitment goals for 5 consecutive years, the Navy did not meet its goals for 2 of these 5 years, and the Air Force did not meets its goals for 3 of these 5 years. While the services have experienced challenges in recruiting fully qualified dentists, the challenges are most pronounced in certain specialties. For example, based on our analysis of service data from fiscal years 2012 through 2016, the Army and the Navy were unable to recruit any oral surgeons and the Air Force recruited 50 percent of the oral surgeons it needed. Service officials cited various reasons for not being able to meet their recruitment goals for certain specialties, including the availability of more lucrative careers in the private sector and quality of life concerns associated with military service, such as frequent moves. Additionally, Air Force officials stated that they are not always able to offer accession bonuses consistently, which has caused challenges in recruiting. Table 2 shows the recruitment goals and percentage achieved for fully qualified dentists, by specialty, from fiscal years 2012 through 2016. The Services Have Maintained Overall Staffing Levels for Military Dentists, but Have Experienced Challenges Retaining Certain Specialties While the services maintained overall staffing levels for military dentists, they have experienced some challenges retaining certain specialties. Overall, military dentist end strengths—the actual number of dentists on board at the end of the fiscal year—have generally met or exceeded dental authorizations. Specifically, between fiscal years 2012 and 2016, the Army’s dental authorizations were filled, on average, at about 109 percent, the Navy’s at about 101 percent, and the Air Force’s at about 97 percent. Further, DOD data show that average overall gain rates are equal to average overall loss rates for the services’ dental corps in fiscal years 2012 through 2015 at approximately 10 percent for the Army, 9 percent for the Navy, and 11 percent for the Air Force. Additionally, according to our analysis of Army and Navy data, on average, approximately 73 percent of Army dentists continue on active duty after 5 years of service, and approximately 63 percent of Navy dentists continue on active duty after 5 years of service. According to Air Force officials, the Air Force does not routinely track data on the number of dentists that continue on active duty after 5 years of service. Although the services have been able to maintain their overall numbers for the total number of dentists in their respective dental corps, we found, based on the data the services provided us, that each service experienced gaps in certain dental specialties, including critically short wartime specialties. For example, all of the services experienced gaps in comprehensive dentistry from fiscal years 2012 through fiscal year 2016. In addition, for the same time period, all of the services experienced gaps in prosthodontists and oral surgeons. Officials from all three services cited family concerns, frequent moves, and competition from the private sector as reasons why these and other dentists choose to leave the military. Additionally, Army and Navy officials cited limited training and education opportunities and limited scope of practice as reasons why specialists such as oral surgeons leave the military. The Services Monitor Their Recruitment and Retention Programs, but Do Not Know Whether The Programs Are Effective The services rely on programs, such as AFHPSP, the Critical Wartime Skills Accession Bonus (CWSAB), and special pay and incentives, to attract and retain military dentists, but they do not know the extent to which some of these programs are effective at helping them meet their recruiting and retention goals. Our prior work on effective strategic workforce planning principles concluded that agencies should periodically measure their progress toward meeting human capital goals. These principles state that measuring the extent that human capital activities contribute to achieving programmatic goals provides information for effective oversight by identifying performance shortfalls and appropriate corrective actions. Further, according to these principles, agencies should develop use of flexibilities and other human capital strategies that can be implemented with the resources that can be reasonably expected to be available, and should consider how these strategies can be aligned to eliminate gaps. Additionally, Standards for Internal Control in the Federal Government states that management should monitor internal control systems, through ongoing monitoring and evaluations. According to these standards, evaluations should be used to provide feedback on the effectiveness of ongoing monitoring and should be used to help design systems and determine effectiveness. The standards also provide that management should determine the appropriate corrective actions to address any identified deficiencies upon completing its evaluation. According to Army, Navy, and Air Force officials, the services have taken various actions to monitor their recruitment and retention programs. For example, officials told us that they review recruitment goals, achievements, and retention rates; conduct workforce planning and modeling; and participate in recruitment and retention working groups. Specifically, Army officials stated that they use forecasts from a 5-year management plan to determine the Army’s recruiting mission and review its continuation rates to assess retention of dentists. Navy officials told us that they review annual recruitment goals and track whether they are meeting those goals on a weekly basis. Air Force officials stated that they participate in the Medical Accessions Working Group three times per year to assess ongoing recruitment activities. While the services monitor their progress toward recruitment and retention goals, they do not know the extent to which the programs designed to help them meet their goals affect their ability to recruit and retain dentists because they have not evaluated their effectiveness. For example, DOD Directive 1304.21 allows the services to use accession bonuses to meet their personnel requirements and specifies that bonuses are intended to influence personnel inventories in specific situations in which less costly methods have proven inadequate or impractical. The services have the discretion to issue up to $20,000 as an accession bonus under the AFHPSP—in addition to paying full tuition, education expenses, and a monthly stipend. In fiscal years 2012 through 2016, the Army and the Navy offered the accession bonus and generally met their recruitment goals—an achievement that Army officials credit, in part, to their use of the incentive. Specifically, Army officials told us that prior to using the bonus in 2009, they were not meeting their recruitments goals. They also expressed concern that, if they were to discontinue use of the bonus, they would not be able to meet their current goals. Conversely, Air Force officials told us that they stopped offering the bonus in 2012 because the number of AFHPSP applicants had exceeded the number of AFHPSP positions; the Air Force has continued to meet its recruiting goals without the use of the bonus. An Air Force official acknowledged that not offering the bonus could result in their losing potential applicants to the services that do offer the bonus, but Air Force officials also recognized that money is not always a deciding factor for those who choose to serve as a dentist in the military. The uncertainty described by the Army and Air Force officials demonstrates their lack of information about what factors motivate individuals to join the military. Moreover, the differing use of the accession bonus by the two services with similar outcomes indicates that the services do not know when it is necessary to use the recruiting tool because they have not evaluated the effectiveness of this program. Another bonus the services can offer is the CWSAB, which ranges from $150,000 for general dentists to $300,000 for comprehensive dentists, endodontists, prosthodontists, and oral maxillofacial surgeons, to individuals entering the military as a dentist in a critically short wartime specialty. While a bonus can be offered to any dental specialty designated as a critically short wartime specialty, data that we analyzed indicate that the bonus may be disproportionately effective in recruiting for these specialties. For example, from fiscal years 2012 through 2016, the Navy used this type of bonus and was able to meet or exceeded its recruitment goals for critically short wartime specialty general dentists and staffed this specialty at between 108 and 122 percent. However, our analysis of the Navy’s data also found that, even after offering this bonus, the Navy was unable to recruit any oral surgeons during the same time period. However, like with the accession bonus, service officials do not know the extent to which the CWSAB bonus is an effective recruitment incentive for some or all of the critically short wartime specialties because they have not evaluated the effectiveness of this program. In addition, the services offer special pay and incentives, which vary by specialty, to qualified dentists. Special pay and incentives include incentive pay, retention bonuses, and board certification pay. Each bonus and incentive, except board certification pay, requires an additional service obligation, thus creating a retention tool for the services. The services and officials from the Office of the ASD(HA) participate in the Health Professions Incentives Working Group to review recruitment and retention special pay and incentives and recommends adjustment to amounts offered as necessary. Service and officials from the Office of the ASD(HA) told us that there are no ways to evaluate the effectiveness of these incentives because they cannot account for the emotional or non- monetary decisions that contribute to whether servicemembers stay in the military, and money is not always an effective incentive for getting people to train in certain specialties or to continue their service. However, in our recent review of DOD’s special pay and incentive programs in 2017, we recommended that DOD take steps to improve the effectiveness of its special pay and incentive programs. Additionally, in February 2018, through our review of gaps in DOD’s physician specialties, we recommended that the services develop targeted and coordinated strategies to alleviate military physician gaps. An official from the Office of the ASD(HA) stated that they have started discussing measures with the services to evaluate the effectiveness of DOD’s medical and dental recruitment and retention programs, including special pay and incentives. Additionally, Office of ASD(HA) and service officials stated that they will begin reviewing the dental special pays and incentives in fiscal year 2019. Because these reviews are in the early stages, it is too soon to know how effective they will be in evaluating pay and incentive programs. Although service officials also told us that they believe their recruitment and retention programs are effective because they have generally met their overall recruiting and retention goals, until the services evaluate the effectiveness of their recruitment and retention efforts, they will not have the information to know which programs are the most efficient and cost- effective. Conclusions DOD continues to implement several major initiatives to support the mission of its health system maintaining the medical readiness of servicemembers while operating as efficiently as possible. The dental corps plays a critical role in these efforts by ensuring the oral health and dental readiness of all servicemembers. Ensuring dental readiness requires, in part, that the services are able to staff dentists adequately and consistently across DOD’s dental clinics. However, the Army, the Navy, and the Air Force have not collaborated in their approaches to staffing dental clinics, and have not developed cross-service staffing standards for dental clinic staffing. As DOD progresses in its efforts to implement efficiencies across its Medical Health System and assesses the scope of medical care to be transferred to the Defense Health Agency, it could be of benefit to the dental corps to develop cross-service standards that could result in improvements to the consistency and efficiency of dental clinic staffing. In addition to ensuring the appropriate number of dentists at each clinic to support the dental corps’ mission, recruiting and retaining fully qualified dentists has been an ongoing challenge for the services. However, the services have not evaluated whether their existing programs have been effective at helping them recruit and retain dentists, and therefore do not know whether they are effectively targeting their resources to address the most significant recruitment and retention challenges. Recommendations for Executive Action We are making a total of six recommendations, including two to the Army, two to the Navy, and two to the Air Force. Specifically: The Secretary of the Army should ensure that the Surgeon General of the Army Medical Command (1) collaborate with the Navy Bureau of Medicine and Surgery and the Air Force Medical Service to develop a common set of planning standards to be used to help determine dental clinic staffing needs, and (2) incorporate these standards into the Army’s dental corps staffing model. (Recommendation 1) The Secretary of the Navy should ensure that the Surgeon General of the Navy Bureau of Medicine and Surgery (1) collaborate with the Army Medical Command and the Air Force Medical Service to develop and implement a common set of planning standards to be used to help determine dental clinic staffing needs, and (2) incorporate these standards into the Navy’s dental corps staffing model. (Recommendation 2) The Secretary of the Air Force should ensure that the Surgeon General of the Air Force Medical Service (1) collaborate with the Army Medical Command and the Navy Bureau of Medicine and Surgery to develop and implement a common set of planning standards to be used to help determine dental clinic staffing needs, and (2) incorporate these standards into the Air Force’s dental corps staffing model. (Recommendation 3) The Secretary of the Army should ensure that the Surgeon General of the Army Medical Command evaluates the effectiveness of its recruitment and retention programs for military dentists, including the need for and effectiveness of the recruitment and retention incentives currently offered. (Recommendation 4) The Secretary of the Navy should ensure that the Surgeon General of the Navy Bureau of Medicine and Surgery evaluates the effectiveness of its recruitment and retention programs for military dentists, including the need for and effectiveness of the recruitment and retention incentives currently offered. (Recommendation 5) The Secretary of the Air Force should ensure that the Surgeon General of the Air Force Medical Service evaluates the effectiveness of its recruitment and retention programs for military dentists, including the need for and effectiveness of the recruitment and retention incentives currently offered. (Recommendation 6) Agency Comments We provided a draft of this report to DOD for review and comment. DOD did not provide comments. DOD did provide us with technical comments, which we have incorporated, as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, the Office of the Assistant Secretary of Health Affairs, the Secretaries of the Army, the Navy, the Air Force, and the President of the Uniformed Services University of the Health Sciences. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3604 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Military Dentist Accession Programs and Incentives In addition to the Department of Defense’s (DOD) Armed Forces Health Professions Scholarship Program, DOD uses several other programs and incentives to recruit military dentists. Table 3 includes a selection of DOD’s military dentist accession programs and incentives. Appendix II: The Services’ Mechanisms to Monitor Qualifications and Performance of Military Dentists DOD policy requires that all military dentists must be credentialed and privileged to practice dentistry. Credentialing is the process of inspecting and authenticating the documentation to ensure appropriate education, training, licensure, and experience. Privileging is the corresponding process that defines the scope and limits of practice for health care professionals based on their relevant training and experience, current competence, peer recommendations, and the capabilities of the facility where they are practicing. According to officials, the services have developed and implemented processes to continuously monitor dentist performance in accordance with DOD policy. According to officials, the services monitor military dentist performance through On-Going Professional Practice Evaluations (OPPE) and Focused Professional Practice Evaluations (FPPE). The OPPE is a continuous evaluation of dentist performance that reviews six dimensions of performance: (1) patient care, (2) medical knowledge, (3) professionalism, (4) practice-based learning and improvement, (5) interpersonal and communication skills, and (6) systems-based practice. The FPPE is a process of periodic evaluation by the dental clinic of the specific competence of a dentist performing procedures and administering care. FPPEs are conducted during a dentist’s initial appointment, when granting new privileges, or if a question arises about a dentist’s ability to provide, safe, high quality patient care. In addition to the performance monitoring required by DOD, according to officials, the Army and the Air Force have instituted their own mechanisms for monitoring the quality and performance of their dentists. Army: According to officials, the Army monitors dental quality through its quarterly Continuous Quality Management Program. This program includes the review of data related to records audits, infection control, radiation protection, utilization management, implant reports, drug utilization reports, patient safety events, and risk management. According to officials, these reviews are intended to identify and address any errors or trends in dental care. Air Force: According to officials, annually, Air Force dentists must document that they have reviewed and will follow the Air Force Medical Service Dental Clinical Practice Guidelines. According to officials, this ensures that all dentists are following the same standard of care for dental treatment. Additionally, according to officials, Air Force dentists participate in a peer review process known as Clinical Performance Assessment and Improvement. According to officials, in this process, a licensed peer dentist preferably of the same specialty reviews the dentist’s practice and procedures. Further, according to officials, depending on the nature of issues found during the review, corrective actions—ranging from refresher courses to a loss of license and credentials—may be taken. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Acknowledgments In addition to the contact named above, Kimberly Mayo, Assistant Director; Nicole Collier; Alexandra Gonzalez; Amie Lesser; Tida Barakat Reveley; Rachel Stoiko; John Van Schaik; Lillian Yob; and Elisa Yoshiara made key contributions to this report. Related GAO Products Defense Health Care: Additional Assessments Needed to Better Ensure an Efficient Total Workforce. GAO-18-102, Washington, D.C.: Nov. 27, 2018. Defense Health Care: DOD Should Demonstrate How Its Plan to Transfer the Administration of Military Treatment Facilities Will Improve Efficiency. GAO-19-53, Washington, D.C.: Oct. 30, 2018. Defense Health Care: Expanded Use of Quality Measures Could Enhance Oversight of Provider Performance. GAO-18-574, Washington, D.C.: Sept. 17, 2018. Military Personnel: Additional Actions Needed to Address Gaps in Military Physician Specialties. GAO-18-77. Washington, D.C.: Feb. 28, 2018. Defense Health Reform: Steps Taken to Plan the Transfer of the Administration of the Military Treatment Facilities to the Defense Health Agency, but Work Remains to Finalize the Plan, GAO-17-791R. Washington, D.C.: Sept. 29, 2017. Military Compensation: Additional Actions Are Needed to Better Manage Special and Incentive Pay Programs. GAO-17-39. Washington, D.C.: Feb. 3, 2017. Defense Health Care Reform: DOD Needs Further Analysis of the Size, Readiness, and Efficiency of the Medical Force. GAO-16-820. Washington, D.C.: Sept. 21, 2016. Defense Health Care: Additional Information Needed about Mental Health Provider Staffing Needs. GAO-15-184. Washington, D.C.: Jan. 30, 2015. Human Capital: Additional Steps Needed to Help Determine the Right Size and Composition of DOD’s Total Workforce. GAO-13-470. Washington, D.C.: May 29, 2013 Defense Health Care: Actions Needed to Help Ensure Full Compliance and Complete Documentation for Physician Credentialing and Privileging. GAO-12-31. Washington, D.C.: Dec. 15, 2011. Military Cash Incentives: DOD Should Coordinate and Monitor Its Efforts to Achieve Cost-Effective Bonuses and Special Pays. GAO-11-631. Washington, D.C.: June 21, 2011. Military Personnel: Enhanced Collaboration and Process Improvements Needed for Determining Military Treatment Facility Medical Personnel Requirements. GAO-10-696. Washington, D.C.: Jul. 29, 2010. Military Personnel: Status of Accession, Retention, and End Strength for Military Medical Officers and Preliminary Observations Regarding Accession and Retention Challenges. GAO-09-469R. Washington, D.C.: Apr. 16, 2009. Military Personnel: Better Debt Management Procedures and Resolution of Stipend Recoupment Issues Are Needed for Improved Collection of Medical Education Debts, GAO-08-612R. Washington, D.C.: Apr. 1, 2008. Primary Care Professionals: Recent Supply Trends, Projections, and Valuation of Services. GAO-08-472T. Washington, D.C.: Feb. 12, 2008. Military Physicians: DOD’s Medical School and Scholarship Program. GAO/HEHS-95-244. Washington, D.C.: Sept. 29, 1995. Defense Health Care: Military Physicians’ Views on Military Medicine. GAO/HRD-90-1. Washington, D.C.: Mar. 22, 1990.

DOD has taken steps to modernize its Military Health System to ensure that it operates efficiently. For example, in September 2013, the Defense Health Agency was created, in part, to implement common clinical and business processes across the services. Essential to this effort are the services' ability to effectively staff their medical facilities, including the processes used for staffing dental clinics and the services' ability to recruit and retain military dentists. Senate Report 115-125 included a provision for GAO to review the services' processes for determining requirements for dentists and its programs for recruiting and retaining military dentists, among other things. GAO assessed the extent to which the services (1) use validated dental clinic staffing models that also incorporate cross-service staffing standards, and (2) have recruited and retained military dentists and measured the effectiveness of their recruitment and retention programs. GAO assessed service dental clinic models, analyzed recruitment and retention data from fiscal year 2012 through 2016, and interviewed DOD and service officials. The Army and the Air Force use validated staffing models for their respective dental clinics, and the Navy has developed a model that is under review. The Army and the Air Force's models are based on service-specific staffing standards. For example, the Army's model generally projects dental clinic staffing based on historical facility data and, according to officials, the Air Force model is largely a population-based model that requires one dentist for every 650 servicemembers. In contrast, in the absence of a validated model, officials stated that, the Navy uses a general ratio of one dentist for every 1,000 servicemembers to staff its dental clinics. The Navy has developed a model that is under review, and if approved, according to officials, will be subject to the Navy's validation processes. While the services have developed and implemented cross-service staffing standards for 42 medical specialties, according to a key official involved in developing these standards, they currently do not plan to develop a similar set of standards for dental care. Cross-service staffing standards help the services standardize clinic staffing to address the common day-to-day health needs of patients. Service officials maintain that they must operate their respective dental clinics autonomously and in a manner that best supports their service-specific needs and unique command structures. However, as oral health requirements for servicemembers are standardized across the Department of Defense (DOD), it is unclear why dental care has been excluded from the staffing standardization effort—especially because the services have implemented cross-service staffing standards for 42 other medical specialties. The Army, the Navy, and the Air Force meet their needs for military dentists by recruiting both dental students and fully qualified dentists. The services generally met their recruitment goals for dental students between fiscal years 2012 and 2016, but faced challenges recruiting and retaining fully qualified dentists during that period. For example, the Army missed its recruitment goals for fully qualified dentists in all 5 years, the Navy missed its goals in 2 out of 5 years, and the Air Force missed its goals in 3 out of 5 years. These challenges are most pronounced for certain specialties. For example, service data indicate that the Army and the Navy were unable to recruit any oral surgeons, while the Air Force recruited 50 percent of the oral surgeons it needed. Service officials cited various reasons for not meeting recruitment goals, including the availability of more lucrative careers in the private sector and quality of life concerns associated with military service. The services rely on various programs, including scholarships and special pay and incentives, to attract and retain military dentists, and service officials stated that they monitor their programs by reviewing their goals, among other actions. However, GAO found that some services continue to provide incentive bonuses for positions that are overstaffed and have met or exceeded recruitment goals, but they do not know whether this is necessary because they have not evaluated the effectiveness of their programs. Without evaluating their programs, the services lack the information necessary to ensure that they are using recruitment and retention incentives effectively and efficiently for attracting and retaining dentists.

CRS_R45700

Introduction Disclosure provisions that require commercial actors to convey specified information to consumers occupy an uneasy and shifting space in First Amendment jurisprudence. The First Amendment's Free Speech Clause protects the right to speak as well as the right not to speak, and at least outside the context of commercial speech, courts generally disfavor any government action that compels speech. Indeed, the Supreme Court in 1943 described the First Amendment's protection against compelled speech as a "fixed star in our constitutional constellation." Accordingly, government actions mandating speech are generally subject to strict scrutiny by courts, and will be upheld "only if the government proves that they are narrowly tailored to serve compelling state interests." However, the Court has also long accepted a variety of laws that require commercial actors to make certain disclosures to consumers, confirming that Congress can compel certain disclosures, even those involving protected speech, without running afoul of the First Amendment. Commercial disclosure requirements have largely withstood constitutional scrutiny in part because, historically, commercial speech has received less protection under the First Amendment than other speech. The government's ability to more freely regulate commercial speech has been linked to its general authority "to regulate commercial transactions." Thus, notwithstanding the fact that commercial disclosure requirements compel speech, courts generally have not analyzed such provisions under the strict scrutiny standard. Instead, courts have often employed less rigorous standards to evaluate such provisions. The precise nature of a court's First Amendment analysis, however, will depend on the character of the disclosure requirement at issue. In a recent decision, the Supreme Court distilled and explained its prior cases on this subject. First, the Court said that it has upheld some commercial disclosure requirements that target conduct and only incidentally burden speech. This rubric likely only applies if the disclosure provision is part of a larger scheme regulating commercial conduct. If the disclosure provision instead regulates "speech as speech," it might be subject either to intermediate scrutiny, as a government regulation of commercial speech, or to something closer to rational basis review, if the disclosure provision qualifies for review under the Supreme Court's decision in Zauderer v. Office of Disciplinary Counsel . Some of the Court's recent cases, however, have suggested that in certain circumstances, disclosure requirements may be subject to heightened scrutiny. This report begins with a short background on how courts generally view commercial speech under the First Amendment, then reviews in more detail the possible legal frameworks for analyzing the constitutionality of commercial disclosure requirements. First Amendment Protection of Commercial Speech Supreme Court precedent explaining the application of the First Amendment to commercial disclosure requirements is relatively recent. The Court did not squarely hold that purely commercial speech was entitled to any protection under the First Amendment until 1976 in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council . The Court has defined commercial speech alternately as speech that "does 'no more than propose a commercial transaction'" and as "expression related solely to the economic interests of the speaker and its audience." In Virginia Board of Pharmacy , the Court said that commercial speech was protected, but it also emphasized that the First Amendment did not prohibit all regulations of such speech. In particular, the Court said that it foresaw "no obstacle" to government regulation of "false" speech, or even of commercial speech that is only "deceptive or misleading." In subsequent cases, the Court has explained why "regulation to assure truthfulness" is more readily allowed in the context of commercial speech, as compared with other types of speech. While the First Amendment usually protects even untruthful speech, in order to better encourage uninhibited and robust debate, the Court has recognized that regulating "for truthfulness" in the commercial arena is unlikely to "undesirably inhibit spontaneity" because commercial speech is generally less likely to be spontaneous. Instead, it is more calculated, motivated by a "commercial interest." In particular, if a particular advertisement concerns a subject in which "the public lacks sophistication" and cannot verify the claims, the Court has suggested that the government may have a freer hand to address such concerns. Four years after Virginia Board of Pharmacy , in 1980, the Supreme Court set out the standard that generally governs a court's analysis of government restrictions on commercial speech in Central Hudson Gas & Electric Corp. v. Public Service Commission . The Court first explained that commercial speech enjoys "lesser protection" than "other constitutionally guaranteed expression." After emphasizing that First Amendment protection for commercial speech "is based on the informational function of advertising," the Court said that "there can be no constitutional objection to the suppression of commercial messages that do not accurately inform the public about lawful activity." Accordingly, the Court held that the government may prohibit "forms of communication more likely to deceive the public than to inform it" as well as "commercial speech related to illegal activity." But if the regulated "communication is neither misleading nor related to unlawful activity," the government's action is subject to intermediate scrutiny. Under Central Hudson 's intermediate standard, the government must prove that the government's interest is "substantial," and that the regulation "directly advances" that interest and is "not more extensive than is necessary to serve that interest." The Central Hudson test continues to govern the constitutional analysis of government acts that infringe on commercial speech. However, in certain circumstances, commercial speech may lose its commercial character if "it is inextricably intertwined with otherwise fully protected speech." And more generally, some members of the Supreme Court have questioned whether commercial speech should categorically receive less protection under the First Amendment, suggesting that in at least some circumstances, infringements on commercial speech should instead be subject to strict scrutiny. Commentators have pointed out that, as a practical matter, Supreme Court decisions have increasingly struck down, rather than upheld, restrictions on commercial speech. Also relevant to the discussion of disclosure requirements, judges and legal scholars have noted that the Court may be adjusting the role of the content neutrality doctrine with respect to commercial speech. As a general matter, if a law is "content-based," in the sense that it "target[s] speech based on its communicative content," it will be subject to strict scrutiny. The Supreme Court stated in Reed v. Town of Gilbert that a regulation is content-based if it "applies to particular speech because of the topic discussed or the idea or message expressed," if it "cannot be 'justified without reference to the content of the regulated speech,'" or if it was "adopted by the government 'because of disagreement with the message [the speech] conveys.'" Disclosure requirements are generally considered content-based, given that they require regulated parties to speak a certain message, and outside the commercial context, ordinarily trigger the application of strict scrutiny. In Central Hudson , however, the Supreme Court explained that in the context of commercial speech, "regulation of its content" is permissible. And, as commentators have pointed out, "the very category of commercial speech is a content-based category." Nonetheless, the Court has struck down certain regulations that prohibit commercial speech solely because its content is commercial, suggesting that content neutrality might be relevant in the commercial sphere. In its 2011 decision in Sorrell v. IMS Health, Inc. , the Supreme Court considered the constitutionality of a state law prohibiting pharmacies from disclosing certain pharmacy records for marketing purposes. After observing that the law included "content- and speaker-based restrictions on the sale, disclosure, and use of" covered information, the Court concluded that the law was "designed to impose a specific, content-based burden on protected expression" because it applied specifically to marketing, a particular type of speech. Consequently, the law was subject to "heightened judicial scrutiny," notwithstanding the fact that the "burdened speech result[ed] from an economic motive" and was therefore commercial. Ultimately, however, the Court declined to say definitively whether Central Hudson or "a stricter form of judicial scrutiny" should apply because, in the Court's view, the law failed to pass constitutional muster even under Central Hudson . As discussed in more detail below, the shifting role of content neutrality in commercial speech doctrine holds special significance for commercial disclosure requirements: these requirements are content-based because they "compel[] individuals to speak a particular message." At least one legal scholar has suggested that lower courts have read Sorrell as an expression of the Supreme Court's increasing skepticism toward restrictions on commercial speech and, since that decision, have been more likely to strike down commercial disclosure requirements. However, the Court did not expressly limit the reach of Central Hudson in Sorrell or in subsequent cases, suggesting that, at least for now, Central Hudson 's standard of review applies even when a challenged action would otherwise trigger strict scrutiny as a content-based regulation of speech. Indeed, lower courts analyzing commercial disclosure requirements usually ask whether Zauderer or Central Hudson supplies the appropriate standard of review, contemplating at most only intermediate scrutiny —even in cases decided after Sorrell . Regulation of Speech Incidental to Regulatory Scheme Targeting Conduct In its First Amendment jurisprudence, the Supreme Court has generally distinguished between laws that regulate conduct and laws that regulate speech. The Court has held that conduct-focused regulations will not violate the First Amendment by merely incidentally burdening speech. For instance, while the government may regulate prices, attempts to regulate "the communication of prices" implicate the First Amendment. To take another example, the Court has noted that pursuant to "a ban on race-based hiring," a regulation "directed at commerce or conduct," the government "may require employers to remove 'White Applicants Only' signs." To differentiate a regulation targeting conduct from one targeting speech, the Court generally looks to the purpose of the law, asking whether the law appears to target certain content or certain speakers. As part of this inquiry, the Court may also ask whether a regulation applies because of the communicative content of the regulated party's actions. This distinction between speech and conduct is especially significant in the context of commercial speech, given that such speech "occurs in an area traditionally subject to government regulation." Thus, in 1978, the Supreme Court said: "[I]t has never been deemed an abridgment of freedom of speech or press to make a course of conduct illegal merely because the conduct was in part initiated, evidenced, or carried out by means of language, either spoken, written, or printed." Numerous examples could be cited of communications that are regulated without offending the First Amendment, such as the exchange of information about securities, corporate proxy statements, the exchange of price and production information among competitors, and employers' threats of retaliation for the labor activities of employees. Each of these examples illustrates that the State does not lose its power to regulate commercial activity deemed harmful to the public whenever speech is a component of that activity. The Court has previously "upheld regulations of professional conduct that incidentally burden speech." For example, the Court upheld an informed consent requirement in Planned Parenthood of S outheastern Pennsylvania v. Casey . The Casey challengers argued that a law requiring doctors to inform patients seeking abortions about "the nature of the procedure, the health risks of the abortion and of childbirth, and the probable gestational age of the unborn child" compelled doctors to speak in violation of the First Amendment. The Court rejected that argument, concluding that while "the physician's First Amendment rights not to speak are implicated," this was "only as part of the practice of medicine, subject to reasonable licensing and regulation by the State." In National Institute of Family and Life Advocates (NIFLA) v. Becerra , the Supreme Court emphasized that the informed consent requirement upheld in Casey was part of the broader regulation of professional conduct: specifically, the practice of medicine. By contrast, the Court held that the disclosure requirement at issue in NIFLA , which required certain health facilities to provide clients with information about state-sponsored services, could not be upheld as "an informed-consent requirement or any other regulation of professional conduct" because it was not tied to any medical procedure. Instead, in the Court's view, the requirement "regulate[d] speech as speech," as opposed to regulating speech only incidentally. While the Court has made clear that the First Amendment does not prohibit such incidental regulation of commercial speech, it has not articulated one overarching standard for evaluating whether such provisions are constitutionally permissible. Its decisions in this area have considered a wide variety of government actions incidentally burdening speech, and it may be that the standard varies according to the nature of the particular speech restriction evaluated. In some cases, the Court has suggested that "the First Amendment is not implicated by the enforcement" of a broader regulatory scheme where the regulated conduct does not have "a significant expressive element" or the statute does not inevitably single out "those engaged in expressive activity." In other cases where the Court has upheld a regulation that it characterized as focused on conduct rather than speech, the Court investigated the strength of the government's interest and asked whether the regulation advances that interest, suggesting that the Court subjected the regulation to some First Amendment scrutiny—albeit using a relatively relaxed standard. The Court has never explicitly held that a commercial disclosure requirement qualifies as a constitutionally permissible incidental restriction on commercial speech. While Planned Parenthood of Southeastern Pennsylvania v. Casey did involve a disclosure requirement, the Court did not address whether the informed consent requirement involved commercial or noncommercial speech either in Casey or when discussing that requirement in NIFLA . In NIFLA , the Court held that a state law imposing disclosure requirements on clinics providing pregnancy-related services could not be characterized as a regulation that only incidentally burdened speech because the requirement was not tied to any specific medical procedures. However, the Court never expressly stated whether it considered the disclosures to consist of commercial or noncommercial speech. Similarly, in Expressions Hair Design v. Schneiderman , the Court rejected the application of this doctrine without expressly characterizing the government action as a commercial disclosure requirement. In that case, the Court considered the constitutionality of a state law prohibiting sellers from imposing surcharges on customers who use credit cards. The Supreme Court rejected the argument that this law primarily "regulated conduct, not speech," concluding that the law did not merely regulate pricing, but regulated the communication of prices by prohibiting merchants from posting a cash price and an additional credit card surcharge. The Court then remanded the case to the lower courts to consider the First Amendment challenges in the first instance, leaving open the question of whether the provision could be characterized as a requirement for sellers to disclose an item's credit card price, rather than as a prohibition of certain speech. As these cases suggest, the Court has seemed reluctant in recent years to uphold government actions as conduct-focused regulations that merely incidentally burden speech, especially in the context of compelled disclosure requirements. Instead, the Court has distinguished the few cases upholding government acts as incidental restrictions and subjected disclosure requirements to further scrutiny. Nonetheless, the Court has left open the possibility that commercial disclosure requirements might, in the future, qualify as permissible incidental speech regulation, if they are part of a broader regulatory scheme. Regulation of Speech as Speech If the government regulates "speech as speech," its actions will implicate the First Amendment's protections for freedom of speech and may trigger heightened standards of scrutiny. However, the First Amendment does not prescribe a single analysis for all government actions that potentially infringe on free speech protections. Instead, a court's review will depend on the nature of both the government action and the speech itself. This section first introduces the three possible levels of scrutiny a court might use to analyze a speech regulation and then explains their application to compelled commercial disclosures in more detail. Three Levels of Scrutiny In the context of commercial disclosure requirements, there are three primary categories of First Amendment analysis that may be relevant. First, as a general rule, government actions that compel speech are usually subject to strict scrutiny. To survive strict scrutiny, the government must show that the challenged action is "narrowly tailored to serve compelling state interests." Laws are unlikely to meet this "stringent standard." Second, as discussed above, government actions regulating commercial speech generally receive only intermediate scrutiny. The intermediate scrutiny standard, pursuant to Central Hudson , requires a "substantial" state interest and requires the government to prove that the law "directly advances" that interest and "is not more extensive than is necessary to serve that interest." This standard is less demanding than strict scrutiny, but laws may still be struck down under this test. The final and most lenient category—one specific to commercial disclosure requirements—comes from a 1985 case, Zauderer v. Office of Disciplinary Counsel . In that case, the Supreme Court considered the constitutionality of state disciplinary rules regulating attorney advertising. As relevant here, the rules required advertisements referring to contingent-fee rates to disclose how the fee would be calculated. An attorney who had been disciplined by the state for violating these provisions argued that this disclosure requirement was unconstitutional because the state failed to meet the standards set out in Central Hudson . The Court acknowledged that it had previously held that prohibitions on commercial speech were subject to heightened scrutiny under Central Hudson , and that it had "held that in some instances compulsion to speak may be as violative of the First Amendment as prohibitions on speech." "But," the Court said, "[t]he interests at stake in this case are not of the same order as those" implicated in cases involving the compulsion of noncommercial speech. Instead, the Court noted that the state's provision only involved "commercial advertising, and its prescription has taken the form of a requirement that appellant include in his advertising purely factual and uncontroversial information about the terms under which his services will be available." In this commercial context, the Court said that the attorney's "constitutionally protected interest in not providing any particular factual information in his advertising is minimal," noting that in previous cases it had stated that states might "appropriately require[]" warnings or disclaimers "in order to dissipate the possibility of consumer confusion or deception." Rather than applying heightened scrutiny, the Court held that under these circumstances, "an advertiser's rights are adequately protected as long as disclosure requirements are reasonably related to the State's interest in preventing deception of consumers." The Zauderer Court did warn, however, that commercial disclosure requirements raise First Amendment concerns, observing that "unjustified or unduly burdensome disclosure requirements might offend the First Amendment by chilling protected commercial speech." But the Court rejected the contention that the disclosure requirement before it was unduly burdensome. Instead, the Court concluded that "[t]he State's position that it is deceptive to employ advertising that refers to contingent-fee arrangements without mentioning the client's liability for costs is reasonable enough to support a requirement that information regarding the client's liability for costs be disclosed." Although the state had not submitted evidence that clients were in fact being misled, the Court stated that "the possibility of deception" was "self-evident," making the state's "assumption that substantial numbers of potential clients would be . . . misled" regarding the terms of payment reasonable. Applying Zauderer Zauderer sets out the most lenient of the three standards of review discussed above, and, as a result, a commercial disclosure requirement is most likely to be upheld if it is reviewed under the rubric of that case. However, the Zauderer standard of review has been interpreted to apply only to certain types of disclosure requirements. As described by the Court and discussed above, the state regulation upheld in Zauderer required "purely factual and uncontroversial information about the terms under which [attorneys'] services [would] be available," and the provision was "reasonably related to the State's interest in preventing deception of consumers." Subsequent cases in both the Supreme Court and the lower courts have tested the extent to which this reasonableness review applies outside of the specific factual circumstances presented in Zauderer . Supreme Court Precedent The Supreme Court has decided whether to apply Zauderer review to government acts compelling commercial speech in three significant cases. First, in United States v. United Foods , decided in 2001, the Court invalidated a federal statute that compelled "handlers of fresh mushrooms to fund advertising for the product." United Foods thus involved a compelled subsidy, rather than a compelled disclosure. The Court concluded that these statutorily compelled subsidies for government-favored speech implicated the First Amendment and that "mandat[ing] support" from objecting parties was "contrary to . . . First Amendment principles." The Court held that Zauderer was inapplicable, noting that in the case before it, there was "no suggestion . . . that the mandatory assessments . . . are somehow necessary to make voluntary advertisements nonmisleading for consumers." By contrast, the Court applied Zauderer in a 2010 decision, Milavetz, Gallop & Milavetz, P.A. v. United States , another case concerning attorney advertising. In that case, the Court considered an attorney's First Amendment challenges to a federal statute that required "debt relief agencies" to "make certain disclosures in their advertisements." "Debt relief agencies" was a statutorily defined term covering some attorneys who provided clients with bankruptcy assistance. Among other things, agencies advertising "bankruptcy assistance services or . . . the benefits of bankruptcy" were required to disclose that they were "a debt relief agency" that "help[ed] people file for bankruptcy relief under the Bankruptcy Code." Rejecting the challenger's contention that Central Hudson 's intermediate scrutiny governed the disclosure requirement, the Court held instead that "the less exacting scrutiny described in Zauderer " governed its review. The Court concluded that the provision "share[d] the essential features of the rule at issue in Zauderer ." The disclosure requirement was "intended to combat the problem of inherently misleading commercial advertisements—specifically, the promise of debt relief without any reference to the possibility of filing for bankruptcy, which has inherent costs." Further, the law required the covered entities to provide "only an accurate statement identifying the advertiser's legal status and the character of the assistance provided." As in Zauderer , where the "possibility of deception" was "self-evident," the Court was not troubled by the lack of evidence that current advertisements were misleading. Instead, "evidence in the congressional record demonstrating a pattern of advertisements that hold out the promise of debt relief without alerting consumers to its potential cost" was "adequate." The Court ultimately upheld the disclosure requirement as "reasonably related to the [Government's] interest in preventing deception of consumers." Most recently, in 2018, the Court considered the application of Zauderer in NIFLA . That case involved two distinct disclosure requirements imposed by California's Reproductive Freedom, Accountability, Comprehensive Care, and Transparency Act (FACT Act), which regulated crisis pregnancy centers. First, the FACT Act required any " licensed covered facility" to notify clients that "California has public programs that provide immediate free or low-cost access to comprehensive family planning services (including all FDA-approved methods of contraception), prenatal care, and abortion for eligible women," and give the telephone number of the local social services office. Second, any " unlicensed covered facility" had to provide notice that the "facility is not licensed as a medical facility by the State of California and has no licensed medical provider who provides or directly supervises the provision of services." The Court first held that Zauderer 's reasonableness review did not apply to the licensed notice. In the Court's view, the notice was "not limited to 'purely factual and uncontroversial information about the terms under which . . . services will be available.'" The Court explained that the disclosure requirement "in no way relate[d] to the services that licensed clinics provide." The Court said that instead, the law "require[d] these clinics to disclose information about state -sponsored services—including abortion, anything but an 'uncontroversial' topic." The Court ultimately held that the licensed notice could not "survive even intermediate scrutiny." Turning to the unlicensed notice, the Court determined that it did not need to "decide whether the Zauderer standard applies to the unlicensed notice" because the disclosure requirement failed scrutiny even under Zauderer . The Court said that "under Zauderer , a disclosure requirement cannot be 'unjustified or unduly burdensome.'" The Court interpreted this statement to require that the government prove it was seeking "to remedy a harm that is 'potentially real, not purely hypothetical.'" Based on the record on appeal, the Court found that California's stated interest in "ensuring that pregnant women in California know when they are getting medical care from licensed professionals" was "purely hypothetical." Further, the Court held in the alternative that "[e]ven if California had presented a nonhypothetical justification for the unlicensed notice, the FACT Act unduly burden[ed] protected speech" by requiring a government statement to be placed in all advertisements, regardless of an advertisement's length or content. The Court also expressed concern that the unlicensed notice "target[ed]" certain speakers in imposing those burdens by focusing on "facilities that primarily provide 'pregnancy-related' services." Defining a Zauderer Disclosure While the Supreme Court has emphasized that Zauderer 's reasonableness review is available only for certain types of compelled commercial disclosures, lower courts have disagreed on the precise circumstances required to apply Zauderer . A few requirements have emerged in the case law. First, courts agree that to qualify for review under Zauderer , a commercial disclosure requirement must compel speech that is "factual and uncontroversial." Next, the disclosure must be related to the goods or services the speaker provides. Finally, courts have disagreed on the type of government interest that may be asserted to justify a Zauderer -eligible regulation: while Zauderer itself approved of the challenged disclosure requirement after concluding that the state was permissibly seeking to "prevent[] deception of consumers," lower courts have sometimes applied Zauderer review even where the regulation is not specifically intended to prevent deception. Before discussing the particulars of these requirements, it is worth noting that these elements are related to the Court's overarching justifications for affording the government more leeway to regulate commercial speech. The seminal Supreme Court case establishing that commercial speech is protected by the First Amendment, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council , tied commercial speech's value to its ability to inform consumers. Critically, the Court said that governments could continue to ban false or misleading commercial speech , noting in another case that "the public and private benefits from commercial speech derive from confidence in its accuracy and reliability." It was against this background that the Court in Zauderer concluded that the provision requiring the disclosure of factual information about contingent fee arrangements did not involve First Amendment interests "of the same order as those" involved in other cases involving the compulsion of noncommercial speech. Accordingly, the state acted reasonably by prescribing that attorneys had to include in their advertising "purely factual and uncontroversial information about the terms under which [their] services [would] be available." Factual and Uncontroversial The first element for a commercial disclosure requirement to be eligible for Zauderer review is that the government regulation must require the disclosure of "factual and uncontroversial" information. The two parts of Zauderer's initial requirement are often evaluated as one, although courts have sometimes pointed out that "factual" and "uncontroversial," logically, connote two different things. Viewing the two words together, some have characterized the "factual and uncontroversial" requirement as distinguishing regulations that compel the disclosure of facts from those that compel individuals to state opinions or ideologies. As discussed, the Supreme Court has said that the value of commercial speech largely lies in its ability to inform consumers. And in Zauderer , the Court emphasized that because protection for commercial speech is justified by its informational value, the attorney challenging the disclosure requirement had a "minimal" First Amendment interest "in not providing any particular factual information in his advertising." As the Second Circuit has explained: Commercial disclosure requirements are treated differently from restrictions on commercial speech because mandated disclosure of accurate, factual, commercial information does not offend the core First Amendment values of promoting efficient exchange of information or protecting individual liberty interests. Such disclosure furthers, rather than hinders, the First Amendment goal of the discovery of truth and contributes to the efficiency of the "marketplace of ideas." Protection of the robust and free flow of accurate information is the principal First Amendment justification for protecting commercial speech, and requiring disclosure of truthful information promotes that goal. In such a case, then, less exacting scrutiny is required than where truthful, nonmisleading commercial speech is restricted. In this vein, the Supreme Court upheld disclosure requirements regarding the nature of contingent fee arrangements in Zauderer and statements clarifying the nature of the bankruptcy-related assistance provided by debt relief agencies in Milavetz . Lower courts have approved as "factual and uncontroversial" within the meaning of Zauderer a variety of other commercial disclosure requirements, including regulations requiring the disclosure of: country-of-origin information for meat; calorie information at restaurants; the fact that products contain mercury; and textual and graphic warnings about the health risks of tobacco products. By contrast, in a 2015 opinion, the D.C. Circuit concluded that a federal regulation requiring firms to disclose whether their products used "conflict minerals" that originated "in the Democratic Republic of the Congo or an adjoining country" could not be characterized as factual and uncontroversial. The court said that "[t]he label '[not] conflict free' is a metaphor that conveys moral responsibility for the Congo war. . . . An issuer, including an issuer who condemns the atrocities of the Congo war in the strongest terms, may disagree with that assessment of its moral responsibility. . . . By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment." Similarly, the Seventh Circuit, in a 2006 opinion, held that disclosure requirements in a state law regulating sexually explicit video games were not "factual and uncontroversial" as required for Zauderer to apply. In relevant part, the law required "video game retailers to place a four square-inch label with the numerals '18' on any 'sexually explicit' video game," and to post signs and provide brochures "explaining the video game rating system." The court held first that the sticker "ultimately communicates a subjective and highly controversial message—that the game's content is sexually explicit." Similarly, the panel concluded that "the message" communicated by the signs and brochures was "neither purely factual nor uncontroversial" because it was "intended to communicate that any video games in the store can be properly judged pursuant to the standards described in the . . . ratings." As mentioned above, some courts have treated "factual" and "uncontroversial" as two distinct requirements. But at times, courts have struggled to define "controversial," standing alone. The D.C. Circuit has suggested that controversial must mean that a disclosure "communicates a message that is controversial for some reason other than dispute about simple factual accuracy." One trial court interpreting a decision of the Second Circuit suggested that "it is the nature of the regulation of compelled speech that controls, not the nature of the legislative debate that gave rise to its enactment." That court then noted that other courts had equated controversial messages with disclosures that are "opinion-based." Courts have disagreed about whether a disclosure may be characterized as "controversial" because it is "inflammatory" or "evoke[s] an emotional response." In NIFLA , the Supreme Court struck down the licensed notice after noting that the required disclosures related to "abortion, anything but an 'uncontroversial' topic," although it did not further explain when a topic is "uncontroversial" for purposes of Zauderer. Related to Speaker's Services Second, to be eligible for review under Zauderer , a commercial disclosure requirement must be related to the services provided by the speaker. In Zauderer itself, the Court had noted that the disputed disclosure required the attorney to provide information in his advertising "about the terms under which his services will be available." By and large, lower courts, at least prior to NIFLA, had not treated this relationship to the speaker's services as a distinct requirement. The Court in NIFLA , however, said that this was a necessary prerequisite for Zauderer review and held in that case that the notice requirement for licensed clinics at issue was not "relate[d] to the services that licensed clinics provide" because it instead provided information "about state -sponsored services." Intended to Prevent Deception Judges have disagreed on whether there exists a third requirement for Zauderer review. In Zauderer itself, the Supreme Court noted that the disclosure requirements at issue in that case were intended to "prevent[] deception of customers." Further, when applying Zauderer review to the bankruptcy-related disclosures at issue in Milavetz , the Court stated that the disclosures were "intended to combat the problem of inherently misleading commercial advertisements." Perhaps most notably, in United Foods , the Court explained its decision not to apply Zauderer by noting that there was "no suggestion" that the compelled subsidies at issue in that case were "somehow necessary to make voluntary advertisements nonmisleading for consumers." The Supreme Court's decisions applying Zauderer have thus suggested that one factor in deciding whether to apply this "reasonably related" review is whether the targeted commercial speech is misleading, or whether the state's interest in requiring the disclosure is to prevent "consumer confusion or deception." Nonetheless, the Court has not squarely held that this is a necessary condition for Zauderer review, and several lower courts have rejected this position. The D.C. Circuit concluded that Zauderer 's justification characterizing "the speaker's interest in opposing forced disclosure of such information as 'minimal' seems inherently applicable beyond" the state's "interest in remedying deception." The Second Circuit has also held that Zauderer review applies more broadly. In rejecting a litigant's argument that the Supreme Court's decision in United Foods limited Zauderer only to laws intended to prevent consumer deception, the Second Circuit said that United Foods "simply distinguishes Zauderer on the basis that the compelled speech in Zauderer was necessary to prevent deception of consumers; it does not provide that all other disclosure requirements are subject to heightened scrutiny." Zauderer Review If a commercial disclosure requirement involves only "purely factual and uncontroversial information" about the goods or services being sold, and is therefore eligible for review under Zauderer , then it will be constitutional so long as the disclosure requirement is "reasonably related" to the government's interest. This reasonableness review is relatively lenient, especially as compared with the standards that would otherwise apply to compelled speech. But, as emphasized in NIFLA , even under Zauderer , "unjustified or unduly burdensome disclosure requirements might offend the First Amendment by chilling protected commercial speech." Lower courts had previously come to different conclusions regarding whether "unjustified or unduly burdensome" presented an additional inquiry, to be conducted separately from the reasonableness inquiry otherwise prescribed by Zauderer , or whether instead this inquiry was subsumed by the "reasonably related" inquiry. NIFLA did not entirely resolve this issue, although it did frame its analysis using the "unjustified or unduly burdensome" language rather than the language of rational basis review. Government Interest In Zauderer , the Supreme Court upheld the contingent fee disclosure after concluding that the requirement was "reasonably related to the State's interest in preventing deception of consumers." But as noted above, lower courts have largely concluded that Zauderer 's reasonableness review may govern the analysis even when the government asserts an interest other than preventing consumer deception. The D.C. Circuit has, so far, largely declined to articulate a clear standard for "what type of interest might suffice." That court did conclude in one case that where the government's interest was "substantial under Central Hudson 's standard," that would qualify as a sufficient interest under Zauderer . Perhaps taking a different approach, in a case upholding a disclosure requirement under Zauderer , the Second Circuit described the state's interest as "legitimate and significant." Other than "the interest in correcting misleading or confusing commercial speech," the federal courts of appeals have upheld commercial disclosure requirements where the government asserted interests in food safety, preventing obesity, "protecting human health and the environment from mercury poisoning," and in protecting health benefit providers "from questionable . . . business practices." By contrast, the Second Circuit held in International Dairy Foods Association v. Amestoy that "consumer curiosity alone is not a strong enough state interest to sustain the compulsion of even an accurate, factual statement." In NIFLA , the Supreme Court indicated that under Zauderer , the government must assert an interest that is "more than 'purely hypothetical.'" As discussed above, the State of California's justification for the notice requiring unlicensed clinics to disclose that they were unlicensed was to "ensur[e] that pregnant women in California know when they are getting medical care from licensed professionals." The Court concluded that the state had "point[ed] to nothing suggesting that pregnant women do not already know that the covered facilities are staffed by unlicensed medical professionals." NIFLA 's requirement that the government provide evidence supporting an asserted interest differs from the Court's approach in Zauderer itself and in Milavetz . In both Zauderer and Milavetz , the Court rejected arguments that the government had failed to present sufficient evidence to support its interest in the disclosure requirement, concluding that in both of those cases, "the possibility of deception" in the regulated advertisements was "self-evident." Although the standard is not entirely clear, it is possible that in future cases the Court could conclude again that a particular advertisement is so obviously deceptive that the government does not need to submit significant evidence proving that the advertisements are misleading. "Reasonably Related" If the government has asserted a sufficient interest, then under Zauderer , it needs to show only that the disputed disclosure requirement is "reasonably related" to that interest. Describing the Supreme Court's decision in Zauderer , the D.C. Circuit has said that the "evidentiary parsing" required by more rigorous First Amendment tests "is hardly necessary when the government uses a disclosure mandate to achieve a goal of informing consumers about a particular product trait, assuming of course that the reason for informing consumers qualifies as an adequate interest." That court further elaborated that "[t]he self-evident tendency of a disclosure mandate to assure that recipients get the mandated information may in part explain why, where that is the goal, many such mandates have persisted for decades without anyone questioning their constitutionality." Similarly, the Second Circuit has observed in one case that "while the First Amendment precludes the government from restricting commercial speech without showing that 'the harms it recites are real and that its restriction will in fact alleviate them to a material degree,'" the First Amendment "does not demand 'evidence or empirical data' to demonstrate the rationality of mandated disclosures in the commercial context." Notwithstanding the suggestion that little evidence is required to show that a disclosure requirement is reasonably related to an appropriate government interest, lower courts have often relied on the government's evidence supporting the disputed requirement when they uphold the provision. This showing may be easiest where the government asserts an interest in preventing misleading speech, given "the self-evident tendency of a disclosure mandate to assure that recipients get the mandated information." Additionally, courts have sometimes held that commercial disclosure requirements fail even this lenient test for rationality, particularly where the government has asserted an interest other than preventing consumer confusion. For example, in National Association of Manufacturers v. SEC , the D.C. Circuit held that a provision requiring companies to disclose whether their products were "conflict free" violated the First Amendment. In defending this rule, the government asserted an interest in "ameliorat[ing] the humanitarian crisis in the [Democratic Republic of the Congo (DRC)]." In the court's view, however, the government had failed to demonstrate that its measure would achieve this interest. The D.C. Circuit observed that the government had "offered little substance beyond" statements by political officials to support "the effectiveness of the measure." The court assumed that the government's theory "must be that the forced disclosure regime will [lead to boycotts that] decrease the revenue of armed groups in the DRC and their loss of revenue will end or at least diminish the humanitarian crisis there." But in the view of the court, this theory could not justify the regulation, as the idea was "entirely unproven and rest[ed] on pure speculation." To take another example, the Third Circuit struck down a commercial disclosure requirement concerning attorney advertising in Dwyer v. Cappell . In that case, an attorney challenged a state regulation that prohibited attorneys from using quotations from judicial opinions in their advertising unless they presented "the full text" of those opinions. The state argued that such quotations were "inherently misleading because laypersons . . . would understand them to be judicial endorsements." The court, however, said that even assuming "that excerpts of judicial opinions are potentially misleading to some persons," the state had failed "to explain how [an attorney's] providing a complete judicial opinion somehow dispels this assumed threat of deception." The court reasoned that "providing a full judicial opinion does not reveal to a potential client that an excerpt of the same opinion is not an endorsement." Additionally, the court held that the disputed requirement was "unduly burdensome," as it "effectively rules out the possibility that [an attorney] can advertise with even an accurately quoted excerpt of a judicial statement about his abilities." And in the view of the Third Circuit, "that type of restriction—an outright ban on advertising with judicial excerpts—would properly be analyzed under the heightened Central Hudson standard of scrutiny." As Dwyer suggests, courts may strike down disclosure requirements under Zauderer if the requirement is "unduly burdensome." In NIFLA , the Supreme Court held that the unlicensed notice was likely unconstitutional because it "unduly burden[ed] protected speech," noting that it applied to all advertisements for these licensed facilities, regardless of their content. In particular, the majority opinion highlighted one hypothetical discussed at oral argument, noting that "a billboard for an unlicensed facility that says 'Choose Life' would have to surround that two-word statement with a 29-word statement from the government, in as many as 13 different languages." In this instance, the Court said, the notice would "drown[] out the facility's own message," and therefore be unduly burdensome. Heightened Standards: Central Hudson and Strict Scrutiny If a commercial disclosure requirement is not a factual and uncontroversial disclosure related to the speaker's goods or services under Zauderer , courts will likely apply a heightened standard of review. Under prevailing Supreme Court precedent, if a provision does not qualify for Zauderer 's reasonableness review, a court may review the challenged regulation under Central Hudson . As discussed above, Central Hudson established the general standard of review for government restrictions on commercial speech. The Supreme Court described "a four-part analysis:" At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest. The Court has described the Central Hudson test as "intermediate" scrutiny. If a disclosure requirement affects commercial speech but does not qualify for Zauderer review, courts have generally held that Central Hudson 's intermediate scrutiny applies. However, courts have sometimes suggested that some higher standard of review, more stringent than Central Hudson 's intermediate scrutiny, should apply to commercial disclosure requirements that do not qualify for review under Zauderer . Some lower court judges have concluded that because such disclosures compel particular speech and are by definition not content-neutral, they should be evaluated under strict scrutiny. In contrast to Central Hudson review, which requires the government to show that a law is "not more extensive than is necessary to serve" a "substantial" interest, strict scrutiny "requires the Government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest." The Supreme Court has suggested—but not squarely held—that at least some types of commercial disclosure requirements might be subject to some form of scrutiny more strict than Central Hudson . In NIFLA , the Supreme Court considered the constitutionality of state provisions requiring crisis pregnancy centers to make certain disclosures to clients and in their advertising. The Court suggested that the provision requiring licensed facilities to disseminate notices about state-provided services might be subject to strict scrutiny as a content-based regulation of speech, but concluded that it did not need to resolve that question because the notice could not "survive even intermediate scrutiny." Significantly, however, the NIFLA Court never described the licensed notice as involving commercial speech. In the decision below, the Ninth Circuit had held that the notice should not be subject to strict scrutiny because it regulated "professional speech." That court, like other federal courts of appeals, had recognized "speech that occurs between professionals and their clients in the context of their professional relationship" "as a separate category of speech that is subject to different rules." The Ninth Circuit had concluded that speech that was part of the practice of a profession could be regulated by the state, subject only to intermediate scrutiny. The Court rejected this idea, saying that the First Amendment does not encompass a tradition of lower scrutiny "for a category called 'professional speech.'" Ultimately, the Court said that it saw no "persuasive reason" to treat "professional speech as a unique category that is exempt from ordinary First Amendment principles." To the extent that "professional speech" could be seen to overlap with commercial speech, this sentence could be read to suggest that commercial speech should also be subject to "ordinary First Amendment principles." This suggestion would seem to conflict with prior cases saying that commercial speech occupies a "subordinate position in the scale of First Amendment values." Although the NIFLA Court implicitly suggested that disclosure requirements for professionals might constitute commercial speech by evaluating the FACT Act's requirements under Zauderer and Central Hudson , it never expressly clarified whether "professional speech" overlaps with commercial speech. Because the FACT Act's requirements applied outside of the advertising context, it may be open to some debate whether these licensed notices involved commercial speech. The unlicensed notice challenged in NIFLA was required to be included in advertising, and advertisements are "classic examples of commercial speech." But the unlicensed notice was also required to be posted on-site, and the state required licensed facilities to post disclosures on-site or to otherwise distribute the notice to clients directly. Further, in a similar context, at least one federal court of appeals concluded that a Baltimore ordinance requiring certain pregnancy centers to make specified disclosures regulated noncommercial speech. That court said the pregnancy centers were not motivated by economic interest or proposing a commercial transaction, but were instead "provid[ing] free information about pregnancy, abortion, and birth control as informed by a religious and political belief." If the licensed disclosures in NIFLA did not regulate commercial speech, then it would be unsurprising that the Court would consider applying strict scrutiny rather than Central Hudson . Others, however, have pointed out that crisis pregnancy centers, even if they do not charge fees, operate "in a marketplace where other providers generally charge fees," and argued that these centers "are engaged in commercial activity by providing physical and mental health services to pregnant women." And more generally, some have pointed out the similarities between "professional" and commercial speech. The fact that the NIFLA Court did not directly address the relationship between professional and commercial speech may suggest that heightened scrutiny may be necessary with respect to some commercial disclosure requirements. Specifically, the Court did not cite the commercial speech doctrine as "a persuasive reason for treating professional speech as a unique category that is exempt from ordinary First Amendment principles." At least one commentator has argued that the Court's failure to mention Central Hudson —"not even to dismiss it as . . . another inapposite exception to Reed 's general rule [of strict scrutiny]"—may suggest that the Court is seeking to limit Central Hudson 's holding that commercial speech may be more freely regulated than other speech under the First Amendment. Although NIFLA may not have expressly altered the framework used to evaluate commercial disclosure requirements, it may nonetheless signal that the Supreme Court will view them with more skepticism in the future. The majority opinion, authored by Justice Thomas, emphasized that "[t]he dangers associated with content-based regulations of speech are also present in the context of professional speech." Even if "professional speech" is not coterminous with "commercial speech," this statement does seem to suggest that the Court believes content neutrality principles are relevant in the commercial sphere. In dissent, Justice Breyer, viewing the majority opinion as adopting such a view, argued that the majority's approach, "if taken literally, could radically change prior law, perhaps placing much securities law or consumer protection law at constitutional risk." He pointed out that "[v]irtually every disclosure law could be considered 'content based,' for virtually every disclosure law requires individuals 'to speak a particular message.'" In response to Justice Breyer, the NIFLA majority stated that it did not "question the legality of health and safety warnings long considered permissible, or purely factual and uncontroversial disclosures about commercial products." This view echoed the Court's prior statement that "[p]urely commercial speech is more susceptible to compelled disclosure requirements." Following the Court's 2010 decision in Reed , in which the Court articulated a more "precise test to determine whether speech regulations are content based," many lower courts had rejected the idea that content-based requirements affecting only commercial speech should be subject to strict scrutiny, even if they otherwise discriminated based on content under Reed . But because NIFLA appeared to suggest that content neutrality is relevant in the commercial sphere, it seems reasonable to think that lower courts may now be more likely to conclude that strict scrutiny could apply to content-based commercial disclosure requirements. This would be consistent with what some commentators have described as the Court's increasingly heightened scrutiny of restrictions on commercial speech. For now, though, Central Hudson generally continues to govern the analysis of government actions affecting lawful, non-misleading commercial speech, including commercial disclosure requirements that do not qualify for Zauderer review. As discussed, Central Hudson requires that the government prove that its interest is "substantial," and that the regulation "directly advances" that interest and is "not more extensive than is necessary to serve that interest." Government regulations are more likely to fail this more rigorous standard than the Zauderer reasonableness standard, often because a court believes there is some less restrictive means available for the government to achieve its goals. Courts will require more "evidence of a measure's effectiveness" under Central Hudson , as compared to Zauderer . However, Central Hudson is more forgiving than strict scrutiny, and courts do uphold government actions infringing on commercial speech under Central Hudson . For example, in Spirit Airlines v. Department of Transportation , the D.C. Circuit concluded that a federal regulation governing the way that airlines must display flight prices "satisfie[d] . . . the Central Hudson test." In the court's view, "[t]he government interest—ensuring the accuracy of commercial information in the marketplace—[was] clearly and directly advanced by a regulation requiring that the total, final price be the most prominent" price displayed. And the regulation was "reasonably tailored to accomplish that end" because the rule "simply regulate[d] the manner of disclosure." Government actions are unlikely to be upheld if a court applies strict scrutiny. Nonetheless, some scholars have argued that many disclosure requirements might survive strict scrutiny, and the Supreme Court has, in rare instances, said that the government may "directly regulate speech to address extraordinary problems, where its regulations are appropriately tailored to resolve those problems without imposing an unnecessarily great restriction on speech." It is possible that a court could hold that the government has a compelling interest in protecting consumers, for example, and that particular disclosures are narrowly tailored to meet that interest. The Supreme Court has long emphasized that the government can regulate commercial activity "deemed harmful to the public." But a court would likely require more proof from the government under strict scrutiny and likely would not simply accept the government's allegations as "self-evident" under such review. Considerations for Congress Congress has enacted a wide variety of disclosure requirements, many of which arguably compel commercial speech. For example, the Securities and Exchange Act of 1934 sets out disclosure requirements for registering securities. Federal law, among a host of other food labeling requirements, requires "bioengineered food" to bear a label disclosing that the food is bioengineered. Direct-to-consumer advertisements for prescription drugs must contain a series of disclosures, including the drug's name and side effects. Certain appliances must contain labels disclosing information about their energy efficiency. Bills in the 115 th and 116 th Congresses have proposed additional disclosure requirements, including a bill that would require large online platforms to disclose any studies conducted on users for the purposes of promoting engagement, and a bill that would require public companies to disclose climate-related risks. Recent Supreme Court precedent suggests that the Court is more closely reviewing commercial disclosure requirements, perhaps moving away from a more deferential treatment of such provisions. In NIFLA , the Court held that a disclosure requirement was likely unconstitutional under Zauderer because the government had not presented sufficient evidence to justify the measure —even though in other cases, the Court had rejected similar challenges to commercial disclosure requirements, saying that the government did not need to present more evidence because the harm it sought to remedy was "self-evident." Further, the Court has recently suggested that if a law regulating commercial speech discriminates on the basis of content—as all disclosure requirements seemingly do —then this content discrimination might subject the law to heightened scrutiny. If the Court further embraces this view, it could be a marked departure from its opinions holding that commercial speech could be regulated on the basis of its content, so long as the government's justification for the content discrimination were sufficiently related to its legitimate interests in regulating the speech. In concurring and dissenting opinions that have been joined by other Justices, Justice Breyer has argued that insofar as the Court's recent decisions suggest that commercial disclosure requirements should be subject to heightened scrutiny, they are inconsistent with prior case law and are not a proper application of the First Amendment. The Supreme Court said in NIFLA that it was "not question[ing] the legality of health and safety warnings long considered permissible, or purely factual and uncontroversial disclosures about commercial products." And lower courts have frequently upheld commercial disclosure requirements, perhaps suggesting that disclosures of the kind cited by Justice Breyer are not in danger of wholesale invalidation under the First Amendment. However, the majority opinion in NIFLA did not clarify what kind of disclosures it would consider permissible, and its opinion made clear that disclosure requirements should be scrutinized in light of the speakers they cover and the burdens they pose. Moreover, although the NIFLA Court said that it was not questioning these disclosures' "legality," it left open the possibility that these disclosure should nonetheless be subject to heightened scrutiny. This statement may mean only that the Court believes that many commercial disclosure requirements would meet a higher standard of scrutiny. At least one federal appellate court seems to have taken NIFLA as a signal that lower courts should more closely scrutinize commercial disclosure requirements. In American Beverage Association v. City & County of San Francisco , the Ninth Circuit, sitting en banc , relied on NIFLA to reverse a prior decision that had upheld an ordinance requiring "health warnings on advertisements for certain sugar-sweetened beverages." While a panel of judges had previously concluded that the disclosure requirement was constitutional under Zauderer , the full Ninth Circuit, reviewing that decision, said: " NIFLA requires us to reexamine how we approach a First Amendment claim concerning compelled speech." Namely, the court held that, in light of NIFLA , the health warnings were likely unjustified and unduly burdensome under Zauderer , noting that the regulation required the warnings to "occupy at least 20% of those products' labels or advertisements"—but that the record showed that "a smaller warning—half the size—would accomplish [the government's] stated goals." As such, the court held that the warnings violated the First Amendment "by chilling protected speech." Accordingly, when Congress and federal agencies consider adopting new commercial disclosure requirements, or reauthorizing old ones, it may be wise to develop a record with more evidence demonstrating a need for the regulation. Under any level of scrutiny, courts will examine the government's asserted purpose for the legislation, as well as how closely tailored the disclosure requirement is to achieve that purpose. Under Zauderer , particularly in light of NIFLA , courts may ask for evidence to support the government's claim that the regulated speech is misleading or that the government has some other interest in regulating that speech, and will likely scrutinize the disclosure requirement to make sure it is not unduly burdensome. Under intermediate scrutiny or strict scrutiny, a court may also ask whether the government considered alternative policies that would be less restrictive of speech, examining more closely the government's justifications for choosing a disclosure requirement.

Federal law contains a wide variety of disclosure requirements, including food labels, securities registrations, and disclosures about prescription drugs in direct-to-consumer advertising. These disclosure provisions require commercial actors to make statements that they otherwise might not, compelling speech and implicating the Free Speech Clause of the First Amendment. Nonetheless, while commercial disclosure requirements may regulate protected speech, that fact in and of itself does not render such provisions unconstitutional. The Supreme Court has historically allowed greater regulation of commercial speech than of other types of speech. Since at least the mid-1970s, however, the Supreme Court has been increasingly protective of commercial speech. This trend, along with other developments in First Amendment law, has led some commentators to question whether the Supreme Court might apply a stricter test in assessing commercial disclosure requirements in the near future. Nonetheless, governing Supreme Court precedent provides that disclosure requirements generally receive lesser judicial scrutiny when they compel only commercial speech, as opposed to noncommercial speech. In National Institute of Family and Life Advocates v. Becerra, a decision released in June 2018, the Supreme Court explained that it has applied a lower level of scrutiny to compelled disclosures under two circumstances. First, the Supreme Court has sometimes upheld laws that regulate commercial speech if the speech regulation is part of a larger regulatory scheme that is focused on conduct and only incidentally burdens speech. If a law is properly characterized as a regulation of conduct, rather than speech, then it may be subject to rational basis review, a deferential standard that asks only whether the regulation is a rational way to address the problem. However, it can be difficult to distinguish speech from conduct, and the Supreme Court has not frequently invoked this doctrine to uphold laws against First Amendment challenges. Second, the Supreme Court has sometimes applied a lower level of scrutiny to certain commercial disclosure requirements under the authority of a 1985 case, Zauderer v. Office of Disciplinary Counsel. In Zauderer, the Court upheld a disclosure requirement after noting that the challenged provision compelled only "factual and uncontroversial information about the terms under which . . . services will be available." The Court said that under the circumstances, the service provider's First Amendment rights were sufficiently protected because the disclosure requirement was "reasonably related" to the government's interest "in preventing deception of consumers." Lower courts have generally interpreted Zauderer to mean that if a commercial disclosure provision requires only "factual and uncontroversial information" about the goods or services being offered, it should be analyzed under rational basis review. If a commercial disclosure requirement does not qualify for review under Zauderer, then it will most likely be analyzed under the intermediate standard that generally applies to government actions that regulate commercial speech. Some legal scholars have argued that recent Supreme Court case law suggests the Court may subject commercial disclosure provisions to stricter scrutiny in the future, either by limiting the factual circumstances under which these two doctrines apply or by creating express exceptions to these doctrines. If a court applies a heightened level of scrutiny, it may require the government to present more evidence of the problem it is seeking to remedy and stronger justifications for choosing a disclosure requirement to achieve its purposes.

GAO_GAO-19-77

Background Human trafficking exploits individuals and often involves transnational criminal organizations, violations of labor and immigration codes, and government corruption. Many forms of trafficking—including sex trafficking and labor trafficking—can take place anywhere in the world and occur without crossing country boundaries. As discussed in State’s annual Trafficking in Persons Report, trafficking victims include, for example, Asian and African women and men who migrate to the Persian Gulf region for domestic labor but then suffer both labor trafficking and sexual abuse in the homes of their employers. Some victims are children. For example, Pakistani children as young as 5 years are sold or kidnapped into forced labor to work in brick kilns, some of which are owned by government officials. Other victims are subjected to sexual exploitation. In some cases, women and girls have been bought and sold as sex slaves by members of the Islamic State. In other cases, adult men and women have been forced to engage in commercial sex, and children induced to do the same. Individuals, including men, are exploited in forced labor in a variety of industries. Burmese men, for example, have been forced to labor 20 hours a day, 7 days a week on fishing boats in Thailand. See figure 1 for examples of victims of trafficking in persons. Among other U.S. agencies involved in counter-trafficking in persons, State, DOL, USAID, DOD, and Treasury have various roles and responsibilities related to international counter-trafficking in persons, including some internationally-focused programs and activities that do not involve awards made to implementing partners, as follows: State. State leads the global engagement of the United States, and supports the coordination of efforts across the U.S government in counter-trafficking in persons. State’s Office to Monitor and Combat Trafficking in Persons (TIP Office), established pursuant to the Trafficking Victims Protection Act of 2000, is responsible for bilateral and multilateral diplomacy, targeted foreign assistance, and public engagement on trafficking in persons. The office also prepares and issues an annual Trafficking in Persons Report that assesses the counter-trafficking efforts of governments and assigns them tier rankings. Furthermore, the TIP Office develops annual regional programming strategies, awards projects to implementing partners and oversees the project award process, and provides technical assistance to implementing partners. Other parts of State, including regional bureaus that cover geographic regions and functional bureaus that cover global issues such as human rights, are also responsible for work related to combating trafficking in persons. DOL. Within DOL, the Bureau of International Labor Affairs’ (ILAB) Office of Child Labor, Forced Labor, and Human Trafficking (OCFT) conducts research, publishes reports, and administers projects awarded to implementing partners on international child labor, forced labor, and trafficking in persons. ILAB’s reports include the annual Findings on the Worst Forms of Child Labor report, which assesses the efforts of approximately 140 countries and territories to eliminate the worst forms of child labor in the areas of laws and regulations, institutional mechanisms for coordinating and enforcement, and government policies and programs. ILAB also reports on the List of Goods Produced by Child Labor or Forced Labor showing goods and their source countries which ILAB has reason to believe are produced by child labor or forced labor in violation of international standards. USAID. USAID administers projects awarded to implementing partners that address counter-trafficking in persons, including increased investments in conflict and crisis areas, and integrating such projects into broader development projects. USAID field missions manage the majority of these counter-trafficking activities through projects that address trafficking challenges specific to the field mission’s region or country. USAID’s Center of Excellence on Democracy, Human Rights and Governance (DRG Center) in Washington, D.C. is responsible for oversight of USAID’s counter- trafficking policy. The DRG Center is responsible for coordinating and reporting on USAID-wide counter-trafficking in persons efforts; oversees the implementation of USAID’s counter-trafficking in persons policy in collaboration with regional bureaus and country missions; works with regional bureaus and country missions to gather counter- trafficking best practices and lessons learned; provides technical assistance and training to field and Washington-based staff on designing, managing, and monitoring and evaluating trafficking in persons projects; and conducts and manages research and learning activities related to combating trafficking in persons to collect data to inform the design of field projects. DOD. DOD’s Combating Trafficking in Persons Program Management Office, under the Under Secretary of Defense for Personnel and Readiness in the Defense Human Resources Activity, develops trafficking awareness and training material for all DOD components. On December 16, 2002, the President signed National Security Presidential Directive 22, which declared the United States had a zero tolerance policy for trafficking in persons. The Combating Trafficking in Persons Program Management Office is responsible for overseeing, developing, and providing the tools necessary for implementing National Security Directive 22 within DOD. The office has developed several different training programs, designed to provide an overview of trafficking in persons (including signs of trafficking, key policies and procedures, and reporting procedures), as well as awareness materials for distribution to DOD components and defense contractors overseas. Treasury. Treasury has activities, but not specific programs, that may support wider U.S. efforts to address counter-trafficking in persons, according to Treasury officials. Pursuant to its mandate, components of Treasury’s Office of Terrorism and Financial Intelligence (TFI), including Financial Crimes Enforcement Network (FinCEN), Office of Terrorist Financing and Financial Crimes (TFFC), and Office of Foreign Assets Control (OFAC) work on addressing illicit finance activities that support the wider goal of combating global trafficking in persons. Pursuant to the Trafficking Victims Protection Act of 2000, the President established the President’s Interagency Task Force to Monitor and Combat Trafficking in Persons (PITF), which is a cabinet-level entity that consists of agencies across the federal government responsible for coordinating implementation of the Trafficking Victims Protection Act of 2000, among other activities. It is chaired by the Secretary of State; State, DOL, USAID, DOD, and Treasury are all PITF agencies. In addition, the Trafficking Victims Protection Act, as amended in 2003, established the Senior Policy Operating Group, which consists of senior officials designated as representatives of the PITF agencies. During Fiscal Year 2017, State, DOL, and USAID Managed 120 Counter- Trafficking in Persons Projects State, DOL, and USAID managed 120 projects in counter-trafficking in persons carried out by implementing partners during fiscal year 2017, according to information provided by officials with these agencies. These projects, as identified by agency officials, ranged from those focused on counter-trafficking in persons, to those in which counter-trafficking in persons was integrated into but was not the primary goal of the project. At these agencies, project officers work with the implementing partner on the administration and technical guidance of the project, such as reviewing progress reports. Table 1 shows a summary of these agencies’ project information; appendix II provides more detailed information on all 120 projects. During fiscal year 2017, State managed 79 counter-trafficking projects, from those focused on individual countries, to regional and global ones that covered several countries, with a total award amount of approximately $62 million, according to information provided by State officials. State TIP Office managed 75 projects with total awarded amount of around $57 million. Award amounts per project ranged from approximately $150,000 to $2.55 million. For example, State TIP Office had 11 global projects totaling about $10 million and 6 regional projects in Africa amounting to about $4 million. State TIP Office had two projects in Ghana that received the highest amount of awards, approximately $2.5 million for each project. State TIP Office had four projects in India amounting to around $3 million, and four in Thailand totaling around $2.35 million. In addition to State TIP Office’s projects, State’s Bureau of Democracy, Human Rights, and Labor (DRL) managed four counter-trafficking projects with a reported total award amount of about $5 million, with two projects in Mauritania making up around 70 percent of DRL’s total awarded amount. DOL’s ILAB/OCFT managed six projects in fiscal year 2017 with a total award amount of approximately $31 million, according to DOL officials. These projects ranged from one scheduled to last for 5 years with an awarded amount of about $1 million, to one scheduled to last for about 4 years with an awarded amount of about $14 million. Three of DOL’s projects were global projects, while two others focused on two countries each and one project focused on one country. USAID’s projects during fiscal year 2017 consisted of 2 regional projects in Asia, and 33 individual projects in 22 different countries. Some of these USAID-identified projects were integrated projects with a broader development focus that includes USAID programmatic objectives other than counter-trafficking in persons. According to information provided by USAID officials, the award amount for all counter-trafficking in persons projects active in fiscal year 2017, including all integrated projects and standalone projects with a sole focus on combatting trafficking in persons, totaled around $296 million; and USAID’s committed funding to these projects’ activities related to counter-trafficking in persons was about $79 million as of September 2018. During fiscal year 2017, USAID focused on a few countries where the agency awarded multiple counter-trafficking projects, such as four projects in Nepal and four projects in Burma. According to officials, State, DOL, and USAID generally design projects to align with the “3Ps approach”—prevention, protection, and prosecution— and to consider trends and recommendations identified in agency reports on foreign governments’ counter-trafficking efforts. According to State’s publicly available information, the “3Ps” approach serves as the fundamental counter-trafficking in persons framework used around the world, and the U.S. government follows this approach to 1. prevent trafficking in persons through public awareness, outreach, education, and advocacy campaigns; 2. protect and assist victims by providing shelters as well as health, psychological, legal, and vocational services; and 3. investigate and prosecute trafficking in persons crimes by providing training and technical assistance for law enforcement officials, such as police, prosecutors, and judges. State’s publicly available information on the 3Ps noted that prevention, protection, and prosecution efforts are closely intertwined. Prosecution, for example, can function as a deterrent, potentially preventing the occurrence of human trafficking. Likewise, protection can empower those who have been exploited so that they are not victimized again once they re-enter society. A victim-centered prosecution that enables a survivor to participate in the prosecution is integral to protection efforts. In addition to the “3Ps,” a “4th P”—for partnership—serves as a complementary means to achieve progress across the “3Ps” and enlist all segments of society in the fight against human trafficking, according to State’s publicly available information. Addressing the partnerships element, USAID’s counter-trafficking policy seeks to increase coordination across a broad range of national, regional, and global stakeholders from civil society, government, the private sector, labor unions, media, and faith-based organizations. DOL and USAID Fully Documented Their Monitoring Activities for All Selected Projects, but State Did Not Fully Document Its Activities for 16 of 37 Selected Projects State, DOL, and USAID Use Similar Tools to Monitor Performance of Their Counter-Trafficking in Persons Projects Monitoring is the collecting of data to determine whether a project is being implemented as intended and the tracking of progress through preselected performance indicators during the life of a project. State, DOL, and USAID use a number of similar tools—according to their current policies, guidance, and agency officials—to monitor the performance of their counter-trafficking in persons projects, including monitoring plans, indicators and targets, periodic progress reports, and final progress reports. The agencies also conduct site visits, but their policies vary on whether site visits are required for every project during implementation. Monitoring plan. The monitoring plan—according to monitoring policies of the three agencies—documents, among other things, all of the indicators and targets for the project as well as data collection frequency for each indicator. In addition, according to State TIP Office officials, the monitoring plan’s indicators and targets for TIP Office- managed counter-trafficking in persons projects are to be organized in a logic model, which is a visual representation that shows the linkages among the project’s goals, objectives, activities, outputs, and outcomes (see table 2). The logic model is intended to show relationships between what the project will do and what changes it expects to achieve. Indicators and Targets. Performance indicators—according to monitoring policies of the three agencies—are used to monitor progress and measure actual results compared to expected results. Targets are to be set for each performance indicator to indicate the expected results over the course of each period of performance. According to agency officials, the monitoring plan documents indicators and targets to be tracked and reported on through periodic progress reports to assess whether the project is likely to achieve the desired results. GAO has also found that a key attribute of effective performance measures is having a measurable target. Periodic progress reports. The reporting templates for the three agencies show that periodic progress reports—which are submitted at established intervals during the project’s implementation—compare actual to planned performance and indicate the progress made in accomplishing the goals and objectives of the project, including reporting on progress toward the monitoring plan’s indicator targets. Final progress report. The final progress report—according to monitoring policies of the agencies or agency officials—is a stand- alone report that provides a summary of the progress and achievements made during the life of the project. Site Visits. The three agencies policies vary on whether site visits are required for every project during implementation. For example, State’s policy notes that site visits may be conducted to review and evaluate recipient records, accomplishments, organizational procedures, and financial control systems, as well as to conduct interviews and provide technical assistance as necessary. In 2015, the State TIP Office established a goal to conduct at least one site visit during the life time of every project. While site visits during a project’s implementation are not required under DOL’s policy, DOL officials explained that they use site visits when deemed necessary to supplement information from other forms of oversight. USAID’s policy requires that a site visit be conducted for every project during implementation to provide activity oversight, inspect implementation progress and deliverables, verify monitoring data, and learn from activity implementation. In addition to these monitoring tools, State, USAID, and DOL officials told us that they rely on frequent communication with implementing partners as part of their monitoring process. Overall, monitoring is intended to help agencies determine whether the project is meeting its goals, update and adjust interventions and activities as needed, and ensure that funds are used responsibly. DOL and USAID Fully Documented Their Monitoring Activities for Selected Projects, while State Did Not We found, based on our review of 54 selected counter-trafficking in persons projects (37 State, 3 DOL, and 14 USAID), that DOL and USAID had fully documented their performance monitoring activities, while State did not fully document its activities for 16 of 37 (43 percent) of the projects we reviewed with project start dates between fiscal years 2011 to 2016. DOL’s documented monitoring activities included the monitoring plan for each project as well as fiscal year 2017 semi-annual progress reports, including indicators and targets. USAID’s documented monitoring activities included the monitoring plan for each project; fiscal year 2017 progress reports at the reporting frequency specified in the agreements for each project; the final progress report, including indicators and targets, for the three projects that ended as of December 2017; and evidence that at least one site visit was conducted during each project’s implementation. Overall, the three agencies reported having conducted at least one site visit during the life time of the project for 47 of 54 (87 percent) of the selected projects. As shown in table 3, State did not fully document its monitoring activities (monitoring plan; fiscal year 2017 quarterly progress reports; and final progress report, including indicators and targets, for projects that ended as of December 2017) for 16 of the 37 selected projects we reviewed. Specifically, State did not have nine monitoring plans, five complete progress reports, or targets for each indicator in six of seven final progress reports for projects that ended as of December 2017. (See appendix III for detailed information on each of the 37 projects.) For the nine projects for which the monitoring plan was not documented, the State TIP Office indicated that it was unable to locate these documents or they were not completed because the projects were finalized when the TIP Office was beginning to institute the monitoring plan requirement. Although TIP Office officials told us that the TIP Office piloted and began to phase in the monitoring plan requirement over the course of 2014 and early 2015, eight of the nine projects without monitoring plans started in September or October 2015. We found that each of the nine projects had a logic model used to report progress in the fiscal year 2017 quarterly progress reports we reviewed, which would have provided TIP Office officials a basis for monitoring project performance at that point. However, federal standards for internal control call for agency management to design monitoring activities so that all transactions are completely and accurately recorded and so that management can evaluate project results. Specifically, internal controls specify that monitoring should be ongoing throughout the life of the project, which is consistent with State’s current policy that generally requires completion of the monitoring plan prior to award. Without timely documentation of the monitoring plans at the start of the project, TIP Office officials may not be able to ensure that projects are achieving their goals, as intended, from the beginning of project operations. For the three projects for which the quarterly progress report for the first quarter of fiscal year 2017 had been partially completed, the State TIP Office indicated that the implementing partners began to use the TIP Office’s quarterly reporting template for subsequent reports after TIP Office officials instructed the implementing partner to do so. For the one project where the quarterly progress report was not completed for the third quarter of fiscal year 2017, or partially completed for the fourth quarter of fiscal year 2017, the project officer provided possible reasons why the documents were not in the project’s file, including that the implementing partner lacked the capacity to design a logic model. The project ended December 31, 2017. Federal standards for internal control call for agency management to design monitoring activities, such as performance reporting, so that all transactions are completely and accurately recorded, and project results can be continuously evaluated. As previously discussed, performance progress reports should compare actual to planned performance and indicate the progress made in accomplishing the goals and objectives of the project. Therefore, the TIP Office may lack information needed to assess project performance if it does not have access to complete monitoring documentation. For the six projects for which targets were not fully documented in the final progress reports, we found that targets were lacking for 110 of 253 (43 percent) of indicators across the six final progress reports. Our prior work on performance measurement identified 10 key attributes of performance measures—such as having a measurable target—that GAO has found are key to successfully measuring a project’s performance. For example, our prior work has shown that numerical targets or other measurable values facilitate future assessments of whether overall goals and objectives are achieved because comparisons can be easily made between projected performance and actual results. State TIP Office officials explained that the final progress reports we reviewed lacked targets because the TIP Office had not required targets for each indicator for the projects we reviewed that started in fiscal years 2011 to 2016. State TIP Office officials also said that project officers may not have set targets due to limited resources in previous years. A lack of actual targets limits the TIP Office’s ability to assess project performance, including effectiveness, and determine if implementation is on track or if any timely corrections or adjustments may be needed to improve project efficiency or effectiveness. According to State TIP Office officials, the TIP Office has taken steps to improve its documentation of monitoring activities, such as instituting a monitoring plan requirement; increasing staff, including hiring a monitoring and evaluation specialist; and developing standard templates for implementing partners to use for reporting. Moreover, in November 2017, State established a new policy asserting that, building on the logic model or project charter, bureaus and independent offices must set targets for each performance indicator to indicate the expected change over the course of each period of performance. It further notes that bureaus and independent offices should maintain documentation of project design, including the logic model. Additionally, State TIP Office officials said that State is developing a department-wide automated information management system (State Assistance Management System - Domestic, or SAMS-D) that officials expect to standardize entry of performance information and, under the new system targets, must be recorded for each indicator. State TIP Office officials have worked to pilot- test SAMS-D to provide feedback on the system, including suggestions to improve the completeness of data collection, according to TIP Office officials. Despite these efforts, the TIP Office’s documentation of all monitoring activities, and implementation of its November 2017 requirement to set targets for all performance indicators, is uncertain. For example, even though the TIP Office informed us that it began to institute a monitoring plan requirement over the course of 2014 and early 2015, as previously noted, eight projects we reviewed that started in September or October 2015 did not have monitoring plans. In addition, according to State officials, in SAMS-D, targets could be recorded as “to be determined” and there are no controls in place to ensure that “to be determined” entries are replaced with actual targets. State officials said that SAMS-D has the capability to implement controls to alert users to update “to be determined” targets, but pilot users of SAMS-D, which include the TIP Office, have not provided feedback for this capability so far. Furthermore, State TIP Office officials informed us that the TIP Office cannot require all implementing partners to set targets, but that the TIP Office aspires to update relevant targets regularly in the future and would encourage implementing partners to update target values when appropriate. Without controls to ensure full documentation of monitoring activities and established performance targets, State is limited in its ability to assess project performance, including project efficiency or effectiveness. State and USAID Do Not Have Sufficient Controls to Ensure the Reliability of Project Information, while DOL Had Consistent and Complete Performance Information in the Project We Reviewed In our review of selected indicators in two State TIP Office and two USAID projects, we found that State and USAID used inconsistent and incomplete performance information to monitor these projects. We found that State TIP Office and USAID do not have sufficient controls in place to ensure that the performance information they use is reliable. In contrast, we found that DOL had consistent and complete performance information in a project we reviewed, and we identified no controls in DOL’s process that were insufficient for assuring the reliability of this information. State and USAID Projects We Reviewed Showed Inconsistent and Incomplete Performance Information For selected indicators in two State TIP Office and two USAID projects, we found numerous errors or omissions in progress reports we reviewed, which resulted in inconsistent and incomplete performance information agencies used to monitor these projects. Specifically, we found examples of inconsistent information, which included many instances in which quarterly indicator totals differed from annual or cumulative totals reported separately on the same projects, and numbers reported in narrative information that differed from numbers reported as indicator values. In addition, we found examples of incomplete information, including narrative elements that were missing in whole or in part. Inconsistent Performance Information. We found numerous instances in which quarterly totals differed from annual or cumulative totals reported separately on the same projects. When these errors occurred, it was not possible to independently determine project performance based on report information. For example, For one State TIP Office project, reported cumulative progress overstated quarterly progress for at least 11 indicators (3 of which by 25 percent or more) and understated quarterly progress for at least 5 indicators (once by 25 percent or more). For example, for the indicator “number of standardized reintegration protocols/guidelines/tools developed (case forms, family assessment, etc.,)” State’s cumulative performance report as of the 4th quarter of fiscal year 2017 indicated that two tools had been developed, whereas quarterly reports showed that only one had been developed. For one USAID project, the indicator “number of assisted communes allocating and accessing funds for trafficking in persons prevention activities” showed that annual results were 60, while quarterly report data combined showed that the number was 6, which USAID officials confirmed was the correct figure. For another USAID project, the indicator, “number of food security private enterprises (for profit), producers organizations, water users associations, women’s groups, trade and business associations, and community-based organizations receiving U.S. government assistance” showed an annual result of one, while quarterly totals combined showed a total of three, which USAID officials confirmed was the correct figure. For the projects we reviewed, implementing partners produced narrative descriptions of progress made to accompany indicator results. We found cases in which numbers reported in narrative information were not consistent with numbers reported as indicator values. For example, for the State TIP Office indicator “number of criminal justice practitioners trained” for one project, indicator results for two quarters differed from results presented in the corresponding narrative during fiscal years 2016 to 2017. State officials found that the narrative information was correct for one of these inconsistencies and the indicator result was correct for the other. In addition, for one USAID indicator—number of public awareness tools on trafficking in persons developed and disseminated—the narrative report for one quarter described distributions that added up to 21,765 products, while the reported quantitative indicator total was 21,482. USAID officials confirmed that 21,765 was the correct figure. Incomplete Performance Information. Additionally, some quarterly reports had narrative elements that were incomplete in whole or in part, which made independent interpretation of project performance difficult or impossible. The implementing partner in one State TIP Office project copied and pasted significant portions of narrative information in quarterly reports for 2 years and, according to State TIP Office officials, did not fulfill a request by State TIP Office to include only current quarterly information in formal quarterly reports because it was focused on other activities. For nearly the entire period, the implementing partner indicated that it was “following up” with government entities in three countries to set up counter-trafficking in persons training for government officials, but no indication was made in formal quarterly reports about the results of any of these follow-up activities. For one State TIP Office project, the indicator “number of children receiving care, whose cases are reported to the police” had no narrative information or incomplete narrative information provided for three of the four quarters in which activity occurred during our period of review (comprising almost 90 percent of reported performance under this indicator). For a USAID project, the implementing partner reported a combined performance number of approximately 200 from the first through third quarters of fiscal year 2017 for the indicator “number of members of producer organizations and community based organizations receiving U.S. government assistance.” However, annual performance for fiscal year 2017 was reported as nearly 1,700 organizations. USAID officials explained that this difference was the result of the implementing partner’s misinterpretation of the indicator’s definition when producing the quarterly reports, but the annual report narrative did not explain this correction. Additionally, for USAID’s indicator on the “number of public awareness tools on trafficking in persons developed and disseminated,” no narrative information in the quarterly or annual reports explained how the last quarter of fiscal year 2016 performance approximately doubled from that of the previous quarter. Narrative information in the annual report described performance for the year only in general terms and did not clarify this significant change. In addition to direct project oversight, State TIP Office and USAID officials stated that performance information from progress reports that the agencies use to monitor counter-trafficking in persons projects is regularly used for internal and external reporting, program decisions, and lessons learned. For example, according to officials, this information is used by senior agency officials to inform their decision-making, in reports such as the Attorney General’s Annual Report to Congress and Assessment of U.S. Government Activities to Combat Trafficking in Persons, and to fulfil other requests from Congress. Neither State TIP Office nor USAID Has Sufficient Controls to Ensure the Reliability of Performance Information Neither State TIP Office nor USAID has sufficient controls to ensure consistent and complete performance information, and both face challenges to data reliability stemming from information reported in non- standard formats, implementing partners with limited capacities to report performance information, and the time-consuming nature of reviewing reported information. Federal internal control standards state that management should obtain data from reliable internal and external sources. According to these standards, reliable internal and external sources should provide data that are reasonably free from error and bias and faithfully represent what they purport to represent; and management should evaluate both internal and external sources of data for reliability. Without implementing additional controls to ensure that performance information are consistent and complete, State and USAID officials may not fully or accurately understand what projects are, or are not, achieving and, therefore, how their efforts could be altered as needed. Further, reports that are prepared or program decisions that are made using the TIP Office monitoring reports could be based on inconsistent or incomplete information that does not accurately present project results. State Lacks Adequate Controls to Ensure the Reliability of Performance Information State TIP Office currently receives performance information using documents submitted by implementing partners, although this information is not compiled into a single data system and is not in a standardized format. While State provides suggested templates for reporting information, officials said that they cannot require implementing organizations to use these templates and we found that implementing partners provided information in varying formats. According to State TIP Office officials, project officers perform manual reviews of quantitative information in monitoring reports but have insufficient time to carry out detailed reviews of data reliability for all indicators. State TIP Office project officers also stated that the process of comparing narrative information to indicator information was time consuming and difficult. According to these officials, the quality of the information in progress reports also depends on the priorities and resources—which can be limited—of the implementing partner. In addition to reviewing progress reports, State project officers we spoke to said that they rely on site visits and frequent, less formal communication as part of their oversight process. Project officers for the State TIP Office projects we reviewed stated that they did not always examine performance trends over time or review consistency in reported cumulative totals—which should be the sums of the previous and current quarters’ reported results—with quarterly totals, for reasons including the difficulty in assembling quarterly information in this manner and resource limitations. State TIP Office officials noted that they are aware of data quality problems in counter-trafficking in persons monitoring reports. State is developing SAMS-D, a system that officials expect to standardize entry of information from common performance indicators and logic models, according to State officials. These officials stated that if SAMS-D is deployed, State TIP Office could find it easier to analyze and revise logic models that implementing partners submit, as well as examine performance indicator results over time, since standardized data would be available in a centralized location. According to State officials, SAMS-D could be programmed with automatic checks or alerts under conditions defined by the TIP Office and the database programmer. For example, the system could require that fields be filled out in particular formats or provide an alert if performance under a certain indicator has significantly deviated from prior quarters or the indicator’s target. State TIP Office officials said they were uncertain whether SAMS-D would become operational in 2019, as currently planned. According to officials, State TIP Office has participated in planning and pilot activities for SAMS- D, including testing monitoring tools with implementing partners. According to these officials, additional work is needed to develop rules and controls necessary to operationalize SAMS-D to meet the TIP Office’s particular needs and ensure improved data. Another challenge to implementation of SAMS-D, according to these officials, is that some implementing partners are unable to maintain consistent internet connections necessary to upload information, impeding full roll-out of the system, and an alternative upload mechanism does not yet exist. USAID Lacks Adequate Controls to Ensure the Reliability of Performance Information According to USAID officials, overseas missions currently set many of their own policies and procedures for data quality oversight. For the two projects we reviewed, USAID relied on implementing partners to manage information, while it reviewed this information in addition to conducting site visits and communicating with implementing partners on a regular basis to monitor the projects. USAID officials attributed errors in the project reports we reviewed to factors including implementing partners’ errors in manual computation and misunderstandings of indicator definitions. According to USAID officials, data quality errors due to factors such as transcription errors can also occur in the performance information USAID uses to monitor counter-trafficking in persons projects. USAID project officers for the projects we reviewed said that they regularly conducted manual analysis of information received from implementing partners, but USAID and implementing partners are often pressed for time during the quarterly reporting cycle. According to these project officers, some of the errors GAO found had already been identified by USAID implementing partners during their annual review process and corrected in the annual reports we reviewed. For example, for the USAID indicator “value of new private sector investments in select value chains,” quarterly totals overstated corrected annual results by more than $120,000—approximately $170,000 instead of approximately $50,000. USAID officials said that they and the implementing partner had identified that the implementing partner was incorrectly including additional, unrelated data when producing its quarterly totals and while the annual total had been corrected to approximately $50,000, the annual report did not indicate that this error had occurred in the quarterly reports. USAID officials noted that the quality of the information in the progress reports also depends on the experience and capacity—which can be limited—of the implementing partner. According to USAID officials, USAID is currently building the Development Information Solution (DIS), an agency-wide information system that would provide USAID’s operating units (such as headquarters bureaus or field missions) with a tool to better collect, track, and analyze information to improve how they manage their projects and overall strategies. Implementing partners would be able to access the DIS via a portal where they would directly enter project information and upload reports and supporting information, according to this official. In addition, this information would better inform USAID’s decision-making at the operating unit level and agency level. A USAID official explained that USAID developed DIS partly as a result of USAID senior management’s concern about the lack of one corporate system to collect data in a timely fashion and improve efficiency. A USAID official responsible for managing DIS informed us that the business case for DIS was approved in fiscal year 2016. Developers have regularly solicited input from across the agency, according to this official, and a pilot with six missions is expected to begin in November 2018. This official explained that USAID plans to have DIS operational by the end of 2019, but DIS’s timeframe has been accelerated by a year, to 2019 from 2020, which may create programming and budget challenges, and unexpected challenges may also arise during the pilot process as mission needs for DIS are more fully assessed. USAID is currently developing training, deployment, and communications plans to prepare the agency for implementing DIS, according to officials. DOL Had Consistent and Complete Performance Information for the Selected Project and We Identified No Controls Insufficient to Ensure the Reliability of Performance Information We reviewed selected indicators and targets information in one DOL project and identified no significant consistency or completeness issues beyond early project stages. For example, for the indicator “number of countries that ratify the International Labor Organization Protocol on Forced Labor,” the October 2016 report contained no reported value for this indicator, while the subsequent report (April 2017) updated this figure to indicate a value of “4” for October 2016. DOL officials explained that a data reporting form had not yet been developed as of October 2016, but indicator performance was discussed in the October 2016 narrative and added to the data reporting form when it was developed. While DOL does not require that a project progress report discuss every indicator associated with an activity in the performance report narrative, according to officials, we found that explanations were present for every significant performance-related event that we identified for the fiscal year 2016 and fiscal year 2017 period. We did not identify any controls in DOL’s process that were insufficient to ensure the reliability of performance monitoring information. DOL officials said that they use a system of spreadsheets with automated calculations and validation checks that are intended to standardize information submission and assure consistency and completeness of submitted information. These officials said that the project’s Comprehensive Monitoring and Evaluation Plan defines rules for how information for indicators is to be collected and how indicators are to be computed from this information. According to these officials, DOL develops a customized indicator reporting form for each project in conjunction with implementing partners, which implementing partners complete as part of their regular reporting requirements. According to these officials, these spreadsheets contain formula checks to mitigate the risk of implementing partners making undisclosed changes to indicator results and array information in a standardized manner across reporting periods. Officials also commented that for internal reporting purposes, such as the Government Performance and Results Act, project officers can extract information from indicator templates in a manner that is not overly burdensome. According to officials, DOL is developing an enhancement to existing tools, expected in late 2019, which will provide a traceable way to send and receive reports from grant recipients; timestamps when reports are sent, received, and accepted; and tracking of performance monitoring communications between DOL and implementing partners. They plan to continue to use a spreadsheet-based system for tracking indicator information. State Does Not Have a Process to Ensure that All Performance Indicators are Useful, while USAID and DOL Have Established Processes to Regularly Review the Usefulness of Indicators State TIP Office Does Not Have a Process to Review All Indicators to Ensure Their Usefulness State TIP Office does not have a process to regularly review the number and content of indicators for counter-trafficking in persons projects to ensure that these indicators are useful and that collecting and reviewing information for them is not overly burdensome. State TIP Office officials acknowledged there are too many indicators for many counter-trafficking in persons projects. Project officers have the discretion to revise indicators if the scope of the project is not altered, according to State officials. In addition, according to these officials, changes that alter the project scope are possible with the consent of the implementing partner. However, State TIP Office project officers do not formally indicate which indicators they have determined are most useful and informed us that they have insufficient time and resources to do so as projects progress. One official who focuses on monitoring issues stated that, ideally, there should be three to five indicators per activity, and efforts have been made to reduce the number of indicators in some projects. For example, in one of the State TIP Office projects we reviewed—which was designed prior to the hiring of this official—had more than 230 indicators across 20 activities as of the first quarter of fiscal year 2017, which had been reduced to about 150 by the fourth quarter of fiscal year 2017. Our review of two State TIP Office projects showed that indicators did not change in some situations even when the project officer considered the indicator to have become less relevant. State project officers explained that, instead of only relying on indicator information, they regularly spoke with implementing partners for an understanding of what performance level to expect. While acknowledging errors in the numerical information for some indicators, project officers for the two projects we reviewed said that they sometimes overlooked reviews of all reported indicators in the quarterly progress reports because they consider some indicators to be less useful or unimportant and not needed for monitoring purposes, and burdensome to review in depth. These officials said that project officers focus on the indicators that they consider to be most important for project oversight or congressional requests. State TIP Office officials said that logic models, which include indicators, have improved significantly in recent years (including improvements to the suggested logic model template and the glossary of definitions), partly due to hiring additional monitoring staff, but that State has found the analysis of logic models to be difficult because of the absence of centralized and standardized information and a lack of staff capacity. In addition, project officers stated that they often rely on implementing partners for suggestions with regard to changing indicators. However, according to State officials, these implementing partners may be reluctant to bring up challenges they encounter out of concern that doing so may damage their relationship with State. State’s Program Design and Performance Management Toolkit, rolled-out in 2017, states that indicators can be costly to collect and manage and should therefore be “useful,” which includes having a clear utility for learning, tracking, informing decisions, or addressing ongoing program needs. This policy further states that indicators should also be “adequate,” which includes having only as many indicators in overall monitoring plan as are necessary and feasible to track key progress and results, inform decisions, conduct internal learning, and meet any external communication or reporting requirements. Further, federal internal control standards state that management should establish and operate monitoring activities, and, after doing so, may determine how often it is necessary to change the design of the internal control system as conditions change to effectively address objectives. Without a process to ensure that the number and content of counter-trafficking in persons project indicators are reviewed and modified as needed, project monitoring may be less efficient and effective as implementing partners and State TIP Office staff spend time collecting and reviewing indicator information that is not useful for project monitoring and management. DOL and USAID Have Established Processes to Regularly Review the Usefulness of Indicators DOL and USAID had processes in place to regularly review indicators for the projects we selected. DOL officials told us that project officers work with subject-matter experts to review the relevance of indicators in each semi-annual reporting period. These officials also stated that grantees are required to review their monitoring and evaluation plan annually, which includes the project’s indicators, and to provide the most recent work plan with each semi-annual report. According to DOL officials, while not a DOL requirement, the project we reviewed incorporated a work plan for each component of the project defining when important activities were planned under each output indicator. We found that DOL and the implementing partner made regular changes to these project plans in response to changing conditions. These plans were consistently included in the monitoring documents and most elements were discussed in the associated narrative text. USAID conducts its project oversight primarily out of its overseas missions, according to USAID officials. According to USAID officials associated with the projects we reviewed, these officials should review the project’s indicators annually, as well as when they determine a review is needed, such as when projects have changes in planned activities. USAID officials stated that this annual review process may be explicitly required in some agreements. According to these officials, missions or other operating units are required to manage and update reference sheets for indicators, which officials said are intended to define each indicator and the information to be collected to measure each indicator. Changes to these reference sheets are tracked, according to these officials. Projects we reviewed showed evidence of regular changes to indicators and associated targets. We spoke to project officers about several specific changes that we had identified. For many of these changes, the project officers provided information about their work with implementing partners to appropriately adjust program goals and expectations, such as adapting the project indicators and targets to unexpected or changing conditions. Conclusions Given the grave suffering of victims and damaging effects on society that trafficking in persons imposes, and the U.S. government’s reliance on implementing partners to carry out its counter-trafficking projects, performance monitoring is important to ensure that the United States funds projects that are effective, efficient, and achieve their intended counter-trafficking goals. In fiscal year 2017, State, DOL, and USAID managed 120 counter-trafficking projects and monitored the performance of the projects. However, weaknesses in State’s and USAID’s monitoring processes limit their ability to collect reliable performance information and assess project performance. First, we found that the State TIP Office did not fully document its monitoring activities for many of the projects we reviewed that started in between fiscal years 2011 to 2016. Monitoring the implementation of projects and fully documenting the results of such monitoring are key management controls to help ensure that project recipients use federal funds appropriately and effectively. The State TIP Office was also not setting targets for some project indicators, which may have limited the TIP Office’s ability to determine if implementation was on track or if corrections needed to be made. Furthermore, we found that the State TIP Office and USAID used project performance information reported by the implementing partners—used for internal and external reporting purposes—that was not always consistent or complete, and did not have sufficient controls to ensure the reliability of performance information. Finally, to ensure effective and efficient monitoring, projects need to establish a reasonable number of indicators and update them as needed. However, we found that the State TIP Office does not regularly evaluate and revise all of its indicators for counter-trafficking in persons projects, which can have large numbers of indicators. As a result, the State TIP Office may be using information to monitor project performance that that is less useful and relevant for understanding project progress, and requires more resources and time for the implementing partners to produce and agency officials to review. State TIP Office officials noted that the TIP Office has taken steps to improve its monitoring process, and State and USAID officials explained that State and USAID are developing information management systems that may increase the quality and usefulness of the monitoring information they use. However, these systems are not fully designed or operational and their capabilities are not yet known. Thus, the potential of these systems to strengthen the ability of State and USAID to collect reliable performance information and assess their efforts to combat the serious problem of global trafficking in persons is unclear. State and USAID could benefit from making additional improvements to ensure their projects are being implemented as intended and achieving project goals to prevent trafficking in persons, protect victims, and prosecute trafficking crimes. Recommendations for Executive Action We are making a total of five recommendations, including four to State and one to USAID. Specifically: The Secretary of State should ensure that the Director of the TIP Office establishes targets for each performance indicator. (Recommendation 1) The Secretary of State should ensure that the Director of the TIP Office maintains documentation of all required monitoring activities, including monitoring plans, progress reports, and performance targets. (Recommendation 2) The Secretary of State should ensure that the Director of the TIP Office establishes additional controls to improve the consistency and completeness of performance information that the TIP Office uses to monitor counter-trafficking in persons projects. (Recommendation 3) The Secretary of State should ensure that the Director of the TIP Office establishes a process to review and update performance indicators, with the participation of implementing partners, to ensure that project monitoring remains efficient and effective. (Recommendation 4) The Administrator of USAID should establish additional controls to improve the consistency and completeness of performance information that USAID uses to monitor counter-trafficking in persons projects. (Recommendation 5) Agency Comments and Our Evaluation We provided a draft of this report to State, DOL, USAID, DOD, and the Treasury for review and comments. In State’s and USAID’s letters, reproduced in appendixes IV and V, respectively, both agencies concurred with our recommendations and described their planned actions to address the recommendations. In addition, State’s letter indicated that our draft report did not fully recognize the investment State has made, and the changes underway, to improve the TIP Office’s performance measurement and ensure complete and consistent documentation. State cited additional dedicated financial and personnel resources for monitoring and evaluation added over the past two years. We acknowledge and report on these positive steps, including the hiring of a monitoring and evaluation specialist and other TIP Office staff, in our report. USAID’s letter included other comments that we have responded to in appendix V. Furthermore, State, DOL, USAID, and the Treasury provided technical comments, which we incorporated as appropriate. DOD had no comments. We are sending copies of this report to the appropriate congressional committees; the Secretaries of State, Labor, Defense, and Treasury; and the Administrator of USAID. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7141, or [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology The National Defense Authorization Act for Fiscal Year 2017 includes a provision for GAO to report on the programs conducted by the Department of State (State), the Department of Labor (DOL), the United States Agency for International Development (USAID), the Department of Defense (DOD), and the Department of the Treasury (Treasury) that address human trafficking and modern slavery, including a detailed analysis of the effectiveness of such programs in limiting human trafficking and modern slavery. Three of these agencies—State, DOL, and USAID—have programs that design and award counter-trafficking projects to implementing partners, through contracts, grants, or cooperative agreements. These agencies then oversee and monitor these projects. Since DOD and Treasury officials did not identify these types of projects as part of their counter-trafficking in persons efforts, we provided background information on their efforts but did not cover these agencies in our reporting objectives. This report (1) identifies the recent projects in international counter-trafficking in persons that key U.S. agencies have awarded to implementing partners, and for selected projects, assesses the extent to which key agencies have (2) documented their monitoring activities, (3) ensured the reliability of the performance information they use in monitoring projects, and (4) reviewed the usefulness of the performance indicators they use in monitoring projects. To address these objectives, we reviewed relevant agency documents and interviewed agency officials. To report on agencies’ programs, we asked knowledgeable officials at State, DOL, USAID, DOD, and Treasury to identify their projects that (1) had an international focus; (2) were delivered by implementing partners to external recipients, such as trafficking victims or host governments, as project beneficiaries; and (3) addressed trafficking in persons, modern slavery, or forced labor. Because State, DOL, and USAID managed such projects, we focus on them as the three key agencies for the purposes of our reporting objectives. According to officials from these three agencies, the projects they identified range from those with counter- trafficking in persons as a primary goal, to those in which this goal was integrated as part of each agency’s activities. We used the lists of projects that these agencies provided to report the relevant counter- trafficking projects that agencies awarded to implementing partners to carry out the projects. For our first objective, we determined the projects that were active during fiscal year 2017, including those which began, were ongoing, or ended during fiscal year 2017, and interviewed agency officials to confirm project information. To analyze the effectiveness of agencies’ programs in limiting human trafficking and modern slavery, we assessed the key agencies’ monitoring efforts for selected projects by examining the extent to which agencies have documented their monitoring activities, ensured the reliability of the performance information, and reviewed the usefulness of the performance indicators they use in monitoring projects. To assess the extent to which State, DOL, and USAID documented their monitoring activities for selected counter-trafficking in persons projects, we reviewed these agencies’ monitoring policies and related guidance as well as the full agreements for the projects to identify specific required monitoring activities. The policies and related guidance included State’s Grants Policy Directive Number 42 (GPD-42) related to monitoring assistance awards; Federal Assistance Policy Directive (FAPD), which according to a State official superseded State’s grants policy directives, including GPD-42; Federal Assistance Directive, which superseded the FAPD; Program Design and Performance Management Toolkit; and Program and Project Design, Monitoring, and Evaluation Policy. We also reviewed State’s Office to Monitor and Combat Trafficking in Persons standard operating procedures. For DOL, we reviewed its Management Procedures and Guidelines (MPG) as well as the Comprehensive Monitoring and Evaluation Plan Guidance Document referenced in the fiscal year 2017 MPG. For USAID, we reviewed—from its Automated Directives System or ADS—Chapter 203 on Assessing and Learning and Chapter 201 on Program Cycle Operational Policy, which according to USAID officials superseded Chapter 203. Once we determined what tools the agencies use to monitor their counter-trafficking in persons projects, we sought documentation of those tools to determine whether agencies were implementing those tools. To assess the agencies’ monitoring efforts, we identified all of State’s, DOL’s, and USAID’s projects that started before or during October 2015, which corresponds to the first quarter of fiscal year 2016, and were active through September 30, 2017, which corresponds to the fourth and last quarter of fiscal year 2017. This produced a list of a total of 57 State, DOL, and USAID projects. Out of these 57 projects, we excluded 3 projects from our selection for various reasons. We excluded one DOL project because DOL identified the project as being a research project for which certain agency performance monitoring requirements (e.g., indicators, targets) are not applicable. We also excluded two USAID projects because USAID identified each project as including several projects with various start and end dates, thus making it difficult to determine their time frames for inclusion in our report. This resulted in a selection of 54 projects—37 from State, 3 from DOL, and 14 from USAID. We reviewed documentation of key monitoring activities as specified in agency policy or the project award agreements to determine the extent to which the agencies had full documentation of key monitoring activities. We also applied federal standards for internal control, which call for agency management to design monitoring activities so that all transactions are completely and accurately recorded, and GAO’s key attributes of effective performance measures, specifically the attribute of having a numerical target. We made our determinations of the extent to which agencies had full documentation of key monitoring activities, as follows: State (37 projects). To determine whether State had fully documented its monitoring activities, we reviewed the monitoring plan for each project; fiscal year 2017 quarterly progress reports for each project; and the final progress report, including indicators and targets, for the seven projects that ended as of December 2017. We determined that State had “fully documented” the monitoring plan, if State provided a monitoring plan worksheet for the project. If State did not provide a monitoring plan worksheet for the project, we determined the monitoring plan was “not documented.” For each quarterly progress report for fiscal year 2017 as well as the final progress report for projects that ended as of December 2017, we determined that State had “fully documented” the report, if the report included both a qualitative and quantitative summary of progress. For the State TIP Office projects we reviewed, the qualitative summary of progress is captured in a narrative and the quantitative summary of progress is captured in the logic model. For the State DRL project we reviewed, the qualitative summary of progress is captured in a narrative and the quantitative summary of progress is captured in the monitoring plan. If either component—narrative or quantitative summary—was not documented, we determined that the report was “partially documented.” If both components were not documented, we determined that the report was “not documented.” We determined that State had “fully documented” indicators and targets for projects that ended as of December 2017, if the final progress report for the project included indicators as well as targets for each indicator. If the final progress report included indicators but did not specify targets for each indicator, we determined that indicators and targets were “partially documented.” If the final progress report did not include indicators and targets, we determined that indicators and targets were “not documented.” (We did not find any instances of “not documented.”) DOL (3 projects). To determine whether DOL had full documentation of its monitoring activities, we reviewed the monitoring plan as well as fiscal year 2017 semi-annual progress reports for each project. Because DOL’s three projects were ongoing as of December 2017, we reviewed the second semi-annual progress report for fiscal year 2017 to determine whether DOL had “fully documented” indicators and targets for each project. Overall, we determined that DOL had “fully documented” (1) the monitoring plan for each project, if the monitoring plan documented the performance metrics and data collection frequency for the project; (2) each fiscal year 2017 semi- annual progress report for the project, if the report included a qualitative and quantitative summary of progress for the period of performance; and (3) indicators and targets for the project, if the second semi-annual progress report included indicators as well as targets for each applicable indicator. USAID (14 projects). To determine whether USAID had full documentation of its monitoring activities, we reviewed the monitoring plan for each project; fiscal year 2017 progress reports at the reporting frequency specified in the agreements for each project; and the final progress report, including indicators and targets, for the three projects that ended as of December 2017. We also reviewed evidence of site visits conducted during the life time of the projects. Overall, we determined that USAID had “fully documented” (1) the monitoring plan for each project, if the monitoring plan documented performance metrics for the project; (2) the periodic progress reports for fiscal year 2017 as well as the final progress report for projects that ended as of December 2017, if the report included a qualitative and quantitative summary of progress for the period of performance; and (3) indicators and targets for the three projects that ended as of December 2017, if the final progress report included indicators as well as targets for each applicable indicator. We determined that USAID “fully documented” a project’s site visit, if USAID provided evidence of having conducted at least one site visit during the life time of the project. Additionally, we interviewed knowledgeable monitoring officials from each agency to understand agencies’ monitoring process and application of monitoring requirements for counter-trafficking in persons projects. Because State and DOL officials also identified site visits as a key tool they use to monitor their counter-trafficking in persons projects, we reviewed evidence of site visits conducted during the life time of the projects to report on these efforts. We also interviewed State TIP Office officials to discuss instances in which the agency did not have full documentation of key monitoring activities. To assess the extent to which key agencies have ensured the reliability of the performance information they use to monitor selected projects, we selected for review a nongeneralizable sample of 5 projects—2 State projects, 1 DOL project, and 2 USAID projects—out of the 54 counter- trafficking in persons projects identified by agencies that started before or during October 2015 and were active through fiscal year 2017. We based our selection of these projects primarily on largest total award amounts. For these selected projects, we obtained 2 years of progress reports and other documents to assess the quantitative and qualitative performance information. We developed a standardized template to capture all quarterly or semi-annual indicator performance information reported for each of these projects and assessed whether quarterly or semi-annual totals were consistent with annual and cumulative totals where these were reported. Using this quantitative information, we judgmentally selected indicators for inclusion in agency interviews where it appeared likely that numerical errors had occurred or there appeared to be significant project events, such as large over- or under-performance or the elimination of the indicator. We interviewed agency officials, including managers of these five projects, about the consistency and completeness of monitoring information in these projects for about 60 indicators identified through our analysis. Additionally, we questioned these officials about performance report narrative information describing project activities that, in our judgement, appeared to be incomplete or inconsistent with respect to indicator results. We also used these interviews to determine whether our findings for these selected projects reflected general agency policies and procedures. We assessed the completeness and consistency of project performance data that State, DOL, and USAID use to monitor projects as part of our data reliability assessment. We found State and USAID data to be unreliable in the projects we reviewed. We discuss the implications of these unreliable data for State and USAID’s project management and reporting in our findings and recommendations. We found the performance data that DOL used were consistent and complete for the project we reviewed. While we examined indicator data and narrative information for consistency and completeness, we did not verify the accuracy of performance information. To assess the extent to which key agencies have reviewed the usefulness of the performance indicators they use to monitor selected projects, we used the same nongeneralizable sample of five projects— two State projects, one DOL project, and two USAID projects. We interviewed agency officials, including managers of these five projects, about processes and systems they use to review the usefulness of indicators on an ongoing basis, such as when conditions in the project activity region change or if the agency and implementing partner learn that certain project activities are less effective than expected. We identified examples of indicators that had apparently been discontinued, as well as continued indicators that showed minimal progress, and we asked these officials to explain what had or had not been discontinued. We also used these interviews to determine whether our findings for these selected projects reflected general agency policies and procedures. We conducted this performance audit from October 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Three Key U.S. Agencies’ Counter-trafficking in Persons Projects, Active in Fiscal Year 2017 The Departments of State (State) and Labor (DOL), and U.S. Agency for International Development (USAID) managed 120 projects in counter- trafficking in persons carried out by implementing partners during fiscal year 2017, according to information provided by officials with these agencies. The three agencies used different approaches to identify relevant projects. For example, State reported projects with a primary goal of counter-trafficking in persons, while DOL and USAID included projects that may not have counter-trafficking in persons as a primary goal. Table 4 lists these agencies’ reported project information for projects that were active during fiscal year 2017. Appendix III: State Documentation for Its Performance Monitoring Activities for 37 Counter-Trafficking in Persons Projects The Department of State (State) did not fully document its monitoring activities (monitoring plan; fiscal year 2017 quarterly progress reports; and final progress report, including indicators and targets, for projects that ended as of December 2017) for 16 of the 37 selected projects we reviewed with start dates between fiscal years 2011 to 2016. (See table 5.) For example, State’s Office to Monitor and Combat Trafficking in Persons did not have monitoring plans for nine projects or targets for each indicator in six of seven final progress reports for projects that ended as of December 2017. Appendix IV: Comments from the Department of State Appendix V: Comments from the U.S. Agency for International Development GAO Comments 1. USAID commented that it does not believe that our draft report reflected the existing controls the USAID mission in Ghana shared with us, and that the mission had furnished us with a file that, according to USAID, contained correct information for all indicators and their results from the time the activity began until our audit. While the mission provided us with a spreadsheet, this document included only annual performance totals for several years without accompanying quarterly totals, or quarterly or annual narrative information. We focused our analysis on the quarterly and annual performance reports to understand the extent to which USAID was ensuring the consistency and completeness of performance information, including associated narratives, underlying its aggregate and higher-level performance reports. We reported on inconsistent or incomplete performance information only after discussing and substantiating the specific errors we identified with USAID officials. Further, we recognize USAID’s efforts to address errors that the agency identified prior to our review and we provide an example of such efforts in the report. 2. We have incorporated USAID’s comment. Our report no longer characterizes USAID’s regular activity monitoring and conversations with implementing partners as “informal.” 3. USAID noted that our report does not discuss how the USAID mission in Ghana uses its third-party monitoring project—Monitoring, Evaluation and Technical Support Services (METSS)—to work with local organizations to improve their collection and analysis of data. We have added a reference to USAID’s third-party monitoring project to the report where we discussed limited capacity of local partners as a cause of data reliability issues. 4. USAID commented that one of the Ghana counter-trafficking in persons indicators we examined in the integrated project (“value of new private sector investments in selected value-chains”), was not related to trafficking in persons and, therefore, was not directly related to the focus of our audit. As discussed in the Objectives, Scope, and Methodology section of our report (see app. I), we selected projects, including the integrated project in Ghana, based on a list of counter- trafficking in persons projects provided by USAID. Because the same operational policy that sets the monitoring and evaluation standards for the agency applied to all indicators within a given project, we examined available quarterly or semi-annual indicator data for all reported indicators in selected projects to determine the completeness and consistency of the data. We then conducted interviews with agency officials to discuss instances in which we identified potentially incomplete and inconsistent performance information, as well as whether our findings about the management of performance information for these selected projects reflected general agency policies and procedures. Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Leslie Holen (Assistant Director), Victoria Lin (Analyst-in-Charge), Esther Toledo, and Andrew Kurtzman made key contributions to this report. The team benefited from the expert advice and assistance of Neil Doherty, Justin Fisher, Benjamin Licht, Grace Lui, and Aldo Salerno. Related GAO Products Human Trafficking: State Has Made Improvements in Its Annual Report but Does Not Explicitly Explain Certain Tier Rankings or Changes, GAO-17-56 (Washington, D.C.: December 5, 2016). Human Trafficking: Oversight of Contractors’ Use of Foreign Workers in High-Risk Environments Needs to Be Strengthened. GAO-15-102 (Washington, D.C.: November 18, 2014). Human Trafficking: Monitoring and Evaluation of International Projects Are Limited, but Experts Suggest Improvements. GAO-07-1034 (Washington, D.C.: July 26, 2007). Human Trafficking: Better Data, Strategy, and Reporting Needed to Enhance U.S. Antitrafficking Efforts Abroad. GAO-06-825 (Washington, D.C.: July 18, 2006).

Human trafficking is a pervasive problem throughout the world. Victims are often held against their will in slave-like conditions. The National Defense Authorization Act for Fiscal Year 2017 includes a provision for GAO to report on the programs conducted by specific agencies, including State, DOL, and USAID, that address trafficking in persons. Among other objectives, this report (1) identifies the recent projects in international counter-trafficking in persons that key U.S. agencies have awarded to implementing partners; and, for selected projects, assesses the extent to which key agencies have (2) documented their monitoring activities and (3) ensured the reliability of project performance information. GAO reviewed State, DOL, and USAID project documents and interviewed agency officials. GAO reviewed monitoring documents for 54 of the 57 projects that were active from the beginning of fiscal year 2016 through the end of fiscal year 2017. Of these 54 projects, GAO selected a nongeneralizable sample of 5 projects, based primarily on largest total award amounts, for review of the reliability of project performance information. The Departments of State (State), Labor (DOL), and the U.S. Agency for International Development (USAID)—through agreements with implementing partners—managed 120 international counter-trafficking in person projects during fiscal year 2017. GAO reviewed a selection of 54 counter-trafficking projects (37 State, 3 DOL, and 14 USAID), and found that DOL and USAID had fully documented their monitoring activities, while State had not. All three agencies used similar tools to monitor the performance of their projects, such as monitoring plans, performance indicators and targets, progress reports, and site visits. GAO found, however, that State did not fully document its monitoring activities for 16 of its 37 projects (43 percent). GAO found that State did not have the monitoring plans or complete progress reports for one-third of its projects and often lacked targets for performance indicators in its final progress reports. State officials said they had not required targets for each performance indicator for the projects GAO reviewed, or had not set targets due to limited resources in prior years. State has taken steps to improve its monitoring efforts, including issuing a November 2017 policy that requires targets to be set for each performance indicator and developing an automated data system that would require targets to be recorded. However, because the pilot data system allows targets to be recorded as “to be determined” and does not have controls to ensure entry of actual targets, it is uncertain whether performance targets will be regularly recorded. Without full documentation of monitoring activities and established performance targets, State has limited ability to assess project performance, including project efficiency or effectiveness. GAO reviewed the reliability of project performance information for 5 of the 54 counter-trafficking projects (2 State, 1 DOL, and 2 USAID) and found that State and USAID used inconsistent and incomplete performance information, while DOL used consistent and complete information. For example, some quarterly indicator results in State and USAID progress reports were inconsistent with annual total results, and narrative explanations for significant deviations from performance targets were sometimes not present in quarterly reports. According to agency officials, performance information from these projects is regularly used not only for direct project oversight but also for internal and external reporting, program decisions, and lessons learned. GAO found that State's and USAID's processes lack sufficient controls to ensure the reliability of project performance information, but did not find inadequate controls in DOL's process. For example, neither State nor USAID consistently used automated checks on indicator results to ensure consistency and completeness of performance indicator result calculations. In contrast, DOL used automated checks as part of its process. Without implementing controls to ensure that performance information is consistent and complete, State and USAID officials cannot fully or accurately understand what projects are, or are not, achieving, and how their efforts might be improved.

GAO_GAO-18-215T

Background The cost of the census has been escalating over the last several decennials. The 2010 decennial was the costliest U.S. Census in history at about $12.3 billion, and was about 31 percent more costly than the $9.4 billion 2000 Census (in 2020 dollars). The average cost for counting a housing unit increased from about $16 in 1970 to around $92 in 2010 (in 2020 dollars). According to the Department of Commerce (Department), the total cost of the 2020 Census is now estimated to be approximately $15.6 billion dollars, more than $3 billion higher than previously reported by the Bureau. Meanwhile, the return of census questionnaires by mail (the primary mode of data collection) declined over this period from 78 percent in 1970 to 63 percent in 2010 (see figure 1). Declining mail response rates—a key indicator in determining the cost-effectiveness of the census—are significant and lead to higher costs. This is because the Bureau sends temporary workers to each non-responding household to obtain census data. As a result, non-response follow-up is the Bureau’s largest and most costly field operation. In many ways, the Bureau has had to invest substantially more resources each decade to conduct the enumeration. Achieving a complete and accurate census is becoming an increasingly daunting task, in part, because the nation’s population is growing larger, more diverse, and more reluctant to participate. When the census misses a person who should have been included, it results in an undercount; conversely, an overcount occurs when an individual is counted more than once. Such errors are particularly problematic because of their impact on various subgroups. Minorities, renters, and children, for example, are more likely to be undercounted by the census. The challenges to an accurate count can be seen, for example, in the difficulties associated with counting people residing in unconventional and hidden housing units, such as converted basements and attics. In figure 2, what appears to be a small, single-family house could contain an apartment, as suggested by its two doorbells. If an address is not in the Bureau’s address file, its residents are less likely to be included in the census. The Bureau Plans to Rely Heavily on IT for the 2020 Census The Bureau plans to rely heavily on both new and legacy IT systems and infrastructure to support the 2018 End-to-End Test and the 2020 Census operations. For example, the Bureau plans to deploy and use 43 systems in the 2018 End-to-End Test. Eleven of these systems are being developed or modified as part of an enterprise-wide initiative called Census Enterprise Data Collection and Processing (CEDCaP), which is managed within the Bureau’s IT Directorate. This initiative is a large and complex modernization program intended to deliver a system-of-systems to support all of the Bureau’s survey data collection and processing functions, rather than continuing to rely on unique, survey-specific systems with redundant capabilities. According to Bureau officials, the remaining 32 IT systems are being developed or modified by the 2020 Census Directorate or other Bureau divisions. To support the 2018 End-to-End Test, the Bureau plans to incrementally deploy and use the 43 systems for nine operations from December 2016 through the end of the test in April 2019. These nine operations are: (1) in-office address canvassing, (2) recruiting staff for address canvassing, (3) training for address canvassing, (4) in-field address canvassing, (5) recruiting staff for field enumeration, (6) training for field enumeration, (7) self-response (i.e., Internet, phone, or paper), (8) field enumeration, and (9) tabulation and dissemination. Key Risks are Jeopardizing a Cost- Effective Enumeration We added the 2020 Census to our list of high-risk programs in February, 2017, because (1) innovations never before used in prior enumerations will not be fully tested; (2) the Bureau continues to face challenges in implementing and securing IT systems; and (3) the Bureau needs to control any further cost growth and develop reliable cost estimates. Each of these key risks are discussed in greater detail below; if not sufficiently addressed, these risks could adversely impact the cost and/or quality of the enumeration. Moreover, they compound the inherent challenges of conducting a successful census such as the nation’s increasingly diverse population and concerns over personal privacy. Key Risk #1: Reduced Operational Testing Limits Confidence in 2020 Census Innovation Areas The basic design of the enumeration—mail out and mail back of the census questionnaire with in-person follow-up for non-respondents—has been in use since 1970. However, a key lesson learned from the 2010 Census and earlier enumerations, is that this “traditional” design is no longer capable of cost-effectively counting the population. In response to its own assessments, our recommendations, and studies by other organizations, the Bureau has fundamentally re-examined its approach for conducting the 2020 Census. Specifically, its plan for 2020 includes four broad innovation areas: re-engineering field operations, using administrative records, verifying addresses in-office, and developing an Internet self-response option (see table 1). If they function as planned, the Bureau initially estimated that these innovations could result in savings of over $5 billion (in 2020 dollars) when compared to its estimates of the cost for conducting the census with traditional methods. However, in June 2016, we reported that the Bureau’s life-cycle cost estimate of $12.5 billion, developed in October 2015, was not reliable and did not adequately account for risk. As discussed earlier in this statement, the Department has recently updated this figure and now estimates a life-cycle cost of $15.6 billion. At this higher level, the cost savings would be reduced to around $1.9 billion. While the planned innovations could help control costs, they also introduce new risks, in part, because they include new procedures and technology that have not been used extensively in earlier decennials, if at all. Our prior work has shown the importance of the Bureau conducting a robust testing program, including the 2018 End-to-End Test. Rigorous testing is a critical risk mitigation strategy because it provides information on the feasibility and performance of individual census-taking activities, their potential for achieving desired results, and the extent to which they are able to function together under full operational conditions. To address some of these challenges we have made several recommendations aimed at improving reengineered field operations, using administrative records, verifying the accuracy of the address list, and securing census responses via the Internet The Bureau has held a series of operational tests since 2012, but according to the Bureau, has scaled back recent tests because of funding uncertainties. For example, the Bureau canceled the field components of the 2017 Census Test including non-response follow-up, a key census operation. In November 2016, we reported that the cancelation of the 2017 field test was a lost opportunity to test, refine, and integrate operations and systems, and that it put more pressure on the 2018 End- to-End Test to demonstrate that enumeration activities will function under census-like conditions as needed for 2020. However, in May 2017, the Bureau scaled back the operational scope of the 2018 End-to-End and, of the three planned test sites; only the Rhode Island site would fully implement the 2018 End-to-End Test. The Washington and West Virginia state test sites would test just one field operation, address canvassing. In addition, due to budgetary concerns, the Bureau decided to remove three coverage measurement operations (and the technology that supports them) from the scope of the test. Without sufficient testing, operational problems can go undiscovered and the opportunity to improve operations will be lost, in part because the 2018 End-to-End Test is the last opportunity to demonstrate census technology and procedures across a range of geographic locations, housing types, and demographic groups. Operational Issues Observed in the End-to-End Test Will Need to Be Addressed On August 28, 2017, temporary census employees known as address listers began implementing the in-field component of address canvassing for the 2018 End-to-End Test. Listers walked the streets of designated census blocks at all three test sites to verify addresses and geographic locations. The operation ended on September 27, 2017. As part of our ongoing work, we visited all three test sites and observed 18 listers conduct address canvassing. Generally, we found that listers were able to conduct address canvassing as planned. However, we also noted several challenges. We shared the following preliminary observations from our site visits with the Bureau: Internet connectivity was problematic at the West Virginia test site. We spoke to four census field supervisors who described certain areas as dead spots where Internet and cell phone service were not available. We also were told by those same supervisors that only certain cell service providers worked in certain areas. In order to access the Internet or cell service in those areas, census workers sometimes needed to drive several miles. The allocation of lister assignments was not always optimal. Listers were supposed to be provided assignments close to where they live in order to optimize their local knowledge and to limit the numbers of miles being driven by listers to and from their assignment area. Bureau officials told us this was a challenge at all three test sites. Moreover, at one site the area census manager told us that some listers were being assigned work in another county even though blocks were still unassigned closer to where they resided. Relying on local knowledge and limiting the number of miles can increase both the efficiency and effectiveness of address canvassing. The assignment of some of the large blocks early in the operations was not occurring as planned. At all three 2018 End-to-End Test sites Bureau managers had to manually assign some large blocks (some blocks had hundreds of housing units). It is important to assign large blocks early on because leaving the large blocks to be canvassed until the end of the operation could jeopardize the timely completion of address canvassing. According to Bureau officials,during the test, completed address and map updates for some blocks did not properly transmit. This happened at all three test sites, and included data on 11 laptops for 25 blocks. The address and map information on seven of the laptops was permanently deleted. However, data on four laptops were still available. The Bureau is examining those laptops to determine what occurred that prevented the data from being transmitted. In Providence, Rhode Island, where the full test will take place, the Bureau recanvassed those blocks where data were lost to ensure that the address and map information going forward was correct. It will be important for the Bureau to understand what happened and ensure all address and map data is properly transmitted for the 2020 Census. We have discussed these challenges with Bureau officials who stated that overall they are satisfied with the implementation of address canvassing but also agreed that resolving challenges discovered during address canvassing, some of which can affect the operation’s efficiency and effectiveness, will be important before the 2020 Census. We plan to issue a report early in 2018 on address canvassing at the three test sites. Key Risk #2: The Bureau Continues to Face Challenges Implementing and Securing IT Systems We have previously reported that the Bureau faced challenges in managing and overseeing IT programs, systems, and contractors supporting the 2020 Census. Specifically, it has been challenged in managing schedules, costs, contracts, governance and internal coordination, and security for its IT systems. As a result of these challenges, the Bureau is at risk of being unable to fully implement key IT systems necessary to support the 2020 Census and conduct a cost- effective enumeration. We have previously recommended that the Bureau take action to improve its implementation and management of IT in areas such as governance and internal coordination. We also have ongoing work reviewing each of these areas. Our ongoing work has indicated that the Bureau faces significant challenges in managing the schedule for developing and testing systems for the 2018 End-to-End Test that began in August 2017. In this regard, the Bureau still has significant development and testing work that remains to be completed. As of August 2017, of the 43 systems in the test, the Bureau reported that 4 systems had completed development and integration testing, while the remaining 39 systems had not completed these activities. Of these 39 systems, the Bureau reported that it had deployed a portion of the functionality for 21 systems to support address canvassing for the 2018 End-to-End Test; however, it had not yet deployed any functionality for the remaining 18 systems for the test. Figure 3 summarizes the development and testing status for the 43 systems planned for the 2018 End-to-End Test. Moreover, due to challenges experienced during systems development, the Bureau has delayed key IT milestone dates (e.g., dates to begin integration testing) by several months for several of the systems in the 2018 End-to-End Test. Figure 4 depicts the delays to the deployment dates for the operations in the 2018 End-to-End Test, as of August 2017. Our ongoing work also indicates that the Bureau is at risk of not meeting the updated milestone dates. For example, in June 2017 the Bureau reported that at least two of the systems expected to be used in the self- response operation (the Internet self-response system and the call center system) are at risk of not meeting the delayed milestone dates. In addition, in September 2017 the Bureau reported that at least two of the systems expected to be used in the field enumeration operation (the enumeration system and the operational control system) are at risk of not meeting their delayed dates. Combined, these delays reduce the time available to conduct the security reviews and approvals for the systems being used in the 2018 End-to- End Test. We previously testified in May 2017 that the Bureau faced similar challenges leading up to the 2017 Census Test, including experiencing delays in system development that led to compressed time frames for security reviews and approvals. Specifically, we noted that the Bureau did not have time to thoroughly assess the low-impact components of one system and complete penetration testing for another system prior to the test, but accepted the security risks and uncertainty due to compressed time frames. We concluded that, for the 2018 End-to- End Test, it will be important that these security assessments are completed in a timely manner and that risks are at an acceptable level before the systems are deployed. The Bureau noted that, if it continues to be behind schedule, key field operations for the 2018 End-to-End Test (such as non-response follow- up) could be delayed or canceled, which may affect the Bureau’s ability to meet the test’s objectives. As we stated earlier, without sufficient testing, operational problems can go undiscovered and the opportunity to improve operations will be lost. Bureau officials are evaluating options to decrease the impact of these delays on integration testing and security review activities by, for example, utilizing additional staff. We have ongoing work reviewing the Bureau’s development and testing delays and the impacts of these delays on systems readiness for the 2018 End-to-End Test. The Bureau faces challenges in reporting and controlling IT cost growth. In April 2017, the Bureau briefed us on its efforts to estimate the costs for the 2020 Census, during which it presented IT costs of about $2.4 billion from fiscal years 2018 through 2021. Based on this information and other corroborating IT contract information provided by the Bureau, we testified in May 2017 that the Bureau had identified at least $2 billion in IT costs. However, in June 2017, Bureau officials in the 2020 Census Directorate told us that the data they provided in April 2017 did not reflect all IT costs for the 2020 program. The officials provided us with an analysis of the Bureau’s October 2015 cost estimate that identified $3.4 billion in total IT costs from fiscal years 2012 through 2023. These costs included, among other things, those associated with system engineering, test and evaluation, and infrastructure, as well as a portion of the costs for the CEDCaP program. Yet, our ongoing work determined the Bureau’s $3.4 billion cost estimate from October 2015 did not reflect its current plans for acquiring IT to be used during the 2020 Census and that the related costs are likely to increase: In August 2016, the Bureau awarded a technical integration contract for about $886 million, a cost that was not reflected in the $3.4 billion expected IT costs. More recently, in May 2017, we testified that the scope of work for this contract had increased since the contract was awarded; thus, the corresponding contract costs were likely to rise above $886 million, as well. In March 2017, the Bureau reported that the contract associated with the call center and IT system to support the collection of census data over the phone was projected to overrun its initial estimated cost by at least $40 million. In May 2017, the Bureau reported that the CEDCaP program’s cost estimate was increasing by more than $400 million—from its original estimate of $548 million in 2013 to a revised estimate of $965 million in May 2017. In June 2017, the Bureau awarded a contract for mobile devices and associated services for about $283 million, an amount that is about $137 million higher than the cost for these devices and services identified in its October 2015 estimate. As a result of these factors, the Bureau’s $3.4 billion estimate of IT costs is likely to be at least $1.4 billion higher, thus increasing the total costs to at least $4.8 billion. Figure 5 identifies the Bureau estimate of total IT costs associated with the 2020 program as of October 2015, as well as anticipated cost increases as of August 2017. IT cost information that is accurately reported and clearly communicated is necessary so that Congress and the public have confidence that taxpayer funds are being spent in an appropriate manner. However, changes in the Bureau’s reporting of these total costs, combined with cost growth since the October 2015 estimate, raise questions as to whether the Bureau has a complete understanding of the IT costs associated with the 2020 program. In early October 2017, the Secretary of Commerce testified that he expected the total IT costs for the 2020 Census to be about $4.96 billion. This estimate of IT costs is approximately $1.6 billion higher than the Bureau’s October 2015 estimate and further confirms our analysis of expected IT cost increases discussed above. As of late October 2017, the Bureau and Department were still finalizing the documentation used to develop the new cost estimate. After these documents are complete and made available for inspection, as part of our ongoing work, we plan to evaluate whether this updated IT cost estimate includes the cost increases, discussed above, that were not included in the October 2015 estimate. Our ongoing work also determined that the Bureau faces challenges in managing its significant contractor support. The Bureau is relying on contractor support in many key areas of the 2020 Census. For example, it is relying on contractors to develop a number of key systems and components of the IT infrastructure. These activities include (1) developing the IT platform that is intended to be used to collect data from those responding via the Internet, telephone, and non-response follow-up activities; (2) procuring the mobile devices and cellular service to be used for non-response follow-up; and (3) developing the infrastructure in the field offices. According to Bureau officials, contractors are also providing support in areas such as fraud detection, cloud computing services, and disaster recovery. In addition to the development of key technology, the Bureau is relying on contractor support for integrating all of the key systems and infrastructure. The Bureau awarded a contract to integrate the 2020 Census systems and infrastructure in August 2016. The contractor’s work was to include evaluating the systems and infrastructure and acquiring the infrastructure (e.g., cloud or data center) to meet the Bureau’s scalability and performance needs. It was also to include integrating all of the systems, supporting technical testing activities, and developing plans for ensuring the continuity of operations. Since the contract was awarded, the Bureau has modified the scope to also include assisting with operational testing activities, conducting performance testing for two Internet self-response systems, and technical support for the implementation of the paper data capture system. However, our ongoing work has indicated that the Bureau is facing staffing challenges that could impact its ability to manage and oversee the technical integration contractor. Specifically, the Bureau is managing the integration contractor through a government program management office, but this office is still filling vacancies. As of October 2017, the Bureau reported that 35 of the office’s 58 federal employee positions were vacant. As a result, this program management office may not be able to provide adequate oversight of contractor cost, schedule, and performance. The delays during the 2017 Test and preparations for the 2018 End-to- End Test raises concerns regarding the Bureau’s ability to effectively perform contractor management. As we reported in November 2016, a greater reliance on contractors for these key components of the 2020 Census requires the Bureau to focus on sound management and oversight of the key contracts, projects, and systems. As part of our ongoing work, we plan to monitor the Bureau’s progress in managing its contractor support. Effective IT governance can drive change, provide oversight, and ensure accountability for results. Further, effective IT governance was envisioned in the provisions referred to as the 2014 Federal Information Technology Acquisition Reform Act (FITARA), which strengthened and reinforced the role of the departmental CIO. The component CIO also plays a role in effective IT governance as subject to the oversight and policies of the parent department or agency implementing FITARA. To ensure executive-level oversight of the key systems and technology, the Bureau’s CIO (or a representative) is a member of the governance boards that oversee all of the operations and technology for the 2020 Census. However, in August 2016 we reported on challenges the Bureau has had with IT governance and internal coordination, including weaknesses in its ability to monitor and control IT project costs, schedules, and performance. We made several recommendations to the Department of Commerce to direct the Bureau to, among other things, better ensure that risks are adequately identified and schedules are aligned. The Department agreed with our recommendations. However, as of October 2017, the Bureau had only fully implemented one recommendation and had taken initial steps toward implementing others. Further, given the schedule delays and cost increases previously mentioned, and the vast amount of development, testing, and security assessments left to be completed, we remain concerned about executive- level oversight of systems and security. Moving forward, it will be important that the CIO and other Bureau executives continue to use a collaborative governance approach to effectively manage risks and ensure that the IT solutions meet the needs of the agency within cost and schedule. As part of our ongoing work, we plan to monitor the steps the Bureau is taking to effectively oversee and manage the development and acquisition of its IT systems. In November 2016, we described the significant challenges that the Bureau faced in securing systems and data for the 2020 Census, and we noted that tight time frames could exacerbate these challenges. Two such challenges were (1) ensuring that individuals gain only limited and appropriate access to the 2020 Census data, including personally identifiable information (PII) (e.g., name, personal address, and date of birth), and (2) making certain that security assessments were completed in a timely manner and that risks were at an acceptable level. Protecting PII, for example, is especially important because a majority of the 43 systems to be used in the 2018 End-to-End Test contain PII, as reflected in figure 6. To address these and other challenges, federal law and guidance specify requirements for protecting federal information and information systems, such as those to be used in the 2020 Census. Specifically, the Federal Information Security Management Act of 2002 and the Federal Information Security Modernization Act of 2014 (FISMA) require executive branch agencies to develop, document, and implement an agency-wide program to provide security for the information and information systems that support operations and assets of the agency. Accordingly, the National Institute of Standards and Technology (NIST) developed risk management framework guidance for agencies to follow in developing information security programs. Additionally, the Office of Management and Budget’s (OMB) revised Circular A-130 on managing federal information resources required agencies to implement the NIST risk management framework to integrate information security and risk management activities into the system development life cycle. In accordance with FISMA, NIST guidance, and OMB guidance, the Office of the CIO established a risk management framework. This framework requires that system developers ensure that each of the systems undergoes a full security assessment, and that system developers remediate critical deficiencies. In addition, according to the Bureau’s framework, system developers must ensure that each component of a system has its own system security plan, which documents how the Bureau plans to implement security controls. As a result, system developers for a single system might develop multiple system security plans which all have to be approved as part of the system’s complete security documentation. We have ongoing work that is reviewing the extent to which the Bureau’s framework meets the specific requirements of the NIST guidance. According to the Bureau’s framework, each of the 43 systems in the 2018 End-to-End Test will need to have complete security documentation (such as system security plans) and an approved authorization to operate prior to their use in the 2018 End-to-End Test. However, our ongoing work indicates that, while the Bureau is completing these steps for the 43 systems to be used in the 2018 End-to-End Test, significant work remains. Specifically, as we reported in October 2017: None of the 43 systems are fully authorized to operate through the completion of the 2018 End-to-End Test. Bureau officials from the CIO’s Office of Information Security stated that these systems will need to be reauthorized because, among other things, they have additional development work planned that may require the systems to be reauthorized; are being moved to a different infrastructure environment (e.g., from a data center to a cloud-based environment); or have a current authorization that expires before the completion of the 2018 End-to-End Test. The amount of work remaining is concerning because the test has already begun and the delays experienced in system development and testing mentioned earlier reduce the time available for performing the security assessments needed to fully authorize these systems before the completion of the 2018 End-to-End test. Thirty-seven systems have a current authorization to operate, but the Bureau will need to reauthorize these systems before the completion of the 2018 End-to-End Test. This is due to the reasons mentioned previously, such as additional development work planned and changes to the infrastructure environments. Two systems have not yet obtained an authorization to operate. For the remaining four systems, the Bureau has not yet provided us with documentation about the current authorization status. Figure 7 depicts the authorization to operate status for the systems being used in the 2018 End-to-End Test, as reported by the Bureau. Because many of the systems that will be a part of the 2018 End-to-End Test are not yet fully developed, the Bureau has not finalized all of the security controls to be implemented; assessed those controls; developed plans to remediate control weaknesses; and determined whether there is time to fully remediate any deficiencies before the systems are needed for the test. In addition, as discussed earlier, the Bureau is facing system development challenges that are delaying the completion of milestones and compressing the time available for security testing activities. While the large-scale technological changes (such as Internet self- response) increase the likelihood of efficiency and effectiveness gains, they also introduce many information security challenges. The 2018 End- to-End Test also involves collecting PII on hundreds of thousands of households across the country, which further increases the need to properly secure these systems. Thus, it will be important that the Bureau provides adequate time to perform these security assessments, completes them in a timely manner, and ensures that risks are at an acceptable level before the systems are deployed. We plan to continue monitoring the Bureau’s progress in securing its IT systems and data as part of our ongoing work. Key Risk #3: Lack of Reliable Costs Estimates Limits Support for 2020 Census Funding Earlier this month, the Department announced that it had updated the October 2015 life-cycle cost estimate and now projects the life-cycle cost of the 2020 Census will be $15.6 billion, more than a $3 billion (27 percent) increase over the Bureau’s earlier estimate. The higher estimated life-cycle cost is due, in part, as we reported in June 2016, to the Bureau’s failure to meet best practices for a quality cost-estimate. Specifically, we reported that, although the Bureau had taken steps to improve its capacity to carry out an effective cost estimate, such as establishing an independent cost estimation office, its October 2015 version of the estimate for the 2020 Census only partially met the characteristics of two best practices (comprehensive and accurate) and minimally met the other two (well-documented and credible). We also reported that risks were not properly accounted for in the cost estimate. We recommended that the Bureau take action to ensure its 2020 Census cost estimate meets all four characteristics of a reliable cost estimate, as well as properly account for risk to ensure there are appropriate levels for budgeted contingencies. The Bureau agreed with our recommendations. In response, the Department of Commerce reported that in May 2017, a multidisciplinary team was created to evaluate the 2020 Census program and to produce an independent cost estimate. Factors driving the increased cost-estimate include changes to assumptions relating to self- response rates, wage levels for temporary census workers, as well as the fact that major contracts and IT scale-up plans and procedures were not effectively planned, managed, and executed. The new estimate also includes a contingency of 10 percent of estimated costs per year as insurance against “unknown-unknowns”, such as a major cybersecurity event. The Bureau and Department are still finalizing the documentation used to develop the $15.6 billion cost-estimate. Until these documents are complete and made available for inspection, we cannot determine the reliability of the estimate. We will review the documentation when it is available. In order for the estimate to be deemed high quality, and thus the basis for any 2020 Census annual budgetary figures, the new cost- estimate will need to address the following four best practices, and do so as quickly as possible given the expected ramp-up in spending: Comprehensive. To be comprehensive an estimate should have enough detail to ensure that cost elements are neither omitted nor double-counted, and all cost-influencing assumptions are detailed in the estimate’s documentation, among other things, according to best practices. In June 2016, we reported that, while Bureau officials were able to provide us with several documents that included projections and assumptions that were used in the cost estimate, we found the estimate to be partially comprehensive because it was unclear if all life-cycle costs were included in the estimate or if the cost estimate completely defined the program. Accurate. Accurate estimates are unbiased and contain few mathematical mistakes. We reported in June 2016 that the estimate partially met best practices for this characteristic, in part because we could not independently verify the calculations the Bureau used within its cost model, which the Bureau did not have documented or explained. Well-documented. Cost estimates are considered valid if they are well-documented to the point they can be easily repeated or updated and can be traced to original sources through auditing, according to best practices. In June 2016, we reported that, while the Bureau provided some documentation of supporting data, it did not describe how the source data were incorporated. Credible. Credible cost estimates must clearly identify limitations due to uncertainty or bias surrounding the data or assumptions, according to best practices. In June 2016, we reported that the estimate minimally met best practices for this characteristic in part because the Bureau carried out its risk and uncertainty analysis only for about $4.6 billion (37 percent) of the $12.5 billion total estimated life-cycle cost, excluding, for example, consideration of uncertainty over what the decennial census’s estimated part will be of the total cost of CEDCaP. Continued Management Attention Needed to Keep Preparations on Track and Help Ensure a Cost- Effective Enumeration 2020 Challenges Are Symptomatic of Deeper Long-Term Organizational Issues The difficulties facing the Bureau’s preparation for the decennial in such areas as planning and testing; managing and overseeing IT programs, systems, and contractors supporting the enumeration; developing reliable cost estimates; prioritizing decisions; managing schedules; and other challenges, are symptomatic of deeper organizational issues. Following the 2010 Census, a key lesson learned for 2020 we identified was ensuring that the Bureau’s organizational culture and structure, as well as its approach to strategic planning, human capital management, internal collaboration, knowledge sharing, capital decision-making, risk and change management, and other internal functions are aligned toward delivering more cost-effective outcomes. The Bureau has made improvements over the last decade, and continued progress will depend in part on sustaining efforts to strengthen risk management activities, enhancing systems testing, bringing in experienced personnel to key positions, implementing our recommendations, and meeting regularly with officials from its parent agency, the Department of Commerce. Going forward, our experience has shown that the key elements needed to make progress in high-risk areas are top-level attention by the administration and agency officials to (1) leadership commitment, (2) ensuring capacity, (3) developing a corrective action plan, (4) regular monitoring, and (5) demonstrated progress. Although important steps have been taken in at least some of these areas, overall, far more work is needed. On the one hand, the Secretary of Commerce has taken several actions towards demonstrating leadership commitment. For example, the previously noted multidisciplinary review team included members with Bureau leadership experience, as well as members with private sector technology management experience. Additional program evaluation and the independent cost estimate was produced by a team from the Commerce Secretary’s Office of Acquisition Management that included a member detailed from OMB. Commerce also reports senior officials are now actively involved in the management and oversight of the decennial. Likewise, with respect to monitoring, the Commerce Secretary reports having weekly 2020 Census oversight reviews with senior Bureau staff and will require metric tracking and program execution status on a real- time basis. On the other hand, demonstrating the capacity to address high risk concerns remains a challenge. For example, our ongoing work has indicated that the Bureau is facing staffing challenges that could impact its ability to manage and oversee the technical integration contractor. Specifically, the Bureau is managing the integration contractor through a government program management office, but this office is still filling vacancies. As of October 2017, the Bureau reported that 35 of 58, or 60 percent, of the office’s federal employee positions were vacant. As a result, this program management office may not be able to provide adequate oversight of contractor cost, schedule, and performance. In the months ahead, we will continue to monitor the Bureau’s progress in addressing in each of the 5 elements essential for reducing the risk to a cost-effective enumeration. Leadership Continuity Will Be Critical For Keeping Efforts on Track At a time when strong Bureau management is needed, vacancies in the agency’s two top positions—Director and Deputy Director—are not helpful for keeping 2020 preparations on-track. These vacancies are due to the previous director’s retirement on June 30, 2017, and the previous deputy director’s appointment to be the Chief Statistician of the United States within the Office of Management and Budget in January 2017. Although interim leadership has since been named, in our prior work we have noted how openings in the Bureau’s top position makes it difficult to ensure accountability and continuity, as well as to develop and sustain efforts that foster change, produce results, mitigate risks, and control costs over the long term. The census director is appointed by the President, by and with the advice and consent of the Senate, without regard to political affiliation. The director’s term is a fixed 5-year term of office, and runs in 5-year increments. An individual may be reappointed and serve 2 full terms as director. The director’s position was first filled this way beginning on January 1, 2012, and cycles every fifth year thereafter. Because the new term began on January 1, 2017, the time that elapses until a new director is confirmed counts against the 5-year term of office. As a result, the next director’s tenure will be less than 5 years. Going forward, filling these top two slots should be an important priority. On the basis of our prior work, key attributes of a census director, in addition to the obvious ones of technical expertise and the ability to lead large, long-term, and high risk programs, could include abilities in the following areas: Strategic Vision. The Director needs to build a long-term vision for the Bureau that extends beyond the current decennial census. Strategic planning, human-capital succession planning, and life-cycle cost estimates for the Bureau all span the decade. Sustaining Stakeholder Relationships. The Director needs to continually expand and develop working relationships and partnerships with governmental, political, and other professional officials in both the public and private sectors to obtain their input, support, and participation in the Bureau’s activities. Accountability. The life-cycle cost for a decennial census spans a decade, and decisions made early in the decade about the next decennial census guide the research, investments, and tests carried out throughout the decennial census. Institutionalizing accountability over an extended period may help long-term decennial initiatives provide meaningful and sustainable results. Further Actions Needed on Our Recommendations Over the past several years we have issued numerous reports that underscored the fact that if the Bureau was to successfully meet its cost savings goal for the 2020 Census, the Bureau needs to take significant actions to improve its research, testing, planning, scheduling, cost estimation, system development, and IT security practices. Over the past decade, we have made 84 recommendations specific to the 2020 Census to help address these and other issues. The Bureau has generally agreed with those recommendations; however 36 of them had not been implemented as of October 2017. We have designated 20 of these recommendations as a priority for the Department of Commerce and 5 have been implemented. In August 2017, we sent the Secretary of Commerce a letter that identified our open priority recommendations at the Department, 15 of which concern the 2020 Census. We believe that attention to these recommendations is essential for a cost-effective enumeration. The recommendations included implementing reliable cost estimation and scheduling practices in order to establish better control over program costs, as well as taking steps to better position the Bureau to develop an Internet response option for the 2020 Census. Appendix I summarizes our priority recommendations related to the 2020 Census and the actions the Department has taken to address them. On October 3, 2017, in response to our August 2017 letter, the Commerce Secretary noted that he shared our concerns about the 2020 Census and acknowledged that some of the programs had not worked as planned, and are not delivering the savings that were promised. The Commerce Secretary also stated that he intends to improve the timeliness for implementing our recommendations. We meet quarterly with Bureau officials to discuss the progress and status of open recommendations related to the 2020 Census. We are encouraged by the actions taken by the Department and the Bureau in addressing our recommendations. Implementing our recommendations in a complete and timely manner is important because it would improve the management of the 2020 Census and help to mitigate continued risks. In conclusion, while the Bureau has made progress in revamping its approach to the census, it faces considerable challenges and uncertainties in (1) implementing key cost-saving innovations and ensuring they function under operational conditions; (2) managing the development and security of key IT systems; and (3) developing a quality cost estimate for the 2020 Census and preventing further cost increases. Without timely and appropriate actions, these challenges could adversely affect the cost, accuracy, and schedule of the enumeration. For these reasons, the 2020 Census is a GAO high risk area. Going forward, continued management and Congressional attention—such as hearings like this one—will be vital for ensuring risks are managed, preparations stay on-track, and the Bureau is held accountable for implementing the enumeration as planned. We will continue to assess the Bureau’s efforts to conduct a cost-effective enumeration and look forward to keeping Congress informed of the Bureau’s progress. Chairman Johnson, Ranking Member McCaskill, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have. GAO Contacts and Staff Acknowledgments If you have any questions about this statement, please contact Robert Goldenkoff at (202) 512-2757 or by e-mail at [email protected] or David A. Powner at (202) 512-9286 or by e-mail at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other key contributors to this testimony include Lisa Pearson (Assistant Director); Jon Ticehurst (Assistant Director); Katherine Wulff (Analyst in Charge); Mark Abraham; Brian Bothwell; Jeffrey DeMarco; Hoyt Lacy; Jason Lee; Ty Mitchell; LaSonya Roberts; Kate Sharkey; Andrea Starosciak; Umesh Thakkar; and Timothy Wexler. Appendix I: Priority Recommendations from GAO’s Work Related to the 2020 Census The Department of Commerce and Census Bureau have taken some actions to address our recommendations related to implementation of the 2020 Census; however, a large number of recommendations remain open. Since just prior to the 2010 Census, we have made 84 recommendations in 23 reports to the Department of Commerce and Census Bureau aimed at helping the Bureau prepare for and implement a successful 2020 Census (table 1). Of those 84, the Department of Commerce and the Census Bureau have implemented 48 recommendations. Thirty-six recommendations require additional action. Of these 84 recommendations, we have designated 20 as priorities for Commerce to address. The Census Bureau has taken some action on our priority recommendations, implementing 5 of the 20 priority recommendations we have made. The following table presents each of the 20 priority recommendations along with a summary of actions taken to address it.

One of the Bureau's most important functions is to conduct a complete and accurate decennial census of the U.S. population. The decennial census is mandated by the Constitution and provides vital data for the nation. A complete count of the nation's population is an enormous undertaking as the Bureau seeks to control the cost of the census, implement operational innovations, and use new and modified IT systems. In recent years, GAO has identified challenges that raise serious concerns about the Bureau's ability to conduct a cost-effective count. For these reasons, GAO added the 2020 Census to its High-Risk list in February 2017. In light of these challenges, GAO was asked to testify about the reasons the 2020 Census was placed on the High-Risk List. To do so, GAO summarized its prior work regarding the Bureau's planning efforts for the 2020 Census. GAO also included observations from its ongoing work on the 2018 End-to-End Test. This information is related to, among other things, recent decisions on preparations for the 2020 Census; progress on key systems to be used for the 2018 End-to-End Test, including the status of IT security assessments; execution of the address canvassing operation at the test sites; and efforts to update the life-cycle cost estimate. GAO added the 2020 Census to its high-risk list because of challenges associated with (1) developing and testing key innovations; (2) implementing and securing IT systems; and (3) controlling any further cost growth and preparing reliable cost estimates. The Census Bureau (Bureau) is planning several innovations for the 2020 Decennial Census, including re-engineering field operations by relying on automation, using administrative records to supplement census data, verifying addresses in-office using on-screen imagery, and allowing the public to respond using the Internet. These innovations show promise for controlling costs, but they also introduce new risks, in part because they have not been used extensively in earlier enumerations, if at all. As a result, robust testing is needed to ensure that key systems and operations will function as planned. However, citing budgetary uncertainties, the Bureau canceled its 2017 field test and then scaled back its 2018 End-to End Test. Without sufficient testing, operational problems can go undiscovered and the opportunity to improve operations will be lost, as key census-taking activities will not be tested across a range of geographic locations, housing types, and demographic groups. The Bureau continues to face challenges in managing and overseeing the information technology (IT) programs, systems, and contracts supporting the 2020 Census. For example, GAO's ongoing work indicates that the system development schedule leading up to the 2018 End-to-End test has experienced several delays. Further, the Bureau has not addressed several security risks and challenges to secure its systems and data, including making certain that security assessments are completed in a timely manner and that risks are at an acceptable level. Given that certain operations for the 2018 End-to-End Test began in August 2017, it is important that the Bureau quickly address these challenges. GAO plans to monitor the Bureau's progress as part of its ongoing work. In addition, the Bureau needs to control any further cost growth and develop cost estimates that reflect best practices. Earlier this month, the Department of Commerce (Department) announced that it had updated the October 2015 life-cycle cost-estimate and now projects the life-cycle cost of the 2020 Census will be $15.6 billion, more than $3 billion (27 percent) increase over its earlier estimate. The higher estimated life-cycle cost is due, in part, to the Bureau's failure to meet best practices for a quality cost-estimate. The Bureau and Department are still finalizing the documentation used to develop the $15.6 billion cost-estimate. Until these documents are complete and made available for inspection, GAO cannot determine the reliability of the estimate.