CRS Reports

Emerging Markets: Is Slower Growth Temporary?

This report discusses the growing vulnerabilities Emerging market (EM) countries are facing due to declining global trade, depreciating currencies, sharply lower commodity prices, volatile equity markets, and deeper economic reforms.

Sep 29, 2015

FY2016 Extension of the Higher Education Act: An Overview

Sep 28, 2015

The FY2016 Continuing Resolution (H.R. 719)

This report discusses a resolution which would provide temporary funding to continue federal government operations through the beginning of the fiscal year, until annual appropriations acts could be enacted.

Sep 25, 2015

The Pregnancy Discrimination Act and the Supreme Court: A Legal Analysis of Young v. United Parcel Service

In 2015, the Supreme Court issued a decision in Young v. United Parcel Service. In the case, a United Parcel Service (UPS) worker named Peggy Young challenged her employer’s refusal to grant her a light-duty work assignment while she was pregnant, claiming that UPS’s actions violated the Pregnancy Discrimination Act (PDA), a federal law that prohibits pregnancy discrimination in employment. In a highly anticipated ruling, the Justices fashioned a new test for determining when an employer’s refusal to provide accommodations for a pregnant worker constitutes a violation of the PDA, and the Court sent the case back to the lower court for reconsideration in light of these new standards. This report provides an overview of the PDA and an analysis of the Court’s decision.

Sep 25, 2015

Disparate Impact Claims Under the Fair Housing Act

The Fair Housing Act (FHA) was enacted “to provide, within constitutional limitations, for fair housing throughout the United States.” It prohibits discrimination on the basis of race, color, religion, national origin, sex, physical and mental handicap, and familial status. Subject to certain exemptions, the FHA applies to all sorts of housing, public and private, including single family homes, apartments, condominiums, and mobile homes. It also applies to “residential real estate-related transactions,” which include both the “making [and] purchasing of loans ... secured by residential real estate [and] the selling, brokering, or appraising of residential real property.” There has been controversy over whether, in addition to outlawing intentional discrimination, the FHA also prohibits certain housing-related decisions that have a discriminatory effect on a protected class. That controversy was settled when, in June 2015, a divided U.S. Supreme Court ruled that disparate impact claims are cognizable under the FHA. Key Takeaways of This Report In February 2013, Department of Housing and Urban Development (HUD) for the first time issued regulations “formaliz[ing] HUD’s long-held interpretation of the availability of discriminatory effects’ liability under the Fair Housing Act and to provide nationwide consistency in the application of that form of liability.” In June 2015, the Supreme Court held in Texas Department of Housing and Community Affairs v. Inclusive Communities Project that disparate impact claims are cognizable under the FHA—a view previously espoused by HUD and the 11 U.S. Courts of Appeals to render opinions on the issue. The Court also outlined certain limiting factors that should apply when assessing disparate impact claims. The Supreme Court appears to have adopted a three-step burden-shifting test for assessing disparate impact liability under the FHA. The test outlined by the Court, which is similar though not identical to the one adopted by HUD, places the initial burden on the plaintiffs to establish evidence that a housing decision or policy caused a disparate impact on a protected class. Defendants can counter the plaintiff’s prima facie showing by establishing that the challenged policy or decision is “necessary to achieve a valid interest.” The defendant’s “valid interest” will stand unless the “plaintiff has shown that there is an available alternative practice that has less disparate impact and serves the entity’s legitimate needs.” Going forward, the minority of federal circuits that historically have used a different type of test likely will begin using a burden-shifting scheme consistent with the test outlined in Inclusive Communities. The Supreme Court stressed that lower courts and HUD should rigorously evaluate plaintiffs’ disparate impact claims to ensure that evidence has been provided to support, not only a statistical disparity, but also causality (i.e., that a particular policy implemented by the defendant caused the disparate impact). The Court also emphasized that claims should be disposed of swiftly in the preliminary stages of litigation when plaintiffs have failed to provide sufficient evidence of causality. Although plaintiffs historically have faced fairly steep odds of getting their disparate impact claims past the preliminary stages of litigation, much less succeeding on the merits, the “cautionary standards” stressed by the Supreme Court might result in even fewer successful disparate impact claims being raised in the courts and/or swifter disposal of claims that are raised.

Sep 24, 2015

Selected Legal Mechanisms Whereby the Government Can Hold Contractors Accountable for Failure to Perform or Other Misconduct

Reports of “waste, fraud, and abuse” in federal contracting often prompt questions about what the government can do to hold its vendors accountable for failure to perform as required under their contracts, or for legal violations or other misconduct unrelated to contract performance. Broadly speaking, the government can be seen as having two types of legal recourse available to it in such situations. The first type involves rights provided to the government as terms of its contracts, which the government may exercise without resort to judicial proceedings. The second type involves other actions, not necessarily provided for by contract. In some cases, the government may take these actions on its own behalf, without resort to judicial proceedings. In other cases, the government must seek sanctions or damages through the courts. Not all of these mechanisms involve “penalties” as that term is generally understood. In some cases, the controlling legal authority expressly provides that the government may take certain actions only to protect the government’s interest, and “not for purposes of punishment.” However, in all cases, the government’s action represents a consequence of and response to the contractor’s delinquencies, and could be perceived as punitive by the contractor or other parties. The government generally has discretion as to whether to employ any of these mechanisms in particular circumstances, and could employ multiple mechanisms in a given case. In some cases, though, the government must choose between particular mechanisms. Rights Granted to the Government as Terms of Its Contracts Government contracts include standard terms granting the government certain rights that could be exercised if the contractor fails to perform as required under the contract, such as the right to assess liquidated damages and the right to terminate the contract for default. A specific right must generally be expressly provided for in the contract for the government to exercise it, although the government’s right to terminate contracts for default may be read into contracts that do not expressly provide for it. The government’s exercise of the right must also generally be in conformity with the terms of the contract. In addition, depending upon the facts and circumstances of the case, a contractor could challenge the government’s exercise of a contractual right by bringing suit before a court or board of contract appeals, alleging that the contractor’s deficient or delinquent performance must be excused because it was caused by an event that is beyond the contractor’s control and without its fault or negligence. Alternatively, a contractor could assert that the government has waived particular contractual rights in specific cases. A waiver is an intentional or voluntary relinquishment of a legal right, or conduct that warrants an inference that the right has been relinquished. Other Agency Actions Not Necessarily Provided for as Terms of a Contract The government could also take certain actions in response to contractors’ failure to perform or other misconduct that are not expressly provided for as terms of a federal contract, but are authorized under federal statutes or regulations. In some cases, the government may take these actions on its own behalf, without resort to judicial proceedings, as is the case with debarment and suspension and consideration of agency evaluations of past performance in source-selection decisions. In other cases, the government must seek sanctions through the courts, as is the case with suits under the civil provisions of the False Claims Act. In either case, the government’s recourse is generally limited by the controlling legal authority (e.g., suspension must be on a ground specified in statute or regulation). Agency actions could also be challenged on the grounds that the action deprives the contractor of certain contractual or other rights, or is arbitrary and capricious. In addition, in some cases, contractors are entitled to due process in the form of notice and an opportunity for a hearing before being subjected to agency action or sanctions.

Sep 23, 2015

DOT’s Federal Pipeline Safety Program: Background and Key Issues for Congress

Altogether, the U.S. energy pipeline network is composed of over 2.9 million miles of pipeline transporting natural gas, oil, and other hazardous liquids. While an efficient and comparatively safe means of transport, many pipelines carry materials with the potential to cause public injury, costly destruction, and environmental damage. The nation’s pipeline networks are also widespread and vulnerable to accidents. Recent pipeline accidents in Marshall, MI, San Bruno, CA, New York City, and Santa Barbara, CA, have heightened congressional concern about pipeline risks and drawn criticism from the National Transportation Safety Board. The Department of Energy’s first Quadrennial Energy Review also highlighted pipeline safety as a growing concern for the nation’s energy infrastructure. Both government and industry have taken numerous steps to improve pipeline safety over the last 10 years. Nonetheless, the spate of recent pipeline incidents suggests there continues to be opportunity for improvement. The federal program for pipeline safety resides primarily with the Pipeline and Hazardous Materials Safety Administration (PHMSA) within the Department of Transportation (DOT), although its inspection and enforcement activities rely heavily upon partnerships with state pipeline safety agencies. PHMSA’s appropriations are authorized through FY2015 under the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (P.L. 112-90). The act contained a broad range of provisions addressing pipeline safety. Among the most significant were provisions to increase the number of federal pipeline safety inspectors, require automatic shutoff valves for transmission pipelines, mandate verification of maximum allowable operating pressure for gas transmission pipelines, and increase civil penalties for pipeline safety violations. In total, the act imposed 42 mandates on PHMSA regarding studies, rules, maps, and other elements of the federal pipeline safety program. While PHMSA has fulfilled many of these mandates, 16 remain incomplete, including several key mandates with potentially large impacts nationwide. In addition to these mandates, policymakers have expressed concerns about the adequacy of PHMSA’s resources, the effectiveness of PHMSA’s enforcement, its oversight of state pipeline safety programs, the potential regulation of currently unregulated gathering lines, and other regulatory issues. Whether the ongoing efforts by industry, combined with additional oversight by federal agencies, will further enhance the safety of U.S. pipelines remains to be seen. As Congress continues its oversight of the federal pipeline safety program, it may assess how the various elements of U.S. pipeline safety fit together in the nation’s overall strategy to protect the public and the environment. Pipeline safety necessarily involves many groups: federal agencies, oil and gas pipeline associations, large and small pipeline operators, and local communities. Reviewing how these groups work together to achieve common goals could be an overarching concern for Congress.

Sep 22, 2015

Congressional Redistricting: Legal and Constitutional Issues

Congressional redistricting is the drawing of district boundaries from which the people choose their representatives to the U.S. House of Representatives. The legal framework for congressional redistricting resides at the intersection of the Constitution’s limits and powers, requirements prescribed under federal law, and the various processes imposed by the states. Prior to the 1960s, court challenges to redistricting plans were considered non-justiciable political questions that were most appropriately addressed by the political branches of government, not the judiciary. In 1962, in the landmark ruling of Baker v. Carr, the Supreme Court pivoted and held that a constitutional challenge to a redistricting plan was not a political question and was justiciable. Since then, a series of constitutional and legal challenges have significantly shaped how congressional districts are drawn. Key Takeaways from This Report The Constitution requires that each congressional district contain approximately the same population. This equality standard was set forth by the Supreme Court in a series of cases articulating the principle of “one person, one vote.” In order to comport with the equality standard, at least every 10 years, in response to changes in the number of Representatives or shifts in population, most states are required to draw new congressional district boundaries. Congressional districts are also required to comply with Section 2 of the Voting Rights Act (VRA), prohibiting any voting qualification or practice—including congressional redistricting plans—that results in the denial or abridgement of the right to vote based on race, color, or membership in a language minority. Under certain circumstances, the VRA may require the creation of one or more “majority-minority” districts, in which a racial or language minority group comprises a voting majority. However, if race is the predominant factor in the drawing of district lines, then a “strict scrutiny” standard of review applies. A recent Supreme Court ruling, Alabama Legislative Black Caucus v. Alabama, set forth standards for determining whether race is a predominant factor in creating a redistricting map when considering a Fourteenth Amendment equal protection claim. Alabama also held that the inoperable preclearance requirement in Section 5 of the VRA does not require that a new redistricting plan maintain the same percentage of minority voters in a majority-minority district. Instead, the Court held that Section 5 requires that the plan maintain a minority’s ability to elect candidates of choice. The Supreme Court recently held, in Arizona State Legislature v. Arizona Independent Redistricting Commission, that states can establish independent commissions, by ballot initiative, to conduct congressional redistricting. This term the Supreme Court will hear Harris v. Arizona Independent Redistricting Commission, which presents the question of whether partisanship can justify differences in population; and Evenwel v. Abbott, which involves the issue of who should be counted within districts in order to achieve district equality, e.g., total population or eligible voters. Although these cases are currently limited to state legislative redistricting, broad rulings by the Court might also impact congressional redistricting.

Sep 22, 2015

U.S. Secret Service: Selected Issues and Executive and Congressional Responses

Since 1865, the U.S. Secret Service (USSS) has investigated counterfeiting, and since 1901, at the request of congressional leadership, the Service has provided full-time presidential protection. The USSS has two primary purposes which are criminal investigations and protection. Criminal investigation activities include financial crimes, identity theft, counterfeiting, computer fraud, and computer-based attacks on the nation’s financial, banking, and telecommunications infrastructure, among other areas. The protection mission covers the President, Vice President, their families, and candidates for those offices. The protection mission also includes the securing of the White House and the Vice President’s residence, through the Service’s Uniformed Division. Congress has recently increased its oversight of the USSS due to concern about terrorism threats, and several security breaches and misconduct of USSS personnel. Recent incidents include abuse of alcohol by special agents, and security breaches of the White House grounds and presidential protection. Although the USSS is not the only federal law enforcement entity with personnel accused of ethical violations or professional and personal misconduct, it should be noted that USSS security breaches and ethical violations may have greater consequences, particularly concerning presidential protection. This report provides a brief overview of the USSS’s missions, structure, and staffing. It examines enacted and proposed changes and reforms stemming from recent series of incidents.

Sep 21, 2015

Oversight of the Inspector General Community: The IG Council’s Integrity Committee

The federal government has more than 70 federal inspectors general (IGs) who are vested with authority to combat waste, fraud, and abuse in their affiliated departments and agencies. This community of IGs serves a key role in assisting congressional oversight by conducting audits, investigations, and evaluations of their affiliated agencies, and by providing written reports at least two times a year to Congress. The Inspector General Act of 1978 (5 U.S.C. Appendix), as amended, establishes an Integrity Committee (IC) that serves to oversee the appropriate conduct of high-ranking employees in the inspector general community and investigate allegations of wrongdoing against those employees. Ethical, transparent, and professional conduct is essential for members of the IG community because, as one Member of Congress stated at a February 2015 House Oversight and Government Reform hearing, “Your whole investigation is tainted if you’re tainted.” A few recent high-profile IC misconduct investigations have prompted concern from certain Members of Congress and the public. In one case, the length of an investigation allowed a federal IG to remain on paid administrative leave for more than two years. That IG eventually left his post before the results of the IC’s investigation were made public. Congress may also have concerns about a committee of IGs investigating allegations of wrongdoing made against their peers. In the 114th Congress, both the House and the Senate are considering legislation to amend the operations of the IC. The bills, S. 579 and H.R. 2395, have some similar provisions including language seeking to limit the amount of time the IC would have to conduct investigations into allegations of IG employee wrongdoing—among other provisions. Congress may determine that the IC’s current structure is effective in ensuring the professional conduct of the IG community. Alternatively, Congress may determine that the IC is not the appropriate mechanism for IG community misconduct investigations. Instead, Congress may determine that another investigatory organization, like the Government Accountability Office, is better suited to oversee IG community conduct. This report provides context on the role of the IC in investigating allegations of wrongdoing made against employees of the IG community. The report provides analysis of congressional proposals seeking to amend and improve the IC’s operations, and includes additional potential policy options for improvement of oversight of the IG community.

Sep 21, 2015

The Chinese Military: Overview and Issues for Congress

This report provides a brief overview of the Chinese military. In order to cover a wide range of issues in a concise format, the report does not go into great depth on many topics and omits other topics that might be considered germane.

Sep 18, 2015

Russian Deployments in Syria Complicate U.S. Policy

This report briefly discusses Russia's military presence in Syria. In recent weeks, Russia has moved military equipment and personnel to Syria, which could potentially be used to resupply the Asad regime or lead to a direct Russian intervention in the Syrian civil war.

Sep 18, 2015

Guatemala: President Pérez Resigns; Runoff Presidential Election on October 25

This report provides background on the runoff presidential election in Guatemala following the resignation of President Otto Pérez Molina in September. In response to a court order, he appeared at court to hear charges of criminal association, corruption, and fraud brought against him; Congress accepted Pérez's resignation and swore in Vice President Alejandro Maldonado as president.

Sep 17, 2015

Introducing a Senate Bill or Resolution

Authoring and introducing legislation is fundamental to the task of representing voters as a U.S. Senator. Part of what makes the American political process unique is that it affords all Senators an ability to propose their own ideas for chamber consideration. By comparison, most other democratic governments around the world rely on an executive official, often called a premier, chancellor, or prime minister, to originate and submit policy proposals for discussion and enactment by the legislature. Legislators serving in other countries generally lack the power to initiate legislative proposals of their own. In the American political system, ideas and recommendations for legislation come from a wide variety of sources. Any number of individuals, groups, or entities may participate in drafting bills and resolutions, but only Senators may formally introduce legislation, and they may do so for any reason. When a Senator has determined that a bill or resolution is ready for introduction, it can be delivered to the bill clerk’s desk on the chamber floor when the Senate is in session. The sponsor must sign the measure and attach the names of any original cosponsors on a separate form. Cosponsors do not sign the bill. There is no Senate rule that introduced bills and resolutions must be prepared by the Senate Office of the Legislative Counsel, but the office plays an important role by providing Senators and staff, at their request, with drafts of legislation. Use of the office by Senators and staff is nearly universal. Once introduced, the Senate Parliamentarian, acting on behalf of the presiding officer, refers legislation to committee based primarily on how its contents align with the subject matter jurisdictions of committees established in Senate Rule XXV. Multiple referral is rare in the Senate due to Senate Rule XVII, which states that a measure is referred to the committee with “jurisdiction over the subject matter which predominates in such proposed legislation.” This report is intended to assist Senators and staff in preparing legislation for introduction. Its contents address essential elements of the process, including bill drafting, the mechanics of introduction, and the roles played by key Senate offices involved in the drafting, submission, and referral of legislation. Statistics on introduced bills and resolutions are presented in the final section to illustrate patterns of introduction in recent Congresses.

Sep 15, 2015

Federal Credit Programs: Comparing Fair Value and the Federal Credit Reform Act (FCRA)

The U.S. government uses direct loans and loan guarantees in a range of policy areas. More than 100 direct federal loans and private financial institution loans guaranteed by the government, known as federal credit programs, are available to individuals and firms. The credit programs support a wide range of economic activities, including home ownership, education, small business, farming, energy, infrastructure investment, and exports. At the end of fiscal year (FY) 2014, outstanding federal credit totaled $3.3 trillion, with direct loans at $1.0 trillion and loan guarantees at $2.3 trillion. For budget formulation, the costs or profits of these government programs are estimated as prescribed by the Federal Credit Reform Act of 1990 (FCRA; P.L. 101-508). As measured by FCRA, some of these credit programs generate a profit while others incur costs to the government. The costs of these credit programs are commonly referred to as subsidy costs. When these programs generate a profit, they are considered negative subsidy costs. In recent years, Congress has debated the best way to measure subsidy costs. The debate has revolved around whether the subsidy costs should be measured as prescribed by FCRA or by what is referred to as the fair-value method. Subsidy costs estimates under FCRA adjust the cash outflows and inflows for the various risks a loan portfolio might face. These cash flows are also discounted using Treasury interest rates for estimating subsidy costs. One method of estimating the fair-value costs of the credit programs is to use private-market interest rates. Generally, private-sector firms would charge a borrower with a government loan guarantee lower interest rates than they would charge a borrower without the government guarantee. Switching to fair value, therefore, is expected to increase the subsidy costs estimates of credit programs. For example, the Congressional Budget Office (CBO) projects that changing the method of calculating subsidy costs estimates to the fair-value method would increase the 10-year budget cost estimates of student loans by $223 billion, single-family mortgage insurance by $93 billion, and the Export-Import Bank by $16 billion. Many of the credit programs that are estimated to make a profit under FCRA have a subsidy cost (incur loss) under fair value. Proponents of fair-value cost estimates argue the government’s cost of credit programs should reflect market risks. Those risks are currently excluded from FCRA cost estimates. In their view, the risk posed by the borrowers should be considered as a cost to the taxpayers because taxpayers are ultimately responsible for paying the debt of the U.S. government. Supporters of using the FCRA method argue that it is appropriate for the government to discount at the rate at which it borrows and that market risk is not the same as budgetary costs. In their view, including market risks to estimate credit subsidies includes amounts that the government will never incur. Further, adopting fair value for budget estimates does not necessarily imply that there would be a need to raise taxes or to borrow additional funds because such costs affect only the budget projections not the actual amount of cash flows. Legislation has been introduced in the 114th Congress (S. 399 and H.R. 119) that would change the method of calculating subsidy costs to the fair-value method. Similar legislative proposals passed the House in the 113th Congress but were not acted on in the Senate. FY2016 budget resolutions in the 114th Congress, S.Con.Res. 11 and H.Con.Res. 27, include provisions that would address the issue of fair value in federal credit programs by requiring CBO to provide fair-value estimates for credit programs at the request of the budget committees. S.Con.Res. 11 was adopted by the House on April 30, 2015, and by the Senate on May 5, 2015.

Sep 14, 2015

Syrian Refugee Admissions to the United States

This report briefly discusses issues regarding refugees fleeing from Syria. With some European countries pledging to accept increased numbers of Syrian and other asylum seekers in the face of a refugee crisis, attention is focused on the United States and its plans to admit Syrian and other refugees in FY2016 and beyond.

Sep 10, 2015

Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF): FY2016 Appropriations

Sep 9, 2015

Unmanned Aircraft Systems (UAS): Commercial Outlook for a New Industry

Unmanned aircraft systems (UAS)—commonly referred to as drones—have become a staple of U.S. military reconnaissance and weapons delivery in overseas war zones such as Afghanistan. Now some new technologies and pending federal regulations are enabling the manufacture and use of UAS in domestic commerce, giving rise to a growing commercial UAS industry. Flying small, unmanned aircraft has been a hobbyists’ pastime for decades. However, the Federal Aviation Administration (FAA) currently prohibits the use of UAS for commercial purposes, except where it has granted an exemption permitting specific activities. FAA has granted such exemptions since May 2014, primarily to firms wishing to use UAS for agricultural, real estate, film and broadcasting, oil and gas, and construction activities. As of September 2, 2015, it had granted more than 1,400 such exemptions. FAA also has authorized limited use of UAS within defined areas of Alaska, as required by the FAA Modernization and Reform Act of 2012 (P.L. 112-95). Around 89 companies in the United States now produce UAS, which can range from hobbyist planes that fly on a single charge for about 10 minutes and cost under $200 to commercial-level craft that can stay aloft much longer but can cost as much as $10,000. Manufacture of the aircraft, known as unmanned aerial vehicles (UAVs), is relatively simple. The aircraft’s basic elements include a frame, propellers, a small motor and battery, electronic sensors, Global Positioning System (GPS), and a camera. Some UAVs are operated by controllers, but others can be guided by the operator’s smartphone or tablet. The widespread availability of electronic sensors, GPS devices, wifi receivers, and smartphones has reduced their cost, enabling manufacturers to enter the market without worrying about the supply of components. It has been estimated that, over the next 10 years, worldwide production of UAS for all types of applications could rise from $4 billion annually to $14 billion. However, the lack of a regulatory framework, which has delayed commercial deployment, may slow development of a domestic UAS manufacturing industry. FAA announced a notice of proposed rulemaking in February 2015 that would permit UAS weighing less than 55 pounds to fly in limited circumstances and locations during the daytime, as long as there is a visual line of sight between the UAS and its operator, who would have to meet FAA standards and pass tests. Such rules, if adopted, would likely lead to limited commercial use of UAS, but would preclude the use of UAS for some purposes. FAA is not expected to announce final rules until 2016 or 2017. The growth of UAS manufacturing and the rate at which UAS are deployed commercially are likely to be determined by technological and regulatory issues. FAA has approved establishment of six test sites to explore issues related to the integration of unmanned aircraft into the national airspace, but it is unclear whether those sites will provide information helpful to FAA rulemaking. Sense-and-avoid technology, critical to the safe operation of unmanned planes in crowded airspace, is not yet suitable for small, inexpensive UAS. In addition, concerns about privacy may delay expanded use of UAS by businesses and government agencies.

Sep 9, 2015

Federal Reserve: Emergency Lending

This report provides a review of the history of Section 13(3) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act; P.L. 111-203), including its use in 2008. It discusses the Federal Reserve's (Fed's) authority under Section 13(3) before and after the Dodd-Frank Act. It then discusses policy issues and legislation to amend Section 13(3).

Sep 8, 2015

Encryption and Evolving Technology: Implications for U.S. Law Enforcement Investigations

This report provides an overview of the perennial issue involving technology outpacing law enforcement and discusses how policy makers and law enforcement officials have dealt with this issue in the past. It discusses the current debate surrounding smartphone data encryption and how this may impact U.S. law enforcement operations. The report also discusses existing law enforcement capabilities, the debate over whether law enforcement is "going dark" because of rapid technological advances, and resulting issues that policy makers may consider.

Sep 8, 2015

Temporary Assistance for Needy Families (TANF): Financing Issues

The Temporary Assistance for Needy Families (TANF) block grant provides grants to states, Indian tribes, and territories to help them fund a wide range of benefits and services for needy families with children. It was created in the 1996 welfare reform law, which rewrote the rules for cash assistance programs for these families. The 1996 law also created TANF as a broad-purpose block grant with state flexibility to design programs to address both the effects of and root causes of childhood economic disadvantage. TANF funding is based on the amount of federal and state expenditures in its predecessor programs (Aid to Families with Dependent Children (AFDC), and related programs) in the early to mid-1990s. The bulk of federal TANF funds is in a basic block grant. Both the national total of the basic block grant, $16.5 billion per year, and each state’s grant are based on federal funding in the predecessor programs during this period. States must also expend a minimum amount of their own funds on TANF or TANF-related programs under the maintenance of effort (MOE) requirement. That minimum totals $10.4 billion per year. The MOE is based on state expenditures in the predecessor programs in FY1994. Over time, states have received some extra TANF funding: welfare-to-work grants, contingency funds, supplemental grants, and bonus funds. However, these grants were small relative to the basic block grant and MOE funding. The cash assistance caseload declined substantially in the late 1990s from its 1994 peak, resulting in a decline in spending on TANF basic assistance. In FY1995, under TANF’s predecessor programs, AFDC cash assistance represented 70% of total expenditures in the programs consolidated into TANF. By FY2000 cash assistance had declined to 40% of total TANF and MOE funds; in FY2014 cash assistance represented 26% of all TANF and MOE funds. TANF also provides funds for state-subsidized child care programs ($5.1 billion or 16% of total FY2014 TANF and MOE funds) as well as a wide range of services, including those addressing child abuse and neglect and pre-kindergarten programs. Most of TANF’s financing issues relate to its fixed level of funding, based on programs and conditions that existed in the early and mid-1990s. Neither the national total funding level nor each state’s level of funding has been adjusted for changes since then, such as inflation, the size of the cash assistance caseload, or changes in the poverty population. From FY1997 through FY2014, the TANF block grant lost 32% of its value due to inflation alone. The TANF allocation “locked in” historical differences among the states that resulted in a wide range of funding levels relative to the number of poor children. Further, TANF potentially lacks a source of sufficient additional funding in case of a future economic downturn. Should Congress seek to address these issues, it would do so in the context of budget rules that apply to TANF as a mandatory program with fixed funding. Current budget rules would require legislation to increase TANF funding to contain corresponding offsets by reducing other mandatory funds and/or increasing revenues.

Sep 8, 2015

An Analysis of Efforts to Double Federal Funding for Physical Sciences and Engineering Research

Federal funding of physical sciences and engineering (PS&E) research has played a substantial role in U.S. economic growth and job creation by creating the underlying knowledge that supports technological innovation. Some Members of Congress and leaders in industry and academia have expressed concern that recent public investments in these disciplines have been inadequate in light of the emergence of new global competitors and the science and technology-focused investments of other nations. A 2005 National Academies report, Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future, requested by several Members of Congress, recommended doubling federal basic research funding over seven years, with an emphasis on selected fields, including PS&E, to address this issue. President George W. Bush subsequently launched the American Competitiveness Initiative, which sought, in part, to double funding over 10 years for targeted accounts at three federal agencies with a research focus on physical sciences and engineering—the National Science Foundation, the Department of Energy’s Office of Science, and the Department of Commerce’s National Institute of Standards and Technology. In 2007, Congress enacted the America COMPETES Act (P.L. 110-69) which set authorization levels for FY2008-FY2010 for the targeted accounts that established, implicitly, a seven-year doubling path. Subsequently, Congress passed the America COMPETES Reauthorization Act of 2010 (P.L. 111-358), setting FY2011-FY2013 authorization levels for these accounts that implicitly extended the doubling path to 11 years. In his FY2010 budget, President Obama supported a 10-year doubling effort, but in subsequent budgets he first extended the doubling period then omitted the doubling language. Opposition to the doubling effort has centered primarily on concerns about increased spending in light of current economic conditions. Some contend that additional research funding may not translate effectively into U.S. innovation and that scarcity of funds elicits stronger research proposals. Progress toward doubling the targeted accounts has been slower than originally sought. Through FY2010, Congress had appropriated funding for the targeted accounts consistent with doubling over 12 years. However, by FY2013 appropriations for these accounts had fallen by 1.8% from their FY2010 level, extending the doubling pace to more than 22 years. Some policymakers are currently seeking to address the perceived need for increased funding for PS&E using a framework that supports sustained and predictable increases rather than using a doubling goal. And while the doubling agencies were targeted to raise overall federal spending on PS&E basic research, obligations for PS&E basic research at these agencies grew from FY2006 to FY2013 at a slower pace (3.6% CAGR) than at all other agencies (4.9% CAGR). Total federal obligations for PS&E basic research grew faster between FY2006 and FY2013 (4.2% CAGR) than in the prior decade (2.8% CAGR). However, total federal obligations for PS&E applied research grew at a slower pace (2.0% CAGR) between FY2006 and FY2013 period than in the prior decade (4.7% CAGR), as did total federal PS&E research (3.0% CAGR and 3.9% CAGR, respectively). Congress has a variety of options related to the doubling effort, including providing more funds for the targeted accounts; changing existing funding to better align with overarching goals of the doubling effort (e.g., national competitiveness, economic growth, job creation); shifting PS&E applied research and development funding to PS&E basic research; identifying and adopting new mechanisms to promote expanded cooperative research and technical collaboration among industry, academia, government, and others, and more effective approaches to technological innovation; exploring other mechanisms for meeting the economic goals of the doubling effort by further incentivizing private sector efforts; identifying and adopting mechanisms by which the United States might promote increased access to and use of PS&E research performed in other nations; accepting a slower doubling path; or delaying or abandoning the effort.

Sep 8, 2015

DHS Appropriations FY2016: Protection, Preparedness, Response, and Recovery

This report is part of a suite of reports that discuss appropriations for the Department of Homeland Security (DHS) for FY2016. It specifically discusses appropriations for the components of DHS included in the third title of the homeland security appropriations bill—the National Protection and Programs Directorate (NPPD), the Office of Health Affairs (OHA), and the Federal Emergency Management Agency (FEMA). Collectively, Congress has labeled these components in the appropriations act in recent years as “Protection, Preparedness, Response, and Recovery.” The report provides an overview of the Administration’s FY2016 request for Protection, Preparedness, Response, and Recovery, and the appropriations proposed by Congress thus far. Rather than limiting the scope of its review to the third title, the report includes information on provisions throughout the proposed bill and report that directly affect these functions. Protection, Preparedness, Response, and Recovery is the second largest of the four titles that carry the bulk of the funding in the bill. The Administration requested $6,222 million for these components in FY2016, $267 million more than was provided for FY2015. These three components make up 15.0% of the administration’s $41.4 billion request for the department in net discretionary budget authority, and the proposed additional funding is 15.5% of the total net increase requested. Most of the proposed net discretionary increase is for NPPD ($157 million, or 10.5% more than last year) and its work in cybersecurity and communications. The Administration also requested an additional $6.7 billion not reflected above for the Federal Emergency Management Agency (FEMA) in disaster relief funding, as defined by the Budget Control Act (BCA, P.L. 112-25). Senate-reported S. 1619 envisions the components included in this title receiving $6,291 million in net discretionary budget authority. This would be $69 million (1.1%) more than requested, and $336 million (5.6%) more than was provided in FY2015. The Senate-reported bill also includes the requested disaster relief funding. House-reported H.R. 3128 envisions the components included in this title receiving $6,122 million in net discretionary budget authority. This would be $100 million (1.6%) less than requested, and $167 million (2.8%) more than was provided in FY2015. Like the Senate-reported bill, the House-reported bill also includes the requested disaster relief funding. Additional information on the broader subject of FY2016 funding for the department can be found in CRS Report R44053, Department of Homeland Security Appropriations: FY2016, as well as links to analytical overviews and details regarding appropriations for other components. This report will be updated throughout the FY2016 appropriations process.

Sep 8, 2015

The Vessel Incidental Discharge Act: Background and Issues

Today stakeholders broadly agree on the need for strong measures to control vessel discharges, especially ballast water discharges, that can introduce a wide range of contaminants into U.S. and international waters. Ballast water has been identified as a major pathway for introduction of aquatic nuisance, or invasive, species that can harm aquatic ecosystems. Vessel discharge requirements in the United States are a result of U.S. Coast Guard regulations; a U.S. Environmental Protection Agency (EPA) permit; and individual state requirements that apply in nearly one-half of the states. Vessels also are subject to a number of international agreements, treaties, and Conventions. This report discusses the combination of regulations and standards, which is at issue today and is addressed in legislation in the 114th Congress, the Vessel Incidental Discharge Act (S. 373, Title VIII of S. 1611 as ordered reported, and H.R. 980). The existing regulatory system presents several issues. First, for some time, the maritime industry has argued for harmonization of what it views as duplicative federal rules for vessel discharges, especially for ballast water discharges, through a single set of requirements. Shipping and other industry groups have raised concerns that EPA’s permit overlaps with mandates in Coast Guard rules, making implementation costly and confusing for vessel owners. Others, especially some environmental groups, favor centralizing regulation with the EPA. Second, shipping and other industry groups also have objected to conditions that states attach to EPA’s permit, which they argue create a patchwork of inconsistent requirements that are hard to implement. However, most states oppose proposals to preempt state action in this area. Third, although the current Coast Guard and EPA requirements for ballast water call for identical treatment standards, some states and environmental groups favor more stringent standards in order to eliminate invasions of aquatic invasive species. EPA and the Coast Guard believe that technology to meet more stringent standards is not technically or economically achievable at this time. Legislation intended to strengthen regulation and management of vessel discharges, especially discharges that can be a source of non-native aquatic nuisance species in U.S. waters, has been introduced in Congress for more than a decade. The legislation in the 114th Congress addresses many of the concerns with the current regulatory system, especially issues of concern to the maritime and shipping industry. The Vessel Incidental Discharge Act would establish a single federal ballast water management standard, specifying standards issued by the Coast Guard in 2012 as the baseline. Under the legislation, these standards would supersede existing state standards or permits and also would supersede EPA’s ballast water management requirements under the Clean Water Act. Upon enactment, the legislation would be the exclusive statutory authority for federal regulation of vessel discharges. The Coast Guard would be directed to adopt more stringent ballast water standards within eight years, unless a feasibility review determines that the specified more stringent standards are not attainable. The Coast Guard could establish lower or higher revised performance standards with respect to classes of vessels, if appropriate. Following enactment of the bill, manufacturers of ballast water treatment technology could only sell, deliver, or import technology that has been certified by the Coast Guard as meeting criteria in the legislation. Finally, a state could adopt or enforce a more stringent ballast water performance standard if the Coast Guard determines that compliance with the state standard is achievable and is consistent with obligations under relevant international treaties or agreements.

Sep 4, 2015

Drought Legislation: Comparison of Selected Provisions in H.R. 2898 and S. 1894

Several western states are experiencing extreme, and in some cases exceptional, drought conditions. The persistence and intensity of the current drought has received considerable attention from Congress. To date, federal legislative proposals to address drought have focused on the federal role in managing water supplies, supporting drought-related projects and programs, and conserving fish species and their habitat. A number of bills in the 114th Congress include proposals to address drought, including S. 176, S. 1837, S. 1894, H.R. 2898, and H.R. 3045, among others. Two of these bills have received significant attention as potential legislative vehicles for drought proposals and are compared in this report: H.R. 2898 and S. 1894. H.R. 2898, the Western Water and American Food Security Act, was passed by the House on July 17, 2015. The House bill has 11 titles. S. 1894, the California Emergency Drought Relief Act of 2015, was introduced in the Senate on July 29, 2015. The Senate bill includes 4 titles. Both bills address a wide range of drought issues, including those that are specific to the state of California and those that are regional or national in scope. This report provides a high-level comparison of S. 1894 (as introduced) and H.R. 2898 (as passed by the House). It identifies comparable issue areas addressed in both bills and discusses selected commonalities and differences between those provisions. It also summarizes selected provisions in each bill that are not addressed in the other bill. Certain issues are addressed in both pieces of legislation. For example, both bills contain multiple sections that focus on water infrastructure and water conveyance in California. These sections include provisions that would address operations of the federal Central Valley Project (CVP) and the California State Water Project (SWP) as they relate to managing water flows and conserving endangered and threatened fish populations (i.e., the Delta smelt and certain salmon species) listed under the Endangered Species Act (ESA; 16 U.S.C. §§1531-1543). Some of these provisions would be triggered by drought conditions, whereas others would be permanent changes. Other sections address common goals throughout the West, such as the facilitation of new surface water storage projects. Although the bills address some common issue areas and include some similar provisions, their approaches often differ in important ways. For instance, S. 1894 provides broad guidance for the Secretaries of the Interior and Commerce to maximize water deliveries in accordance with applicable laws; H.R. 2898 has a similar directive but also includes a number of specific requirements that could alter the current implementation of biological opinions (BiOps) under the ESA. Outside of common issue areas addressed in both bills, each would also authorize a number of changes that have no obvious corollary in the other bill. For example, H.R. 2898 includes provisions that would alter implementation of the Central Valley Project Improvement Act (CVPIA; P.L. 102-575), which is not addressed in S. 1894. Similarly, S. 1894 contains new authorities related to water reuse and recycling, which are not addressed in H.R. 2898. Key issues raised by these bills include how to address the management of federal water supply projects in times of drought and how to handle the overall increasing demands for water supplies despite scarce water resources. Congress may also consider whether federal law and its implementation adequately address the balance between competing demands (e.g., fishery conservation and agricultural use) for limited supplies and whether changes are warranted during drought and/or under other circumstances.

Sep 4, 2015

Essential Air Service (EAS)

The Airline Deregulation Act of 1978 gave airlines almost total freedom to determine which domestic markets to serve and what airfares to charge. This raised the concern that communities with relatively low passenger levels would lose service as carriers shifted their operations to serve larger and often more profitable markets. To address this concern, Congress established the Essential Air Service (EAS) program to ensure that small communities that were served by certificated air carriers before deregulation would continue to receive scheduled passenger service, with subsidies if necessary. The EAS program is administered by the Office of the Secretary of the U.S. Department of Transportation (DOT), which enforces the eligibility requirements and determines the level of service required at eligible communities. As of June 1, 2015, 159 communities in the United States received subsidized service under EAS. Over the years, Congress has limited the scope of the program, mostly by eliminating subsidy support for communities within a specified driving distance of a major hub airport and capping subsidies under certain criteria. The FAA Modernization and Reform Act of 2012 (P.L. 112-95) included additional EAS reform measures, including the requirement that a community have a minimum number of daily enplanements to remain eligible for subsidy. Further, the Consolidated Appropriations Act, 2014 (P.L. 113-76), and the Continuing Appropriations Resolution, 2015 (P.L. 113-164), introduced additional measures to shrink the program. As of yet, some of these measures have not been fully enforced. Despite these efforts to limit spending for EAS subsidies, program expenditures have risen 123% since 2008, after adjusting for inflation, and are projected to continue rising through FY2016. Some factors contributing to the rising program costs are external, such as unusually high aviation fuel prices from 2008 through 2014 and the prospect of higher pilot wage costs due to changes in federal regulations. However, certain features of the EAS program itself may have contributed to the rising costs. The statute governing EAS does not list cost among the four factors DOT must consider when evaluating air carriers’ bids to provide subsidized EAS service, and neither the carriers nor the communities receiving subsidized service are obliged to select service options that minimize the government’s costs. EAS traditionally has been authorized in laws reauthorizing the Federal Aviation Administration (FAA) and other civil aviation programs. The current authorization act expires September 30, 2015. EAS is likely to be among the subjects of debate as Congress considers extending the current law or writing a new authorization act.

Sep 3, 2015

Natural Disasters and Hazards: CRS Experts

Sep 2, 2015

Navy Lasers, Railgun, and Hypervelocity Projectile: Background and Issues for Congress

This report provides background information and issues for Congress on three potential new weapons that could improve the ability of Navy surface ships to defend themselves against enemy missiles: solid state lasers (SSLs), the electromagnetic railgun (EMRG), and the hypervelocity projectile (HVP). Any one of these new weapon technologies, if successfully developed and deployed, might be regarded as a "game changer" for defending Navy surface ships against enemy missiles.

Sep 2, 2015

ESEA Title I-A Formulas: In Brief

Aug 28, 2015

Financial Services and General Government (FSGG): FY2015 Appropriations

Congressional Research Service 7-5700 www.crs.gov R44172 Summary The Financial Services and General Government (FSGG) appropriations bill includes funding for the Department of the Treasury, the Executive Office of the President (EOP), the judiciary, the District of Columbia, and more than two dozen independent agencies. In its current form, it has existed since the 2007 reorganization of the House and Senate Committees on Appropriations. The House and Senate FSGG bills fund nearly the same agencies, with the exception of the Commodities and Futures Trading Commission (CFTC), which is funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate. The FSGG bill does not include many financial regulatory agencies, which are funded outside of the appropriations process. On March 4, 2014, President Obama submitted his FY2015 budget request. The request included a total of $45.2 billion for agencies funded through the FSGG appropriations bill, including $280 million for the CFTC. On July 2, 2014, the House Committee on Appropriations reported the Financial Services and General Government Appropriations Act, 2015 (H.R. 5016, H.Rept. 113-508, H.Rept. 113-508). The House of Representatives amended and passed H.R. 5016 on July 16, 2014. H.R. 5016 as passed would have provided $42.3 billion for agencies funded through the House FSGG Appropriations Subcommittee bill. In addition, the CFTC would have received $217.6 million through the FY2015 Agriculture appropriations bill (H.R. 4800, H.Rept. 113-468). Total FY2015 funding in the House would have been $42.5 billion, about $2.7 billion below the President’s FY2015 request. On July 24, 2014, the Senate Appropriations Subcommittee on Financial Services and General Government (hereinafter “the Senate subcommittee”) reported an unnumbered original bill as the Financial Services and General Government Appropriations Act, 2015. The Senate subcommittee bill would have provided $44.1 billion for FSGG agencies, including $280 million for the CFTC, approximately $1.1 billion below the President’s FY2015 request. Prior to the beginning of FY2015, congressional action occurred on an interim continuing resolution (CR) that would have provided continuing appropriations for projects and activities for which authority existed during the previous fiscal year. H.J.Res. 124 passed the House on September 17 and the Senate on September 18, 2014, and it was signed by the President on September 19, 2014 (P.L. 113-164). P.L. 113-164 provided funding through December 11, 2014. Two additional CRs were passed prior to a final FY2015 FSGG appropriation. H.J.Res 130 (P.L. 113-202) was enacted on December 12, providing funding through December 13, 2014, and H.J.Res 313 (P.L. 113-302) was enacted on December 13, providing funding through December 17, 2014. The full FY2015 FSGG appropriation was enacted as Division E of H.R. 83, the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235). The bill was passed as an amendment to a previously passed bill in the House on December 11 and the Senate on December 13, 2014. It was signed by the President on December 16, 2014. P.L. 113-235 provided a total of $43.2 billion for the FSGG agencies, $2 billion less than the original request. Contents Administration and Congressional Action 1 Overview 2 The Department of the Treasury 4 Brief Overview of the Treasury’s Structure and Functions 4 Departmental Offices 4 Department-wide Systems and Capital Investments 5 Office of Inspector General 5 Treasury Inspector General for Tax Administration 5 Special Inspector General for the Troubled Asset Relief Program 5 Financial Crimes Enforcement Network 5 Bureau of the Fiscal Service 5 Alcohol and Tobacco Tax and Trade Bureau 6 Community Development Financial Institutions Fund 6 Internal Revenue Service 6 The President’s Budget Request 8 Departmental Offices 8 Department-wide Systems and Capital Investments 9 Office of Inspector General 9 Office of the Special Inspector General for the Troubled Asset Relief Program 10 Treasury Inspector General for Tax Administration 10 Community Development Financial Institutions Fund 11 Financial Crimes Enforcement Network 11 Alcohol and Tobacco Tax and Trade Bureau 12 Bureau of the Fiscal Service 12 Treasury Forfeiture Fund 13 Internal Revenue Service 13 IRS Oversight Board’s Assessment of the IRS FY2015 Budget Request 14 House Measure (H.R. 5016) 16 Departmental Offices 16 Office of Terrorism and Financial Intelligence 16 Office of Inspector General 16 Treasury Inspector General for Tax Administration 17 Special Inspector General for the Troubled Asset Relief Program 17 Financial Crimes Enforcement Network 17 Treasury Forfeiture Fund 18 Bureau of the Fiscal Service 18 Alcohol and Tobacco Tax and Trade Bureau 18 Community Development Financial Institutions Fund 19 Internal Revenue Service 19 Administration Reaction to H.R. 5016 21 Senate Measure (Unnumbered Subcommittee bill) 21 Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83,P.L. 113-235) 22 Departmental Offices 22 Office of Terrorism and Financial Intelligence 23 Department-Wide Systems and Capital Investments 23 Office of Inspector General 23 Treasury Inspector General for Tax Administration 23 Special Inspector General for the Troubled Asset Relief Program 23 Financial Crimes Enforcement Network 23 Treasury Forfeiture Fund 24 Bureau of the Fiscal Service 24 Alcohol and Tobacco Tax and Trade Bureau 24 Community Development Financial Institutions Fund 24 Internal Revenue Service 24 Other Issues 25 Executive Office of the President 26 The President’s Budget Request and Key Issues 27 House Measure (H.R. 5016) 29 Senate Measure (Unnumbered Subcommittee bill) 33 Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83, P.L. 113-235) 35 The Judiciary 39 The Judiciary Budget and Key Issues 40 Judicial Security 41 Supreme Court 42 U.S. Court of Appeals for the Federal Circuit 42 U.S. Court of International Trade 42 Courts of Appeals, District Courts, and Other Judicial Services 42 Administrative Office of the U.S. Courts 43 Federal Judicial Center 44 United States Sentencing Commission 44 Judiciary Retirement Funds 44 Administrative Provisions 44 District of Columbia 45 The President’s Budget Request 48 The District’s FY2015 Budget 49 House Measure (H.R. 5016) 49 Senate Measure (Unnumbered Subcommittee bill) 50 Continuing Appropriations Resolution FY2015 (P.L. 113-164) 51 Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83, P.L. 113-235) 52 Independent Agencies 52 Bureau of Consumer Financial Protection 54 Commodity Futures Trading Commission 54 Consumer Product Safety Commission 55 The President’s Budget Request 55 House Measure (H.R. 5016) 56 Senate Measure (Unnumbered Subcommittee bill) 56 Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83,P.L. 113-235) 57 Election Assistance Commission 57 Federal Communications Commission 58 House Measure (H.R. 5016) 58 Senate Measure (Unnumbered Subcommittee bill) 59 Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83, P.L. 113-235) 59 Federal Deposit Insurance Corporation: Office of the Inspector General 59 Federal Election Commission 60 Federal Trade Commission 61 The President’s Budget Request 61 House Measure (H.R. 5016) 62 Senate Measure (Unnumbered Subcommittee bill) 63 Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83, P.L. 113-235) 63 General Services Administration 63 Electronic Government Fund (Now the Federal Citizen Services Fund) 65 Independent Agencies Related to Personnel Management Appropriations 66 Federal Labor Relations Authority 68 Merit Systems Protection Board 68 Office of Personnel Management 69 Office of Special Counsel 71 National Archives and Records Administration 71 National Credit Union Administration 72 Privacy and Civil Liberties Oversight Board 72 Recovery Accountability and Transparency Board 73 Securities and Exchange Commission 73 Selective Service System 73 Small Business Administration 74 The President’s Budget Request 74 House Measure (H.R. 5016) 75 Senate Measure (Unnumbered Subcommittee bill) 75 Consolidated and Further Continuing Appropriations Act, 2015 (H.R. 83, P.L. 113-235) 76 United States Postal Service 76 United States Tax Court 79 General Provisions Government-Wide 80 Cuba Sanctions 81 Tables Table 1. Status of FY2015 Financial Services and General Government Appropriations 2 Table 2. Financial Services and General Government Appropriations, FY2014-FY2015 3 Table 3. Department of the Treasury Appropriations, FY2014-FY2015 7 Table 4. Executive Office of the President Appropriations, FY2014-FY2015 26 Table 5. The Judiciary Appropriations, FY2014-FY2015 39 Table 6. District of Columbia Appropriations, FY2014-FY2015: Special Federal Payments 47 Table 7. Independent Agencies Appropriations, FY2014-FY2015 53 Table 8. GSA Appropriations, FY2014-FY2015 64 Table 9. Independent Agencies Related to Personnel Management Appropriations, FY2014-FY2015 67 Contacts Author Contact Information 83 Administration and Congressional Action On March 4, 2014, President Obama submitted his FY2015 budget request, which included a total of $45.2 billion for agencies funded through the Financial Services and General Government (FSGG) appropriations bill, including $280 million for the Commodity Futures Trading Commission (CFTC). On July 2, 2014, the House Committee on Appropriations (hereinafter “the House committee”) reported the Financial Services and General Government Appropriations Act, 2015 (H.R. 5016, H.Rept. 113-508). The House of Representatives considered H.R. 5016 on July 16, 2014, amending the bill and then passing it on a vote of 228-208. H.R. 5016 as passed would have provided $42.3 billion for agencies funded through the House FSGG Appropriations Subcommittee bill. Separately, the House FY2015 Agriculture appropriations bill (H.R. 4800, H.Rept. 113-468) would have provided $217.6 million for the CFTC. Total FY2015 funding in the House bills would have been $42.5 billion, about $2.7 billion below the President’s FY2015 request. On July 24, 2014, the Senate Appropriations Subcommittee on Financial Services and General Government (hereinafter “the Senate subcommittee”) reported an unnumbered original bill as the Financial Services and General Government Appropriations Act, 2015. It also released a draft subcommittee report. The Senate subcommittee bill would have provided $44.1 billion for FSGG agencies, including $280 million for the CFTC, approximately $1.1 billion below the President’s FY2015 request. Table 1 reflects the status of FSGG appropriations measures at key points in the appropriations process. Prior to the beginning of FY2015, congressional action occurred on an interim continuing resolution (CR) to provide continuing appropriations for projects and activities for which authority existed during the previous fiscal year. H.J.Res. 124 passed the House on September 17, 2014, passed the Senate on September 18, 2014, and was signed by the President on September 19, 2014 (P.L. 113-164). P.L. 113-164 provided funding through December 11, 2014. Two additional CRs were passed prior to a final FY2015 FSGG appropriation: (1) H.J.Res 5016 (P.L. 113-202) was enacted on December 12, providing funding through December 13, 2014; and (2) H.J.Res 313 (P.L. 113-203) was enacted on December 13, providing funding through December 17, 2014. The full FY2015 FSGG appropriations were enacted as Division E of H.R. 83, the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235). H.R. 83 was introduced as a measure relating to the energy needs of the insular areas of the United States. The appropriations language was adopted as an amendment in the House on December 11, 2014. The amended bill passed the Senate on December 13, 2014, and was signed by the President on December 16, 2014. P.L. 113-235 provided a total of $43.2 billion for the FSGG agencies, $2 billion less than the original request. In lieu of a report on H.R. 83, the chairman of the House Committee on Appropriations submitted an explanatory statement, printed in the Congressional Record for December 11, 2014, henceforth referred to as “Explanatory Statement, Consolidated and Further Appropriations Act, 2015.” Table 1. Status of FY2015 Financial Services and General Government Appropriations Subcommittee Markup Committee Report Floor Consideration Conference Report Final Adoption Public Law House Senate House Senate House Senate House Senate 6/18/14 6/24/14 H.Rept. 113-508 6/25/14NoneH.R. 5106 7/16/14 253-170NoneNoneH.R. 83 12/11/14 219-206H.R. 83 12/13/14 56-40P.L. 113-235 12/16/13 Source: Prepared by the Congressional Research Service (CRS). Overview The FSGG appropriations bill includes funding for the Department of the Treasury, the Executive Office of the President (EOP), the judiciary, the District of Columbia, and more than two dozen independent agencies. The bill does not, however, include funding for many financial regulatory agencies, which are funded outside of the appropriations process. The House and Senate Committees on Appropriations reorganized their subcommittee structures in early 2007. Each chamber created a new Financial Services and General Government Subcommittee. In the House, the jurisdiction of the FSGG Subcommittee comprised primarily agencies that had been under the jurisdiction of the Subcommittee on Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies, commonly referred to as “TTHUD.” In addition, the House FSGG Subcommittee was assigned four independent agencies that had been under the jurisdiction of the Science, State, Justice, Commerce, and Related Agencies Subcommittee: the Federal Communications Commission (FCC), the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the Small Business Administration (SBA). In the Senate, the jurisdiction of the new FSGG Subcommittee was a combination of agencies from the jurisdiction of three previously existing subcommittees. The District of Columbia, which had its own subcommittee in the 109th Congress, was placed under the purview of the FSGG Subcommittee, as were four independent agencies that had been under the jurisdiction of the Commerce, Justice, Science, and Related Agencies Subcommittee: the FCC, FTC, SEC, and SBA. In addition, most of the agencies that had been under the jurisdiction of the TTHUD Subcommittee were assigned to the FSGG Subcommittee. As a result of this reorganization, the House and Senate FSGG Subcommittees have nearly identical jurisdictions, except that the CFTC is under the jurisdiction of the FSGG Subcommittee in the Senate and the Agriculture Subcommittee in the House. Table 2 lists FSGG agencies enacted amounts for FY2014, the President’s FY2015 request, amounts from H.R. 5016 as passed by the House and the unnumbered original bill reported by the Senate FSGG Appropriations Subcommittee, and P.L. 113-235 as enacted. Table 2. Financial Services and General Government Appropriations, FY2014-FY2015 (in millions of dollars) Agency FY2014 Enacted FY2015 Request FY2015 House passed FY2015 Senate Subcommittee FY2015 Enacted Department of the Treasury $11,895 $12,845 $10,344 $12,012 $11,522 Executive Office of the President 670 628 669 683 688 The Judiciary 6,912 7,299 7,096 7,140 7,117 District of Columbia 673 702 637 701 680 Independent Agencies 2,305 2,769 1,943 2,557 2,293 Mandatory Retirement Accounts 20,762 20,980 20,980 20,980 20,980 Total $43,217 $45,222 $41,669 $44,073 $43,191 Sources: P.L. 113-235 and Explanatory Statement; H.R. 5016 and accompanying H.Rept. 113-508; unnumbered FSGG bill reported by Senate Subcommittee; and H.R. 4800 and accompanying H.Rept. 113-468. Notes: Totals for each column include funding for the Commodity Futures Trading Commission (CFTC). The CFTC is funded in the House through the Agriculture appropriations bill and in the Senate through the FSGG bill. Figures include rescissions and offsetting collections. The mandatory spending for the President’s salary is contained in Title VI whereas the rest of presidential spending is in Title II. The mandatory retirement accounts include funding for judiciary retirement accounts. Totals may not sum due to rounding. The Department of the Treasury This section examines FY2015 appropriations for the Treasury Department and its operating bureaus, including the Internal Revenue Service (IRS). The Treasury Department performs a variety of critical functions. These include protecting the nation’s financial system against various illicit activities (such as money laundering and terrorist financing), collecting tax revenue and enforcing tax laws, managing and accounting for federal debt, administering the federal government’s finances, regulating certain financial institutions, and producing and distributing coins and currency. Brief Overview of the Treasury’s Structure and Functions At its most basic level of organization, Treasury consists of departmental offices and operating bureaus. In general, the offices are responsible for formulating and implementing policy initiatives and managing Treasury’s day-to-day operations, while the bureaus handle specific tasks assigned to Treasury, mainly through statutory mandates. In the past decade or so, the bureaus have accounted for more than 95% of the agency’s funding and workforce. With one exception, the bureaus and offices can be neatly divided into those engaged in financial management and regulation and those engaged in law enforcement. In recent decades, the Office of the Comptroller of the Currency (OCC), U.S. Mint, Bureau of Engraving and Printing (BEP), Financial Management Service (FMS), Bureau of the Public Debt (BPD), and Community Development Financial Institutions (CDFI) Fund have been responsible for the management of the federal government’s finances or the supervision and regulation of the key parts of the U.S. financial system. In contrast, law enforcement has been central to the duties managed by the Alcohol and Tobacco Tax and Trade Bureau (TTB), Financial Crimes Enforcement Network (FinCEN), and the Treasury Forfeiture Fund (TFF). (With the advent of the Department of Homeland Security [DHS] in 2002, Treasury’s direct involvement in law enforcement shrank considerably.) The exception to this dichotomy is the IRS, whose main responsibilities encompass both the collection of tax revenue and the enforcement of tax laws and regulations. The operating budgets for most Treasury bureaus and offices are largely funded through annual discretionary appropriations. This is the case for the IRS, FMS, BPD, FinCEN, TTB, Office of the Inspector General (OIG), Treasury Inspector General for Tax Administration (TIGTA), Special Inspector General for the Troubled Asset Relief Program (SIGTARP), and CDFI Fund. By contrast, funding for the Treasury Franchise Fund, U.S. Mint, BEP, and OCC comes exclusively from the fees they receive for the services and products they provide to the public and other government agencies. A brief overview of each appropriations account for the Treasury Department follows: Departmental Offices The Departmental Offices (DO) account covers salaries and other expenses of offices in the department that formulate and implement policies dealing with domestic and international finance, terrorist financing and other financial crimes, taxation, and the domestic economy. Funding is also provided through DO for the Treasury Department’s financial and personnel management, procurement operations, and information and telecommunications systems. Department-wide Systems and Capital Investments The Department-wide Systems and Capital Investments Program (DSCIP) account covers investments in new technology and capital improvements aimed at modernizing Treasury’s administrative processes and increasing the efficiency of its operations across the board. Office of Inspector General The OIG account covers salaries and other expenses related to the audits and investigations conducted by OIG staff. These evaluations are intended to improve the efficiency and effectiveness of Treasury’s operations and programs; prevent waste, fraud, and abuse; and inform the Treasury Secretary and Congress about problems or shortcomings in those activities. Treasury Inspector General for Tax Administration The TIGTA account covers salaries and other expenses related to the audits and investigations conducted by TIGTA staff. These evaluations focus mainly on IRS’s efforts to efficiently and effectively administer federal tax law. TIGTA’s investigations are also intended to deter or prevent fraud and abuse in IRS programs and operations, and recommend changes in those activities to solve problems or remedy deficiencies. Special Inspector General for the Troubled Asset Relief Program The SIGTARP account covers salaries and other expenses related to the audits and investigations into the management and effectiveness of TARP conducted by SIGTARP staff. The office was established by the same law that created TARP: the Emergency Economic Stabilization Act. Financial Crimes Enforcement Network The FinCEN account covers salaries and other expenses related to the activities of FinCEN, whose main responsibility is to protect the domestic financial system from illicit uses, such as money laundering and terrorist financing. The statutory basis for this role is the Bank Secrecy Act (BSA). FinCEN administers key provisions of the act by developing and implementing regulations and other guidance and working with private financial institutions and eight federal agencies to ensure that the financial industry complies with the BSA’s strict reporting requirements. Bureau of the Fiscal Service The Bureau of the Fiscal Service (BFS) account provides funding for two sets of functions that until FY2014 were handled by two separate operating bureaus with separate appropriations accounts: the FMS and the BPD. After the consolidation, the BFS account covers salaries and other expenses related to developing and implementing payment policies and procedures for federal agencies; collecting debts owed to those agencies and state governments; and providing financial accounting, reporting, and financing services for the federal government and its agents. In addition, the BFS account covers salaries and other expenses related to the federal government’s public debt operations and the sale of U.S. bonds. Alcohol and Tobacco Tax and Trade Bureau The TTB account covers salaries and other expenses related to the activities of TTB, which was established by the Homeland Security Act of 2002. TTB is responsible for enforcing certain laws regarding the domestic sale and production of alcohol and tobacco products and federal consumer safety laws regarding the use of alcohol and tobacco products. Community Development Financial Institutions Fund The account for the CDFI Fund provides funding for CDFIs’ activities. These institutions, which include community development banks, credit unions, and venture capital funds, provide financing (in the form of grants, loans, and equity investments) for affordable housing projects, small businesses, and community development projects in eligible areas. In addition, the fund administers the Bank Enterprise Award (BEA) Program and the New Markets tax credit. Since its creation in 1994, the CDFI Fund has awarded more than $2 billion to CDFIs, community development entities (CDEs), and depository institutions insured by the Federal Deposit Insurance Corporation (FDIC) through the CDFI Program, the Native American CDFI Assistance Program, and the BEA Program. In addition, the Fund has allocated $40 billion in New Markets tax credits to CDEs. Internal Revenue Service The IRS account covers salaries and other expenses related to the administration of federal tax laws and the collection of revenue. Two critical components of the IRS’s operations and programs are (1) the services it offers taxpayers to help them understand and meet their tax obligations and (2) the measures it takes to improve voluntary taxpayer compliance and punish those who violate the law. Some appropriated funds are used to develop or upgrade business operations and information systems, as part of an ongoing effort by the IRS to improve the effectiveness and efficiency of taxpayer services and enforcement. Table 3 lists for each of Treasury’s appropriations accounts the amounts for FY2014 as enacted, the President’s FY2015 request, H.R. 5016 as passed by the House, the unnumbered original bill reported by the Senate Appropriations Subcommittee on Financial Services and General Government, and P.L. 113-235 as enacted. Table 3. Department of the Treasury Appropriations, FY2014-FY2015 (in millions of dollars) Appropriations Account FY2014 Enacted FY2015 Request FY2015 House-passed FY2015 Senate Subcommittee FY2015 Enacted Departmental Offices (Salaries and Expenses) $312 $309 $173 $317 $210 Department-wide Systems and Capital Investments 3 3 — 3 3 Office of Terrorism and Financial Intelligence — — 120 — 113 Office of Inspector General 35 35 35 35 35 Treasury Inspector General for Tax Administration 156 157 159 157 158 Special Inspector General for Troubled Asset Relief Program 35 34 34 34 34 Community Development Financial Institutions Fund 226 225 231 230 231 Financial Crimes Enforcement Network 112 109 112 109 112 Bureau of the Fiscal Servicea 360 348 348 348 348 Alcohol and Tobacco Tax and Trade Bureau 99 96 96 100 100 Payment for Losses in Shipment 2 2 2 2 2 Internal Revenue Service (total) 11,291 12,477 9,803 11,527 10,945 Taxpayer Services 2,123 2,318 2,139 2,200 2,157 Enforcementb 5,022 5,372 3,796 5,054 4,860 Operations Support Activitiesc 3,741 4,457 3,618 3,942 3,638 Business Systems Modernization 313 330 250 330 290 General Provision 92 — — — — Rescissions: Treasury Forfeiture Fund (-736) (-950) (-750) (-850) (-769) Total $11,895 $12,845 $10,344 $12,012 $11,522 Sources: P.L. 113-235 and Explanatory Statement; H.R. 5016 and accompanying H.Rept. 113-508; unnumbered FSGG bill reported by Senate Subcommittee; and the U.S. Treasury Department. Notes: Figures are rounded and may not sum due to rounding. Starting in FY2104, the appropriations accounts for the Financial Management Service and the Bureau of Public Debt were combined into a single account called the Bureau of Fiscal Service. The main justification for the consolidation was to improve the efficacy and efficiency of Treasury’s financial management operations. The requested appropriations for FY2015 include $238 million in additional funds as a program integrity cap adjustment for IRS enforcement initiatives to reduce future deficits. The requested appropriations for FY2015 include $242 million in additional funds as a program integrity cap adjustment for IRS enforcement initiatives to reduce future deficits. The President’s Budget Request The President requested $13.315 billion (not including the proposed cancellation of $950 million in unobligated balances from the TFF) in appropriations for the Department of the Treasury in FY2015, or $950 million more than the amount enacted for FY2014. Under the budget request, the IRS would have received $12.477 billion. The nine other Treasury appropriations accounts identified in the proposal would have received a total of $1.318 billion. Treasury’s FY2015 budget request was intended to promote the following six “strategic” goals: foster domestic economic growth and stability while continuing to reform the financial system; enhance U.S. competitiveness and job creation; encourage international financial stability and balanced growth in the global economy; reform and modernize the federal fiscal management and tax systems; protect the financial system from illegal activities and use financial measures to counter threats to national security; and improve the effectiveness and efficiency of government programs through the increased use of electronic transactions with customers. More details on the Administration’s budget request for each Treasury appropriations account follow. Departmental Offices The President’s FY2015 budget request for the Treasury Department included $308.7 million in appropriations for DO, or $3.7 million less than the amount enacted for FY2014. With the addition of projected reimbursable expenses associated with activities funded through the DO account, the DO operating budget would have totaled $378.2 million in FY2015. Of the requested amount, $37.9 million would have gone to executive direction, $57.5 million to international affairs and economic policy, $68.7 million to domestic finance and tax policy, $105.9 million to terrorism and financial intelligence, and $38.6 million to Treasury management and related programs. Department-wide Systems and Capital Investments The FY2015 budget request for the Treasury Department called for $2.7 million in appropriations for DSCIP, or the same amount enacted in FY2014. No funds were appropriated for the account in FY2012 and FY2013. Of the requested amount, $1.5 million would have been used to design and install a “Data Leakage Protection” system to monitor the department’s outgoing data (including email) to determine if any sensitive information was being “inadvertently transmitted.” The remaining $1.2 million would have been used to replace the interior rain leaders in the main Treasury building and repair or replace windows damaged by water leaks. Office of Inspector General The Treasury Department asked for $35.4 million in appropriated funds for OIG in FY2015, or $551,000 more than the amount enacted for FY2014. Allowing for an estimated $13.0 million in payments for services rendered by OIG, its operating budget in FY2015 could have totaled $48.4 million. The funds would have been used to conduct mandatory and other audits and investigations of the department’s riskier programs and operations. Under the budget request, the Office of Audits would have received $28.3 million in appropriated funds, as well as the $13.0 million in reimbursements. Among the mandatory audits are those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Federal Information Security Management Act, the Federal Deposit Insurance Act, the Improper Payments Elimination and Recovery Act, and the American Recovery and Reinvestment Act of 2009. In addition, OIG is responsible for conducting audits of projects and programs funded through the Gulf Coast Restoration Trust Fund; the budget request included $2.8 million for costs related to OIG’s oversight of the trust fund projects and programs. The Office of Audits expects to complete 75 audits in FY2015. The remaining $7.1 million of the requested appropriations would have been allocated to the Office of Investigations. Its main priorities for FY2015 are investigating (1) allegations of criminal and other misconduct by Treasury employees, (2) allegations of fraud and other crimes related to Treasury contracts, grants, and loan guarantees, (3) Treasury programs and operations that issue licenses, provide benefits, and regulate financial institutions, and (4) threats to Treasury employees and facilities. Office of the Special Inspector General for the Troubled Asset Relief Program The Treasury Department requested $34.2 million in appropriations for SIGTARP in FY2015, or $689,000 less than the amount enacted for FY2014. This decrease reflected $1.5 million in anticipated efficiency savings, along with an increase of $823,000 to maintain the FY2014 level of operation. When combined with an expected $11.9 million in funds from other accounts and unobligated balances from previous years, the budget request would have given SIGTARP an operating budget of $46.2 million in FY2015. The funds would have been used to support the office’s main duties of fostering transparency in Treasury’s management of TARP-funded programs for which the federal government has contracts or guarantees; assessing the effectiveness of TARP; and preventing, investigating, and referring for prosecution instances of waste, fraud, and abuse in TARP-funded programs. SIGTARP carries out its responsibilities through audits and investigations. In FY2015, accordi

Aug 28, 2015

Follow-On Biologics: Intellectual Property Issues

The term “biologics” refers to a category of medical preparations derived from a living organism. These medicines have added notable therapeutic options for many diseases and impacted fields such as oncology and rheumatology. The biologics industry invests extensively in R&D and contributes to a rapidly expanding market for these treatments. Biologics are often costly, however, in part due to the sophistication of the technologies and the manufacturing techniques needed to make them. Compared to the number of generic drugs available in traditional pharmaceutical markets, few “follow-on” biologics compete with the original, brand-name product. The lack of competition in the biologics markets was perceived to be a consequence of the complexity of biologics in comparison with small-molecule, chemical-based pharmaceuticals. As a result, previously existing accelerated marketing provisions for traditional generic drugs provided under the Federal Food, Drug, and Cosmetic Act have not been as effective in accelerating biologics competition. Congress turned to these concerns when it enacted the Biologics Price Competition and Innovation Act (BPCIA) of 2009. The BPCIA was incorporated into Title VII of the Patient Protection and Affordable Care Act. The BPCIA included three significant components. First, the BPCIA established a licensure pathway for competing versions of previously marketed biologics. In particular, the legislation established a regulatory regime for two sorts of follow-on biologics, termed “biosimilar” and “interchangeable” biologics. Second, the BPCIA created FDA-administered periods of regulatory exclusivity for certain brand-name biologics and follow-on products. No application seeking licensure of a follow-on biologic may be filed for four years from the date the referenced product was licensed. In addition, the FDA may not approve an application for a follow-on biologic for 12 years from the reference product’s licensure date. The BPCIA also provides for a term of regulatory exclusivity for the applicant that is the first to establish that its product is interchangeable with the brand-name product. Finally, the BPCIA created patent dispute resolution procedures for use by brand-name and follow-on biologic manufacturers. These procedures are commonly termed the “Patent Dance,” perhaps due to their complex nature. Several intellectual property issues with respect to the BPCIA have emerged since the statute was enacted. Some have asserted that the “Patent Dance” established by the BPCIA is not obligatory and may be waived by either the brand-name or follow-on firm. Others have argued that the BPCIA does not apply to biologics approved before the passage of the law. Finally, the term of regulatory exclusivity that should be afforded to biologics within the Trans-Pacific Partnership, a proposed international trade agreement, has been subject to debate.

Aug 28, 2015

The National Science Foundation: FY2016 Budget Request and Funding History

Congressional Research Service 7-5700 www.crs.gov R44170 Summary The National Science Foundation (NSF) supports both basic research and education in the non-medical sciences and engineering. Congress established the foundation in 1950 and directed it to “promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense; and for other purposes.” The NSF is a major source of federal support for U.S. university research, especially in certain fields such as mathematics and computer science. 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. Overall, the Obama Administration seeks $7.724 billion for the NSF in FY2016, a $379 million (5%) increase over the FY2015 estimate of $7.344 billion. Under the request, the main research account (Research and Related Activities or RRA) would increase by $253 million or 4%. The main education account (Education and Human Resources) would grow by nearly $100 million (11%). H.R. 2578 (Commerce, Justice, Science, and Related Agencies Appropriations Act, 2016) as passed by the House would provide $7.394 billion to the NSF in FY2016, or $50 million more than the FY2015 estimated funding level. The same bill as reported by the Senate Committee on Appropriations would provide $7.344 billion, or no change from the prior year. The Obama Administration threatened to veto H.R. 2578 when it was considered by the House (for a variety of reasons, only some of which related to the NSF). As passed by the House and as reported by the Senate committee, H.R. 2578 would provide close to FY2015 levels to five of six major NSF accounts in FY2016. The primary difference between the House and the Senate committee is on funding for RRA. The House proposes a $50 million increase; the Senate committee recommends the FY2015 estimated level. The main education account would not increase (as requested) under either proposal. Table 1 tracks FY2016 proposed funding levels for NSF. The report that accompanied H.R. 2578 when it was reported from the House Committee on Appropriations contains language that would alter the balance of NSF research funding in favor of certain fields of science. The House report also directs NSF to describe—and publish with each award abstract—how each award serves the national interest. The Senate Appropriations Committee report includes no such provisions. Growth in the NSF budget (year-over-year) slowed after FY2003 and has remained close to flat since FY2010. (Median year-over-year growth in NSF funding was 7% between FY1953 and FY2015, 4% between FY2004 and FY2015, and 2% between FY2011 and FY2015.) Table 2, Figure 1, and Figure 2 show the long-term trends in NSF authorizations, budget requests, and appropriations since the foundation was first authorized in the early 1950s. Most NSF funding supports scientific and technological research. Further, the portion of NSF spending that goes to research increased over the past decade. Within the NSF total, RRA has accounted for the lion’s share of growth in NSF obligations since FY2003. (See Table 3.) Table 4 shows FY2013 authorized funding levels, as well as FY2014 actual and FY2015 estimated appropriations to the NSF. It also includes proposed FY2016 funding levels under various NSF reauthorization measures introduced in the 114th Congress. For more information about the NSF, see CRS Report R43585, The National Science Foundation: Background and Selected Policy Issues, by Heather B. Gonzalez; or CRS Report R43880, The America COMPETES Acts: An Overview, by Heather B. Gonzalez. Contents Introduction 1 FY2016 Budget and Appropriations Actions 1 Research and Related Activities (RRA) 4 Education and Human Resources (EHR) 5 Major Research Equipment and Facilities Construction (MREFC) 6 NSF Funding History 6 FY2015 Budget and Appropriations (Final Summary) 7 FY2014 Budget and Appropriations (Final Summary) 8 Long-term Funding Trends (Tables and Figures) 8 Appropriations Authorizations 14 Figures Figure 1. Current Dollar NSF Authorizations, Budget Requests, and Appropriations: FY1951 to FY2016 Request 11 Figure 2. Constant Dollar NSF Authorizations, Budget Requests, and Appropriations: FY1951 to FY2016 Request 12 Tables Table 1. NSF Funding by Major Account 3 Table 2. NSF Authorizations, Budget Requests, and Appropriations: FY1951-FY2016 9 Table 3. NSF Obligations by Major Account: FY2003-FY2015 12 Table 4. NSF Funding Under Selected, Proposed Reauthorization Acts 14 Contacts Author Contact Information 15 Introduction The National Science Foundation (NSF) supports both basic research and education in the non-medical sciences and engineering. Congress established the foundation in 1950 and directed it to “promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense; and for other purposes.” The NSF is a major source of federal support for U.S. university research, especially in certain fields such as mathematics and computer science. 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. This report describes selected items from the Administration’s FY2016 budget request for NSF and tracks legislative action on FY2016 appropriations to the foundation. It also details selected NSF appropriations authorizations proposed in the 114th Congress, summarizes budget and appropriations action from FY2015 and FY2014, and presents information on historical funding for the foundation. NSF adopted its current appropriations account structure in FY2003. In general, NSF’s major accounts have been comparable since then. NSF has six major appropriations accounts: Research and Related Activities (RRA), Education and Human Resources (EHR), Major Research Equipment and Facilities Construction (MREFC), Agency Operations and Award Management (AOAM), National Science Board (NSB), and the Office of the Inspector General (OIG). The majority of NSF’s primary mission activities are funded through RRA, EHR, and MREFC. Appropriations to NSF are typically included in annual Commerce, Justice, Science and Related Agencies Appropriations Acts. (The Congressional Research Service tracks these acts on CRS.gov, at http://www.crs.gov/appropriationsstatustable/index.) NSF’s budget justifications are published on the agency’s website at http://www.nsf.gov/about/budget/. More information about the NSF may also be found in CRS Report R43585, The National Science Foundation: Background and Selected Policy Issues, by Heather B. Gonzalez; and CRS Report R43880, The America COMPETES Acts: An Overview, by Heather B. Gonzalez. FY2016 Budget and Appropriations Actions Overall, the Obama Administration seeks $7.724 billion for the NSF in FY2016, a $379 million (5%) increase over the FY2015 estimate of $7.344 billion. Under the request, RRA would increase by $253 million or 4%. EHR would grow by nearly $100 million (11%). (See Table 1.) As passed by the House, H.R. 2578 (Commerce, Justice, Science, and Related Agencies Appropriations Act, 2016) would provide a total of $7.394 billion to NSF in FY2016. This amount is $50 million (1%) more than the FY2015 estimated funding level and $329 million (4%) less than the Administration request. The House bill would keep most NSF accounts at FY2015 levels. The $50 million increase in total NSF funding would accrue to RRA. (A small increase in funding for the OIG would be offset by a similar reduction in MREFC.) When it was reported from the House Committee on Appropriations, H.R. 2578 was accompanied by H.Rept. 114-130 (referred to as the “House report” in the section). The House report directs NSF to comply with section 106 of H.R. 1806 (America COMPETES Reauthorization Act of 2015) as reported, which requires NSF to publicly articulate (in the award abstract from NSF’s public awards database) how each award serves the national interest. The Obama Administration threatened to veto H.R. 2578 when it was considered by the House (for a variety of reasons, only some of which related to the NSF—see text box titled, “Veto?”). As amended and reported by the Senate Committee on Appropriations, H.R. 2578 would provide close to the FY2015 estimated funding levels to all major NSF accounts in FY2016. RRA and MREFC would receive slightly less than their FY2015 funding levels; OIG would receive slightly more. When it was reported from the Senate Committee on Appropriations, H.R. 2578 was accompanied by S.Rept. 114-66 (referred to as the “Senate report” in this section). NSF identified eight priorities in its FY2016 budget documents. Four of these programs have been foundation priorities since at least FY2013: Cyber-enabled Materials, Manufacturing, and Smart Systems (CEMMSS, $257 million requested, 11% increase); Cyberinfrastructure Framework for 21st Century Science, Engineering, and Education (CIF21, $143 million requested, 11% increase); Science, Engineering, and Education for Sustainability (SEES, $81 million requested, 42% reduction); and Secure and Trustworthy Cyberspace (SaTC, $124 million requested, 1% increase). New priorities in FY2016 include Clean Energy Technology ($377 million, 2% increase), Innovation Corps (I-Corps, $30 million, 14% increase), NSF Research Traineeships (NRT, $62 million, 1% increase), and Research at the Interface of Biological, Mathematical, and Physical Sciences (BioMaPS, $33 million, 12% increase). Table 1. NSF Funding by Major Account (budget authority in millions of dollars) Account FY2015 Estimate FY2016 Request House-Passed Senate-Reported Enacted Research and Related Activities (RRA) Biological Sciences (BIO) 731.0 747.9 see notea n/s Computer and Information Science and Engineering (CISE) 921.7 954.4 see notea n/s Engineering (ENG) 892.3 949.2 see notea n/s Geosciences (GEO) 1,304.4 1,365.4 see notea n/s Mathematical and Physical Sciences (MPS) 1,336.7 1,366.2 see notea n/s Social, Behavioral, and Economic Sciences (SBE) 272.2 291.5 see notea n/s Office of International Science and Engineering (OISE)a 48.5 51.0 48.5a n/s Integrative Activities (IA)a 425.3 459.2 425.3a n/s U.S. Arctic Research Commission (USARC) 1.4 1.5 1.4a n/s RRA Subtotal 5,933.7 6,186.3 5,983.6 5,933.6 Education and Human Resources (EHR) 866.0 962.6 866.0 866.0 Major Research Equipment and Facilities Construction (MREFC) 200.8 200.3 200.0 200.3 Agency Operations and Award Management (AOAM) 325.0 354.8 325.0 325.0 National Science Board (NSB) 4.4 4.4 4.4 4.4 Office of the Inspector General (OIG) 14.4 15.2 15.2 14.5 NSF, Total 7,344.2 7,723.6 7,394.2 7,343.8 Source: FY2016 NSF Budget Request to Congress; H.R. 2578, as passed by the House, and H.Rept. 113-130; as well as, H.R. 2578, as amended and reported in the Senate, and S.Rept. 114-54. Notes: The account structure in Table 1 reflects the realignment (in FY2015) of OISE and IA as separate budget activities. The term “n/s” means “not specified.” Totals may not add due to rounding. H.Rept. 114-130 directs NSF to ensure that the BIO, CISE, ENG, and MPS directorates receive 70% of the committee recommendation for RRA, or $4.189 billion, in FY2016. The remaining $1.795 billion would be distributed to the other RRA accounts: GEO, SBE, OISE, IA, and USARC. Of the $1.795 billion provided for GEO, SBE, OISE, IA, and USARC, $475 million would go to OISE, IA, and USARC. (This is because the House report further directs NSF to provide no less than the FY2015 estimate for OISE, IA, and USARC in FY2016.) The remaining funds, $1.320 billion, would go to GEO and SBE. Research and Related Activities (RRA) The Administration seeks $6.186 billion for RRA in FY2016. This amount is $253 million (4%) more than the FY2015 estimated funding level of $5.934 billion. H.R. 2578, as passed by the House, would provide $5.984 billion to this account in FY2016. As amended and reported by the Senate Committee on Appropriations, H.R. 2578 would provide $5.934 billion. FY2015 House report language (H.Rept. 113-448) directed NSF to apply any additional appropriations (over FY2015 RRA requested levels) to four major RRA subaccounts: BIO, CISE, ENG, and MPS. NSF received $126 million more than requested for RRA in FY2015. As directed, NSF applied the additional funding to the specified major RRA subaccounts, which each received 3% to 4% increases over FY2015 requested levels. Funding for GEO, SBE, IIA/OISE, and USARC was at FY2015 requested levels. The FY2016 request seeks increases ranging from 2% to 8% for all major RRA subaccounts. However, the request seeks slightly more (on average, as a percentage over the prior year) for accounts that did not receive extra funding over requested levels in FY2015 (i.e., GEO, SBE, IIA/OISE, and USARC). Nevertheless, more than half of the total requested increase for RRA (54% of $253 million) would go to BIO, CISE, ENG, and MPS. Veto? On June 1, 2015, the Obama Administration issued a “Statement of Administration Policy” on H.R. 2578, as considered by the House. That statement indicated that the Administration strongly opposed House passage of H.R. 2578 and that senior advisors would recommend a veto. The statement described a number of concerning provisions from the bill, most of which were not related to NSF. However, the statement also cited perceived insufficiencies in the NSF top line, as well as the allocation of RRA funding by discipline. As previously noted, H.R. 2578, as passed by the House, would provide a total of $5.984 billion to RRA in FY2016—about $50 million more than the FY2015 estimate. The House report further directs NSF to provide no less than 70% of total FY2016 RRA funding to BIO, CISE, ENG, and MPS. Under these provisions, BIO, CISE, ENG, and MPS would split $4.189 billion in FY2016. This amount represents an 8% increase ($307 million) over the combined total that these four major subaccounts received in FY2015 ($3.882 billion). The remaining major RRA subaccounts (GEO, SBE, OISE, IA, and USARC) would split $1.795 billion. This amount is $257 million or 13% less than the combined total these accounts received in FY2015 ($2.052 billion). Other House report provisions further direct NSF to provide at least FY2015 levels to OISE, IA, and USARC. Therefore, of the $1.795 billion total provided for GEO, SBE, OISE, IA, and USARC in the House report, $475 million would go to OISE, IA, and USARC, while GEO and SBE would split $1.320 billion. GEO and SBE received $1.577 billion (combined) in FY2015, which is $257 million (16%) more than they would receive in FY2016 under the House report. Distributed proportionally, which the House report does not require but has been past practice at NSF in some instances, this 16% decrease in funding would reduce support for GEO by $212 million (from $1.304 billion in FY2015 to $1.092 billion in FY2015) and would reduce support for SBE by $44 million (from $272 million in FY2015 to $228 million in FY2016). Other RRA provisions in the House report provide $147 million for the Brain Research through Advancing Innovative Neurotechnologies (BRAIN) initiative; $177 million for Advanced Manufacturing; and $50 million for the International Ocean Drilling Program (IODP). As amended and reported by the Senate Committee on Appropriations, H.R. 2578 would provide $5.934 billion to RRA in FY2016—the same amount as the FY2015 estimate, $253 million less than the request, and $50 million less than the House. The Senate report is silent on the question of the distribution of funding by major subaccount within RRA. Provisions in the Senate report include $15 million for research in biomanufacturing; $159 million for cybersecurity research; and $10 million for a pilot program to provide research funding to Historically Black Colleges and Universities (HBCUs) from within RRA. (HBCUs already receive targeted funding through EHR.) The House report would provide $160 million for the Experimental Program to Stimulate Competitive Research (EPSCoR); the Senate report would provide just under this amount. The Administration seeks $170 million for EPSCoR in FY2016, $10 million (6%) more than the FY2015 estimated funding level of just under $160 million. Education and Human Resources (EHR) The FY2016 request for EHR is $963 million, or $97 million (11%) more than the FY2015 estimated level of $866 million. Most of the requested increase ($81 million) would go to activities classified as research and development (R&D). This additional investment would further shift the balance between R&D and education and training within EHR. If Congress adopts the FY2016 request, the portion of EHR dedicated to R&D activities would increase to 49%. By comparison, in FY2008 (the earliest year for which comparable budget data are available), R&D activities constituted 11% of EHR funding. The character of EHR’s R&D funding has also shifted, moving from about 91% basic research in FY2008 to about 33% basic research in the FY2016 request. It is not entirely clear what has driven these changes or how these changes have affected program activities and constituencies. EHR programs that are widely tracked by congressional policymakers include the Graduate Research Fellowship (GRF) and National Research Traineeship (NRT). The FY2016 request for GRF is $338 million, $4 million (1%) over the FY2015 estimated level of $333 million. GRF funding would be split equally between RRA and EHR, which would each contribute $169 million. The FY2016 request for NRT is $62 million, which is essentially the same as the FY2015 estimate. Funding for the NRT would not be evenly split between EHR and RRA. The RRA contribution would be $27 million, $7 million below the FY2015 estimate of $33 million. The EHR contribution would be $35 million, $7 million above the FY2015 estimate of $28 million. The House-passed and Senate Committee on Appropriations-reported versions of H.R. 2578 agree on topline funding for EHR in FY2016. Each would provide $866 million. This amount is equal to the FY2015 estimate and $97 million below the request. Provisions in the House report include $66 million for the Advanced Technological Education (ATE) program—the same as the FY2015 funding level, FY2016 request, and Senate report recommendation. The House report also recommends $65 million for Advancing Informal STEM Learning (AISL), which is $10 million more than the FY2015 estimate and $5 million more than both the FY2016 request and Senate report recommendation. The Senate report recommends $61 million for the Robert Noyce Teacher Scholarship Program (same as FY2015 estimate and FY2016 request); $45 million for Cybercorps: Scholarships for Service (same as FY2015 estimate and FY2016 request); and $52 million for STEM+C Partnerships ($5 million less than the FY2015 estimate and equal to the FY2016 request). The House report is silent on these programs. Broadening participation provisions in the House report would provide $35 million for the Historically Black Colleges and Universities Undergraduate Program (HBCU-UP). This amount is $3 million more than the FY2015 estimated funding level, the FY2016 request, and the Senate report recommendation. The House report also recommends $46 million for the Louis Stokes Alliance for Minority Participation (LSAMP) and $14 million for the Tribal Colleges and Universities Program (T-CUP). These amounts are equal to the FY2015 estimated funding levels, FY2016 requests, and Senate report recommendations for these two programs. The Senate report recommends $8 million for Alliances for Graduate Education (AGEP) and $24 million for Centers for Research Excellence in Science and Technology (CREST). These amounts are the same as both the FY2015 estimated funding levels and FY2016 requests for these programs. The House report does not specify funding for these programs. With respect to Hispanic Serving Institutions (HSIs), the Senate report would provide $5 million for NSF to implement an HSI program. The House report would require NSF to report on targeted funding opportunities (of at least $30 million) for HSIs. Major Research Equipment and Facilities Construction (MREFC) The Administration seeks just over $200 million for MREFC in FY2016, which is close to the FY2015 estimate of $201 million. In FY2016, MREFC funding would pay for the final year of National Ecological Observatory Network (NEON) construction, and would provide ongoing support for the Large Synoptic Survey Telescope (LSST) and Daniel K. Inouye Solar Telescope (DKIST). The House-passed and Senate Committee on Appropriations-reported versions of H.R. 2578 would each provide around $200 million to MREFC in FY2016; with the Senate report recommending the requested level (exactly) and the House report recommending slightly less. NSF Funding History The following sections summarize NSF budget and appropriations action from the two most recent fiscal years (FY2015 and FY2014), and provide funding data and trends since the foundation was established in 1950. FY2015 Budget and Appropriations (Final Summary) FY2015 enacted funding for NSF is $7.344 billion. This amount is $213 million (3%) more than the FY2014 actual funding level of $7.131 billion and $89 million (1%) more than the FY2015 request for $7.255 billion. Under the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235), RRA, EHR, NSB, and OIG received 3% to 4% more than their FY2014 actual levels. AOAM received 6% more; MREFC received no increase. Compared to the request, EHR and AOAM received 3% and 4% less, respectively, and RRA received 2% more. MREFC, NSB, and OIG received their requested levels. The joint explanatory statement printed in the December 11, 2014, Congressional Record accompanied P.L. 113-325 and provided additional guidance on FY2015 funding for certain NSF programs and accounts. Among other things, the explanatory statement adopted by reference House report language requiring NSF to apply any funding increases it received for RRA (above requested levels) to MPS, CISE, ENG, and BIO. The Administration initially sought $7.255 billion in funding for the NSF in FY2015. The request held funding levels for RRA and MREFC essentially constant while seeking a 7% increase for EHR as well as an 11% increase for AOAM. Most of the requested increase in AOAM funding was for the new NSF headquarters. NSF’s FY2015 budget request to Congress highlighted five initiatives that were also foundation priorities in FY2014: Cognitive Science and Neuroscience ($29 million); Cyber-enabled Materials, Manufacturing, and Smart Systems ($213 million); Cyberinfrastructure Framework for 21st Century Science, Engineering, and Education ($125 million); Science, Engineering, and Education for Sustainability ($139 million); and Secure and Trustworthy Cyberspace ($100 million). The FY2015 NSF budget request incorporated STEM education program changes in accordance with the Administration’s revised FY2015 government-wide reorganization of federal STEM education programs. The House passed H.R. 4660 (Commerce, Justice, Science, and Related Agencies Appropriations Act, 2015) by a vote of 321 to 87 on May 30, 2014. H.Rept. 113-448 accompanied H.R. 4660 when it was reported from the House Committee on Appropriations. Among other things, H.R. 4660 would have provided $7.394 billion to NSF in FY2015. This amount was $139 million (2%) more than the Administration’s FY2015 request and $263 million (4%) over FY2014 actual. The House-passed bill would have provided a 3% increase over FY2014 actual and the FY2015 request for RRA, as well as increases (though smaller than the request) for EHR and AOAM. H.R. 4660 would have provided the requested levels for MREFC, NSB, and OIG. The Senate Committee on Appropriations reported S. 2437 (Commerce, Justice, Science, and Related Agencies Appropriations Act, 2015) on June 5, 2014. S.Rept. 113-181 accompanied S. 2437 when it was reported from the committee. The Senate Committee on Appropriations recommended the requested level for NSF in FY2015. However, relative to the request, the committee would distribute funding slightly differently across two of NSF’s major accounts. The Senate Committee on Appropriations recommended providing approximately $30 million more than the request to RRA and reducing AOAM by an equivalent amount. The committee recommended the requested levels for EHR, MREFC, NSB, and OIG. FY2014 Budget and Appropriations (Final Summary) FY2014 enacted funding for NSF was $7.172 billion. This amount was $270 million (4%) more than NSF’s FY2013 actual funding level of $6.902 billion. Most of the $270 million increase ($250 million) went to RRA. FY2014 enacted funding for NSF’s six major accounts was $5.809 billion for RRA (including $158 million for EPSCoR), $847 million for EHR, $200 million for MREFC, $298 million for AOAM, $4 million for NSB, and $14 million for OIG. The Obama Administration initially sought $7.626 billion in funding for the NSF in FY2014. NSF’s FY2014 budget request to Congress noted that its overarching priorities for FY2014 would include six programs: Cyber-enabled Materials, Manufacturing, and Smart Systems; Cyberinfrastructure Framework for 21st Century Science, Engineering, and Education; NSF Innovation Corps; Integrated NSF Support Promoting Interdisciplinary Research and Education; Science, Engineering, and Education for Sustainability; and Secure and Trustworthy Cyberspace. The FY2014 NSF budget request also incorporated several changes to the foundation’s STEM education programs in accordance with the Administration’s proposed FY2014 government-wide reorganization of federal STEM education programs. The House and Senate Committees on Appropriations recommended $6.995 billion and $7.426 billion, respectively, for NSF in FY2014. Both committees initially rejected the Administration’s proposed changes to the federal STEM education effort, including changes to NSF programs. The final FY2014 appropriations agreement reiterated this objection. The appropriations committees initially disagreed on funding for the Large Synoptic Survey Telescope (LSST) in the MREFC account—the Senate Committee on Appropriations sought to fund the new project, the House Committee on Appropriations would not. The final agreement provided some of the requested funding for the LSST and encouraged the foundation to seek permission to transfer funds from other accounts if the amount appropriated was insufficient. Long-term Funding Trends (Tables and Figures) The following tables and figures include information about historical funding to NSF. NSF Authorizations, Budget Requests, and Appropriations: FY1951-FY2016 Table 2, Figure 1, and Figure 2 show the trends in NSF authorizations, budget requests, and appropriations since the foundation was first authorized in the early 1950s. Except in FY1957, current and constant dollar actual appropriations to NSF grew rapidly between FY1951 and FY1966. After FY1967, appropriations fluctuated (up some years and down in others) until about FY1988. NSF experienced two periods of generally sustained growth in current and constant dollar appropriations between FY1989 and FY1995, and again in between FY1998 and FY2003. Since FY2004, growth in the NSF budget has slowed compared to prior years. Table 2. NSF Authorizations, Budget Requests, and Appropriations: FY1951-FY2016 In Millions, Current and Constant (FY2016) Dollars, Rounded Fiscal Year Current ($ millions) Constant (FY2016 $ millions) Authorization Request Appropriation Authorization Request Appropriation 1951 such sums 0 such sums 2 1952 such sums 14 4 such sums 105 26 1953 such sums 15 5 such sums 110 35 1954 such sums 15 8 such sums 109 58 1955 such sums 14 14 such sums 101 103 1956 such sums 31 53 such sums 218 373 1957 such sums 41 40 such sums 280 271 1958 such sums 65 52 such sums 428 341 1959 such sums 140 138 such sums 907 891 1960 such sums 160 153 such sums 1,025 977 1961 such sums 190 176 such sums 1,198 1,108 1962 such sums 210 263 such sums 1,311 1,643 1963 such sums 358 323 such sums 2,207 1,988 1964 such sums 589 353 such sums 3,588 2,150 1965 such sums 488 420 such sums 2,919 2,516 1966 such sums 530 480 such sums 3,106 2,812 1967 such sums 525 481 such sums 2,985 2,735 1968 such sums 526 495 such sums 2,892 2,722 1969 525 500 400 2,760 2,628 2,103 1970 478 500 440 2,382 2,494 2,195 1971 538 513 513 2,553 2,435 2,435 1972 653 622 622 2,956 2,818 2,818 1973 697 653 649 3,026 2,836 2,819 1974 633 583 579 2,565 2,363 2,349 1975 808 672 764 2,969 2,471 2,809 1976 787 755 715 2,706 2,597 2,459 1977 811 802 776 2,600 2,572 2,488 1978 879 944 863 2,642 2,836 2,593 1979 930 934 911 2,586 2,598 2,534 1980 1,002 1,006 992 2,563 2,574 2,537 1981 1,115 1,148 1,025 2,597 2,675 2,388 1982 n/a 1,354 1,039 n/a 2,952 2,265 1983 n/a 1,073 1,094 n/a 2,241 2,284 1984 n/a 1,292 1,341 n/a 2,607 2,705 1985 n/a 1,502 1,502 n/a 2,932 2,932 1986 1,517 1,569 1,524 2,896 2,996 2,909 1987 1,685 1,686 1,623 3,147 3,148 3,031 1988 n/a 1,893 1,717 n/a 3,425 3,106 1989 2,050 2,050 1,923 3,567 3,567 3,345 1990 2,388 2,149 2,082 4,009 3,608 3,496 1991 2,782 2,485 2,316 4,511 4,029 3,755 1992 3,245 2,742 2,571 5,136 4,341 4,068 1993 3,505 3,037 2,734 5,419 4,695 4,226 1994 n/a 2,753 2,983 n/a 4,165 4,513 1995 n/a 3,200 3,264 n/a 4,741 4,835 1996 n/a 3,360 3,220 n/a 4,887 4,683 1997 n/a 3,325 3,270 n/a 4,752 4,674 1998 3,506 3,367 3,431 4,949 4,754 4,843 1999 3,773 3,773 3,676 5,260 5,260 5,125 2000 3,886 3,921 3,912 5,308 5,356 5,343 2001 n/a 4,572 4,431 n/a 6,098 5,909 2002 n/a 4,473 4,823 n/a 5,871 6,331 2003 5,536 5,036 5,323 7,131 6,486 6,856 2004 6,391 5,481 5,589 8,032 6,889 7,024 2005 7,378 5,745 5,482 8,991 7,001 6,681 2006 8,520 5,605 5,589 10,055 6,615 6,596 2007 9,839 6,020 5,890 11,306 6,918 6,768 2008 6,600 6,429 6,125 7,431 7,238 6,896 2009 7,326 6,854 6,494 8,152 7,627 7,226 2010 8,132 7,045 6,873 8,971 7,772 7,582 2011 7,424 7,424 6,806 8,034 8,034 7,365 2012 7,800 7,767 7,033 8,295 8,260 7,479 2013 8,300 7,373 6,884 8,676 7,707 7,196 2014 n/a 7,626 7,172 n/a 7,852 7,384 2015 n/a 7,255 7.344 n/a 7,370 7,461 2016 n/a 7,724 n/a 7,724 Source: Funding data in the “Authorization” columns are from selected FY1951 to FY2013 NSF authorization acts. Funding data in the “Request” and “Appropriations” columns are from National Science Foundation, Budget Internet Information System, “NSF Requests and Appropriations History,” NSF.gov, February 25, 2015, http://dellweb.bfa.nsf.gov/NSFRqstAppropHist/NSFRequestsandAppropriationsHistory.pdf. To calculate constant FY2016 dollars, CRS used the Gross Domestic Product (Chained) Price Index found in Office of Management and Budget, Historical Tables, “Table 10.1,” February 2, 2015, available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/hist10z1.xls. Notes: As per communication between CRS and NSF dated March 20, 2014, the “Appropriation” column shows funding provided in annual appropriations acts plus adjustments required in those acts, other laws, and committee reports, etc. Adjustments include rescissions, sequestration, funding transfers across NSF accounts, supplemental appropriations (not including American Recovery and Reinvestment Act, P.L. 111-5, funding in FY2009), and other changes. The resulting amounts most closely align with NSF’s approved Current Plans. The term “n/a” means “not available.” Figure 1. Current Dollar NSF Authorizations, Budget Requests, and Appropriations: FY1951 to FY2016 Request In Millions, Current Dollars, Rounded / Source: Table 2. Figure 2. Constant Dollar NSF Authorizations, Budget Requests, and Appropriations: FY1951 to FY2016 Request In Millions, Constant (2016) Dollars, Rounded / Source: Table 2. NSF Obligations by Major Account Table 3 provides NSF obligations by majo

Aug 28, 2015

The Patient Protection and Affordable Care Act’s Essential Health Benefits (EHB)

Congressional Research Service 7-5700 www.crs.gov R44163 Summary The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) requires all non-grandfathered health plans in the non-group and small-group private health insurance markets to offer a core package of health care services, known as the essential health benefits (EHB). The ACA does not specifically define this core package but rather lists 10 benefit categories from which benefits and services must be included. The 10 benefit categories are as follows: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness and chronic disease management; and pediatric services, including oral and vision care. For 2014-2016, each state was required to select an EHB-benchmark plan. The benchmark plan serves as a reference plan on which non-group and small-group market plans must substantially base their benefits packages. Because each state selected its own EHB-benchmark plan under the 2014-2016 approach to the EHB, there is considerable variation in EHB coverage from state to state. This variation occurs in terms of specific covered services as well as in terms of amount, duration, and scope. For example, some state EHB-benchmark plans may include bariatric surgery as a covered service whereas other state EHB-benchmark plans may not cover bariatric surgery. State benefit mandates also may be considered to be part of that state’s EHB and thus add to state-level coverage differences. Furthermore, because states can allow non-group and small-group plans to substitute certain services within the categories, coverage in plans within a state also may vary by benefit amount, duration, and scope. For example, a state’s EHB-benchmark plan could offer up to 20 physical therapy visits and 10 occupational therapy visits. Another plan in the state could offer coverage consistent with the EHB-benchmark plan by covering up to 10 physical therapy visits and 20 occupational therapy visits. In addition to covering the EHB, the ACA imposes a limit on cost sharing (which includes co-payments, coinsurance, and deductibles) for the EHB. The ACA also prohibits plans from applying lifetime and annual dollar limits on the EHB. Contents Essential Health Benefits 1 Essential Health Benefits for 2014-2016 3 State Selection of Benchmark Plans 3 Coverage in Each Benefit Category 5 Pediatric Oral and Vision Services 6 Habilitative Services 6 Mental Health and Substance Use Disorder Services 8 Prescription Drug Services 8 Inclusion of State Benefit Mandates 8 Variation in Essential Health Benefits Coverage 9 Interstate Variation 9 Intrastate Variation 9 Essential Health Benefits for 2017 10 Applicability of Essential Health Benefits Requirements to Health Plans 11 Health Plans Subject to Essential Health Benefits Requirements 11 Qualified Health Plans 12 Catastrophic Plans 12 Health Plans Not Subject to Essential Health Benefits Requirements 13 Grandfathered Plans 13 Large-Group Market Plans 13 Self-Insured Plans 14 Dental-Only Plans 14 Essential Health Benefits and Other ACA Provisions 14 Cost Sharing 14 Lifetime and Annual Dollar Limits 14 Minimum Essential Coverage 15 Figures Figure 1. The 10 Essential Health Benefits Categories 2 Figure 2. Overview of the Essential Health Benefits (EHB) Process 3 Figure 3. State Selection of 2014-2016 Essential Health Benefits Benchmark Plans 5 Figure 4. State Selection of Supplementary Plan Types for Pediatric Oral and Vision Services 7 Figure 5. Applicability of Essential Health Benefits Requirements to Health Plans 11 Tables Table 1. Illustrative Examples of Coverage Variation in State Essential Health Benefits Benchmark Plans for Selected Services 10 Contacts Author Contact Information 15 The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) includes many provisions that apply to health plans offered in the private health insurance market. The private market often is described as having three segments: the non-group, small-group, and large-group markets; and many of the ACA’s provisions focus specifically on the non-group and small-group insurance markets. These reforms are intended to address perceived failures in those markets, such as limited access to coverage and higher costs of coverage relative to the large-group market plans, and to provide some parity with the large-group market. For example, benefit coverage in non-group and small-group market health plans generally was perceived to be limited in comparison to benefit coverage in large-group market health plans. Thus, to provide some similarity to plans in the large-group market, the ACA requires non-group and small-group health plans to offer the essential health benefits (EHB), which is a core package of health care services. The EHB are one of the three components of the EHB package. The EHB package requires plans to (1) cover certain benefits (i.e., the essential health benefits); (2) comply with specific cost-sharing limitations; and (3) meet a certain generosity level. This report provides an overview of the first component of the EHB package—the essential health benefits. The report examines how the EHB are defined, regulations related to the EHB, state variation in the EHB, applicability of the EHB to health plans, and how the EHB interact with other ACA provisions. Essential Health Benefits Since 2014, all non-grandfathered plans in the non-group and small-group markets are required to offer a core package of health care services, known as the EHB. The ACA does not specifically define this core package. Instead, it lists 10 benefit categories from which benefits and services must be included (see Figure 1) and requires the Secretary of the Department of Health and Human Services (HHS) to further define the EHB. The HHS Secretary has the purview to define and periodically update the EHB. However, in defining the EHB, the HHS Secretary must take a number of parameters into account. For example, the scope of the EHB is to be equivalent to the scope of benefits typically provided under an employer-sponsored insurance plan. To accomplish this task, the ACA requires the Secretary of the Department of Labor (DOL) to conduct surveys of employer-sponsored insurance plans to determine typical benefits and provide a summary of the findings to the HHS Secretary. Figure 1. The 10 Essential Health Benefits Categories Source: 42 U.S.C. §18022. The EHB are to be balanced among the 10 categories, without a weighted preference toward any category. The HHS Secretary cannot make any coverage decisions, determine reimbursement rates, establish incentive programs, or design benefits in ways that discriminate against individuals because of their age, disability, or expected length of life. Furthermore, the HHS Secretary must take into account the diverse health care needs of the population, which includes women, children, persons with disabilities, and other groups. The HHS Secretary is tasked with reviewing the EHB, and part of the EHB review process includes providing a report to Congress and the public. The report is supposed to assess whether enrollees are facing any difficulty accessing services, either due to coverage or cost, and to consider whether the EHB need to be modified or updated due to changes in medical evidence or scientific advancement. If any modifications are to be made, the HHS Secretary is to include in the report how the EHB would be modified. Consequently, the Secretary periodically may update the EHB based on issues identified during the review process. Essential Health Benefits for 2014-2016 Figure 2. Overview of the Essential Health Benefits (EHB) Process / Source: Congressional Research Service (CRS) analysis of the essential health benefits (EHB) process based on 45 C.F.R. §156.100-115. State Selection of Benchmark Plans In December 2011, the Centers for Medicare & Medicaid Services (CMS) released a bulletin that outlined a reference plan approach for the EHB. This approach was based on employer-sponsored coverage in the current market. To define the EHB, HHS considered findings from the DOL’s report that described the scope of benefits under a typical employer-sponsored plan. HHS also considered a report from the Institute of Medicine that recommended criteria and methods for determining and updating the EHB. The HHS Secretary outlined a process in which each state identified a single plan to serve as a reference plan on which most non-group and small-group market plans must base their benefits packages in terms of the scope of benefits offered (see Figure 2). These reference plans are known as EHB-benchmark plans. The benchmark selection approach identified by the Secretary applied for the 2014, 2015, and 2016 coverage years. Each state’s EHB-benchmark plan applied to non-grandfathered health plans offered in the non-group and small-group markets, both inside and outside the exchanges (also known as marketplaces). The process required each state to select an EHB-benchmark plan that was based on plans available in the 2012 coverage year. States could select a benchmark plan among the following four options: Small-group market health plan. Any of the three largest small-group market health plans, by enrollment, in that state; State employee health benefit plan. Any of the three largest employee health benefit plan options, by enrollment, available to state employees in that state; Federal Employees Health Benefits (FEHB) plan. Any of the three largest national FEHB plan options, by aggregate enrollment; or Non-Medicaid Health Maintenance Organization (HMO). The largest insured commercial non-Medicaid HMO, by enrollment, operating in that state. If a state did not make a selection, the default EHB-benchmark plan was the largest health plan, by enrollment, in that state’s small-group market. Each state’s benchmark plan was finalized in early 2013. Figure 3 maps the type of benchmark plan selected by each state. The EHB-benchmark plan for 45 states and the District of Columbia (DC) is the small-group market health plan. Three states selected a non-Medicaid HMO, and two states selected a state employee health benefit plan as their EHB-benchmark plans. No state selected an FEHB plan as its benchmark plan. Figure 3. State Selection of 2014-2016 Essential Health Benefits Benchmark Plans Source: CRS analysis of EHB-benchmark plan selection information from the Department of Health and Human Services, “Patient Protection and Affordable Care Act: Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation,” 78 Federal Register 12834-12872, February 25, 2013. Notes: No state selected a Federal Employees Health Benefits (FEHB) plan as its essential health benefits benchmark plan for 2014-2016. HMO = health maintenance organization. Coverage in Each Benefit Category According to the regulations, the EHB-benchmark plan had to provide coverage for all 10 EHB categories. However, a number of state benchmark plans did not include all 10 EHB categories. If the selected benchmark plan did not include items or services within a category, the plan had to be supplemented accordingly. Generally, if an EHB-benchmark plan did not cover 1 or more of the 10 EHB categories, the state supplemented the EHB-benchmark plan by adding that particular category in its entirety from another benchmark plan option (i.e., the small-group market health plan, state employee health benefit plan, FEHB plan, or non-Medicaid HMO options described in “State Selection of Benchmark Plans,” above). For states that did not select an EHB-benchmark plan and thus defaulted to an EHB-benchmark plan (the largest health plan, by enrollment, in that state’s small-group market), HHS, if necessary, supplemented the state’s EHB-benchmark plan. The default benchmark plan was supplemented in the following order: (1) the second-largest plan, by enrollment, in the state’s small-group market; (2) the third-largest health plan, by enrollment, in the state’s small-group market; and (3) the largest national FEHB plan by enrollment across states. CMS also released additional guidance for certain EHB categories. In a December 2011 bulletin, CMS noted that of the 10 EHB categories, 3 categories were lacking under “typical employer plans.” These three categories were pediatric oral and vision services, habilitative services, and mental health and substance use disorder services. To address these issues, CMS outlined a separate supplemental process for pediatric oral and vision services and a separate determination process for habilitative services. Furthermore, CMS released additional guidance in regard to mental health and substance use disorder and prescription drug services. Pediatric Oral and Vision Services HHS outlined separate guidelines for supplementing pediatric oral and vision services. An EHB-benchmark plan that does not cover the pediatric oral and vision category is to be supplemented by adding the pediatric oral and/or vision services from either (1) the Federal Employees Dental and Vision Insurance Program (FEDVIP) plan with the largest national enrollment or (2) the benefits from a state’s separate Children’s Health Insurance Program (CHIP) plan with the highest enrollment, if a separate CHIP plan exists. For the 2014-2016 coverage years, 49 states and DC had to supplement their EHB-benchmark plans for pediatric oral services—25 states and DC selected a FEDVIP plan, and 24 states selected a CHIP plan as their supplementary plan type (see Figure 4). For pediatric vision services, 45 states and DC had to supplement their EHB-benchmark plans; 38 states and DC selected a FEDVIP plan, and 7 states selected a CHIP plan as their supplementary plan type (see Figure 4). Habilitative Services HHS found that many employer-sponsored plans did not identify habilitative services as a distinct group of services. Thus, in determining habilitative services, HHS proposed policies for coverage of such services. For the 2014 and 2015 coverage years, the HHS policies allowed states to define the benefits if the EHB-benchmark plan did not include coverage for habilitative services. If a state did not define habilitative services, either plans would have to cover habilitative services benefits that were similar in scope, amount, and duration to benefits covered for rehabilitative services or plans could determine their habilitative services benefits and report them to HHS for review. For the 2016 coverage year, HHS has modified the habilitative services benefits policy. Rather than allowing plans to cover habilitative services that are offered at parity with rehabilitative services, HHS has adopted a uniform definition for habilitative services. Habilitative services are defined as follows: Health care services that help a person keep, learn, or improve skills and functioning for daily living. Examples include therapy for a child who is not walking or talking at the expected age. These services may include physical and occupational therapy, speech-language pathology and other services for people with disabilities in a variety of inpatient and/or outpatient settings. Although HHS has adopted a definition, states may continue to define habilitative services so long as the state definition complies with EHB policies, including nondiscrimination. Plans, however, no longer may define habilitative services themselves. Figure 4. State Selection of Supplementary Plan Types for Pediatric Oral and Vision Services / Source: CRS analysis of individual state EHB-benchmark plan summaries provided by Centers for Medicare & Medicaid Services, Additional Information on Proposed State Essential Health Benefits Benchmark Plans, at http://www.cms.gov/CCIIO/Resources/Data-Resources/ehb.html as of May 14, 2015. Notes: FEDVIP = Federal Employees Dental and Vision Insurance Program. CHIP = Children’s Health Insurance Program. Mental Health and Substance Use Disorder Services For non-group and small-group plans to be EHB compliant, the plans must provide mental health and substance use disorder services, including behavioral health treatment services. These services must be compliant with the Mental Health Parity and Addiction Equity Act (MHPAEA; P.L. 110-343, as amended), which generally requires health insurance coverage for mental health services to be offered on par with covered medical and surgical benefits. Prescription Drug Services As part of the EHB, HHS outlined additional requirements regarding prescription drug services. Non-group and small-group market plans must cover at least the greater of (1) one drug in every United States Pharmacopeia (USP) category or class or (2) the same number of prescription drugs in each category and class as the EHB-benchmark plan. For the 2016 coverage year, HHS finalized additional guidance for the drug exceptions process and formulary drug lists. HHS outlined a drug exceptions process for enrollees to request and gain access to clinically appropriate drugs that are not covered by their health plan. The process takes 72 hours for a standard exception and 24 hours for an expedited review request. If the exception is granted, the plan must treat the drug as an EHB, including counting any cost sharing toward the plan’s annual cost-sharing limits. In 2016, plans also must have an up-to-date, accurate, and complete formulary drug list, which must include price tiers, on their websites. The formulary must be easily accessible to plan enrollees, prospective enrollees, the state, the exchange, HHS, the U.S. Office of Personnel Management (OPM), and the general public. Inclusion of State Benefit Mandates Prior to the passage of the ACA, many states had laws, known as state benefit mandates, that required health plans to cover certain health care services, health care providers, and/or dependents. Examples of state benefit mandates include coverage for substance abuse treatment, chiropractors, or adopted children. A state may require non-group and small-group plans to cover these state benefit mandates in addition to the EHB. Moreover, any state benefit mandates enacted on or before December 31, 2011, are considered to be part of the EHB. Nonetheless, in addition to covering the EHB, states may choose to impose additional benefit mandates. However, if a state does decide to impose additional benefits, the state itself must defray the cost of those benefits for plans offered in the exchange. The state must make a payment either to the enrollee or directly to the plan on behalf of the enrollee for all plans, regardless of whether an individual is receiving financial assistance. The plan quantifies the cost of the additional benefits. The cost calculation is based on analysis in accordance with generally accepted actuarial principles and methodologies, is conducted by a member of the American Academy of Actuaries, and is reported to the exchange by the plan. Variation in Essential Health Benefits Coverage Interstate Variation Because states selected their own EHB-benchmark plan under the 2014-2016 approach to the EHB, there is considerable variation in EHB coverage from state to state. This variation occurs in terms of specific covered services as well as in terms of amount, duration, and scope. For example, some state EHB-benchmark plans may include bariatric surgery as a covered service whereas other state EHB-benchmark plans may not cover bariatric surgery. In addition, among states that cover bariatric surgery as an EHB, the amount, scope, and duration of the service may vary. For example, the service may be limited to individuals diagnosed as morbidly obese in one state and limited to individuals for whom the service was deemed medically necessary in another state. Additional discussion and illustrative examples of coverage variation from state to state for selected services can be found in Table 1. State benefit mandates also may be considered to be part of that state’s EHB and thus add to state-level coverage differences. Intrastate Variation In addition to EHB variation by state, benefit coverage among plans within a state may differ. States may allow non-group and small-group market plans that offer the EHB to substitute benefits. A benefit may be substituted if the substitution is actuarially equivalent to the benefit being replaced and is made within the same EHB category. For example, a plan could offer coverage of up to 10 physical therapy visits and up to 20 occupational therapy visits as a substitute for EHB-benchmark plan coverage of up to 20 physical therapy visits and 10 occupational therapy visits, assuming actuarial equivalence and the other criteria are met. Substitutions, however, cannot be made for prescription drug benefits. Table 1. Illustrative Examples of Coverage Variation in State Essential Health Benefits Benchmark Plans for Selected Services Service Variation Bariatric Surgery Fewer than half of state EHB-benchmark plans provide coverage for bariatric surgery. Among state benchmark plans that do cover bariatric surgery services, the coverage itself varies by state. Many state benchmark plans limit bariatric surgery to individuals diagnosed as morbidly obese or to individuals for whom the service was deemed medically necessary. Some benchmark plans have additional limitations on the service, such as one procedure per lifetime or exclusions of certain types of bariatric procedures. Moreover, some plans exclude weight-reduction programs or supplies from the service. Chiropractic Care A majority of state EHB-benchmark plans provide coverage for chiropractic care. The benefit description itself varies by state; for example, some states include spinal manipulations with chiropractic care. Chiropractic care coverage varies by benefit amount, ranging from 10 visits to 40 visits per year (with certain exclusions). Some state benchmark plans combine chiropractic care visit limits with rehabilitative, habilitative, and occupational therapy benefit limits. Home Health Care All state EHB-benchmark plans provide coverage for home health care services. Nonetheless, coverage varies by amount (e.g., ranging from 20 visits to 150 visits per year; 30 days to 100 days per year; or 28 hours per week). Benefit exclusions vary by benchmark plan. Reimbursement for services provided by a family member, dietician services, and custodial care often are excluded from a plan’s home health care benefits. Infertility Treatment Fewer than half of state EHB-benchmark plans provide coverage for infertility treatment services. The benefit scope varies by benchmark plans. For example, some plans exclude assistive reproductive technology, artificial insemination, donor eggs, or surrogacy. Furthermore, plans may limit the benefit amount by treatment limits (e.g., one procedure per lifetime or six complete ooctye retrievals per lifetime). Source: CRS analysis of state EHB-benchmark plan summary information provided by Centers for Medicare & Medicaid Services, “Additional Information on Proposed State Essential Health Benefits Benchmark Plans,” at http://www.cms.gov/CCIIO/Resources/Data-Resources/ehb.html as of May 14, 2015. Note: Examples provided in this table are for illustrative purposes only. Essential Health Benefits for 2017 For the 2017 coverage year, the EHB will continue to be defined by the benchmark approach—that is, having states select a reference plan on which most non-group and small-group market plans must substantially base their benefits package. However, for 2017, states will select a new EHB-benchmark plan based on plans available in the 2014 coverage year. In addition to requiring new EHB-benchmark plans, HHS finalized additional guidance for habilitative services and prescription drug services. (For information on current regulations surrounding these services, see the “Habilitative Services” and “Prescription Drug Services” sections of this report.) For the 2017 coverage year, HHS will require plans to have separate visit limits on habilitative and rehabilitative services. For prescription drug services, HHS will require plans to use a pharmacy and therapeutics (P&T) committee system in addition to the current USP drug count standard. The P&T committees will develop formulary drug lists that cover prescription drugs across a broad range of therapeutic categories and classes and that do not discourage enrollment by any group of consumers. The P&T committees will have to review and approve plan policies that affect consumer access to drugs. Applicability of Essential Health Benefits Requirements to Health Plans Health Plans Subject to Essential Health Benefits Requirements Generally, non-group and fully insured small-group market health plans are required to offer the EHB. This requirement applies to non-group and small-group plans offered both inside and outside the exchanges. Additional plan types are subject to the EHB (see Figure 5). Figure 5. Applicability of Essential Health Benefits Requirements to Health Plans Sources: CRS analysis of 42 U.S.C. §18021 and 42 U.S.C. §18022. Notes: This figure is not an exhaustive list of existing plan types. Limited exceptions may apply. Qualified Health Plans The ACA generally requires that non-group and small-group health insurance plans offered through exchanges are Qualified Health Plans (QHPs). Typically, to be a certified as a QHP a plan has to offer the EHB, comply with cost-sharing limits, and meet certain market reforms. Each exchange is responsible for certifying the plans it offers. However, QHPs can be offered both inside the health insurance exchanges and outside the exchanges on the private health insurance market. The exchanges also offer variants of QHPs such as multistate plans and child-only plans. Multistate Plans The ACA directs OPM to contract with private insurers in each state to offer at least two comprehensive health insurance options, known as multistate plans (MSPs). MSPs are designed to offer nationally available QHPs through the exchanges; MSPs are not available outside the exchanges. Some MSP options also offer in-network care for out-of-state services, but not all do. MSPs must offer a package of benefits that includes the EHB (see Figure 1). MSPs also must offer a package of benefits that is substantially equal to either the state-selected EHB-benchmark plan for the state in which the plan is offered or an OPM-selected benchmark plan. Moreover, MSPs must comply with any state standards related to benefit mandates, substitution of benefits, and habilitative services. Child-Only Plans Child-only health insurance plans are a type of QHP available in the exchanges. To offer child-only plans in an exchange, a health insurance plan must also offer a QHP in the exchange. The ACA requires the plan to offer the child-only exchange plan at the same coverage level as the QHP. Only individuals under the age of 21 may enroll in child-only exchange plans. Child-only health plans are treated as a type of QHP and thus are subject to EHB requirements. Catastrophic Plans Catastrophic plans are a type of health plan offered in the individual exchanges. Catastrophic plans offered through exchanges provide the EHB and coverage for at least three primary care visits. The monthly premium for catastrophic plans generally is lower than for other QHPs. However, catastrophic plans impose a very high deductible, and cost sharing generally is higher. These plans also do not meet the minimum requirements related to coverage generosity (i.e., actuarial value). Catastrophic plans may be offered only in the individual market for (1) individuals under the age of 30 and (2) persons exempt from the ACA requirement to obtain health coverage because no affordable coverage is available or they have a hardship exemption. Health Plans Not Subject to Essential Health Benefits Requirements Certain health plans are not subject to the EHB requirements. Examples of these health plans include grandfathered plans, large-group market plans, self-insured plans, and dental-only plans (see Figure 5). Grandfathered Plans Health insurance plans that were in existence (in the non-group, small-group, or large-group market) and in which at least one person was enrolled on the date of the ACA’s enactment (March 23, 2010) are considered grandfathered and have a unique status under the ACA. As long as a plan maintains its grandfathered status, the plan has to comply with some but not all ACA provisions. Grandfathered plans are not subject to the EHB requirements. Plans may lose their status if they apply certain changes to benefits, cost sharing, employer contributions, and access to coverage. Large-Group Market Plans Large-group market plans typically are employer-sponsored insurance plans and are defined by the number of employees. In general, a large-group plan has 50 or more employees. Starting with the 2016 coverage year, the ACA requires states to define large-group plans as 100 or more employees. Many of the market reform provisions in the ACA targeted the non-group and small-group markets. The reforms focused on perceived failures in these markets and provided parity with the large-group market. Accordingly, large-group plans are exempt from a number of ACA market reforms, including coverage of the EHB. Nonetheless, benefits and coverage offered in large-group market plans play an important role for the EHB. Recall that in defining the EHB, HHS examined the scope of benefits under a typical employer-sponsored insurance plan and used that information in determining what services would be covered as well as additional supplemental guidelines. Self-Insured Plans Self-insured plans are a type of group health plan. Organizations that self-insure do not purchase health coverage from insurance carriers. Self-insured plans refer to health coverage that is provided directly by the organization seeking coverage for its members (e.g., a firm providing health benefits to its employees). Such organizations set aside funds and pay for health benefits directly. Under self-insurance, the organization bears the risk for covering medical expenses. Firms that self-insure may contract with third-party administrators to handle administrative duties such as member services, premium collection, and utilization review. Self-insured plans are not subject to many of the ACA market reforms, including the EHB. Dental-Only Plans In the exchanges, an individual can obtain dental coverage as part of a QHP or as a stand-alone dental plan. Dental-only plans must provide coverage for pediatric oral services (1 of the 10 EHB categories). Dental-only plans are not required to cover the remaining EHB categories. Essential Health Benefits and Other ACA Provisions Cost Sharing The ACA imposes an annual cap on consumer cost sharing for the EHB. The ACA specifies that the limits work in two ways: they prohibit (1) applying deductibles to preventive health services and (2) annual out-of-pocket limits that exceed existing limits in the tax code. The cost-sharing limits apply only to in-network benefits and must include all co-payments, coinsurance, and deductibles. In 2015, the cost-sharing limits are $6,600 for an individual plan and $13,200 for a family plan. For 2016, the cost-sharing limits are $6,850 for an individual plan and $13,700 for a family plan. Lifetime and Annual Dollar Limits Prior to the ACA, plans generally were able to set lifetime and annual limits—dollar limits on how much the plan would spend for covered health benefits either during the entire period an individual was enrolled in the plan (lifetime limits) or during a plan year (annual limits). The ACA prohibited both lifetime and annual limits on the EHB. Plans are permitted to place lifetime and annual limits on covered benefits that are not considered EHBs, to the extent that such limits are permitted by federal and state law. Minimum Essential Coverage The EHB differs from minimum essential coverage. Minimum essential coverage is a term defined in the ACA and its implementing regulations that refers to the individual mandate, or the ACA requirement that most individuals must have health insura

Aug 27, 2015

Softwood Lumber Imports From Canada: Current Issues

Congressional Research Service 7-5700 www.crs.gov R42789 Summary Softwood lumber imports from Canada have been of concern to Congress for many years. Under the Constitution, Congress has the power to regulate interstate commerce and exercises authority over trade relations with foreign nations. Lumber production is a significant industry in many states, and U.S. lumber producers are concerned they are at an unfair competitive disadvantage in the domestic market against Canadian lumber producers because of Canada’s timber pricing policies. This has resulted in four major disputes (so-called “lumber wars”) between the United States and Canada since the 1980s. The last major dispute was resolved when the 2006 Softwood Lumber Agreement (SLA) was signed. Under the agreement, Canadian softwood lumber shipped to the United States is subject to export charges and quota limitations when the price of U.S. softwood products falls below a certain level. That agreement is set to expire on October 12, 2015, although both countries are prohibited from filing for trade protections for one year after the expiration. Tension between the United States and Canada over softwood lumber trading has been persistent and may be inevitable. Both countries have extensive forest resources, but they have quite different population levels and development pressures. Vast stretches of Canada are still largely undeveloped, while relatively fewer areas in the United States (outside Alaska) remain undeveloped. These differences have led to different forest policies. For decades, U.S. lumber producers have argued that they have been injured by subsidies to their Canadian competitors in the form of lost market share and lost revenue. In the United States, the majority of the timberlands are privately owned and prices are determined by competitive bidding in an open market. In Canada, the majority of the timberlands are owned by the provincial governments and leased to private firms. The provinces administratively set the price of timber through a stumpage fee, a per unit volume fee charged for the right to harvest trees. Some assert that the stumpage fees charged by the Canadian provinces are subsidized, or priced at less than their market value. Directly comparing Canadian and U.S. lumber prices is difficult and often inconclusive, however, due to major differences in tree species, sizes, and grades; measurement systems; requirements for harvesters; environmental protection; and other factors. With the pending expiration of the agreement, the softwood lumber trade relationship between the United States and Canada may be of interest to Congress. While neither the U.S. nor the Canadian government has taken a formal position on extending or reauthorizing the SLA, the U.S. lumber industry is in favor of letting the agreement expire, due in part to unfavorable arbitration decisions under the SLA, as well as other factors. Congress may consider legislation or oversight on these issues. Contents Introduction 1 Background 2 Stakeholders in the U.S.-Canada Softwood Lumber Dispute 3 U.S. Softwood Lumber Consumption 4 Alleged Subsidies to Canadian Lumber Producers 5 Different Land Ownership and Management Regimes 6 Different Fee Systems 6 History of the Dispute 8 The 2006 Softwood Lumber Agreement 10 Canadian Provinces Covered by the SLA 12 Initiatives Funded by the 2006 SLA 13 The 2008 Softwood Lumber Act 13 Analysis of the 2006 Softwood Lumber Agreement 14 Protecting U.S. Lumber Producers 14 Stabilizing the Lumber Market 15 Dispute Resolution 16 Opposition to the 2006 SLA 17 Issues for Negotiation 17 Log Export Restrictions 18 Quebec Reforms 18 Issues for Congress 18 Summary and Conclusion 19 Figures Figure 1. Average Monthly Composite Prices for Framing Lumber in Current (Nominal) and 2014 Dollars 4 Figure 2. U.S. Lumber Consumption by Source 5 Figure 3. U.S. Lumber Consumption by Source Percentage 5 Figure 4. Prevailing Monthly Lumber Prices (Current Dollars) and Export Provisions Under the 2006 SLA 11 Figure 5. Canadian Provinces Covered by the SLA 13 Tables Table 1. History of the Dispute 9 Table 2. 2006 SLA Export Charges and Quota Limitations Options Based on Prevailing Monthly Price of U.S. Lumber 10 Table 3. The Annual Average and Standard Deviation for the Random Length’s Framing Lumber Weekly Composite Price 15 Appendixes Appendix. What Is Softwood Lumber? 21 Contacts Author Contact Information 22 Acknowledgments 22 Introduction Softwood lumber imports from Canada have been of concern to Congress for many years. Lumber production is a significant industry in many states. Canada is an important trading partner, and the U.S. lumber producers are a powerful economic influence. This has resulted in four major disputes (so-called “lumber wars”) between the United States and Canada since the 1980s, with the U.S. industry filing for various trade protection measures and both countries taking their issues to various dispute settlement venues. The last major dispute was resolved when the 2006 Softwood Lumber Agreement (SLA) was signed. The SLA applies export charges or quota limitations on Canadian softwood lumber shipped to the United States when the price of U.S. softwood lumber products is below a specified level. In January 2012, the United States and Canada extended the SLA for two years. The SLA is now set to expire on October 12, 2015, and formal negotiations to extend the agreement have not been undertaken. Under the terms of the agreement, neither country may file claims until October 2016, which effectively provides another year for negotiations. In addition, the negotiation goals of many of the stakeholders may have shifted due to recent events. The U.S. lumber industry has identified perceived flaws in the latest arbitration decision under the SLA and favors letting the agreement expire. Tension between the United States and Canada over softwood lumber trade has been persistent. Both countries have extensive forest resources, but quite different population levels and development pressures. Vast stretches of Canada are still largely undeveloped, while fewer areas in the United States (outside Alaska) remain undeveloped. These different situations have led in part to different forest policies. In Canada, the forests are largely owned by the provincial governments, which have allocated and priced timber to encourage the development of the extensive timber reserves. In the United States, the majority of timberlands are privately owned; private markets dominate the allocation and pricing of timber, although U.S. federal and other government-owned forests are regionally important. U.S. lumber producers view the Canadian policies as more favorable for timber production, and thus as an unfair competitive advantage in supplying the U.S. lumber market, especially when the market is weak. However, since the U.S. and Canadian governments influence timber production in different ways (because of different histories, purposes, and situations), comparing the relative competitiveness of U.S. and Canadian lumber producers is difficult, at best. Under the Constitution, Congress has the power to regulate interstate commerce and trade relations with foreign nations. At issue for Congress is whether it desires to see the SLA continued, amended, or abandoned upon its expiration. This report examines the status and current issues surrounding Canadian softwood lumber imports since 2006. After providing background information on what constitutes softwood lumber, the stakeholders in the dispute, and the history of the dispute, the report introduces the 2006 SLA and analyzes its impacts on the U.S. lumber industry as well as on the trade relationship between the United States and Canada. Finally, the report discusses the potential issues Congress may consider when the agreement expires in 2015. Background Softwood lumber, for purposes of this report, is lumber produced from conifer trees. The definition of the term had been an issue leading up to the signing of the 2006 agreement and is discussed more thoroughly in the Appendix. The SLA definition is based on two tariff items under the Harmonized Tariff Schedule of the United States (HTSUS) and includes essentially all traditional softwood lumber items intended for residential construction. Because softwood lumber is primarily used for residential construction, repair, and remodeling, the demand for softwood lumber is a secondary demand, derived substantially from the demand for new or remodeled houses and other buildings. Both the U.S. and Canadian softwood lumber industries are largely driven by the U.S. housing market in general and the new construction or remodeling market specifically. In the early to mid-2000s, the U.S. and Canadian softwood lumber industries enjoyed a period of prosperity as the residential real estate market boomed. However, the softwood lumber industry began to struggle when the real estate market began to crash in 2007. For example, from 2005 to 2009 the number of new home construction starts declined by 74%. Over that same period, the use of softwood lumber in the United States decreased by 41%. Further, the number of sawmills (used to process lumber) decreased by 17%, sawmill capacity decreased by 11%, and sawmill production decreased by nearly 30%. Since 2010, the U.S. housing and softwood lumber markets have made a modest recovery. New home construction starts have increased annually. U.S. consumption of softwood lumber has increased annually since 2009, although it remains well below the rates of the early 2000s and at levels not seen since the early 1980s. As a secondary demand, softwood lumber is largely price-inelastic. This means that modest changes in construction demand cause relatively large changes in lumber prices, but the price of lumber does not affect the supply or demand of lumber, or, debatably, the price of construction. For example, wood products are arguably a relatively minor component of construction costs. While some claim that wood products represent up to 15% of construction costs, using the 2014 average framing lumber composite price of $383 per thousand board feet (MBF), framing lumber in an average (2,690-square foot) new home would cost $7,512—3% of the 2014 median price of a new home. In contrast, the price of lumber dropped significantly as a result of the housing market crash. In 2009, the price of lumber fell below $200 MBF for several months, for the first time since the 1980s (see Figure 1). Although prices have begun to rise, when adjusted for inflation, the price of lumber remains relatively low, hovering below the prices of the late 1970s in real terms. Stakeholders in the U.S.-Canada Softwood Lumber Dispute In the United States, the major stakeholders in the dispute include timber producers (forest land owners), lumber producers, and lumber consumers (homebuilders and home buyers). Timber producers are included with lumber producers, since many lumber producers also own significant tracts of forest land. In Canada, the major stakeholders include the Canadian lumber producers and the provincial governments, as the timber land owners. The U.S. lumber producers support trade restrictions on Canadian imports. In contrast, U.S. lumber consumers prefer access to affordable lumber and therefore many generally oppose trade restrictions on Canadian imports. The National Association of Home Builders (NAHB), representing the interests of U.S. lumber consumers, argues that American home buyers are the ones who eventually pay for the cost of the trade restrictions and that unrestricted trade benefits the U.S. economy on a whole. Further, they maintain that the restrictions have “reduced the incentive for U.S. producers to adopt new and innovative technology to increase production and improve efficiency of their mills so as to be internationally competitive.” However, under U.S. trade remedy laws, U.S. lumber consumers do not have standing in the dispute and may only participate as an interested party. Figure 1. Average Monthly Composite Prices for Framing Lumber in Current (Nominal) and 2014 Dollars Source: Random Lengths Publications, Inc., at http://www.randomlengths.com/ on June 15, 2015. Notes: Adjusted to 2014 dollars using the Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics. U.S. Softwood Lumber Consumption Historically, Canada has been the largest foreign supplier of softwood lumber in the United States, accounting for 95% of imports since 1965 (see Figure 2 and Figure 3). In 1965, the United States imported less than 5 billion board feet (BBF) of Canadian lumber, accounting for only 14% of U.S. consumption. However, Canadian imports rose to more than 20 BBF in 2004 and 2005, including an 80% increase from 1990. In comparison, U.S. lumber production for the domestic market (i.e., excluding U.S. lumber exports) during that same period increased by only 56%. The Canadian share of the U.S. market peaked at more than 35% in 1995-1996 and fluctuated around 33% until 2005. Since the 2006 SLA was entered into force, the Canadian share of the U.S. market has averaged 28% annually. Figure 2. U.S. Lumber Consumption by Source Sources: Congressional Research Service (CRS); James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics 1965– 2002, Res. Pap. FPL–RP–615 (Madison, WI: USDA Forest Service, December 2003), Table 28, p. 52 and Table 31, p. 55. Data update provided via personal correspondence. Notes: Black line indicates when the 2006 SLA was entered in force. Figure 3. U.S. Lumber Consumption by Source Percentage Sources: CRS; James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics 1965– 2002, Res. Pap. FPL–RP–615 (Madison, WI: USDA Forest Service, December 2003), Table 28, p. 52 and Table 31, p. 55. Data update provided through personal correspondence with USDA. Alleged Subsidies to Canadian Lumber Producers The main basis of the United States-Canada softwood lumber dispute is the allegation that Canadian lumber production is subsidized by the Canadian government. U.S. lumber producers allege that these subsidies give Canadian lumber producers an unfair advantage in the U.S. market, causing injury to U.S. producers. The U.S. Lumber Coalition, which represents the U.S. lumber industry, has argued that absent a trade agreement or other trade protection measures, Canadian imports have risen due to government programs in Canada. In particular, they assert that the fees set by the provinces for government-owned timber are less than prices in a competitive free market in North America would be. However, comparing the relative competitiveness of U.S. and Canadian lumber producers is difficult, at best. This is due to differences in land ownership and thus timber supply, pricing and allocation systems, and measurement systems, among other factors, as described below. Different Land Ownership and Management Regimes The United States and Canada both have vast forest resources, but the ownership patterns, development pressures, and forest management policies in each country are very different. In Canada, about 92% of the timberlands are “crown lands” owned and administered by the federal and provincial governments. Overall, the provinces own 90% of the timberlands, the Canadian federal government owns 2%, and 6% is in private ownership, although the provincial ownership percentage varies by province. Most of the federally owned timberlands are northern boreal forests located in the Yukon, Nunavut, and Northwest Territories that do not produce significant amounts of softwood lumber. This contrasts with U.S. timberlands, where 44% are owned by the government (33% federal, 9% state, and <1% local) and 56% are privately owned. As a result, the United States lumber industry relies more heavily on private timber sources and the Canadian lumber industry relies mostly on public sources of timber. Each Canadian province has its own forestry laws, regulations, and standards. In general, the provinces require management plans for forested areas, typically prepared by certified professional foresters and subject to participation or review by a broad spectrum of users and interests. The provinces also allocate timber harvest. The provinces typically use tenure agreements, or leases, which grant exclusive rights to the specific annual harvest level with various management obligations (e.g., road construction and reforestation). The tenure agreements may be long-term (5-25 years) or short-term (as brief as 6 months, with fewer management obligations). Many provinces also have other agreements for selling various types of timber to specific, often quite small or family-operated firms. Different Fee Systems In large part due to the different land management regimes in the different countries, the United States and Canada each rely on different price allocation systems to determine the cost of lumber. In the United States, prices are established in competitive markets between willing buyers and willing sellers, often through auctions. This is the situation for wood product manufacturers and private timberland owners and arguably, federal timber sales in areas with competitive bidding. Thus, much of the timber from lands in the United States is probably sold at fair market values. This may not be the case in Canada, where leases (rather than competitive bids) are used to allocate timber. In Canada, the provinces charge fees for timberland leases and timber harvests. There is generally a flat annual fee for maintaining the leases, and a stumpage fee—a per unit of volume fee charged for the right to harvest the trees—for the timber harvested. In many of the provinces, stumpage fees are determined administratively, and range from a fixed, province-wide fee to fees established separately for each tenure agreement. These fees are adjusted periodically to reflect changes in the market prices of lumber and other wood products. Since the SLA went into force, at least one province has modified its stumpage pricing systems. In 2013, Quebec passed the Sustainable Forest Development Act, which, among other provisions, established that 25% of the annual allowable crown harvest will be sold at auction starting in 2013. The price received at auction is then factored into the timber agreements covering the remaining 75% of the harvest. The stumpage fees administrated by the Canadian provinces may not match market-determined prices, because the fees are determined by agency personnel who some argue have an incentive to set the fees below market value to assure the competitiveness of their products. The U.S. lumber industry asserts that the provinces have intentionally set the fees substantially below market prices, to assure the competitiveness of the Canadian producers. Whether provincial administrative stumpage fees approximate market values or are substantially below market values can only be determined by examining provincial fees and U.S. prices for comparable timber, but such comparisons are difficult, as discussed below. Comparing U.S. and Canadian Stumpage Fees Allegations that Canadian lumber production is subsidized by the Canadian government rest in part on the claims that Canadian stumpage prices—which are set administratively—are lower than the market-determined stumpage prices in the United States. This results in a lower cost of production for Canadian firms compared to U.S. firms, and is believed by many to be a subsidy from the Canadian government. However, evidence to demonstrate the possible disparity between U.S. and Canadian stumpage fees is widespread, but inconclusive. Some reports have found significantly higher stumpage fees in Canada, while other reports have found the United States to have higher stumpage fees. Also, throughout the history of the dispute, the U.S. International Trade Commission (ITC) and the U.S. International Trade Administration (ITA) have found significant differences in stumpage fees in various examinations dating back to 1982. However, other analyses have shown little or no difference between U.S. and Canadian fees. Several factors can explain such apparent contradictions. First, U.S. timber and Canadian timber are measured differently. In the United States, trees and lumber are measured in board feet (linear), as described above. In Canada, trees and lumber are measured in cubic meters (volume). The conversion—how many board feet of lumber can be produced from a cubic meter of logs—depends on the diameter of the log, ranging from about 130 board feet per cubic meter for a 6-inch diameter, 16-foot log to more than 275 board feet per cubic meter for a 44-inch, 16-foot log. Thus, the conversion rate chosen (i.e., different assumptions about log diameters) can have a significant effect on the resulting price. Second, except for the occasional forest plantation, forests are not uniform monocultures—forests may contain several species of trees, each of which varies in diameter, height, and quality. U.S. and Canadian forests differ in their species mix (percentage of trees or timber volume in each species) as well as in the size and quality of the trees of each species. Comparisons typically use a single dominant species (e.g., douglas-fir), but the stumpage fee for the dominant species can be affected by the fee for other species. In U.S. federal timber sales, for example, competitive bidding is generally limited to the dominant species, with the other species being sold at the appraised price; this leads to an overall balance, but limits the validity of the fees for comparing the prices of timber in different areas. Adjusting for these differences is difficult, under the best of circumstances. Other factors also affect stumpage fees. For example, management responsibilities imposed on timber purchasers differ. In Canada, licensees are generally responsible for reforestation and for some forest protection. In U.S. federal forests, timber purchasers generally make deposits to pay for agency reforestation efforts, and some of those deposits are typically reported as part of the stumpage fees. Road construction and road maintenance responsibilities and labor compensation also differ. History of the Dispute The dispute between the United States and Canada regarding softwood lumber trade dates back to the 1930s, but the so-called lumber wars began in the 1980s when the United States first considered trade protection measures. Table 1 summarizes the major periods of trade dispute and agreement from 1982 to the present. Table 1. History of the Dispute 1982-2015 Time Period Trade Status Summary 1982-1983 Trade Dispute: Lumber I The U.S. lumber industry, represented by the Coalition for Fair Canadian Lumber Imports (CFLI; now known as the U.S. Lumber Coalition), filed a preliminary countervailing duty petition, arguing that the U.S. lumber industry had been harmed by subsidized Canadian provincial stumpage fees. However, the International Trade Administration (ITA) did not establish a countervailing duty. 1986 Trade Dispute: Lumber II The U.S. lumber industry filed a new countervailing duty petition. In contrast to 1982, the 1986 preliminary finding established a 15% ad valorem countervailing duty, pending a final determination due by December 31, 1986. A final determination was avoided with the signing of a joint Memorandum of Understanding (MOU) between the two countries on December 30, 1986. 1986-1991 Trade Agreement: MOU The 1986 MOU established a 15% tax on Canadian imports until the Canadian provinces raised stumpage fees. The MOU lasted six years. 1992-1995 Trade Dispute: Lumber III Canada withdrew from the MOU and the United States imposed another countervailing duty (6.51% ad valorem) shortly thereafter. The United States and Canada filed competing claims against each other in U.S. and international courts for trade violations. 1996-2001 Trade Agreement: 1996 Softwood Lumber Agreement The United States and Canada signed a five-year Softwood Lumber Agreement that established a fee on imports exceeding a specified quota. 2001-2005 Trade Dispute: Lumber IV Immediately following the expiration the expiration of the 1996 agreement, the United States again imposed countervailing and antidumping orders on Canadian lumber imports (Lumber IV). Again, both countries initiated proceedings in international and U.S. courts claiming violations of various trade agreements, including the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) agreements. The lawsuits persisted until the 2006 Softwood Lumber Agreement was entered in force. 2006-present Trade Agreement: 2006 Softwood Lumber Agreement The United States and Canada signed a six-year Softwood Lumber Agreement that established a system of fees and quotas on Canadian imports. In 2012, the agreement was extended through October 12, 2015. Source: CRS. The 2006 Softwood Lumber Agreement On April 26, 2006, the United States and Canada announced a tentative agreement to terminate antidumping and countervailing duties and related litigation. An early version of the agreement was signed on July 1, 2006, and the Softwood Lumber Agreement Between the Government of Canada and the Government of the United States of America (SLA 2006) entered into force on October 12, 2006. The SLA was set to expire in 2013 but included an option to be renewed for an additional two years. On January 23, 2012, the United States and Canada both agreed to the two-year extension. The current SLA is now set to expire on October 12, 2015. Under the agreement, the United States revoked countervailing and antidumping orders on Canadian lumber and returned about $4 billion that was collected from the duties to the importers of record. The remaining deposits (about $1 billion) were split evenly between the U.S. lumber industry and jointly agreed-upon initiatives (see below, “Initiatives Funded by the 2006 SLA”). In exchange, the parties agreed to terminate, or in some cases dismiss, all North American Free Trade Agreement (NAFTA), World Trade Organization (WTO), and domestic court claims filed by Canada, Canadian producers, the United States, and the U.S. industry as represented by the CFLI (now known as the U.S. Lumber Coalition). The SLA precludes new cases, investigations and petitions, and actions to circumvent the commitments in the agreement. The SLA also included an agreement where the participating U.S. producers would not file new antidumping or countervailing duties petitions or investigations for a period of 12 months after the termination or expiration of the agreement. Table 2. 2006 SLA Export Charges and Quota Limitations Options Based on Prevailing Monthly Price of U.S. Lumber Prevailing Monthly Price per thousand board feet (MBF) Option A—Export Charge (Expressed as a % of Export Price) Option B—Export Charge (Expressed as a % of Export Price) with Volume Restraint Participating Regions British Columbia Coastal, British Columbia Interior, Alberta Saskatchewan, Manitoba, Ontario, and Quebec Over $355 No Export Charge No Export Charge and no volume restraint $336-355 5% 2.5% Export Charge plus regional share of 34% of U.S. Consumption $316-335 10% 3% Export Charge plus regional share of 32% of U.S. Consumption $315 or under 15% 5% Export Charge plus regional share of 30% of U.S. Consumption Source: “Article VII, Export Charge and Export charge plus volume restraint,” Softwood Lumber Agreement Between the Government of the United States of America and the Government of Canada (Washington, DC: October 12, 2006), at http://www.ustr.gov/webfm_send/3254. The SLA established export charges on Canadian softwood lumber when the Random Lengths’ Framing Lumber and Composite Price falls below $355 per thousand board feet (MBF), with the rate charged varying with how far the composite price falls. The export charges can be significantly reduced if the Canadian producing region also agrees to volume restraints, which become increasingly restrictive as the average price falls (see Table 2). During the first six years the SLA was in effect, lumber prices largely remained below $315 MBF (see Figure 4) and only exceeded the trigger briefly for three months in 2010. However, for just over two years, from January 2013 through March 2015, lumber prices exceeded $355 MBF every month except one (August 2013), meaning that no export measures were applied during those months. Lumber prices began to fall in each successive month starting in March 2015. Export measures were applied in April 2015 and continue through August 2015, although the August 2015 price is an increase over previous months ($347 MBF). Figure 4. Prevailing Monthly Lumber Prices (Current Dollars) and Export Provisions Under the 2006 SLA Sources: CRS. Prevailing month price data from published reports on the Government of Canada’s Foreign Affairs, Trade and Development website, http://www.international.gc.ca/controls-controles/prod/index.aspx. Notes: The prevailing monthly price is calculated as the most recent 4-week average of the weekly framing lumber composite price, available 21 days before the beginning of the month that the prevailing monthly price shall be applied. There are several additional provisions relating to export charges and volumes. There is a third country trigger, allowing export charge refunds if, for consecutive quarters, the third country share of U.S. lumber consumption grows, the U.S. share increases, and the Canadian share decreases. A surge mechanism generally provides for substantially greater export charges if a Canadian region’s exports exceed 100% of its allocated share of total Canadian exports. For high-value products—those valued at more than $500 per MBF—the export charges are calculated as if they were priced at $500 per MBF. The SLA also establishes a third party arbitration system to handle any disputes under the agreement, discussed below. In Article XV, the SLA sets forth information collection and exchange requirements that both the United States and Canada submit monthly reports aggregated to the Canadian regional level, along with quarterly data reconciliation requirements. These reports are to be publicly available. Canadian Provinces Covered by the SLA The SLA applies export measures to lumber products from timber harvested in the provinces of Alberta, British Columbia Coastal, British Columbia Interior, Manitoba, Ontario, Quebec, and Saskatchewan (See Figure 5). The export measures do not apply to lumber products from timber harvested in the Yukon, Northwest, or Nunavut Territories. Lumber produced in the Atlantic Provinces, as well as lumber certified as originating in the State of Maine, is also exempt. In addition, 32 companies—so-called border mills primarily from Quebec but also Ontario—are named in the SLA as also being exempt, subject to certain quota limitations. At the time of negotiation, there were significant private timber land holdings in these provinces, so they were not seen as benefiting from a subsidy. Figure 5. Canadian Provinces Covered by the SLA Source: Map created by CRS using Esri Basemaps. British Columbia Forest Region boundary files were created by Data BC, a pilot project of the British Columbian government, current as of 1/13/2005: https://apps.gov.bc.ca/pub/geometadata/metadataDetail.do?recordUID=32891&recordSet=ISO19115. Forest cover boundaries provided by the World Wildlife Fund Terrestrial Ecoregions data, current as of 2005. Initiatives Funded by the 2006 SLA Prior to the enactment of the 2006 SLA, the United States collected approximately $5.3 billion under the antidumping and countervailing duty orders on Canadian softwood lumber imports. As part of the SLA, the United States returned $4 billion to the importers of record. The remaining deposits were split evenly among the U.S. lumber industry, a binational panel to advance softwood lumber, and three types of initiatives in the United States. The initiatives were to provide (1) promotion of sustainable forest management practices; (2) assistance for timber reliant communities; and (3) low income housing and disaster relief. The recipients of the initiative funds include $200 million for the United States Endowment for Forestry and Communities; $150 million for the American

Aug 27, 2015

Veterans’ Benefits: Eligibility of Merchant Mariners

Congressional Research Service 7-5700 www.crs.gov R44162 Summary Although merchant mariners have supported the Armed Forces in every war fought by the United States, they generally are not considered veterans for the purpose of eligibility for federal benefits. Pursuant to legislation enacted in 1977 (P.L. 95-202) and 1988 (P.L. 105-368) and to decisions made by the Secretary of the Air Force in 1985 and 1988, the following groups of World War II-era merchant mariners are the only merchant mariners eligible for veterans’ benefits: Eligible for all veterans’ benefits: United States merchant seamen who served on blockships in support of Operation Mulberry. American merchant marine in oceangoing service during the period of armed conflict, December 7, 1941, to August 15, 1945, and who meet the following qualifications: employed by the War Shipping Administration or Office of Defense Transportation (or their agents) as a merchant seaman documented by the U.S. Coast Guard or the Department of Commerce (Merchant Mariner’s Document/Certificate of Service) or as a civil servant employed by the U.S. Army Transport Service (later redesignated U.S. Army Transportation Corps, Water Division) or the Naval Transportation Service; and served satisfactorily as a crew member during the period of armed conflict, December 7, 1941, to August 15, 1945, aboard merchant vessels in oceangoing—that is, foreign, intercoastal, or coastwise—service (per 46 U.S.C. §§10301 and 10501) and further to include near foreign voyages between the United States and Canada, Mexico, or the West Indies via ocean routes, or public vessels in oceangoing service or foreign waters. Eligible for burial benefit and national cemetery interment only: Served between August 16, 1945, and December 31, 1946, as a member of the United States merchant marine (including the Army Transport Service and the Naval Transport Service), serving as a crewmember of a vessel that was operated by the War Shipping Administration or the Office of Defense Transportation (or an agent of either); operated in waters other than inland waters, the Great Lakes, and other lakes, bays, and harbors of the United States; under contract or charter to, or property of, the government of the United States; and serving the Armed Forces; and while so serving, was licensed or otherwise documented for service as a crewmember of such a vessel by an officer or employee of the United States authorized to license or document the person for such service. H.R. 563, the Honoring Our WWII Merchant Mariners Act of 2015, would provide one-time compensation of $25,000 to World War-II merchant mariners to account for benefits they were not able to access before being granted veterans’ benefit eligibility. Contents Introduction 1 Early Efforts to Secure Benefits for Merchant Mariners 1 The GI Bill Improvement Act of 1977, P.L. 95-202 2 Active Duty Status Determinations of Merchant Mariners 2 Schumacher v. Aldridge: Litigation Contesting the Denials of Active Duty Status 3 Reconsideration of Denials of Active Duty Status 3 The Veterans Programs Enhancement Act of 1988, P.L. 105-368 4 Current Eligibility Rules for Merchant Mariners 4 Considered Active Duty and Eligible for All Veterans’ Benefits 4 Eligible for Burial Benefits and National Cemetery Interment Only 5 Current Issues and Legislation 5 H.R. 563, the Honoring Our WWII Merchant Mariners Act of 2015 5 Contacts Author Contact Information 6 Introduction In every war fought by the United States, civilian ships have supported military operations by transporting supplies and personnel. The civilians that have served on these vessels historically have worked in varying capacities either for private shipping companies under contract with the federal government or for the government itself. These civilians are collectively referred to as merchant mariners. In World War II, an estimated 8,500 merchant mariners were killed and 11,000 were wounded. During Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF), it is estimated that 63% of the military cargo shipped to the Middle East and Afghanistan was delivered by U.S.-flagged commercial vessels crewed by merchant mariners and an additional 35% of military cargo was transported by government-owned vessels crewed by civilian federal employees and federal contractors. Although merchant mariners have always played an important role in support of U.S. war efforts, they generally have not been considered veterans for the purposes of federal benefits. Currently, only limited groups of World War II-era merchant mariners are eligible for benefits from the Department of Veterans Affairs (VA). Early Efforts to Secure Benefits for Merchant Mariners After World War II, merchant mariners sought through legislation to gain recognition as veterans. Legislation was introduced either to provide benefits to merchant mariners comparable to those provided under the Servicemen’s Readjustment Act of 1944 (P.L. 78-346), commonly known as the GI Bill, or to expand the employee benefits merchant mariners were receiving at that time. During hearings in late 1945, the House Committee on Merchant Marine and Fisheries heard testimony on four bills that would have provided some benefits to merchant seamen. One of these bills, H.R. 2346, would have provided benefits to merchant mariners comparable to those of other World War II veterans. Testimony in favor of H.R. 2346 was heard from a number of former merchant seamen and the Merchant Marine Veterans Association. Testimony in opposition to H.R. 2346 came from various agencies, including the War Department, the Veterans Administration, and the American Legion. Opponents to granting veteran status to merchant mariners generally focused on the freedom of a merchant mariner to make decisions about whether or not to take a particular voyage or leave service. They also focused on the higher earnings of merchant mariners relative to uniformed Navy personnel. In 1947, H.R. 476 was introduced, which would have expanded the existing benefits for merchant seamen related to health care and disability and introduced an education benefit. Ultimately, no legislation was enacted in the immediate aftermath of World War II to grant veteran status to merchant mariners or to provide additional benefits to merchant mariners related to health care, disability, or education. The GI Bill Improvement Act of 1977, P.L. 95-202 Section 401 of the GI Bill Improvement Act of 1977 (P.L. 95-202) granted veterans’ benefit eligibility to civilians who served as Women’s Air Forces Service Pilots (WASPS) during World War II. In addition, Section 401 of P.L. 95-202 provided the Secretary of Defense the authority to extend “active duty” status for the purpose of eligibility for federal veterans’ benefits to other groups of civilian federal employees or contractors who rendered service to the Armed Forces and were “similarly situated” to the WASPS. Regulations implementing P.L. 95-202, issued as Department of Defense Directive 1000.20, delegated the authority to grant active duty status to civilian groups to the Secretary of the Air Force. In addition, Directive 1000.20 established the Department of Defense Civilian/Military Service Review Board to review each application for active duty status. The factors to be used in reviewing such applications included the uniqueness of service rendered by the group and whether or not the group was subject to military control, discipline, and justice. A complete list of groups granted active duty status for the purpose of eligibility for veterans’ benefits pursuant to P.L. 95-202 is provided in regulation. Active Duty Status Determinations of Merchant Mariners In 1982, the Secretary of the Air Force rejected the application for active duty status for oceangoing merchant mariners who served during World War II. In 1985, the Secretary rejected the applications of merchant mariners who served in contested waters in World War II, merchant mariners involved in any military invasion during World War II, and all merchant mariners involved in Operation Mulberry during World War II. These rejections were recommended by the Civilian/Military Service Review Board. The rejection of the oceangoing merchant mariners was based on the Secretary of the Air Force’s decision that these groups received only limited military training; did not render service exclusively for the Armed Forces; were not subject exclusively to military discipline; were not subject to “pervasive” military control; had no reasonable expectation of “active military service” status, and were not part of a wartime organization formed for or because of a wartime need. In recommending the rejection of the application of the Operation Mulberry group, the Civilian/Military Service Review Board stated that this group “was too broad and diverse to make an adequate determination as to the roles played by the multitude of subgroups and members that made up Operation Mulberry.” However, although the application of all merchant mariners that participated in Operation Mulberry was rejected, the application of those who served only on blockships during this operation was approved. In recommending the approval of the blockship group’s application, the Civilian/Military Review Board stated that [t]hese merchant marines performed a uniquely military mission in a combat zone that would not normally be considered a mission of the Merchant Marine. The merchant crews were not tasked with delivering a cargo, per se, but were asked to be a part of a team to create an artificial harbor a beachhead mission normally associated with military engineers for a military operation. This is not a mission that the Merchant Marine historically perform. This group, then, was a creation of World War II for that specific time and place, i.e., the Invasion of Normandy. Schumacher v. Aldridge: Litigation Contesting the Denials of Active Duty Status Following the 1985 rejections of applications of merchant mariners for active duty status, a lawsuit was filed challenging the denial of active duty status for World War II oceangoing merchant mariners and those who participated in World War II invasions. The plaintiffs argued that the merchant mariners included in these applications satisfied the established criteria to a greater extent than many of the previously approved groups and argued that the denials were inconsistent with the Secretary of the Air Force’s prior decisions. The Secretary of the Air Force responded that the plaintiffs misunderstood the designation criteria and outlined characteristics that the approved groups shared. The U.S. District Court for the District of Columbia ruled that the Secretary of the Air Force erred in rejecting the applications of the oceangoing merchant mariners and those that participated in World War II invasions. The court remanded these individuals’ applications back to the Secretary of the Air Force for reconsideration. Reconsideration of Denials of Active Duty Status In 1988, following the Schumacher decision, the Secretary of the Air Force granted active duty status for the purpose of eligibility for veterans’ benefits to World War II-era merchant mariners who served on vessels engaged in oceangoing service from December 7, 1941, to August 15, 1945. The Veterans Programs Enhancement Act of 1988, P.L. 105-368 Section 402 of the Veterans Programs Enhancement Act of 1988 (P.L. 105-368) extended veterans’ burial benefits and the right to interment in national cemeteries to merchant mariners who served on vessels engaged in oceangoing service from August 16, 1945, to December 31, 1946. In 1999, the Secretary of the Air Force determined that the service of oceangoing merchant marines during the period from August 15, 1945, to December 31, 1946 (those covered by P.L. 105-368) is not considered active duty under the provisions of P.L. 95-202 for the purposes of other benefits administered by the VA. Current Eligibility Rules for Merchant Mariners Under current law and regulations, only the following groups of merchant mariners are considered to have served on active duty or are otherwise eligible for veterans’ benefits. No other merchant mariners are eligible for any veterans’ benefits administered by the VA. Considered Active Duty and Eligible for All Veterans’ Benefits United States merchant seamen who served on blockships in support of Operation Mulberry. American merchant marine in oceangoing service during the period of armed conflict, December 7, 1941, to August 15, 1945, and who meet the following qualifications: was employed by the War Shipping Administration or Office of Defense Transportation (or their agents) as a merchant seaman documented by the U.S. Coast Guard or the Department of Commerce (Merchant Mariner’s Document/Certificate of Service) or as a civil servant employed by the U.S. Army Transport Service (later redesignated U.S. Army Transportation Corps, Water Division) or the Naval Transportation Service; and served satisfactorily as a crew member during the period of armed conflict, December 7, 1941, to August 15, 1945, aboard merchant vessels in oceangoing—that is, foreign, intercoastal, or coastwise—service (per 46 U.S.C. §§10301 and 10501) and further to include near foreign voyages between the United States and Canada, Mexico, or the West Indies via ocean routes, or public vessels in oceangoing service or foreign waters. Eligible for Burial Benefits and National Cemetery Interment Only Served between August 16, 1945, and December 31, 1946, as a member of the United States merchant marine (including the Army Transport Service and the Naval Transport Service) serving as a crewmember of a vessel that was: operated by the War Shipping Administration or the Office of Defense Transportation (or an agent of either); operated in waters other than inland waters, the Great Lakes, and other lakes, bays, and harbors of the United States; under contract or charter to, or property of, the government of the United States; and serving the Armed Forces; and while so serving, was licensed or otherwise documented for service as a crewmember of such a vessel by an officer or employee of the United States authorized to license or document the person for such service. Current Issues and Legislation While some World War II-era merchant mariners were granted eligibility for veterans’ benefits in 1985 and 1988, the passage of time between their service and the granting of this eligibility may have made it impossible for them to fully access these benefits. For example, when these former merchant mariners were of typical college age after the war, they were not eligible for benefits under the GI Bill. In addition, those with service-connected disabilities or medical conditions may have lost out on nearly 40 years of VA disability compensation or medical benefits. H.R. 563, the Honoring Our WWII Merchant Mariners Act of 2015 H.R. 563, the Honoring Our WWII Merchant Mariners Act of 2015, would provide compensation to former World War II-era merchant mariners to account for the benefits they were not able to access before being granted veterans’ benefit eligibility in the 1980s. Similar legislation has been introduced in each Congress since the 108th Congress. Specifically, this legislation would provide a one-time payment of $25,000 to any merchant mariner who served between December 7, 1941, and December 31, 1946, and who otherwise meets the definition of service provided for burial benefits and interment eligibility in P.L. 105-368. Eligible persons would have one year from the date of enactment of the legislation to apply for benefits. A total of $125 million would be authorized to be appropriated in FY2016 for these benefits, to be available until expended. Although the benefits created by this legislation would partially compensate former merchant mariners for lost benefits, H.R. 563 would place the former merchant mariners in a unique position compared to both other civilians who served in World War II and other veterans. Active duty status for the purposes of eligibility for veterans’ benefits has been extended under the provisions of P.L. 95-202 to 33 groups of civilians who served during World Wars I and II, all of whom can claim to have missed the opportunity to claim certain benefits during the period between their service and the granting of active duty status. However, if H.R. 563 were to be enacted, only the two merchant mariner groups would be eligible for any form of compensation to account for these lost benefits. In addition, merchant mariners would join Medal of Honor winners as the only groups eligible for cash compensation from the VA without having to demonstrate a financial hardship (for VA pension benefits) or a service-connected disability (for VA disability compensation). Author Contact Information Scott D. Szymendera Analyst in Disability Policy [email protected], 7-0014

Aug 26, 2015

Apprenticeship in the United States: Frequently Asked Questions

This Frequently Asked Questions (FAQ) report focuses on the Registered Apprenticeship system, through which the U.S. Department of Labor (or a recognized state apprenticeship agency) certifies a program as meeting certain federal requirements related to duration, intensity, and benefit to the apprentice. The report also discusses federal programs for which supporting apprenticeship activities is an allowable, but not required, use of funds.

Aug 25, 2015

Policy Implications of the Internet of Things

This report briefly discusses the Internet of Things (IoT), which is an umbrella term that many policymakers use to refer to the technologies and network structures that interconnect objects, humans, and animals to collect and analyze data and manage processes.

Aug 25, 2015

Expedited Removal Authority for VA Senior Executives (38 U.S.C. § 713): Selected Legal Issues

This report discusses selected legal issues relating to the authority for summary removal of individuals in senior executive positions at the Department of Veterans Affairs. Section 707 of the Veterans Access, Choice, and Accountability Act, P.L. 113-146, enacted on August 7, 2014, created this authority by adding Section 713 to Title 38 of the United States Code. It authorizes the Secretary of Veterans Affairs to remove an individual in a senior executive position from federal service or transfer him or her to a position in the General Schedule if the Secretary determines that the individual's performance or misconduct warrants removal.

Aug 21, 2015

The Excise Tax on High-Cost Employer-Sponsored Health Coverage: Background and Economic Analysis

Congressional Research Service 7-5700 www.crs.gov R44160 Summary Beginning in 2018, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) imposes a 40%, nondeductible excise tax on the value of applicable employer-sponsored health coverage above specific dollar thresholds. In 2018, these thresholds are $10,200 for single health coverage and $27,500 for non-single (e.g., family) coverage. The thresholds are adjusted for eligible retirees, workers in certain high-risk professions, and plans whose demographics differ from the national workforce. This excise tax on high-cost employer-sponsored coverage, commonly referred to as the Cadillac tax, is intended to raise revenue and reduce the growth of aggregate health care costs. Particularly, the Cadillac tax effectively counteracts part of the tax exclusion for employer sponsored insurance (ESI), which many economists believe encourages the overconsumption of health benefits. The Cadillac tax is estimated to raise $3 billion in 2018 and is projected to collect higher amounts of revenue each year through 2024. More plans are projected to be subject to the tax over time, because the Cadillac tax threshold is adjusted annually for inflation with the Consumer Price Index, which generally has been below the rate of growth in insurance premiums. Over the first eight years of implementation, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that the tax will raise $87 billion in revenue. As the 2018 implementation date draws closer, congressional interest in the tax has increased. For example, the Ax the Tax on Middle Class Americans’ Health Plans Act (H.R. 879) and the Middle Class Health Benefits Tax Repeal Act (H.R. 2050) would specifically repeal the Cadillac tax. Opponents of the Cadillac tax argue that the tax unfairly targets certain employers’ health plans because their workforce has higher health care risks. Some organized labor groups also oppose the tax because they collectively bargained for workers to receive more compensation through health benefits instead of higher wages. Proponents of the Cadillac tax argue it will help to slow the growth of national health care costs by increasing the price of excess health benefits. Based on an analysis of employer plans in the 2013 Medical Expenditure Panel Survey Insurance Component (MEP-IC) dataset, 10.2% of single and 6.0% of non-single insurance plans have premiums that could exceed the Cadillac tax threshold in 2018 (assuming premiums grow at the same rate as their five-year averages). By 2028, 24.7% of single and 19.1% of non-single plans have premiums that could exceed the tax threshold. These estimates do not assume any plan modifications to avoid the tax and do not include contributions to health-related savings or reimbursement accounts. The share of plans that could be subject to the tax is sensitive to projections in premium growth rates. Contents Introduction 1 Description of the Tax 2 General Thresholds 3 Exceptions to the General Thresholds 3 Legislative Background 4 Brief History of ESI Tax Exclusion 4 Economic Impact of ESI Tax Exclusion in Brief 5 Congressional Discussions on Reforming the ESI Tax Exclusion 5 Legislative Origins of the Cadillac Tax 6 Estimated Revenue Effects of the Cadillac Tax 7 Share of Plans with Insurance Premiums Exceeding the Tax’s Threshold 8 2018 10 2019 and Beyond 12 Interaction of the Cadillac Tax and a Hypothetical Employer-Sponsored Plan 14 Interaction of the Cadillac Tax and Small Group and Small Business (SHOP) Insurance Exchange Plans 16 Economic Analysis 17 Economic Efficiency 17 Economic Incidence of the Tax 18 Effects on the Market for Medical Care 18 Equity 20 Administrative Simplicity 22 Conclusion 22 Figures Figure 1. Percentage of Employer-Sponsored, Single Premiums Estimated to Exceed the Cadillac Tax Threshold in 2018, by State 11 Figure 2. Percentage of Employer-Sponsored, Non-Single Premiums Estimated to Exceed the Cadillac Tax Threshold in 2018, by State 12 Figure 3. Percentage of Employer-Sponsored, Single Premiums Estimated to Exceed the Cadillac Tax Threshold, Nationally, 2018-2038 13 Figure 4. Percentage of Employer-Sponsored, Non-Single Premiums Estimated to Exceed the Cadillac Tax Threshold, Nationally, 2018-2038 14 Figure 5. Illustration of the Long-Term Interaction of the Cadillac Tax Threshold and the Premium for a Hypothetical Employer-Provided Single Plan 15 Figure 6. Illustration of the Long-Term Interaction of the Cadillac Tax Threshold and the Premium for a Hypothetical Employer-Provided Non-Single Plan 16 Appendixes Appendix. Analytical Review and Methodology 23 Contacts Author Contact Information 25 Introduction Beginning in 2018, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) imposes a nondeductible 40% excise tax on the value of applicable employer-sponsored health coverage above specific dollar thresholds. In 2018, these thresholds are $10,200 for single health coverage and $27,500 for non-single (e.g., family) coverage. This excise tax on high-cost employer-sponsored coverage, commonly referred to as the Cadillac tax, was an important feature of the ACA for two primary reasons. One, the tax was among several revenue-raising provisions in the ACA meant to raise revenue to offset the cost of other ACA provisions (e.g., the financial subsidies available through the health insurance exchanges). Two, the tax was among several provisions intended to reduce the growth of national health care costs. Particularly, the tax is intended to target higher-cost “Cadillac” health plans (which are characterized as having more generous coverage or lower cost-sharing requirements than average health plans) and to counteract the income tax exclusion for employer-sponsored insurance’s (ESI) incentives. Many economists believe ESI incentives result in the overconsumption of health benefits, resulting in upward pressure on health care costs. Proponents of the Cadillac tax point out that employer-sponsored plans are the single largest source of health insurance coverage for the non-elderly in the United States and that the current, unlimited ESI tax exclusion (the single largest tax expenditure in the Internal Revenue Code) tends to benefit higher-income individuals more than lower-income individuals. Critics of the Cadillac tax voice concerns that it might lead insurers to redesign their plans. Some employers claim that the tax imposes an unfair burden on their workforce because of the demographic traits of that workforce or the location of the business—not due to the generosity of their health plans. Some organized labor groups have also opposed the tax because they have negotiated collective bargaining contracts such that their members receive a larger share of their compensation in the form of health benefits in lieu of higher wages. According to these groups, the tax could disrupt these contracts such that employers’ costs could increase (in the form of higher prices of the goods and services that the employers provide) or workers could bear the additional burdens of the tax (in the form of lower total compensation). In the 114th Congress, the Ax the Tax on Middle Class Americans’ Health Plans Act (H.R. 879) and the Middle Class Health Benefits Tax Repeal Act (H.R. 2050) would specifically repeal the Cadillac tax. This report gives a brief description of the Cadillac tax. It discusses the legislative origins of the tax and provides an analysis of the revenue effects of the tax. It then analyzes health insurance premium data to provide insights into what share of health insurance plans could exceed the Cadillac tax threshold and how the threshold could affect more health plans over time. This report also analyzes the Cadillac tax using standard economic criteria of efficiency, equity, and administrative simplicity. This report is based on interpretation of the statute, and it does not consider how future regulations could affect the impact of the tax. For more detailed description of the administration of the tax, see CRS Report R44147, Excise Tax on High-Cost Employer-Sponsored Health Coverage: In Brief, by Annie L. Mach. Description of the Tax The ACA will impose a 40% tax on the value of applicable employer-sponsored coverage above a specified dollar threshold, also referred to as the excess benefit, beginning in 2018. Applicable employer-sponsored coverage includes, but is not limited to, the following items that are subject to preferential tax exclusions: premiums for accident or health coverage paid by the employer or employee, and certain contributions to tax-advantaged accounts, such as flexible spending accounts (FSAs) and health savings accounts (HSAs). Additionally, employer-sponsored health coverage that is paid by the employee with after-tax dollars (i.e., not subject to tax exclusion) could be included as applicable coverage. The excess benefit is calculated as the difference between the value of applicable employer-sponsored coverage and the applicable threshold level. The excess benefit is based on the aggregate cost of all employer-sponsored coverage (unless excepted). Two different thresholds apply: one for workers with single coverage, and one for workers with non-single coverage (e.g., family plans or self plus one plans). The tax specifically does not apply to (“excepts”) coverage such as long-term care insurance, stand-alone dental and vision insurance, liability insurance, and accident and disability benefits. Plans provided by public employers are not excepted, and health benefits of public employees could be subject to tax. Employers will be responsible for calculating the Cadillac tax owed for each employee’s employer-sponsored coverage, as well as the share attributable to each coverage provider. The tax is levied on coverage providers, which in some cases will be the health insurance companies that issue the employer-sponsored plans and in some cases will be the employer. The excise tax is nondeductible from the insurer’s gross income (or the employer’s gross income, in cases where the employer self-insures). This treatment is unlike some other deductible excise taxes (such as the excise tax on medical device manufacturers) but similar to other ACA revenue-raising provisions (such as the annual fee on health insurance providers). General Thresholds In 2018, the threshold for calculating excess benefits will be $10,200 for single coverage and $27,500 for non-single coverage. Employees in multiemployer (e.g., union) coverage will be subject only to the non-single thresholds. In 2019, the base threshold of $10,200 (single) and $27,500 (non-single) will be indexed to the annual change in inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), plus one percentage point. In years 2020 and beyond, the threshold will be further adjusted using only annual changes in the CPI-U. In all instances, the inflation adjustments will be rounded to the nearest multiple of $50. Exceptions to the General Thresholds There are several exceptions to the general thresholds. First, the thresholds are higher for retired individuals aged 55 and older who do not qualify for Medicare. For eligible plans, the threshold increases by $1,650 to $11,850 for single coverage and by $3,450 to $30,950 for non-single (or family) coverage. Second, there is an adjustment for certain high-risk occupations. To be eligible for the occupation exception, the plan must cover employees involved in the repair or installation of electrical or telecommunication lines, law enforcement, fire-protection activities, out-of-hospital emergency medical care (e.g., paramedics), longshore work, construction, mining, agriculture (not including food processing), forestry, and fishing industries. The same inflation adjustment used for the standard calculation of the Cadillac tax is used to adjust these modified thresholds over time. Third, employers may also adjust the cost of the health insurance coverage if their workforce differs substantially, in terms of age and gender, from a national risk pool. Regulations in this area could affect the share of plans that are subject to the tax. Legislative Background The legislative history of the Cadillac tax is rooted in efforts to limit the effects of the long-standing income tax exclusion for employer-sponsored insurance (ESI). Before discussing the specific legislative origins of the Cadillac tax, it is important to briefly review the legislative history of the ESI tax exclusion. Brief History of ESI Tax Exclusion Since the 1920s, ESI benefits have been excluded from federal income tax. The Stabilization Act of 1942 (P.L. 77-729) further encouraged this practice through its wage controls during World War II. With wages—but not benefits—frozen, more firms began offering health benefits to attract employees. After the war, the exclusion remained in place and firms continued to offer health benefits as a fringe benefit. In 1954, the exclusion was codified in the Internal Revenue Code. ESI coverage rates have leveled off or even declined slightly since the 1960s, in part due to the creation of major programs to cover the health benefits for the poor and elderly (and subsequent expansions of such benefits). Still, ESI coverage plays a large role in the modern economy. First, employer-sponsored plans provide the largest single source of health coverage for the non-elderly population in the United States. As of 2012, 65.8% of the non-elderly population (175.4 million people) were covered by private health insurance. Of that total, 88.9% (156.0 million people) were covered by an employer-sponsored plan. Second, the exclusion has become the largest single tax expenditure in the Internal Revenue Code. For FY2015, the Joint Committee on Taxation (JCT) estimates that the ESI tax exclusion is the single largest federal tax expenditure—$150.6 billion. Economic Impact of ESI Tax Exclusion in Brief Economists note that the ESI tax exclusion can both increase and decrease economic efficiency as well as decrease the perceived “fairness” or equity of the income tax. Incentives for ESI could enhance economic efficiency because ESI provides a risk-pooling mechanism that is unrelated to health factors among the working population. Further, ESI could reduce health costs through increased bargaining power and decreased administrative costs. In contrast, studies have concluded that the tax exclusion for ESI encourages greater health care consumption than would be the case without a tax preference, thus generating an economically inefficient outcome. In addition to the debate over economic efficiency, the ESI tax exclusion changes the burden distribution of the income tax. Generally, the ESI exclusion is regressive, since the exclusion is more valuable to those in higher income brackets. Individuals who obtain coverage outside of an employer-sponsored plan or uninsured workers generally do not benefit from the ESI tax exclusion. Congressional Discussions on Reforming the ESI Tax Exclusion Economists and policy experts discussed the merits and potential options for eliminating the ESI tax exclusion over the course of a three-session Senate Finance Committee roundtable discussion held in spring 2009 (one year before enactment of the ACA). In one opening statement, Senate Finance Chairman Max Baucus said We should also look at the current tax treatment of health care. I know that there is some controversy about doing so. Some do not want to modify the current unlimited exclusion for employer-provided health care, and I agree that we are not going to eliminate that exclusion. But the current tax exclusion is not perfect. It is regressive and often leads people to buy more health coverage than they need...We should look at ways to modify the current tax exclusion so that it provides the right incentives, and we should look to ways to make it fairer and more equitable for everyone. Members of the Senate Finance Committee and a bipartisan panel of health care experts discussed several issues within the context of limiting or eliminating the ESI tax exclusion in 2009, including limiting the exclusion for certain taxpayers above a particular income; limiting the exclusion for the value of plans over a percentile of the average actuarial value of employer-sponsored plans; adjusting any limit for regional difference in plans or for age of the workforce; what types of health benefits should be tax preferred (e.g., HSAs, FSAs); and how to adjust the limit over time. Legislative Origins of the Cadillac Tax The idea of the Cadillac tax emerged in legislation as part of the chairman’s mark of the America’s Healthy Future Act of 2009, the Senate Finance Committee’s draft bill for health care reform, released on September 16, 2009. This first version of the Cadillac tax would have taxed insurance policies with excess benefits above a threshold ($8,000 for single plans and $21,000 for family plans) at a rate of 35% beginning in 2013. The Congressional Budget Office (CBO) and the JCT estimated that the provision would have raised $215 billion over the budget window from 2010 to 2019 (i.e., within the first seven fiscal years of implementation). The threshold would have been adjusted for inflation in 2014 and beyond. This version of the bill also included a three-year transition rule that would have increased the threshold for the 17 highest-cost states. On September 22, 2009, the modified chairman’s mark was released, and the Senate Finance Committee began to mark up the bill over seven days. The modified mark increased the Cadillac tax rate to 40%, but it adjusted the threshold in 2014 and beyond for changes in inflation plus one percentage point. The initial threshold amounts were not modified. The Cadillac tax provision in the modified mark was estimated by CBO and JCT to raise $201 billion over the budget window (i.e., $14 billion less than the initial version). On December 19, 2009, CBO and JCT released analysis of S.Amdt. 2786, a substitute for the House-passed Affordable Care Act (H.R. 3590). The version of the Cadillac tax in this bill had higher thresholds ($8,500 singles, and $23,000 family policies) than the Senate version, but retained the higher 40% tax rate and the adjustment for inflation plus one percentage point. This version of the Cadillac tax would remain intact until the ACA was approved by Congress on March 21, 2010. On March 20, 2010, CBO and JCT released analysis of the Health Care and Education Reconciliation Act (HCERA), an amendment to the provisions in the ACA. In particular, HCERA delayed the implementation of the Cadillac tax from 2013 to 2018 and raised the thresholds ($10,200 for singles, and $27,500 for families). CBO and JCT scored the revised Cadillac tax as raising $32 billion from 2010 to 2019 (i.e., after the first two years of implementation). The House passed the Senate-modified ACA and HCERA on March 21, 2010, and the Senate passed the bill (which eventually became P.L. 111-148) by reconciliation on March 25, 2010. After enactment, bipartisan concerns emerged. These concerns culminated in a letter organized by Representative Joe Courtney and Representative Tom Cole opposing the Cadillac tax and any provision intended to reduce the benefits associated with the ESI tax exclusion. Estimated Revenue Effects of the Cadillac Tax In April 2014, CBO and JCT estimated that the Cadillac tax will raise $5 billion in FY2018 and will collect higher amounts of revenue each year through FY2024. Over the first seven years of implementation, CBO and JCT estimated that the tax will raise $120 billion in revenue. In March 2015, CBO and JCT significantly reduced their most recent estimates of the Cadillac tax to indicate that the tax will raise $87 billion over the first eight years of implementation (FY2018 to FY2025). Because premium growth is now projected to be slower, fewer workers are expected to enroll in employment-based insurance plans whose costs exceed the excise tax thresholds specified in the ACA. In comparison, CBO and JCT estimated in March 2015 that two other provisions in ACA, the employer penalty and the individual mandate, will raise $145 billion and $36 billion, respectively, over the same eight-year period (FY2018 to FY2025). The $3 billion projected to be raised by the Cadillac tax in FY2018 is also small relative to the estimated $172 billion annual tax expenditure associated with the tax exclusion for ESI in that same year. Official scores indicate that the Cadillac tax will raise revenue directly on applicable plans exceeding the threshold and indirectly through increases in taxable income for employers that reduce health benefits and increase wages. Roughly one-quarter of the revenue gain stems from excise tax receipts, and roughly three-quarters stems from a net increase in employees’ taxable compensation and, to a lesser extent, in employers’ deductible expenses. This assessment assumes that employers will shift compensation over time from health benefits to wages to reduce or avoid the Cadillac tax. Share of Plans with Insurance Premiums Exceeding the Tax’s Threshold This section of the report analyzes insurance premiums to provide insights into what share of plans have insurance premiums exceeding the Cadillac tax threshold. These premiums are a major component of health plan coverage as defined by ACA, but they are not the only component of coverage. Thus, the Cadillac tax could affect more health plans over time than estimated here if all components of applicable coverage are included. Note that the estimates also assume no further changes are made by employer providers to avoid or reduce exposure to the tax. Other studies are reviewed in the Appendix of this report. In June 2015, the Congressional Research Service (CRS) requested that the Department of Health and Human Services’ (HHS’s) Agency for Healthcare Research and Quality (AHRQ) estimate the share of premiums that could have a health insurance premium greater than the applicable Cadillac tax threshold. At the request of CRS, AHRQ used the 2013 Medical Expenditure Panel Survey Insurance Component (MEP-IC) dataset, which is a sample of plans provided by 39,216 private-sector establishments and public employers. CRS provided AHRQ with Cadillac tax thresholds adjusted for CBO’s projected annual changes in the CPI-U between 2018 and 2038. CRS then asked AHRQ to simulate the growth of insurance premium values offered by employers in the MEPS-IC data. These scenarios are based on different historical trends exhibited by the cost of the average insurance premium found the Kaiser Family Foundation’s (KFF’s) and the Health Research & Educational Trust’s 2014 Employer Health Benefits Survey. The scenarios include “Lower Growth”: assuming an annual growth rate in average insurance premiums of 4.6% for single coverage and 4.7% for family coverage, based on a five-year average of trends within the KFF data. “Moderate Growth”: assuming an annual growth rate in average insurance premiums of 5.0% for single coverage and 5.4% for family coverage, based on a 10-year average of trends within the KFF data. “Higher Growth”: assuming an annual growth rate in average insurance premiums of 7.0% for single coverage and 7.4% for family coverage, based on a 15-year average of trends within the KFF data. The analysis at the state level is provided using only the lower-growth scenario, given the low probability that insurance premium growth by 2018 will increase to rates seen more than a decade ago. In contrast, analyses of the Cadillac tax at the national level are plotted according to all three growth scenarios. While it is uncertain that insurance premium growth will reach the rates in the moderate- to high-growth scenarios, these scenarios illustrate how changes in the actual rate of insurance premium growth can affect the number of premiums subject to the tax. A full description of the data and methodology used to derive these illustrations appears in the Appendix. Caution should be exercised when interpreting some state results due to potential estimation issues stemming from smaller sample sizes and significant variation in premium amounts in some states. The estimates of the share of plans with premiums that exceed the Cadillac tax threshold provided in this section of the report should not be conflated with analysis of how many plans could actually be subject to the Cadillac tax. This analysis only includes insurance premiums and does not include the costs of other types of coverage that count toward the threshold (e.g., certain contributions to FSAs and HSAs). Additionally, any estimate of the Cadillac tax is subject to a number of uncertainties. First, the growth rate of premium costs has generally been declining in recent years. The analysis in this report models different assumptions in the potential growth of health care costs. Additionally, the analysis in this section of the report does not imply that each scenario is equally likely; rather, this analysis illustrates how sensitive estimates of the Cadillac tax are to inflation projections. Estimates of the impact of the tax using older data could overestimate the actual increase in average health insurance costs in more recent years. Future insurance premium growth rates could continue slowing, or could deviate from the trends used here. Second, it is uncertain how employers will respond (or have already responded) to the tax. Since the tax was enacted in 2010, some employers have already begun to offer less generous plans (thus, some behavioral effects would already be contained within observed data). For example, employers could offer a high-deductible health plan, which might be less likely to cross the threshold than their traditional PPO/HMO plan. The analysis in this section assumes that employers do not take any actions to adjust the plans offered to employees. Third, this report does not take into consideration how regulations could affect implementation of the tax. Treasury and IRS could issue regulations clarifying the benefits potentially subject to tax, safe harbors for employers, and modifications in various cost adjustments (e.g., under the workforce age and gender provision). Regulations in these areas could reduce (or increase) the number of plans subject to the tax. 2018 Figure 1 and Figure 2 depict the share of single and non-single plans, respectively, with premiums that could exceed the tax threshold in 2018, by state. As shown in Figure 1, approximately 10.2% of single plans, nationally, have premiums that could exceed the tax threshold in 2018. As shown in Figure 2, approximately 6.0% of non-single plans, nationally, have premiums that could exceed the tax threshold in 2018. It should be noted that the following figures do not provide insight into what share of a plan’s health benefits is subject to tax or the amount by which the plan exceeds the threshold. Only the portion of health benefits in excess of the threshold is subject to tax. Additionally, these figures do not quantify how many enrollees in these plans could be affected. Figure 1. Percentage of Employer-Sponsored, Single Plans with Premiums Estimated to Exceed the Cadillac Tax Threshold in 2018, by State (under the assumption of 4.7% annual premium growth, in individual plans) Source: U.S. Department of Health and Human Services (HHS), Agency for Healthcare Research and Quality (AHRQ) analysis of 2013 Medical Expenditure Panel Survey-Insurance Component (MEPS-IC) data provided to the Congressional Research Service (CRS) in June 2015. Notes: All reported values have a standard error (SE) of less than 2% and a relative standard error (RSE) of less than 30%. Caution should be taken when interpreting the results with an asterisk (*), which denotes an RSE of greater than 25%. Any estimate with an RSE greater than 30% is considered unreliable and omitted from this graphic. Reported values are weighted by the number of plans in the data sample. This graphic does not take into account any exceptions to the general Cadillac tax threshold for certain “high-risk” professions or for employers with workforces that differ from the age and gender profile of the national risk pool. See report text for more details. Figure 2. Percentage of Employer-Sponsored, Non-Single Plans with Premiums Estimated to Exceed the Cadillac Tax Threshold in 2018, by State (under the assumption of 4.6% annual premium growth, in family plans) Source: AHRQ analysis of 2013 MEPS-IC data provided to CRS in June 2015. Notes: All reported values have a standard error (SE) of less than 2% and a relative standard error (RSE) of less than 30%. Caution should be taken when interpreting the results with an asterisk (*), which denotes an RSE of greater than 25%. Any estimate with an RSE greater than 30% if considered unreliable and omitted from this graphic. Reported values are weighted by the number of plans in the data sample. This graphic does not take into account any exceptions to the general Cadillac tax threshold for certain “high-risk” professions or for employers with workforces that differ from the age and gender profile of the national risk pool. See report text for more details. 2019 and Beyond Figure 3 and Figure 4 show the national share of single and non-single plans, respectively, with premiums that could exceed the Cadillac tax threshold over time. The share of plans that could be subject to the Cadillac tax is estimated to increase over time, primarily because the growth of inflation in the CPI-U (which is used to adjust the Cadillac tax threshold) is projected to increase more slowly than the historical trends for premium growth. Figure 3 shows that between 2018 and 2028, the share of single plans with premiums that could exceed the Cadillac tax threshold increases from 10.2% to 24.7% under the lower-growth scenario. Figure 4 shows that between 2018 and 2028, the share of non-single plans that could be subject to the Cadillac tax increases from 6.0% to 19.1% under the lower-growth scenario. For both single and non-single plans, the share of plans that exceed the threshold by 2028 is higher under the moderate- and higher-growth scenarios. Figure 3. Percentage of Employer-Sponsored, Single Plans with Premiums Estimated to Exceed the Cadillac Tax Threshold, Nationally, 2018-2038 Sources: AHRQ analysis of 2013 MEPS-IC data provided to CRS in June 2015; growth rates in the different scenarios are derived from historical average premium values from Kaiser Family Foundation (KFF), 2014 Annual Survey of Employer Health Benefits, September 10, 2014, at http://kff.org/health-costs/report/2014-employer-health-benefits-survey/; and projections of the Consumer Price Index for All Urban Consumers (CPI-U) from the Congressional Budget Office, The Budget and Economic Outlook: 2015 to 2025, January 26, 2015, at https://www.cbo.gov/publication/45066. Notes: “Lower Growth” scenario assumes annual growth in average health insurance premiums of 4.6%, based on a 5-year average in historical trends; “Moderate Growth” scenario assumes an annual growth rate of 5.0%, based on a 10-year average; and “Higher Growth” estimate assumes an annual growth rate of 7.0%, based on a 15-year average. Historical trends are averaged from KFF data. Regarding the tax threshold, trends in the CPI-U are held constant at 2024 levels for years outside of CBO’s projection window (i.e., 2025 to 2038). See Appendix for more details on methodology. This graphic does not take into account any exceptions to the general Cadillac tax threshold for certain “high-risk” professions or for employers with workforces that differ from the age and gender profile of the national risk pool. See report text for more details. Figure 4. Percentage of Employer-Sponsored, Non-Single Plans with Premiums Estimated to Exceed the Cadillac Tax Threshold, Nationally, 2018-2038 Sources: AHRQ analysis of 2013 MEPS-IC data provided to CRS in June 2015; growth rates in the different scenarios are derived from historical average premium values from KFF, 2014 Annual Survey of Employer Health Benefits, September 10, 2014, at http://kff.org/health-costs/report/2014-employer-health-benefits-survey/; and projections of the CPI-U from the CBO, The Budget and Economic Outloo

Aug 20, 2015

The Excise Tax on High-Cost Employer-Sponsored Health Insurance: Estimated Economic and Market Effects

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) included a provision to impose an excise tax on high-cost employer-sponsored insurance (ESI) coverage beginning in 2018. This provision, popularly termed the Cadillac tax, imposes an excise tax on ESI coverage in excess of a predetermined threshold. The tax is imposed on the coverage provider, typically the health insurance provider or the entity that administers the plan benefits. Currently, employers’ spending on ESI coverage and most employees’ contributions to ESI plans are exempt from income and payroll taxes. Although proposals to limit the amount of health insurance benefits eligible for this exclusion were considered, the ACA, as enacted, did not limit the exclusion for employer-provided health insurance coverage. The Cadillac tax discourages high-cost employer health plans through another approach. The Cadillac tax is imposed at a rate of 40%. This tax rate is applied on a tax-exclusive basis, as is generally the case with excise tax rates. That is, like a sales tax, the rate applies to the price or cost excluding the tax. By contrast, the tax rate relevant to an income tax exclusion is on a tax-inclusive basis: it is applied to a base that includes the tax. The Cadillac tax is nondeductible from the insurer’s gross income (or the employer’s gross income, in cases where the employer self-insures). This treatment is unlike other excise taxes. The Cadillac tax takes effect in 2018 and is imposed on plans that cost more than $10,200 for single health plans and $27,500 for non-single (e.g., family) plans. The exempt amount is indexed for inflation, and, because health costs tend to grow faster than inflation, the share of premiums covered by the tax and the revenue collected is expected to grow. This report examines several issues. It evaluates the potential of the Cadillac tax to affect health insurance coverage and the health care market. It also examines the expected incidence (burden) of the tax—that is, which group’s income will be reduced by the tax. Finally, the report discusses implications for economic efficiency in the context of tax administration. Estimates suggest that the Cadillac tax could lead to an overall decline in the quantity of health services as some firms reduce the size of their insurance coverage. This decline is estimated to range from 0.5% to 0.6% in 2018 and from 2.2% to 2.5% in 2024. Prices could fall by up to 0.4% in 2018 and up to 1.5% in 2024 (although costs paid by some consumers could rise due to cutbacks in Cadillac plans). Overall expenditure (the sum of the fall in quantity and the fall in price) could decline by 0.6%-0.9% in 2018 and by 2.5%-3.6% in 2024. In other words, the tax could result in a gross reduction of $7.6-$11.0 billion in national health expenditures in 2018 and $41.0-$60.3 billion by 2024. Although the tax is imposed on insurers or employers, the burden is expected to fall on wages. In some cases, employers will retain the Cadillac insurance plans and pass the tax on to workers in the form of lower wages. In other cases, employers will substitute taxable wages for insurance coverage in excess of the threshold, and employees will be subject to income and payroll taxes on those wages. Revenue projections assume the latter situation will be more common.

Aug 20, 2015

U.S. Peanut Program and Issues

Aug 19, 2015

The Greek Debt Crisis: Overview and Implications for the United States

Congressional Research Service 7-5700 www.crs.gov R44155 Summary Crisis Overview Greece’s economy has been in crisis since 2009. While concerns have focused on the sustainability of the government’s debt, the crisis has also resulted in a general collapse of the Greek economy. Greece’s debt level has increased from 103% of GDP to over 170% of GDP, its economy has contracted by 25%, unemployment has tripled to 25%, and the Greek banking system has become increasingly unstable. Although other Eurozone governments, the International Monetary Fund (IMF), and the European Central Bank (ECB) have taken a number of policy measures to contain the crisis, Greece continues to face serious economic challenges. The economic crisis in Greece has also evolved into a broader political crisis in Europe that many analysts believe could represent the most significant setback in over 60 years of European integration. Analysts argue that the acrimonious debates among European leaders about the appropriate crisis response have heightened political tensions (especially between Germany and France) to a degree that could negatively impact the EU over the longer term. In particular, the crisis in Greece has exposed problems with the institutional architecture of the Eurozone, whose member states share a common currency and monetary policy, but retain national control over fiscal and banking policies. Recent Developments and Outlook Between mid-2014 and mid-2015, the Greek government was in a stalemate with other Eurozone governments and the IMF over disbursements of previously committed financial assistance. The Greek government wanted more flexibility on reforms and debt relief from European creditors. Meanwhile, European creditors, led by Germany, expressed frustration with Greece’s repeated delays in implementing reforms and demanded further austerity measures. Elections in January 2015 of a new, far-left, anti-austerity Greek government heightened tensions considerably. In late June 2015, the stalemate reached a critical point, as the Greek government was running out of cash. The Greek government closed the banks, imposed capital controls, and missed a payment to the IMF. In a July 5 referendum, more than 60% of Greek voters rejected reforms demanded by other Eurozone governments and the IMF. There was speculation that Greece might leave the Eurozone. On July 12, Eurozone heads of government reached an agreement to begin negotiating a third financial assistance package to Greece in exchange for reforms by the Greek government, while affirming Greece’s membership in the Eurozone. The July agreement helped stabilize the economic situation in Greece in the short term, and paved the way for a bridge loan that Greece used to make overdue payments to the IMF. Agreement on the terms of third package was reached in August. The Eurozone rescue facility will provide up to 86 billion (about $94 billion) to Greece over the next three years. The IMF has not made a financial commitment to the third program, and it is calling for debt relief for Greece. Longer-term, there is debate about whether the new program will resolve the crisis, allow Europe to continue “muddling through” the crisis, or ultimately result in a Greek exit from the Eurozone. Issues for Congress Impact on the U.S. Economy: Although direct U.S. exposure to Greece is limited, Europe as a whole is a major economic partner of the United States. Continuing uncertainty in Europe could threaten its financial stability and cause the dollar to strengthen, making U.S. exports less competitive. IMF Involvement: Some analysts have been skeptical of IMF involvement in Greece, including extending large loans to a developed economy with unsustainable debt. Other analysts have argued that IMF financial assistance helped stem contagion of the crisis and ensure stability in the global economy. U.S.-European Cooperation: The United States looks to Europe for partnership in addressing a range of global challenges. Political tensions in Europe and a focus on the Greek crisis could prevent the EU from focusing more intently on other key U.S.-European policy priorities, such as cooperation on Russia sanctions and concluding negotiations on the proposed Transatlantic Trade and Investment Partnership (T-TIP). Contents Introduction 1 Overview of the Crisis 2 Build-up and Outbreak of the Crisis 2 Recent Developments 5 Agreement on a Third Package 5 Prospects for the Third Package 7 Economic Outlook for Greece and the Eurozone 8 Political Dynamics in Europe 9 Dynamics in Greece 9 Dynamics in the EU 10 Political Outlook for Europe 11 Implications for the United States 11 Implications for the U.S. Economy 12 Implications for U.S. Participation in the IMF 15 Implications for U.S.-European Cooperation 16 Figures Figure 1. Yields on 10-Year Greek Bonds 3 Figure 2. Greece’s Outstanding Debt 13 Figure 3. Foreign (Non-Greek) Bank Exposure to Greece 14 Contacts Author Contact Information 17 Introduction Since 2009, Greece has been grappling with a major economic crisis. The crisis has been rooted in concerns about the sustainability of Greece’s public finances and high debt levels, but it has had broader effects on Greece’s economy, including a collapse in economic growth, high unemployment, and instability in the country’s banking system. Although the Greek economy is small, accounting for less than 2% of Eurozone gross domestic product (GDP), many policymakers and analysts are concerned about the potential contagion of the crisis in Greece to the rest of the Eurozone and the global economy. More fundamentally, the crisis has exposed problems with the institutional architecture of the Eurozone, whose member states share a common currency and monetary policy, but retain national control over fiscal and banking policies. What started and continues as an economic crisis in Greece has also evolved into a broader political crisis in Europe that many analysts believe could represent the most significant setback in over 60 years of European integration. In Greece and other European countries with struggling economies, public opposition to economic reforms widely viewed as unjustly imposed by other governments and institutions has fueled political instability and growing concerns about the democratic legitimacy of European institutions. Greece has had five different governments since 2009. Likewise, governments in more prosperous economies, such as Germany’s, have faced mounting pressure to end financial assistance to what many voters perceive as profligate governments. Analysts argue that the resulting, fraught debates among European leaders about the appropriate crisis response have heightened political tensions to a degree that could negatively affect the EU over the longer term. Many have been particularly alarmed by the frictions between Germany and France, long regarded as the key proponents and drivers of the European integration project. Some Members of Congress have expressed concern about the possible effects of the crisis in Greece on the United States. Although the direct financial exposure of the United States to Greece is limited, there are concerns about possible contagion that could be sparked by a further deterioration of the crisis and implications for the U.S. dollar. The role of the International Monetary Fund (IMF) in the crisis has also been controversial and, as the United States is the largest shareholder at the IMF, some Members have raised questions about oversight of U.S. policy at the IMF. Some Members have also raised the impact the Greek crisis has already and could increasingly have to constrain Europe’s effectiveness as a partner for the United States, including on issues such as managing a resurgent Russia and the ongoing conflict in Ukraine. Committees in both the House and the Senate have held hearings on the crisis and issues relating to its impact on the United States, and have exercised congressional oversight of U.S. policy responses. This report provides a brief overview of the crisis, including developments through July 2015 when questions about Greece’s future in the Eurozone resurfaced and emergency negotiations resulted in a third financial assistance program for Greece. It also discusses potential implications of the crisis for the U.S. economy and U.S.-European cooperation on broader strategic and economic cooperation. Overview of the Crisis Build-up and Outbreak of the Crisis As Greece prepared during the 1990s to adopt the euro as its national currency, its borrowing costs dropped dramatically (Figure 1). Investors were confident that the Eurozone, with eligibility requirements, a common monetary policy managed conservatively by the European Central Bank (ECB), and rules limiting deficits and debt, would bolster traditionally weaker economies, such as Greece. The Greek government took advantage of lower borrowing costs, with government debt rising from 68% of GDP in 1990 to over 100% of GDP in 2006. However, the influx of capital to Greece and lax enforcement of rules related to public finances did not result in a fundamental change in how the Greek economy was managed or in investments that increased the competitiveness of the economy. Instead, Greek governments used borrowed funds from private investors to pay for government spending and to offset low tax revenue, consistently running budget deficits through the 1990s and 2000s. Greece’s crisis was triggered in late 2009, when a newly-elected Greek government revealed that its predecessors had been underreporting government budget deficits. Questions about the sustainability of Greek public finances eroded investor confidence and shut the country out of financial markets, when Greece, like many other countries, was using expansionary fiscal policies to recover from the global financial crisis of 2008-2009. Without access to capital markets, uncertainty increased about whether Greece would be able to repay its debt. Investors also started taking a more critical look at the sustainability of public finances in other Eurozone countries, with the crisis eventually spreading to Ireland, Portugal, and Cyprus. There were also questions about possible contagion to Italy and Spain, the third and fourth largest economies in the Eurozone (after Germany and France). More broadly, the debt problems in such countries posed a threat to the European banking system, slowed economic growth, and contributed to increased unemployment in many European countries. Figure 1. Yields on 10-Year Greek Bonds / Source: Global Financial Data. Concerned about the systemic risks Greece could pose to the rest of the Eurozone and the broader international economy, other Eurozone governments and the IMF extended two financial assistance packages to the Greek government (in 2010 and 2012) totaling 240 billion (at current exchange rates, about $263 billion). Financial assistance was disbursed in phases, contingent upon fiscal and structural reforms, which have been implemented to varying degrees. In particular, the Greek government has implemented a significant fiscal adjustment, shifting from a primary budget deficit (the deficit excluding debt payments) of 9.9% of GDP in 2009 to a primary budget surplus of 1.5% in 2014. However, concerns have been raised about the pace of structural reforms and privatization (for more information, see text box, “To What Extent has Greece Implemented Reforms?”) Additionally, in 2012, Greece restructured debt held by private investors, with private investors taking substantial losses (about 75% on a net present value basis). The ECB also took a number of actions to respond to the crisis in Greece and the broader Eurozone, including purchasing or pledging to purchase bonds in secondary markets (initially through the Securities Market Program [SMP] and later the Outright Monetary Transactions program [OMT]). It also injected more than 1 trillion (about $1.1 trillion) in low-cost, three-year loans (long-term refinancing operations, or LTROs) into more than 800 banks across the Eurozone. The ECB cut interest rates to record lows, and in March 2015, launched a new round of quantitative easing to help stimulate the Eurozone economy. The ECB’s actions have been broadly credited with containing the Eurozone crisis and stabilizing Eurozone financial markets. Over the five years since the onset of the crisis, Greece’s debt exposed and exacerbated problems in its banking sector and resulted in a collapse of the economy. Since 2007, Greece’s economy has contracted by nearly 25%, a contraction some analysts believe is worse in relative terms than the Great Depression in the United States. Unemployment has tripled to nearly 25% (above 50% for young people), and public debt has risen from 103% of GDP to over 170% of GDP, most of which is now owed to other Eurozone governments and institutions. In comparison, other countries in the Eurozone that experienced similar pressures are faring better. Ireland and Portugal, countries that also turned to the Eurozone and IMF for financial assistance, successfully concluded their programs, have returned to capital markets, and are in the process of repaying the IMF early. To What Extent Has Greece Implemented Reforms? A key source of debate is the extent to which the Greek government has implemented fiscal and structural reforms. On the fiscal side, there has been a substantial adjustment. In terms of the primary budget balance (government revenue minus expenditures, excluding debt repayments), the government has shifted from a deficit of 9.9% of GDP in 2009 to a surplus of 1.5% of GDP in 2014. However, in mid-June, the IMF raised concerns about the need for comprehensive reform of Greece’s value added tax (VAT) and pension systems. Analysts have expressed similar concerns about the VAT, including the need for a broader base and higher rates, among other issues. While Greece passed major pension reforms in 2010 and 2012 which increased the retirement age and cut pension benefits, expenditures on pensions still account for over 16% of Greece’s GDP, high among European countries. Some argue that additional reforms are needed, because older workers have largely been sheltered from reforms, Greece has a rapidly aging population, and the baseline for pension benefits was much more generous than those provided by other European countries. Some experts have also noted the slow pace of privatization in Greece, which could help the government raise badly needed funds. Tax evasion also remains problematic in Greece, with some analysts suggesting that it costs the government between 10 billion (about $11 billion) and 20 billion (about $22 billion) annually in tax revenues. There is also debate over the progress on structural reforms (reforms to make the economy more competitive). On one hand, successive Greek governments have made substantial progress as measured by the World Bank Group’s Doing Business report, which compares business regulations and the protection of property rights across countries. Greece’s ranking has improved dramatically, from #106 in the world in 2008 to #61 in 2014. In 2013, it was also named as one of the “top reformers” worldwide. Additionally, labor costs in Greece have also fallen by 15%-20% between 2010 and 2014, which lowers the cost of production and improves Greece’s competitiveness. However, many analysts have expressed concerns that substantial additional reforms are needed. For example, in the Doing Business report, even with the reforms, Greece is now ranked just ahead of Russia (#62) and just below Tunisia (#60), far from most of its European peers (for example, Ireland is ranked #13 and Portugal #33). In 2013, the OECD conducted an 11-month investigation in cooperation with the Greek authorities into Greece’s food processing, retail trade, building materials, and tourism sectors. As a result of their research, they found 555 “problematic” regulations and 329 provisions where changes could be made to foster competition. Broad recommendations included repealing obsolete and outdated legislation, abolishing barriers to entry, and abolishing requirements to seek approval on prices from the government or industry associations. Other recommendations were more specific, such as lifting the five-day restrictions on the shelf life of milk, liberalizing prices of over-the-counter medicines, and lifting the restriction that round-trip cruise ships from Greece must embark and disembark from the same port. More generally, the OECD found that, “Despite recent reforms, Greek product markets remain among the most strictly regulated in the OECD area, hindering competition and preventing the price adjustments needed to support the recovery. This lack of competition is holding back the growth of productivity by limiting the entry and expansion of more productive and efficient firms, inhibiting foreign investment, and holding back innovation.” Such reforms, however, could be politically and culturally difficult to implement. Recent Developments Between mid-2014 and mid-2015, the second financial assistance program for Greece was derailed by a stalemate between the government and its Eurozone and IMF creditors. Key disagreements included the economic reforms tied to the disbursement of committed funds, particularly relating to taxes, pensions, and fiscal targets, and potential debt relief from other Eurozone governments in light of its unsustainable debt level and growing public dissatisfaction with austerity; many Greeks. The Greek government has asked for more flexibility on reforms and debt relief from European creditors in light of its unsustainable debt burden and growing public dissatisfaction with austerity; many Greeks viewed the demands of its creditors as humiliating and pointed out that most of the previous bail-out money went to repay debts, primarily to French and German banks, and not help the Greek economy. Meanwhile, European creditors, led by Germany, have expressed frustration with Greece’s repeated delays in implementing reforms and what is viewed as Greece’s lack of regard for abiding by the “rules” of the Eurozone. Elections in January 2015 of a new, far-left, anti-austerity Greek government heightened tensions considerably. In June 2015, the stalemate between Greece and its creditors reached a critical point. The Greek government was running out of cash and resorting to exceptional measures to make debt repayments and cover obligations like paying pensioners and government salaries. On June 26, the Greek government called for a public referendum on reforms required by its creditors in order to unlock a final disbursement of 7.2 billion (about $7.9 billion) committed as part of its second financial assistance package. Concerns that Greece could leave the Eurozone accelerated a run on Greek banks, and on June 28, the government imposed capital controls, closed Greek banks, and limited ATM withdrawals. On June 30, the Greek government did not make a 1.5 billion (about $1.6 billion) payment to the IMF, becoming the first advanced country to fall into arrears with the IMF and the single biggest missed payment in the IMF’s 60-year history. On July 5, voters in the referendum rejected the creditors’ proposal, with more than 60% of voters voting “no.” Agreement on a Third Package Between early- and mid-July, the Greek government, other Eurozone countries, and the IMF negotiated a path forward. A number of possible options were discussed. Broadly speaking, they fell into three major categories: (1) extend a third financial assistance package and require additional reforms in Greece, while keeping Greece in the Eurozone; (2) have Greece exit the Eurozone, either through a unilateral decision by the Greek government or a negotiated temporary suspension; or (3) keep Greece in the Eurozone, but provide more flexibility to the Greek government in terms of debt relief and reforms (see textbox, “Options for Greece: What was Considered?” for more information). Ultimately, on July 12, 2015, an agreement was reached by Eurozone heads of government to advance with essentially the first option outlined above: keep Greece in the Eurozone and provide a third financial assistance package to Greece, with no concrete debt relief at this time, although it may be possible in the future. The agreement in July was for a broad framework and key details have been negotiated in following weeks, including on the details of the third financial assistance package. Key provisions of July agreement include: A third financial assistance package. The July agreement laid out a framework for providing a third financial assistance package for Greece. Over the following month, Eurozone governments negotiated the details of the third package, which was finalized in August. They agreed to provide up to 86 billion (about $94 billion) in new financial assistance to Greece over the next three years, with financing coming from the Eurozone’s main rescue facility (the European Stability Mechanism, or ESM). Unlike the previous two programs for Greece, the IMF is not contributing financing at this time. Wide-ranging reforms. The Greek government implemented a number of reforms in the short term and committed to a number of reforms over the longer term. Reforms target a range of issues, including taxes, pensions, statistical reporting, the judicial system, market liberalization (such as Sunday sales and reforming pharmacy ownership and bakery regulations), privatizing the energy market, reforming collective bargaining, addressing banking sector weaknesses, and “de-politicizing” the public administration, among others. Several specific reforms needed to be passed by the Greek parliament in July to proceed with negotiations, which it did. Transfer 50 billion (about $55 billion) in Greek assets to a new fund. The new fund would oversee the sell-off of Greek assets, such as airplanes, airports, infrastructure, and government stakes in Greek banks and utility and electric companies, using the proceeds to recapitalize banks, pay off existing debt, and invest in the Greek economy. The fund is to be managed by Greek authorities under the supervision of relevant European institutions. Possibility of future debt relief. The agreement says that Eurozone countries “stand ready to consider, if necessary, possible additional measures (longer grace and payment periods)” to put Greece’s debt on a sustainable path. EU investments of 35 billion (about $38 billion) in Greece. The European Commission is to work with the Greek government to mobilize up to 35 billion (about $38 billion) under various EU programs to invest in Greece over the next three to five years. Options for Greece: What was Considered? In July 2015, many different policy options were discussed and negotiated for responding to crisis in Greece. Broadly speaking, they fell into three major categories: Option 1: Greece stays in the Eurozone, and a third financial assistance package is extended to Greece. The program would require the government to implement reforms, including a number of reforms before the program could go forward. In a position paper outlined by German Finance Minister Wolfgang Schäuble, he also suggested (controversially) that the program should require the transfer of 50 billion (about $55 billion) in Greek assets to an external fund, to be sold off (privatized) over time and pay down debt. This is essentially the option agreed to by Eurozone heads of government in mid-July. This option was attractive because it would keep Greece in the Eurozone, and most economists agree that a Greek exit from the Eurozone would have disastrous short-term effects on the Greek economy. Continued Greek membership in the Eurozone would also limit possible contagion to other Eurozone countries and the broader international economy, by maintaining the credibility of the Eurozone as an irrevocable currency union. It would also require the Greek government to implement reforms to make its economy more competitive. However, many analysts raised concerns, because similar programs over the past five years have not resolved the crisis. New loans to Greece would likely cause its debt level, already unsustainable, to rise further, and these new loans would be used to repay existing debts, primarily to other Eurozone governments and institutions, rather than directly invest in or support the Greek economy. Additional fiscal cuts when Greece’s economy is already in a deep recession could make it difficult for the economy to grow. Some of the required reforms, including the transfer of state assets to a fund overseen by European authorities, could undermine Greek sovereignty. Option 2: Greece exits the Eurozone (“Grexit”). There were a number of different proposals about how this could be accomplished. For example, in his position paper, German Finance Minister Wolfgang Schäuble suggested that Greece could be temporarily suspended from the Eurozone for a five-year period, with possible debt restructuring by Eurozone governments and support of Greece through humanitarian and technical assistance. There was also speculation in Greece that it could unilaterally decide to exit the Eurozone. There was talk about a “soft” Grexit (Greece issues “IOUs,” which circulate as a parallel currency with the euro) or a “hard” Grexit (Greece passes a law to introduce a new national currency and redenominates all bank deposits in the new currency). The Greek Finance Minister at the time, Yanis Varoufakis (who has since resigned), was reportedly working on a “secret” plan to develop a parallel payment system, in the event that Greece chose to exit or was pushed out of the Eurozone. One of the main benefits to a new national Greek currency is that, in the longer term, it could help boost Greek exports and boost export-led growth. “Grexit” would also break a five-year cycle of financial assistance packages for Greece, which have increased Greece’s debt burden and, some argued, have not translated into real structural reforms in the economy. If Grexit was accompanied by debt restructuring by Eurozone governments, it could provide the government with more flexibility in its fiscal policy. However, it’s not clear how, technically, a Greek exit would be implemented; there are no provisions for a country leaving the Eurozone. Moreover, most economists agree that a Greek exit from the Eurozone would be extremely disruptive to Greece’s economy in the short-term, for example by wiping out citizens’ life savings, causing banks to fail, and making the purchase of even basic goods, like food, difficult. If Eurozone governments and institutions did not restructure Greek debt, Greece would likely default on their loans. In either case, they would likely face losses on their loans to the Greek government. Longer-term, the Greek government could have trouble containing inflation of the new currency. Some experts also worried that “Grexit” could harm the credibility not only of the Eurozone (which was meant to be irreversible), but also of the entire EU project. Option 3: Greece stays in the Eurozone, but the Greek government is provided more flexibility. To some observers, the proposals offered to date ignore the most pressing issue facing Greece and the EU as a whole: the high rate of unemployment. As a result, they have suggested that a more effective policy would include a combination of significant debt relief and a relaxation or suspension of budget rules to allow for a coordinated EU-wide fiscal stimulus, while still requiring structural reforms. For example, the IMF and Treasury Secretary Jack Lew became more vocal in the need for debt relief for Greece in late June and early July. Keeping Greece in the Eurozone with more flexibility would prevent the adverse economic consequences of Greece leaving the Eurozone, while also addressing Greece’s unsustainable debt burden and high rate of unemployment. Debt relief could allow more expansionary fiscal policies in Greece and in the EU, which could help revive economic growth. If debt relief was tied to the implementation of economic reforms, it could continue to provide motivation for the reform agenda. However, by extending debt relief to Greece, other Eurozone governments would have to face losses on their loans to Greece, which could be politically difficult. Some argue that debt relief for Greece would violate EU law and a fiscal stimulus potentially could violate newly revamped EU fiscal rules. Also, some Europeans are concerned that providing debt relief to Greece could create “moral hazard” in the Eurozone – bailing out one country might mean that other countries would be less inclined to implement prudent policies in the future. Prospects for the Third Package In the short term, the July 2015 agreement helped stabilize the economic situation in Greece. It paved the way for a 7 billion (about $7.7 billion) bridge loan that Greece used to clear arrears with the IMF and make payments to the ECB. After the deal was outlined, the ECB also increased emergency liquidity assistance for Greek banks. The Greek government was able to partially reopen banks on July 20. However, negotiations over the third financial assistance program were contentious. In June and July 2015, the IMF became more forceful in its assessment that Greece’s debt is unsustainable and that debt relief is needed “far beyond what Europe has been willing to consider so far.” At the end of July, the IMF announced it could not participate in the third package at this time, even though its participation was formally requested by the Greek government and IMF involvement is strongly preferred by the Europeans. The IMF has said that it will consider participating after Greece has agreed on a comprehensive set of reforms and Eurozone governments have agreed on debt relief. The agreement reached in August for the third program for Greece will be funded solely through Eurozone financing, whereas the previous two programs were funded jointly by other Eurozone governments and the IMF. Analysts have raised a number of questions about July 2015 agreement, such as how much money will be raised from the new privatization fund, whether the Greek government will commit to a reform agenda that is acceptable to its Eurozone counterparts, and whether calls for debt relief for Greece will gain traction with other Eurozone governments. More broadly, some analysts have questioned whether a third program for Greece would be successful, or whether it merely repeats previous policy responses that have been unsuccessful. There is debate about whether the new program will: (1) resolve the crisis; (2) allow Europe to continue “muddling through” the crisis; or (3) still ultimately result in a Greek exit from the Eurozone (“Grexit”). Economic Outlook for Greece and the Eurozone The ongoing debt crisis in Greece has exposed significant fault lines in the conduct of economic policy and in the economic performance of Eurozone members. Although members of the Eurozone have experienced different levels of economic performance since the currency union’s founding, the financial crisis and associated economic recession have widened the gap in economic performance among the Eurozone’s members: for the Eurozone as a whole, real GDP is below pre-crisis levels and is projected by the IMF to remain around an annual rate of 1.5% for the near term. In addition, Eurozone members face a challenging set of issues: (1) there are double-digit unemployment rates across the Eurozone as a whole and interest rates are close to zero; (2) persistently low rates of inflation raise the risk of economic stagnation; (3) business investment, a key factor in future economic growth, registers few signs of life; and (4) productivity and competitiveness gains have nearly disappeared. The IMF also estimates that European banks have high levels of debt and 900 billion ($1 trillion) in nonperforming loans, with the majority of these loans concentrated in six of the Eurozone countries. Such nonperforming loans limit the ability of Eurozone banks to provide credit and, therefore, act to reduce the effectiveness of quantitative easing and to restrain economic growth. Due to concerns over the EU’s financial and economic health, the ECB began in late 2014 to tighten the rules defining capital and to notify the largest Eurozone ba

Aug 19, 2015

Trade Adjustment Assistance for Workers and the TAA Reauthorization Act of 2015

Congressional Research Service 7-5700 www.crs.gov R44153 Summary Trade Adjustment Assistance for Workers (TAA) provides federal assistance to workers who have involuntarily lost their jobs due to foreign competition. It was last reauthorized by the Trade Adjustment Assistance Reauthorization Act of 2015 (TAARA; Title IV of P.L. 114-27). This report discusses the TAA program as enacted by TAARA. To be eligible for TAA, a group of workers must establish that they were separated from their employment either because their jobs moved outside the United States or because of an increase in directly competitive imports. Workers at firms that are suppliers to or downstream producers of TAA-certified firms may also be eligible for TAA benefits. Under TAARA, private sector workers who produce goods or services are eligible for TAA benefits. To establish eligibility for TAA benefits, a group of trade-affected workers (or their representative) must petition the Department of Labor (DOL) and a DOL investigation must verify the role of foreign trade in the workers’ job losses. Once a petition is certified by DOL, covered workers may apply for individual benefits. Individual benefits are funded by the federal government and administered by the states through their workforce systems and unemployment insurance systems. Benefits available to individual workers include the following: Reemployment services are a group of benefits and services designed to assist workers in preparing for and obtaining new employment. Training subsidies are the largest reemployment services expenditure and support workers in developing skills for a new occupation. Workers may also receive case management services and job search assistance. In some cases, workers who pursue employment outside their local commuting area may be eligible for job search or relocation allowances. Trade Readjustment Allowance (TRA) is a weekly income support payment for TAA-certified workers who have exhausted their unemployment insurance (UI) and who are enrolled in an eligible training program. Weekly TRA payments are equal to the worker’s final UI benefit. Workers may collect UI and TRA for a combined maximum of 130 weeks, the final 13 of which are only available if necessary for the worker to complete a training program. Reemployment Trade Adjustment Assistance (RTAA) is a wage insurance program available to certified workers age 50 and over who obtain reemployment at a lower wage. The wage insurance program provides a cash payment equal to 50% of the difference between the worker’s new wage and previous wage, up to a two-year maximum of $10,000. The Health Coverage Tax Credit is a credit equal to 72.5% of qualified health insurance premiums. Eligibility is aligned with TRA. Unlike other TAA benefits, it is administered through the tax code. TAA is mandatory spending. Total funding for reemployment services, including training, is capped at $450 million per year. Total funds for TRA and RTAA benefits are uncapped, though there are limits for individual beneficiaries. Contents Program Rationale and Purpose 1 Trade Adjustment Assistance Reauthorization Act of 2015 1 Applicability of TAARA Provisions 2 Benefits for Certified Workers 2 Reemployment Services 5 Training Assistance 6 Case Management and Employment Services 6 Job Search and Relocation Allowances 7 Trade Readjustment Allowance 7 Reemployment Trade Adjustment Assistance 8 Health Coverage Tax Credit 8 TAA Administration and Financing 2 Administration 2 Financing 2 Eligibility and Application Process 2 TAA Group Eligibility Criteria 3 TAA Group Petition and Certification Process 4 Retroactive Group Eligibility Under TAARA 4 TAA Individual Eligibility 5 Appendixes Appendix. Program History 10 Contacts Author Contact Information 12 Trade Adjustment Assistance for Workers (TAA) provides federal assistance to workers who involuntarily lose their jobs due to foreign competition. The primary benefits for TAA-eligible workers are funding for reemployment services (including training) and income support while a worker is enrolled in training. Workers may also be eligible for other benefits, including a tax credit equal to a portion of qualified health insurance premiums. Workers age 50 and over may be eligible for Reemployment Trade Adjustment Assistance, a wage supplement program. After a brief discussion of the program’s purpose and recent reauthorization, this report describes TAA as reauthorized by the Trade Adjustment Assistance Reauthorization Act of 2015 (TAARA, Title IV of P.L. 114-27). Program Rationale and Purpose Reduced barriers to international trade are widely acknowledged to offer benefits to consumers in the form of increased choices and lower prices. Expanded trade may also offer expansionary opportunities to firms that produce goods or services that see increased exports. Reduced barriers to trade may, however, have concentrated negative effects on domestic industries and workers that face increased competition. TAA is designed to provide readjustment assistance to workers who suffer dislocation (job loss) due to foreign competition or offshoring. TAA was created in 1962 and, historically, has been reauthorized alongside expansionary trade policies. A detailed legislative history of the program is in the Appendix. Trade Adjustment Assistance Reauthorization Act of 2015 In June 2015, TAA was reauthorized by TAARA. The eligibility and benefit provisions of TAARA are authorized to continue through June 30, 2021. TAARA was part of a bill that extended other trade-related policies as well. TAARA was also passed in conjunction with a separate bill that reauthorized the Trade Promotion Authority (TPA, Title I of P.L. 114-26). TPA (also known as “fast track”) grants the President authority to negotiate trade agreements, which are then subject to an “up or down” vote in Congress. Applicability of TAARA Provisions This report focuses on the eligibility and benefit provisions of TAA as enacted by TAARA. These provisions apply to all workers certified for TAA after the law’s enactment. The law also had retroactivity provisions and, in some cases, workers that were parts of groups certified prior to the 2015 reauthorization may also be covered under the TAARA provisions. In some cases, however, a worker who was certified under pre-2015 provisions may continue to receive benefits under the prior provisions. As such, while the version of the program described in this report will apply to all new program participants certified through June 30, 2021, it may not apply to some participants who were already enrolled in TAA prior to the enactment of TAARA. In these cases, states may operate multiple TAA programs to concurrently serve workers certified under the TAARA provisions and workers certified under other provisions. TAA Financing and Administration TAA is jointly administered by the federal government and the states. It is funded by the federal government. The respective roles of federal and state governments in administering and financing the TAA program were in place prior to TAARA and were not changed by it. Administration TAA is jointly administered by the U.S. Department of Labor (DOL) and cooperating state agencies. DOL makes group eligibility determinations, allots appropriated funds to cooperating state agencies, and oversees grantees. Individual benefits are provided through state workforce systems and state unemployment insurance systems. Workers may physically receive benefits and services through local American Job Centers (also known as One-Stop Career Centers). States are responsible for collecting participation and outcome data and reporting these data to DOL. The Health Coverage Tax Credit, which is available to qualified TAA-certified workers who purchase qualified health insurance, is administered by the Internal Revenue Service (IRS). It is administered separately from the TAA program’s other benefits and services. Financing TAA is funded by mandatory appropriations. Typically, Congress appropriates a single sum that supports all TAA activities. DOL then allocates these funds to various program activities. Under TAARA, funding for reemployment services is capped at $450 million per year. Funds are allotted to the states via a grant allocation formula that considers past and anticipated program usage. States may expend reemployment service funds in the year of allotment or in either of the next two fiscal years. Training subsidies are states’ primary expenditures out of their reemployment services funding. TAARA specifies that states must allocate at least 5% of their reemployment services funding to case management and no more than 10% to administrative costs. Funds for the Trade Readjustment Allowance income support and Reemployment Trade Adjustment Assistance wage insurance program are not capped. Appropriations for these benefits are based on congressional estimates. Funding for these benefits that is not spent in the year of allotment is returned to the Treasury. TAA is a direct spending (also referred to as “mandatory”) program and subject to sequestration under the Budget Control Act of 2011, as amended. For FY2016, the Office of Management and Budget (OMB) has estimated that the reduction for non-exempt, nondefense spending will be 6.8%. Sequester levels in subsequent years will be determined by OMB. Eligibility and Application Process Obtaining TAA benefits is a two-stage process. First, a group of workers or their representative (e.g., firm, union, or state) must petition DOL to establish that foreign trade “contributed importantly” to their job losses and become TAA certified. Once a group has been certified by DOL, individual workers covered by the group’s petition apply for state-administered benefits at local American Job Centers (AJCs; also known as One-Stop Career Centers). TAA is available to workers in the 50 states, the District of Columbia, and Puerto Rico. TAA Group Eligibility Criteria To be eligible for TAA group certification, a group of workers from a firm (or a subdivision of a firm) must have become totally or partially separated from their employment or have been threatened with becoming totally or partially separated. Under TAARA, private sector workers who produce goods (“articles” in the law) or services are eligible for TAA. The petitioning workers must establish that foreign trade contributed importantly to their separation. The role of foreign trade can be established in one of several ways: An increase in competitive imports. The sales or production of the petitioning firm have decreased absolutely and imports of articles or services like or directly competitive with those produced by the petitioning firm have increased. A shift in production to a foreign country. The workers’ firm has moved production of the articles or services that the petitioning workers produced to a foreign country or the firm has acquired, from a foreign provider, articles or services that are directly competitive with those produced by the workers. Adversely affected secondary workers. The petitioning firm is a supplier or a downstream producer to a TAA-certified firm and either (1) the sales or production for the TAA-certified firm accounted for at least 20% of the sales or production of the petitioning firm or (2) a loss of business with a TAA-certified firm contributed importantly to the workers’ job losses. USITC workers. Workers separated from firms that have been publicly identified by the United States International Trade Commission (USITC) as injured by a market disruption or other qualified action. TAA Group Petition and Certification Process To establish TAA eligibility, a group of workers (or their representative, such as a union, firm, or state) must complete a two-page petition and submit it, along with any supporting documentation, to DOL. An additional copy of the TAA petition must also be filed with the governor of the state in which the affected firm is located. After receiving the petition, DOL investigates to determine if the petition meets any of the criteria outlined in the previous subsection of this report. Determinations of TAA petitions are published in the Federal Register and on the DOL website. If a petition is certified, DOL will also determine an impact date on which trade-related layoffs began or threatened to begin. This date can be as early as one year prior to the petition. A certified petition will cover all workers laid off by the firm (or applicable subdivision of the firm) between the impact date and two years after the certification of the petition. For example, if a petition is certified on November 1, 2015, and the impact date is found to be March 1, 2015, all members of the certified group laid off between March 1, 2015, and November 1, 2017, would be eligible for TAA benefits. If a petition is denied, the group may request administrative reconsideration by DOL. Reconsideration requests must be mailed within 30 days of the publication of the initial denial in the Federal Register. Workers who are denied certification may seek judicial review of DOL’s initial petition denial or denial following administrative reconsideration. Appeals for judicial review must be filed with the U.S. Court of International Trade within 60 days of Federal Register publication of the initial denial or the administrative reconsideration denial. Retroactive Group Eligibility Under TAARA TAARA contains several mechanisms to extend TAA benefits to groups of workers who met the eligibility criteria under TAARA but were dislocated when prior provisions with narrower eligibility criteria were in effect. The narrower eligibility criteria (described as the “Reversion 2014 provisions” in the Appendix) took effect January 1, 2014, and were in effect until the enactment of TAARA. TAARA specifies that petitions that were denied between January 1, 2014, and the enactment of TAARA will automatically be reconsidered under the new criteria. TAARA further specifies that petitions that were filed before the enactment of TAARA but not determined before its enactment will be considered under the new criteria. TAARA also specifies that for petitions filed within 90 days of TAARA’s enactment, DOL could determine an impact date as early as January 1, 2014. (Typically, an impact date can be no earlier than one year prior to a certification.) This broader window allows for the coverage of workers whose job loss occurred after January 1, 2014, and who meet the criteria of TAARA but did not meet the criteria of the pre-TAARA provisions. TAA Individual Eligibility After DOL certifies a group of workers as eligible, the individual workers covered by the certification then apply to their local AJCs for individual benefits. To be eligible for Trade Readjustment Allowance payments, a worker must meet all of the following conditions: (1) separation from the firm on or after the impact date specified in the certification but within two years of DOL certification, (2) employment with the affected firm in at least 26 of the 52 weeks preceding layoff, (3) entitlement to state UI benefits, and (4) no disqualification for extended unemployment benefits. Additionally, workers must be enrolled in an approved training program or have received a waiver from training. Group-certified workers who are denied individual benefits can appeal the decision. The determination notice that individual workers receive after filing their applications for each benefit explains their appeal rights and time limits for filing appeals. Benefits for Certified Workers TAA benefits for individuals include reemployment services and income support for workers who have exhausted their UI benefits and are enrolled in training. Workers age 50 and over may participate in the Reemployment Trade Adjustment Assistance (RTAA) wage insurance program. Certified workers may also be eligible for a tax credit for a portion of the premium costs for qualified health insurance. Reemployment Services TAA-certified workers may receive several types of benefits and services to aid them in preparing for and obtaining new employment. The largest reemployment benefit from a budgetary standpoint is training assistance. Workers may also receive case management services and reimbursements for qualified job search and relocation expenses. TAARA caps annual funding for reemployment services at $450 million per year. Reemployment funds are granted to state workforce agencies via formula. Training Assistance Eligible workers request training assistance through their local AJCs. Once approved, training can be paid on the worker’s behalf directly to the service provider or through a voucher system. To receive funding, the worker must be qualified to undertake the requested training, the training must be available at a reasonable cost, and there must be a reasonable expectation of employment following the completion of training. The range of approved training includes a variety of governmental and private programs. There is no federal limit on the amount of training funding an individual can receive, though some states have a cap. A concise summation of TAA training programs is difficult due to the range of acceptable activities and the decentralized nature of job training. Data from DOL, however, offer some insight into the nature and duration of TAA-sponsored training programs. In FY2014, approximately 87% of TAA training participants received what DOL describes as occupational skills training: training in a specific occupation, typically provided in a classroom setting. The remainder of training was classified as remedial, prerequisite, on-the-job, or other customized training. Among the training participants who completed a program in FY2014, the average duration of enrollment in the program was 585 days. TAA does not require training programs to lead to a degree or other credential. In its FY2014 annual report, DOL reported that 83% of workers who completed training earned an industry-recognized credential, or a secondary school diploma or equivalent. Case Management and Employment Services TAARA specifies a series of case management and employment services to which all TAA-certified workers are entitled. These services include a comprehensive assessment of a worker’s skills and needs, assistance in developing an individual employment objective and identifying the training and services necessary to achieve that goal, and guidance on training and other services for which a worker may be eligible. Under TAARA, states are required to use at least 5% of their reemployment services allotments for case management and employment services. Job Search and Relocation Allowances States may use their reemployment services funding to provide job search and relocation allowances. These allowances target workers who are unable to obtain suitable employment within their commuting areas. Certified workers can receive an allowance equal to 90% of each of their job search and relocation expenses, up to a maximum of $1,250 for each benefit. A Job Search Allowance may be available to subsidize transportation and subsistence costs related to job search activities outside an eligible worker’s local commuting area. Subsistence payments may not exceed 50% of the federal per diem rate and travel payments may not exceed the prevailing mileage rate authorized under federal travel regulations. A Relocation Allowance may be available to workers who have secured permanent employment outside their local commuting area. The benefit covers 90% of the reasonable and necessary expenses of moving the workers, their families, and their household items. Relocating workers may also be eligible for a lump sum payment of up to three times their weekly wage, though the total relocation benefit may not exceed $1,250. Trade Readjustment Allowance Trade Readjustment Allowance (TRA) is a weekly income support payment to certified workers who have exhausted their UI benefits and are enrolled in training. To be eligible for TRA, a worker must be enrolled in training within 26 weeks of separation from the worker’s job or within 26 weeks of TAA certification, whichever is later. In some circumstances, a worker may obtain a training waiver. TRA is funded by the federal government and administered by the states through their unemployment insurance systems. TRA is an individual entitlement and not subject to an annual funding cap. Appropriation levels are based on estimated usage and unused funds are returned to the Treasury at the end of the fiscal year. Individual TRA benefit levels are equal to a worker’s final UI benefit. UI benefit levels are based on earnings during a base period of employment (typically, the first four of the last five completed calendar quarters). UI benefits typically replace a portion of a worker’s wages up to a statewide maximum. Since states each administer their own UI programs, there is some variation in benefit levels. In July 2014, the highest maximum weekly UI benefit for a worker with no dependents was $679 in Massachusetts and the lowest maximum weekly benefit was $240 in Arizona. There are three stages of TRA: Basic TRA. The weekly basic TRA payment begins the week after a worker’s UI eligibility expires. To receive the basic TRA benefit, workers must be enrolled or participating in TAA-approved training, have completed such training, or have obtained a waiver from the training requirement. The total amount of basic TRA benefits available to a worker is equal to 52 times the weekly TRA benefit minus the total amount of UI benefits. For example, assuming a constant benefit level, a worker who received 20 weeks of UI benefits would be eligible for 32 weeks of basic TRA. Additional TRA. After basic TRA has been exhausted, workers who are enrolled in a TAA-approved training program are eligible for an additional 65 weeks of income support, for a total of 117 weeks of benefits. Additional TRA is limited to workers who are enrolled in a training program; workers who have received a training waiver are not eligible for additional TRA. TAA participants may only collect additional TRA as long as they remain enrolled in a qualified training program. In cases where a worker’s training program is shorter than the maximum TRA duration, the worker is not entitled to the maximum number of TRA weeks. Completion TRA. In cases where a worker has collected 117 weeks of combined TRA and UI and is still enrolled in a training program that leads to a degree or industry-recognized credential, the worker may collect TRA for up to 13 additional weeks (130 weeks total) if the worker will complete the training program during that time. Reemployment Trade Adjustment Assistance RTAA is an entitlement that provides a wage supplement for workers age 50 and over who are certified for TAA benefits and obtain reemployment at a lower wage. The program provides a cash payment to an eligible worker equal to 50% of the difference between the worker’s wage at the trade-affected job and the worker’s wage at his or her new job. The maximum benefit is $10,000 over a two-year period. Workers may not receive TRA and RTAA benefits simultaneously. To be eligible for RTAA, a worker must either (1) be reemployed on a full-time basis, as defined by the law of the state in which the worker is employed or (2) be reemployed at least 20 hours a week and be enrolled in a TAA-sponsored training program. Workers who receive RTAA payments while enrolled in training and working less than full time may be subject to a reduced benefit. Health Coverage Tax Credit Workers who are receiving TRA, UI in lieu of TRA, or RTAA benefits may also be eligible for a tax credit that covers a portion of eligible health insurance premiums. The Health Coverage Tax Credit (HCTC) is equal to 72.5% of qualified health insurance premiums. TAARA includes provisions specifying that a worker must elect between the HCTC and premium credits under the Patient Protection and Affordable Care Act (P.L. 111-148, amended). Unlike other provisions of TAARA, which are in effect through June 30, 2021, the HCTC is authorized through December 31, 2019. Program History Early History The first TAA programs were enacted in 1962 but little used until the Trade Act of 1974 eased eligibility requirements. Program use expanded through the 1970s and the number of certified workers increased from about 59,000 in FY1975 to nearly 600,000 in FY1980. In light of rapidly increasing program costs, the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35) cut spending by reducing benefits and emphasizing training and other reemployment services. TAA participation levels fluctuated throughout the 1980s, but were mostly well below the levels of the 1970s. In 1988, the program was reauthorized through FY1993 by the Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418). Among other changes, the 1988 reauthorization expanded eligibility for TRA but also placed a new emphasis on training by making it a program requirement. 1990s and NAFTA The Omnibus Reconciliation Act of 1993 (P.L. 103-66) reauthorized TAA through 1998 with reductions in training funding. The North American Free Trade Agreement (NAFTA) Implementation Act of 1993 (P.L. 103-182) established a new component of TAA that offered dedicated benefits to workers whose job loss was attributable to trade with Mexico and Canada. Trade Act of 2002 The next major reauthorization of TAA was part of the Trade Act of 2002 (P.L. 107-210). This law combined TAA, TPA, and other trade-related issues into a single piece of legislation. Among other changes, the 2002 TAA reauthorization merged the NAFTA-TAA program into the general TAA program and created the Health Coverage Tax Credit for TAA workers. The Trade Act of 2002 reauthorized TAA through FY2007. Several short-term extensions continued the program until it was reauthorized in February 2009. American Recovery and Reinvestment Act In February 2009, TAA was reauthorized and expanded by the American Recovery and Reinvestment Act (ARRA; P.L. 111-5). Unlike other reauthorizations, which tended to be aligned with expansionary trade policy or budget reconciliations, this reauthorization was aligned with other domestic initiatives to spur economic activity during a time of above-average unemployment. The ARRA reauthorization of TAA expanded the program in several ways. Among other provisions, it increased funding for training, increased the maximum number of weeks that a worker could receive TRA, and extended eligibility to service sector and public sector workers who had been displaced by trade. The ARRA provisions of TAA were scheduled to expire after December 31, 2010. A short-term extension continued the program through February 12, 2011. After that date, TAA reverted to the more limited eligibility and benefit provisions that were in place prior to ARRA. 2011 Reauthorization: Trade Adjustment Assistance Extension Act In October 2011, the Trade Adjustment Assistance Extension Act (TAAEA; Title II of P.L. 112-40) was enacted. This reauthorization was aligned with the separate passage of three implementing bills of free trade agreements with Colombia, Panama, and South Korea. TAAEA reinstated some, but not all, of the expansions that had been enacted under ARRA. Most notably, it re-expanded eligibility to service sector (but not public sector) workers and increased training funding to near-ARRA levels. TAAEA also curtailed benefits by reducing the eligible reasons for training waivers from six to three. Sunset and Termination Provisions of 2011 Reauthorization The eligibility and benefit provisions initially enacted by TAAEA were scheduled to remain in place until December 31, 2013. Beginning January 1, 2014, the TAA program reverted to a more limited set of eligibility and benefit provisions (“Reversion 2014 provisions”). Among other changes, the Reversion 2014 provisions ended eligibility for service workers and reduced the cap on training funding to the 2002 levels. The Reversion 2014 provisions were scheduled to remain in place for one year before authorization expired after December 31, 2014, and the program was scheduled to begin to be phased out. The program did not, however, expire as scheduled at the end of 2014. Instead, the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235) provided funding for full operation of the program under the Reversion 2014 provisions through FY2015. 2015 Reauthorization: Trade Adjustment Assistance Reauthorization Act TAA continued to operate under the Reversion 2014 provisions until the enactment of the Trade Adjustment Assistance Reauthorization Act of 2015 (TAARA; Title IV of P.L. 114-27). This reauthorization was aligned with the separate extension of the Trade Promotion Authority (TPA, also known as “fast track”). Any agreements negotiated under TPA are subject to an “up or down” vote in Congress. TAARA reinstated many of the eligibility and benefit provisions that were enacted by TAAEA in 2011. TAARA reinstated eligibility for service workers and increased training funding to a level between those of TAAEA and the Reversion 2014 provisions. Sunset and Termination Provisions of 2015 Reauthorization TAARA contains sunset provisions similar to those in TAAEA that took effect in 2014. Beginning July 1, 2021, the TAA program is scheduled to revert to a more limited set of eligibility and benefit provisions that are similar to the Reversion 2014 provisions. These provisions are scheduled to remain in place for one year until authorization is set to expire after June 30, 2022, and then the program is scheduled to begin to be phased out. Author Contact Information Benjamin Collins Analyst in Labor Policy [email protected], 7-7382

Aug 18, 2015

Algal Toxins in Drinking Water: EPA Health Advisories

Aug 18, 2015

The Intelligence Community and Its Use of Contractors: Congressional Oversight Issues

Congressional Research Service 7-5700 www.crs.gov R44157 Summary Contractors have been and are an integral part of the intelligence community’s (IC’s) total workforce (which also includes federal employees and military personnel). Yet questions have been raised regarding how they are used, and the size and cost of the contractor component. Of particular interest are core contract personnel, who provide direct technical, managerial, and administrative support to agency staff. Examples of these types of support are collection and operations, analysis and production, and enterprise information and technology. The use of core contract personnel enables the IC to meet its needs, which may involve obtaining unique expertise or surge support for a particular mission, or augmenting insufficient in-house resources. The IC has undertaken the following initiatives designed, or used, to track contractors or contractor employees: The Office of the Director of National Intelligence (ODNI), through Intelligence Community Directive (ICD) 612 (dated October 30, 2009), requires the IC elements to provide inventories of their core contract personnel to the Assistant Director of National Intelligence for Human Capital (also known as the Chief Human Capital Officer (CHCO, or ADNI/CHCO)). Section 305(a) of P.L. 111-259, Intelligence Authorization Act (IAA) for FY2010, directs each IC component to provide estimates of the number and costs of core contract personnel for the upcoming fiscal year to ODNI. Section 339 of P.L. 111-259also contained a one-time requirement for the Director of National Intelligence (DNI) to report to the intelligence committees and the armed services committees on the IC’s use of personal services contracts. While the initiatives themselves are unclassified, the information gathered, or produced, as a result of each initiative—e.g., an inventory of core contract personnel—may be classified. This list of initiatives may not be comprehensive as the IC may engage in other, classified initiatives to assess its use of core contract personnel. Contractors perform a variety of essential functions for the federal government, including the IC, yet using contractors is not without risk. Questions raised by Congress and others involve the possibility that IC core contract personnel perform inherently governmental activities (which, generally, only federal employees are allowed to perform) or functions, and that the IC’s acquisition workforce does not have sufficient capacity to monitor contractor employees who perform critical functions or functions closely associated with inherently governmental functions. IC components unable to properly oversee contractor employees run the risk of ceding control over their mission and operations to contractors. Information about how the IC uses contractors may be useful for purposes of oversight, legislating, and policymaking by the House Permanent Select Committee on Intelligence (HPSCI), the Senate Select Committee on Intelligence (SSCI), and other committees that may have an interest in this topic. Contents Introduction 1 Background 3 Contractors and Contractor Personnel in the IC 7 Inventory of Core Contract Personnel 7 Personnel Level Assessment 11 Report on Personal Services Contracts 12 Inventory of Commercial Activities and Inherently Governmental Activities 13 Oversight Issues 15 Are Contractor Employees Performing Inherently Governmental Work? 15 Is the IC Equipped to Monitor Contractor Employees? 18 Conclusion 20 Appendixes Appendix A. Definitions 21 Appendix B. Cost of Using Contractors 24 Contacts Author Contact Information 24 Introduction A then-unknown employee of Booz Allen Hamilton, Edward Snowden, burst onto the national agenda in June 2013. The publication of news articles that included or referenced classified information he had obtained while working as a contractor employee for the National Security Agency (NSA) garnered attention both outside and within the United States—including Congress, the Obama Administration, and the intelligence community (IC). Whereas interest in the IC’s use of contractors spiked with the Snowden revelations, and spawned policies and initiatives designed to prevent, mitigate, or recover from similar incidents, the intelligence community’s reliance on the private sector is not a new phenomenon. Following the end of the Cold War, workforce drawdowns coupled with retirements and limits on hiring federal employees degraded the intelligence community’s capabilities, and the IC “was encouraged to outsource’ as much as possible.” In the aftermath of the September 11, 2001, terrorist attacks, the IC turned to contractors “to meet rapidly evolving mission demands.” A 2006 or 2007 slide presentation attributed to the Senior Procurement Executive in the Office of the Director of National Intelligence (ODNI) suggested that 70% of the IC budget may be spent on contracts. In 2008, the then-head of human capital in ODNI offered the following assessment of the IC’s use of contractors: The nature of contractors is such that you do have a great deal more flexibility. You can expand and contract more readily using contract personnel. So in any given day, week, month, or year, that number may go up or down. Our objective is to stabilize our military and civilian workforce and then use contractors as appropriate to deal with temporary work surge, unique expertise, et cetera. Many experts believe the federal government’s reliance on contractors is necessary to accomplish its mission, and this is no less true for the IC. Using contractors is not without risk, however. Depending on the circumstances, an agency could, unknowingly or unintentionally, cede the performance of, or control over, certain agency functions to contractors. As the Chairman of the Senate Homeland Security and Governmental Affairs (HSGAC) noted: “First and foremost, an agency that turns over too much responsibility to contractors runs the risk of hollowing itself out and creating a weaker organization. The agency could also lose control over activities and decisions that should lie with the government, not with contractors.” Mitigating these risks involves agencies’ complying with and implementing applicable statutory provisions, regulations, definitions, and policies. This report presents, in the “Background” section, a discussion of inherently governmental functions, functions closely associated with inherently governmental functions (closely associated functions), and critical functions. (These three terms are defined in the “Background” section and Appendix A.) This section also addresses challenges involved in exercising oversight over the IC and summarizes the IC’s efforts to determine the optimum mix of its workforce, which consists of federal civilian employees, military personnel, and contractors. The section titled “Contractors and Contractor Personnel in the IC” describes several initiatives designed, or used, to track contractors or contractor employees. While the initiatives themselves are unclassified, the information gathered as a result of each initiative may be classified. This section also includes information gleaned from the IC’s initial effort (which occurred around 2005-2006) to inventory its contractor workforce. In the section on congressional oversight issues, the report discusses the risks and possible implications of using contractors to perform certain categories of work for the federal government and, in particular, the IC. In particular, this section addresses the questions of whether IC contractor personnel are performing inherently governmental functions and whether the IC’s acquisition workforce is equipped to monitor contractors performing critical functions or closely associated functions. The conclusion briefly comments on the challenge of exercising oversight over the IC. Security issues and concerns regarding the IC’s use of contractors and the IC’s procurement policies, procedures, and practices are beyond the scope of this report and thus are not included in this report. Background The report examines, from an acquisition perspective, several reasons for interest in the IC’s use of contractors, notably, the types of functions contractors perform, whether the IC’s acquisition workforce has the capacity to oversee contractors. The crux of the matter is how an agency function is designated—inherently governmental, commercial, critical, or closely associated with inherently governmental functions (closely associated function). The designation determines who should, or may, perform a particular agency function. With several exceptions (one of which is addressed below), only federal employees may perform inherently governmental functions, while either federal employees or contractor employees may perform commercial functions. Closely associated functions and critical functions are particular types of commercial functions. Either agency employees or contractor personnel may perform closely associated functions or critical functions. The following description of closely associated function signals why contractor performance of this type of activity warrants special attention and oversight by an agency. [A closely associated function involves] certain services and actions that generally are not considered to be inherently governmental functions [but] may approach being in that category because of the nature of the function and the risk that performance may impinge on Federal officials’ performance of an inherently governmental function. A critical function is “a function that is necessary to the agency being able to effectively perform and maintain control of its mission and operations. Typically, critical functions are recurring and long-term in duration.” An agency may be at risk of losing control over its mission and operations if it fails to effectively monitor contractor employees who are performing critical functions for the agency. An issue interwoven throughout this report is the challenge of exercising oversight when the focus—the IC—is a mix of classified and unclassified activities and materials. While the data collection initiatives described below are themselves unclassified, the data gathered or produced may be classified. Additionally, the IC may be engaged in additional, classified initiatives for obtaining information about its contractors or their employees. Examples of congressional interest in the IC’s contractor workforce include legislation; language found in several of the Senate Select Committee on Intelligence’s (SSCI’s) biannual reports; a 2011 hearing on IC contractors; and a Senate Homeland Security and Governmental Affairs hearing in 2014, which featured a Government Accountability Office (GAO) report requested by the committee. For example, SSCI has expressed, over the years, various concerns regarding the IC’s use of contractors, such as the need for “[m]inimal controls over the use of contractor support,” room for improvement regarding incentivizing contractor performance and the monitoring of contractor performance, and the costs of using contractors compared to the costs of using government personnel. Senator Daniel K. Akaka expressed his concerns regarding “contractors ... improperly performing inherently governmental functions,” “the high cost of IC contractors,” and “significant shortfalls” in the IC’s acquisition workforce at a 2011 hearing. SSCI and the House Permanent Select Committee on Intelligence (HPSCI) may also be involved in classified efforts to monitor, or provide direction regarding, the IC’s use of contractors. Generally, these two committees conduct their business in closed hearings and meetings. Congressional interest in intelligence matters, including the IC’s use of contractors, is not limited to the intelligence committees. Members who do not sit on either intelligence committee (referred to as “non-committee members”) may have an interest in intelligence topics and issues. HSGAC’s request for a GAO report and its related 2014 hearing are examples of other non-committee members’ interest in the IC’s contractors and related issues. While the IC has continued to rely on the private sector for the provision of goods and services, it has shifted its approach, striving to achieve an appropriate balance among the different components (federal civilian employees, contractor employees, and military personnel) of its workforce, which is consistent with the Obama Administration’s focus on multi-sector workforce management. This shift has been acknowledged, over the years, in various documents. The IC’s five-year Strategic Human Capital Plan, which was an annex to the 2006 U.S. National Intelligence Strategy (NIS), noted the NIS needs a human capital strategy that, among other things, will “determin[e] the optimum mix of military, civilian, contractor, and other human resources necessary to meet” mission critical human resource requirements. Each of the National Intelligence Program Congressional Budget Justification books for FY2011, FY2012, and FY2013 addressed the need to engage in planning for a multi-sector workforce. The FY2013 budget justification stated, “The CMA [Community Management Account] Program expects the Human Capital and Learning project to accomplish the following in FY2013: ... Fully plan for the multi-sector workforce to consider the best mix of U.S. Government, military, and contract personnel to address emerging needs and meet enduring requirements.” Testifying before a congressional committee in June 2014, the Principal Deputy Director of National Intelligence (PDDNI) acknowledged that contractors are “an integral part” of the IC while noting that the community’s needs have changed which, in turn, has prompted the IC “to rebalance [its] workforce with fewer core contractors.” The outcome of this effort is not known. The PDDNI’s comments echoed language found in the President’s FY2014 budget request that referenced a continuing effort to reduce the IC contractor workforce while maintaining the “Government personnel levels.” The following fiscal year’s (FY2015) summary of the National Intelligence Program (NIP) in the President’s budget continued this theme, but also noted that the budget would reduce government personnel levels. Omitting references to any particular component of the IC workforce, the 2014 NIS mentions, in the context of workforce planning, the importance of ensuring “the IC has the right people with the right skills in the right place at the right time to accomplish the mission in high-performing teams and organizations.” Contractors and Contractor Personnel in the IC This section describes unclassified efforts to collect data about the IC’s contractors or contractor employees. The information collected as a result of, or in relation to, the policies or statutory provisions described below does not appear to be publicly available and may be classified. This report is not necessarily comprehensive as the IC may engage in classified initiatives to track its contractors or contractor employees. Inventory of Core Contract Personnel The IC divides its contract personnel into two categories: non-core and core. The non-core category includes individuals who perform services not related to the mission or operations of the IC (e.g., food services), or who are not required to have security clearances. Of particular interest to the IC, and others, is the community’s use of core contract personnel. Core contract personnel generally perform mission-related work, which, as discussed below could, under certain circumstances, have implications for the ability of IC components to maintain control over inherently governmental functions and their missions and operations. ODNI describes this category as follows: [Core contract personnel] are those independent contractors or individuals employed by industrial contractors who augment USG [U.S. government] civilian and military personnel by providing direct technical, managerial, or administrative support to IC elements. Core contract personnel typically work alongside and are integrated with USG civilian and military personnel and perform staff-like work. The intelligence community uses core contract personnel for these reasons: “Immediate Surge: To provide surge support for a particular IC mission area. In this regard, the use of a contractor enables the IC element to rapidly expand to meet a mission or business exigency, and then curtail that contract support when the exigency passes. A surge requirement may be of extended duration.” “Discrete Non-Recurring Task: To accomplish a discrete, nonrecurring, or temporary project, work assignment, or task of definite or deliverable, such that the contract ends when the project, assignment, or task is completed.” “Unique Expertise: To provide unique technical, professional, managerial, or intellectual expertise to the IC element, where such expertise is not otherwise available from U.S. Government (USG) civilian or military personnel.” “Specified Service: To provide a specified service, including technical assistance, in support of a core mission or function, where that service is of indefinite quantity.” “Insufficient Staffing Resources: To perform work that would otherwise have been provided by a USG civilian given sufficient resources.” “Transfer of Institutional Knowledge: To maintain critical continuity or skills in support of a particular mission or functional area in the face of skills gaps, the loss (anticipated or otherwise) of mission-essential USG civilian or military personnel, or other similar exigency.” “More Efficient or Effective: To provide support or administrative services, where the provision of such services by contract personnel is determined to be effective or efficient.” The IC initiated its first inventory of core contract personnel in 2006. The reasons for undertaking this effort included “congressional concern, ODNI concern, a desire to get a handle on the role of contractors, and the extent of contracting in the intelligence community.” A few years after the IC compiled its initial inventory, the Associate Director of National Intelligence for Human Capital (also known as the Chief Human Capital Officer (CHCO) or ADNI/CHCO) participated in a conference call with several journalists in which he described the results of the inventory, which involved the total workforce of the NIP. In FY2007, approximately 100,000 civilian employees and military personnel were part of the IC workforce. During the same time period, contractor personnel made up 27% of the IC’s total workforce. The breakdown of functions performed by contractor employees in FY2007 was as follows: 27% of core contract personnel “supported collection and operations”; 22% “supported enterprise information and technology”; 19% “supported analysis and production”; 19% supported “enterprise management and support”; 4% supported “mission management”; and 9% supported “processing, exploitation, and research and development activities.” The IC’s inventory also included the reasons why IC elements used contractors and the location of contractor personnel. Over one-half (56%) of core contract personnel provided unique expertise; 11% performed work that would have been performed by federal civilian employees if sufficient funding had been available; approximately 10% were used because it was more cost effective than federal employee performance; approximately 8% worked for the IC because of funding uncertainties; 5% supported surge requirements; and 3% worked on non-recurring projects. (The remaining 7% was not addressed during the conference call.) Most (73%) contractor personnel were located on IC premises; 27% were located off-premises (facilities “owned and operated by their contract employer[s]”). The greater Washington-Baltimore metropolitan area was home to 81% of core contract personnel. In October 2009, ODNI issued Intelligence Community Directive (ICD) 612, which addresses the IC’s use of core contractor personnel. In addition to requiring IC contractors to provide certain compensation information and encouraging IC elements to reemploy federal civilian annuitants under the National Intelligence Reserve Corps, this directive established an annual requirement for IC elements to provide information about core contract personnel to the ADNI/CHCO. Additionally, the IC elements are to “determine, review, and evaluate the actual and projected number and uses of core contract personnel in support of their intelligence mission[s].” The results of an IC element’s review are to be “reflected in [its] annual budget submission.” ODNI is to provide “the results of the inventory to OMB [Office of Management and Budget] and [the IC’s] oversight committees and include [an] analysis of the inventory submissions.”The “scope, form, and format” of the information required to be reported by ICD 612 was to have been promulgated as an Intelligence Community Standard. Neither the IC Standard for core contract personnel nor the IC elements’ inventories of core contract personnel appear to be available on the ODNI website. Information contained in a GAO report that examined several of the IC’s core contract inventories revealed the inventory contains 10 data fields, including the following, as described by GAO: “the number of full-time equivalents (FTEs) on core contracts” “the functions performed by core contract personnel” “the reasons for using [core contract] personnel” “fiscal year obligations” “budget category” “primary contractor occupation and competence expertise” “name of the contractor” “number of direct labor hours” GAO also reported that the “number and types of data fields available vary by fiscal year.” GAO examined the core contractor inventories of the eight civilian components of the IC and reported its findings and recommendations in an unclassified study that was released in January 2014. (A classified version was issued in September 2013.) The reports addressed “(1) the extent to which the eight civilian IC elements use core contract personnel, (2) the functions performed by these personnel and the reasons for their use, and (3) whether the elements developed policies and strategically planned for their use.” GAO determined that the “comparability, accuracy, and consistency” of the inventories were limited, because of the following problems: variations in the definition of core contract personnel over the years, a lack of standardization among IC elements in calculating the number of contractor FTEs and missing documentation for calculating contractor FTEs, and contract cost data that “were inaccurate or inconsistently determined.” Faced with these challenges, GAO was unable to determine accurately the extent to which the IC’s civilian components have used core contract personnel. Specifically, GAO could not reliably determine “the number of core contract personnel” performing functions for the civilian IC or the reasons they were used. Questions about the data’s reliability and accuracy may undermine its potential utility as a tool for policymaking and oversight by the IC leadership and Congress. Personnel Level Assessment Beginning in 2011, the DNI is required to complete, in consultation with the head of each IC component, an annual personnel level assessment that includes information about each component’s core contract employees and agency personnel. The HPSCI report accompanying H.R. 2701 (111th Congress, enacted as P.L. 111-259) stated that this requirement “should assist the DNI and the congressional intelligence committees in determining the appropriate balance of contractors and permanent government employees.” The statutory requirement, which may be found in Section 305(a) of P.L. 111-259, Intelligence Authorization Act for FY2010, directs each component to report its “best estimate of the number and costs of core contract personnel to be funded by [it] for the upcoming fiscal year,” and provide numerical and percentage comparisons with the same information for the current fiscal year and the preceding five fiscal years. IC components are also required to provide similar information regarding their federal employees and FTE positions. Each element’s assessment is to include a “justification for the requested personnel [federal employees] and core contract personnel levels” and the “best estimate of the number of intelligence collectors and analysts employed or contracted” by each IC element. With the passage of the Intelligence Authorization Act for FY2015 (P.L. 113-293), the IC’s personnel level assessments are to include descriptions of the functions performed by contractors serving as intelligence collectors and analysts.The personnel level assessments are to be submitted to the intelligence committees “each year at the time that the President submits to Congress the budget.” Report on Personal Services Contracts A one-time requirement for the DNI to report on the IC’s use of personal services contracts was enacted in 2010. Section 339 of P.L. 111-259, Intelligence Authorization Act for FY2010, required the DNI to report the following information to the intelligence committees and armed services committees: “the use of personal services contracts across the intelligence community, the impact of the use of such contracts on the intelligence community workforce, plans for conversion of contractor employment into United States Government employment, and the accountability mechanisms that govern the performance of such person services contracts.” Generally, an agency’s use of personal services contracts garners attention because an agency is not permitted to use this type of contract unless it has statutory authority to do so. Relatedly, the use of personal services contracts (PSCs) could have implications for the federal government’s merit staffing procedures which are used to hire employees. The Federal Acquisition Regulation (FAR) includes this caution regarding personal services contracts: The Government is normally required to obtain its employees by direct hire under competitive appointment or other procedures required by the civil service laws. Obtaining personal services by contract, rather than by direct hire, circumvents those laws unless Congress has specifically authorized acquisition of the services by contract.” The IC’s use of personal services contracts is also addressed below, in the section titled “Are Contractor Employees Performing Inherently Governmental Work?” Inventory of Commercial Activities and Inherently Governmental Activities Information available from the ADNI/CHCO’s website indicates that the office compiles inventories of the IC’s commercial activities and inherently governmental activities. The Workforce Planning team collects and consolidates data for all 17 IC agencies to perform Federal Activities Inventory Reform (FAIR) Act reporting on which IC activities are inherently governmental and which must be performed by government employees, along with a service contractor inventory to provide an opportunity for integrat[ing] the two inventories to support balanced workforce analyses. Although the inventories do not include information about an agency’s contractors or contractor personnel, agency staff may find the process of compiling the inventories, or the inventories themselves, to be useful in determining the appropriate mix of personnel (federal employees and contractors) for their agency. With the enactment of the Federal Activities Inventory Reform (FAIR) Act of 1998 (P.L. 105-270), federal agencies subject to the statute are required to compile, and submit to OMB, an annual inventory of their commercial activities. The requirement for agencies subject to the FAIR Act to also submit inventories of their inherently governmental activities began during the Administration of President George W. Bush. An agency’s inventory is to include, for each function listed, the following information: Department and bureau names Function code Product or service code Total number of FTEs Reason code City, state, and country where the function is located The first year the function was included in the inventory Unit name Under the FAIR Act, OMB’s responsibilities include publishing a notice in the Federal Register announcing when agencies’ FAIR Act inventories are available. The first year agencies were required to produce inventories was 1999, and OMB’s December 30, 1999, announcement included two entries identifiable as IC elements: “Intelligence Community Management Staff and Central Intelligence Agency,” and “Intelligence Community: Other Agencies.” Both of these entries included this caveat: “Appropriate security clearance and need to know must be established for access.” The Central Intelligence Agency (CIA) was the only readily identifiable IC component included in OMB’s announcements in 2000 and 2001. The entry for each year stated “[n]o website available.” To date, the only additional Federal Register announcement that mentioned the IC involved the 2003 inventories; the entry for “Intelligence agencies” indicated the website was not available. The excerpt from the ADNI/CHCO’s website (see above) also mentions a service contractor inventory, which may be a reference to a service contracts inventory. Two separate statutory provisions require the Department of Defense (DOD) and certain executive branch civilian agencies to prepare and submit to OMB annual service contracts inventories. The inventories are to include the number of contractor employees (or an equivalent measure) for each contract listed. Information provided in a 2014 GAO report suggests, however, that the IC’s efforts to inventory its contractors are not related to either of these statutory provisions. GAO wrote, One tool identified by OFPP [Office of Federal Procurement Policy] that can help agencies plan for the use of contract personnel and mitigate associated risks is a service contract inventory, which for the IC is the annual core contract personnel inventory. As discussed above, ICD 612 requires the IC to compile an annual core contract personnel inventory. Oversight Issues Over the years, questions have been raised regarding the possibility that contractor employees performing work for the IC are performing inherently governmental functions. Several years after the issuance of OFPP Policy Letter 11-01, some observers questioned whether IC components are properly managing their critical and closely associated functions, including oversight of contractor employees performing these functions. Are Contractor Employees Performing Inherently Governmental Work? Although the ODNI’s ICD 612 prohibits using contractor personnel to perform inherently governmental activities, there have been indications that contractor personnel performed, or might have performed, inherently governmental activities for the IC. In its 2006 human capital strategy, ODNI acknowledged that some of the work performed by IC contractors might be “borderline inherently governmental.’” The same document also noted OMB’s interest in the possibility that contractor employees were doing inherently governmental work. OMB had requested that ODNI “conduct a study to determine if contractors may be engaged in IC work that is inherently governmental’ and hence improper.” ODNI stated it had initiated the study and expected to complete it by the end of FY2006. Neither the status of the study nor its results, if any, are known. Several years later, the ODNI issued ICD 612, which states: “Core contract personnel will not engage in inherently government activities, as defined by Office of Management and Budget Circular A-76, as revised.” Yet, an appendix to a 2011 hearing on the IC and contractors stated “it is unclear whether or how the ODNI or other IC agencies oversee compliance with that directive [ICD 612].” Although, generally, only federal employees may perform inherently governmental activities, a contractor employee who works for an agency pursuant to a personal services contract is permitted, under the Federal Acquisition Regulation, to perform inherently governmental activities. At times, ODNI’s definition of core contract personnel has included language that could be interpreted as suggesting such personnel might perform inherently governmental work pursuant to personal se

Aug 18, 2015

Powering Africa: Challenges of and U.S. Aid for Electrification in Africa

This report discusses the Power Africa initiative; policy problems and challenges related to power sector development in Africa; long-term perspectives on energy poverty, need, and future development; and raises some possible oversight questions and issues for Congress.

Aug 17, 2015

Excise Tax on High-Cost Employer-Sponsored Health Coverage: In Brief

Aug 14, 2015

U.S. Farm Policy: Certified Organic Agricultural Production

Aug 14, 2015

Indian Water Rights Settlements

Aug 14, 2015

EPA's Clean Power Plan: Highlights of the Final Rule

Congressional Research Service 7-5700 www.crs.gov R44145 Summary On August 3, 2015, the Environmental Protection Agency (EPA) released a prepublication version of the final rule known as the Clean Power Plan (CPP). The CPP final rule requires states to reduce carbon dioxide (CO2) emissions or emission rates—measured in pounds of CO2 emissions per megawatt-hour of electricity generation—from existing fossil fuel electricity generating units. EPA estimates that in 2030, the CPP will result in CO2 emission levels from the electric power sector that are 32% below 2005 levels. This report provides an initial analysis of EPA’s final rule. The 2015 final rule is substantially different from the rule EPA proposed on June 18, 2014. For example, a major change in EPA’s final rule is EPA’s establishment of uniform national CO2 emission performance rates for each of the two subcategories of electricity generating units—fossil-fuel-fired electric steam generating units (whether coal, oil, or natural gas) and stationary combustion turbines (natural gas combined cycle)—affected by the rule. These standards are the underpinnings for the state-specific emission rate and mass-based targets. The state-specific emission rate and mass-based targets are considerably different from the proposed rule. The state targets in the final rule imply lower percentage reductions for some states, while implied percentage reductions are higher for others states compared to the proposed rule. The state-specific targets differ in the final rule, because EPA altered its methodology (i.e., underlying calculations and assumptions) compared to the proposed rule, which involved four “building blocks.” EPA eliminated building block 4 (energy efficiency improvements) and modified components in building blocks 1-3. In particular, the final rule’s estimated renewable energy generation level in 2030 is more than twice the level in the proposed rule. In the final rule, EPA continues to use 2012 data as the baseline for calculated state targets. However, the agency made several state-specific adjustments to address concerns raised by stakeholders. Perhaps the most substantial adjustments are in states that generate a significant percentage of electricity from hydropower. EPA also modified its treatment of nuclear power in the final rule, removing both “at risk” and under-construction nuclear power from the emission rate calculations. EPA clarified that the final rule would allow the generation from under-construction units, new nuclear units, and capacity upgrades to help states meet their compliance objectives. EPA would allow states to use “qualified biomass” as a means of meeting state-specific reduction requirements. This appears to be a narrower approach to biomass than in the proposed rule. Multiple stakeholders raised concerns about electricity reliability. The final rule contains, among other changes, a provision for a reliability “safety valve” for individual power plants. EPA states that there may be a need for generating units to continue to operate and release “excess emissions” if an emergency situation arises that could compromise electric system reliability. The reliability safety valve allows for a 90-day reprieve from CO2 emissions limits. The final rule requires states to submit to EPA their plans to comply with the rule by September 6, 2016. A state may choose to seek a two-year extension (September 6, 2018) to submit its final plan if the state needs to complete administrative and stakeholder processes. Under the final rule, states can submit one of two types of plans: an “emission standards” approach or a “state measures” approach. An emission standards approach imposes federally enforceable emission standards directly on affected units in the state. In contrast, a state measures approach must meet equivalent rates statewide, but this approach may include some elements that are not federally enforceable, such as renewable energy and/or energy efficiency requirements that could apply to affected units or other entities. In EPA’s final rule, compliance begins in 2022, giving the states two additional years (compared to the proposed rule) before their plans must go into effect. Also, EPA created a new program to encourage states to support renewable energy and energy efficiency projects (in low-income communities) in 2020 and 2021. Contents Introduction 1 Highlights and Differences from the Proposed Rule 2 State Plan Requirements and Options 2 Timing Requirements for State Targets 3 National Performance Standards 3 State-Specific Targets 3 EPA’s Methodology 5 2012 Baseline 6 Renewable Energy Treatment 7 Energy Efficiency Treatment 7 Nuclear Power Treatment 8 Biomass Treatment 8 Clean Energy Incentive Program 9 Electricity Reliability 9 Figures Figure 1. State-Specific Emission Rate Targets in 2030 Compared to 2012 Emission Rate Baselines 4 Figure 2. Regions in EPA’s Methodology 6 Appendixes Appendix. Additional Information 11 Contacts Author Contact Information 13 Introduction On August 3, 2015, the Environmental Protection Agency (EPA) released a prepublication version (i.e., not yet published in the Federal Register) of its final rule, known as the Clean Power Plan (CPP), pursuant to Section 111(d) of the Clean Air Act. The CPP final rule establishes regulations that would reduce carbon dioxide (CO2) emissions or emission rates from existing electricity generating units (EGUs). In general, an affected EGU is a fossil-fuel-fired unit (e.g., coal, oil, or natural gas) that was in operation or had commenced construction as of January 8, 2014; has a generating capacity above a certain threshold; and sells a certain amount of its electricity generation to the electric grid. EPA estimates that in 2030, the CPP will result in a 32% reduction in CO2 emissions from the electric power sector in the United States compared to 2005 levels. By comparison, in its proposed rule, EPA had estimated that in 2030, the rule would have resulted in a 30% reduction in CO2 emissions from the electric power sector in the United States compared to 2005 levels. The proposed rule received considerable attention from Congress, state officials, and a wide spectrum of stakeholders. EPA conducted hundreds of stakeholder meetings and received 4.3 million comments on the proposal. The CPP final rule is substantially different from the proposed rule published in the Federal Register on June 18, 2014. This report provides an initial analysis of EPA’s final rule, summarizing highlights and identifying differences between the final and proposed rules. The topics discussed do not represent an exhaustive list of the differences from the proposed rule or the support or opposition that may be raised by various stakeholders. This report does not provide a legal analysis of the final rule. Highlights and Differences from the Proposed Rule State Plan Requirements and Options Under Section 111(d) of the Clean Air Act (CAA), states must establish performance standards that reflect the “best system of emission reduction” (BSER) that the EPA Administrator determines has been adequately demonstrated, taking into account costs and any non-air-quality health and environmental impacts and energy requirements. The final rule requires states to submit to EPA either an initial plan or final plan by September 6, 2016. Like the proposed rule, states can submit either individual plans or multi-state plans. If a state submits an initial plan in 2016, the state can seek an extension from EPA to submit its final plan by September 6, 2018. If EPA grants the extension, the state must submit a progress report by September 6, 2017. By comparison, the proposed rule would have allowed states to receive a one-year extension for submitting their final plan and a two-year extension if states submitted a multi-state plan. The final rule allows states to select from two types of plans, described by EPA as (1) an “emission standards” approach or (2) a “state measures” approach. If a state chooses the emission standards approach, the state would implement the federally enforceable emission rate standards (discussed below) directly at the affected EGUs in the state. This approach could involve multiple states and an emission rate trading system or a mass-based trading system. Emission Rate Targets and Mass-Based Targets An emission rate target is measured in pounds of CO2 emissions per megawatt-hour (MWh) of electricity generation. EPA uses the state-specific emission rate targets to calculate equivalent state-specific mass-based targets, which are measured in metric tons of CO2. Although EPA’s emission rates are in pounds per megawatt-hour, most national and international measures of CO2 emissions are provided in metric tons. One metric ton is approximately 2,205 pounds. A state measures approach allows a state to achieve the equivalent of the CO2 emission standards approach by using some combination of federally enforceable standards for EGUs and elements that would be enforceable only under state laws. Examples of such elements include renewable energy and/or energy efficiency requirements that could be applied to affected EGUs or other entities. A plan that employs the state measures approach requires the inclusion of federally enforceable standards that would take effect if the state measures approach did not achieve the required result. If a state uses the state measures approach, the state must use a mass-based target “to provide certainty that the state measures are achieving the required emission reductions.” Multi-state systems are allowed with this approach as well. Federal Implementation Plan EPA cannot compel a state to submit a state plan pursuant to CAA Section 111(d). If a state fails to submit a satisfactory plan by EPA’s regulatory deadline, CAA Section 111(d) directs EPA to prescribe a plan for the state, often described as a federal implementation plan (FIP). On the same day (August 3, 2015) that EPA released a prepublication version of its CPP final rule, EPA released a prepublication version of a proposed rule that presents two options for a FIP: a rate-based and a mass-based emissions trading program. A 90-day comment period for the proposed rule will start when the proposal is published in the Federal Register. Timing Requirements for State Targets The proposed rule set a final emission rate target for each state for 2030 and an interim target to be achieved “on average” between 2020 and 2029. In EPA’s final rule the interim targets would be measured between 2022 and 2029, effectively giving the states an additional two years before reductions are necessary. As discussed below, EPA created a new program (the Clean Energy Incentive Program) in the final rule to encourage states to take action in 2020 and 2021. In addition, the final rule requires states to demonstrate their progress in implementing a gradual application of BSER with “glide paths” that the states identify for reductions in three time periods: 2022-2024, 2025-2027, and 2028-2029. The interim target is, nonetheless, to be achieved using the average of the eight-year interim period. National Performance Standards A major change in EPA’s final rule compared with the proposed rule is its core of what EPA called “a traditional, performance-based approach to establishing emission guidelines for affected sources.” The final rule establishes uniform national CO2 emission performance rates (measured in pounds of CO2 per MWh of electricity generation) for each of the two subcategories of EGUs—fossil-fuel-fired electric steam generating units (e.g., coal, oil, or natural gas units) and stationary combustion turbines (e.g., natural gas combined cycle units)—affected by the rule. These standards are the underpinnings for the state-specific emission rates and mass-based targets. The methodology for these targets is discussed below. State-Specific Targets Like the proposed rule, EPA’s final rule contains state-specific emission rate targets and mass-based targets. These targets apply to the state’s total electricity portfolio (which can include generation from renewables and nuclear power), not the individual units, as with the national performance standards (above).The interim and final targets, however, differ from the ones in the proposed rule. Table A-1 lists each state’s 2012 baseline, its 2030 emission rate target, and the implied percentage reduction required to achieve the 2030 target. The mass-based targets are based on the emission rate targets. For comparison purposes, Table A-1 also lists the same information from the proposed rule. The final rule implies lower percentage reduction requirements for some states and implies higher percentage reduction requirements for others compared to the proposed rule. Figure 1 compares the state-specific emission rate targets in 2030 (the dark-colored columns) with the state-specific emission rate baselines in 2012 (the combined dark- and light-colored columns). The light-colored columns illustrate the emission rate reductions required by 2030. Figure 1. State-Specific Emission Rate Targets in 2030 Compared to 2012 Emission Rate Baselines States Listed in Order of Their 2012 Emission Rate Baselines (High to Low) / Source: Prepared by CRS; final rule target and baseline data from EPA, CO2 Emission Performance Rate and Goal Computation Technical Support Document for CPP Final Rule (August 2015) and accompanying spreadsheets, http://www2.epa.gov/cleanpowerplan/clean-power-plan-final-rule-technical-documents. Notes: The dark-colored columns illustrate the state-specific emission rate targets in 2030. The combined dark- and light-colored columns illustrate the state-specific emission rate baselines in 2012. The light-colored columns illustrate the emission rate reduction requirements states must achieve by 2030. EPA did not establish emission rate goals for Vermont and the District of Columbia because they do not currently have affected EGUs. Although Alaska and Hawaii have targets in the proposed rule, in its final rule, EPA stated that Alaska, Hawaii, and the two U.S. territories with affected EGUs (Guam and Puerto Rico) will not be required to submit state plans on the schedule required by the final rule, because EPA “does not possess all of the information or analytical tools needed to quantify” the best system of emission reduction for these areas. EPA stated it will “determine how to address the requirements of section 111(d) with respect to these jurisdictions at a later time.” EPA did not establish emission rate goals for Vermont and the District of Columbia because they do not currently have affected EGUs. In its final rule, EPA stated that Alaska, Hawaii, and the two U.S. territories with affected EGUs (Guam and Puerto Rico) will not be required to submit state plans on the schedule required by the final rule. EPA asserts it “does not possess all of the information or analytical tools needed to quantify” the BSERs for these areas. EPA stated it will “determine how to address the requirements of section 111(d) with respect to these jurisdictions at a later time.” In addition, EPA crafted emission rate targets for three areas of Indian country. The tribes have “the opportunity, but not the obligation,” to establish and submit plans to meet their emission rate targets. If a tribe does not seek authority to submit its own plan, EPA is responsible for establishing a plan if the agency determines at a later date that “a plan is necessary or appropriate.” EPA’s Methodology The methodology (i.e., underlying calculations and assumptions) in the final rule that EPA used to create (1) the national CO2 emission performance rates and (2) the state-specific emission rate (and mass-based) targets is considerably different than EPA’s methodology in its proposed rule. Although an in-depth comparison between the two approaches is beyond the scope of this report, some initial observations are included below. In its proposed rule, EPA applied four “building blocks” to the state 2012 baselines to generate emission rate targets for each state. The four building blocks in the June 2014 proposed rule involved estimates of various opportunities for states to decrease their emission rates: Coal-fired power plant efficiency improvements; Natural gas combined cycle (NGCC) displacement of more carbon-intensive sources, particularly coal; Increased use of renewable energy and preservation of existing and under-construction nuclear power; and Energy efficiency improvements. In its final rule, EPA eliminated building block 4 and modified the components in building blocks 1-3. In particular, the renewable energy assumptions (building block 3) changed dramatically in the final rule. According to EPA, the final rule’s renewable energy generation level in 2030 is more than twice the level in the proposed rule. In addition, EPA assumed a coal-fired plant efficiency improvement of 6% in the proposed rule (building block 1), while the final rule includes region-specific improvements that range from 2.1% to 4.3%. The natural gas generation assumptions in building block 2 changed as well. In its final rule, EPA established CO2 emission performance standards for two subcategories of affected sources: (1) fossil-fuel-fired electric steam generating units (e.g., coal- and oil-fired units) and (2) stationary combustion turbines (e.g., natural gas combined cycle units). To derive the BSER on which these rates were based, EPA divided the states into three regions, illustrated in Figure 2 and compiled 2012 data—CO2 emissions and electricity generation—from each source in each state. Using the final rule’s new building block applications, EPA calculated annual emission rates for each source type in each of the three regions. EPA’s final rule uses the least stringent emission rate for each source as the national performance standard for each fossil fuel source. To generate state-specific emission rate targets, EPA applied the annual performance rates to each state’s baseline (2012) fossil fuel generation mix. These state-specific emission rate targets are listed in Table A-1. Figure 2. Regions in EPA’s Methodology Source: Reproduced from EPA, Overview of the Clean Power Plan: Cutting Carbon Pollution from Power Plants, August 2015, http://www.epa.gov/airquality/cpp/fs-cpp-overview.pdf. The figure has a minor error, as the Texas region should be labeled as the Electric Reliability Council of Texas (ERCOT) Interconnection. Notes: EPA did not establish emission rate goals for Vermont and the District of Columbia because they do not currently have affected EGUs. Although Alaska and Hawaii have targets in the proposed rule, in its final rule, EPA stated that Alaska, Hawaii, and the two U.S. territories with affected EGUs (Guam and Puerto Rico) will not be required to submit state plans on the schedule required by the final rule, because EPA “does not possess all of the information or analytical tools needed to quantify” the best system of emission reduction for these areas. EPA stated it will “determine how to address the requirements of section 111(d) with respect to these jurisdictions at a later time.” 2012 Baseline After EPA’s proposed rule in June 2014, multiple states and stakeholders raised a variety of concerns with EPA’s use of 2012 as the baseline year to calculate the emission rate targets. In both its proposed and final rules, EPA uses 2012 as the baseline year in its emission rate and mass-based target calculations. However, EPA made several state-specific adjustments in the final rule to address some of the concerns. Perhaps the most substantial adjustments are in states that generate a significant percentage of electricity from hydropower. According to EPA, 2012 was an “outlier” year for snowpack, resulting in relatively high use of hydropower and a corresponding decrease in fossil fuel generation in particular states. As Table A-1 indicates, this adjustment seemed to have a considerable impact in states that use a high percentage of hydropower: Washington, Oregon, Idaho, and Maine. In addition, EPA made other state-specific adjustments for EGUs that came online during 2012. Renewable Energy Treatment Renewable energy played a significant role in the proposed rule, and its role appears to be even greater in the final rule. Although an in-depth analysis of renewable energy in the final rule is beyond the scope of this report, a comparison of estimated results from the Regulatory Impact Analyses (RIA) accompanying the proposed and final rules indicates a substantial increase in EPA’s analysis of renewable energy’s contribution to the nation’s electricity portfolio by 2030. For example, in the proposed rule RIA, non-hydro renewable energy generation was projected to increase by 2% in 2030, compared to a business-as-usual scenario. In the final rule RIA, non-hydro renewable energy generation was projected to increase by 9% in 2030 (under a rate-based scenario), compared to a business-as-usual scenario. In addition, renewable energy is included in a new voluntary program that EPA developed for the final rule. This program would provide incentives to states to develop renewable energy projects in 2020 and 2021 (discussed below). Energy Efficiency Treatment As mentioned above, EPA’s final rule does not include demand-side energy efficiency (EE) improvements in its emission rate methodology. In EPA’s proposed rule, EE improvements were addressed in building block 4. The impacts of building block 4 on emission rate targets varied by state. In general, the effects appeared more pronounced in states that generate a large percentage of their electricity from sources that were not already included in the proposed rule emission rate equation—primarily hydroelectric power and, to some extent, nuclear power. In its final rule, EPA explained its reasoning for removing EE from the building blocks: [Clean Air Act] section 111 has allowed regulated entities to produce as much of a particular good as they desire provided that they do so through an appropriately clean (or low-emitting) process. While building blocks 1, 2, and 3 fall squarely within this paradigm, the proposed building block 4 does not. Building block 4 is outside our paradigm for section 111 as it targets consumer-oriented behavior and demand for the good, which would reduce the amount of electricity to be produced. Although EPA removed EE from its emission rate calculations, states may choose to employ EE improvement activities as part of their plans to meet their targets. In particular, the final rule includes a new voluntary program that provides incentives for early investments (in 2020 and 2021) in EE programs in low-income communities (as discussed below). Nuclear Power Treatment EPA modified its treatment of nuclear power in the final rule. In its proposed rule, EPA factored “at risk” nuclear power (estimated at 5.8%) into the state emission rate methodology. As a result, states had an incentive to maintain the at-risk nuclear power generation or their emission rates would increase (all else being equal). The final rule does not include at-risk nuclear generation in its building block calculations. EPA stated: It is inappropriate to base the BSER in part on the premise that the preservation of existing low- or zero-carbon generation, as opposed to the production of incremental, low- or zero-carbon generation, could reduce CO2 emissions from current levels. In addition, in its final rule, EPA decided not to include under-construction nuclear power capacity in the emission rate calculations. In its proposed rule, EPA identified five under-construction nuclear units at facilities in Georgia, South Carolina, and Tennessee. Including the estimated generation from these anticipated units in the emission rate equation would have substantially lowered the emission rate targets of these three states. If the final rule had retained this feature, and these nuclear units did not complete construction and enter service, these three states would likely have more difficulty achieving their emission rate goals. EPA clarified that the final rule would allow the generation from under-construction units, new nuclear units, and capacity upgrades to help sources meet emission rate or mass-based targets. Biomass Treatment In its final rule, EPA would allow states to use “qualified biomass” as a means of meeting state-specific reduction requirements. This appears to be a narrower approach than was taken in the proposed rule. Also, EPA requires additional accounting and reporting requirements if a state decides to use qualified biomass. The agency gives some indication as to which biomass types may qualify: The EPA generally acknowledges the CO2 and climate policy benefits of waste-derived biogenic feedstocks and certain forest- and agriculture-derived industrial byproduct feedstocks.... Use of such waste derived and certain industrial byproduct biomass feedstocks would likely be approvable as qualified biomass in a state plan when proposed with measures that meet the biomass monitoring, reporting and verification requirements. EPA’s review of biomass power and its role in the CPP will continue, with the agency looking at efforts external but still relevant to the CPP and biomass. For example, in November 2014, EPA released a second draft of the technical report, Framework for Assessing Biogenic Carbon Dioxide for Stationary Sources. EPA expects another round of peer review for this report in 2015. In addition, EPA stated that it will “closely monitor overall bioenergy demand and associated landscape conditions for changes that might have negative impacts on public health or the environment.” Clean Energy Incentive Program EPA’s final CPP includes a Clean Energy Incentive Program (CEIP) “to reward early investments in renewable energy (RE) generation and demand-side energy efficiency (EE) measures ... during 2020 and/or 2021.” The CEIP was not part of the proposed rule and is optional for states. States would need to include particular design elements in their final plans if they want to participate. The CEIP sets up a system to award credits to EE projects in low-income communities and RE projects (only wind and solar) in participating states. The credits are in the form of emission rate credits (ERCs) or emission allowances, depending on whether a state uses an emission rate or mass-based target, respectively. The credits could be sold to or used by an affected emission source to comply with the state-specific requirements (e.g., emission rate or mass-based targets). RE projects would receive one credit (either an allowance or ERC) from the state and one credit from EPA for every two megawatt-hours (MWh) of solar or wind generation. EE projects in low-income communities would receive double credits: For every two MWh of avoided electricity generation, EE projects will receive two credits from the state and two credits from EPA. EPA will match up to 300 million short tons in credits during the CEIP program life. The amount of EPA credits potentially available to each state participating in the CEIP depends on the relative amount of emission reduction each state is required to achieve compared to its 2012 baseline. Thus, states with greater reduction requirements would have access to a greater share of the EPA credits. To generate the credits, states would effectively borrow from their mass-based or rate-based compliance targets for the interim 2022-2029 compliance period. EPA would provide its share of credits from a to-be-established reserve. In its proposed rule for the federal implementation plan (discussed above), EPA is asking for comments on the size of the credit reserve and other CEIP implementation details. Electricity Reliability The proposed CPP generated substantial interest in the potential effects of the rule on the reliability of the electric power supply. EPA asserts that it does not want compliance with the final rule to interfere with industry’s ability to maintain the reliability of the nation’s electricity supply. EPA’s final rule would address electric system reliability in several ways. In the final rule, we are requiring that each state demonstrate in its final state plan submittal that it has considered reliability issues in developing its plan. Second, we recognize that issues may arise during the implementation of the guidelines that may warrant adjustments to a state’s plan in order to maintain electric system reliability. The final guidelines make clear that states have the ability to propose amendments to approved plans in the event that unanticipated and significant electric system reliability challenges arise and compel affected EGUs to generate at levels that conflict with their compliance obligations under those plans. In particular, the final rule contains a provision for a reliability “safety valve” for individual power plants. EPA states that there may be a need for an EGU to continue to operate and release “excess emissions” if an emergency situation arises that could compromise electric system reliability. The reliability safety valve allows for a 90-day reprieve from carbon emissions limits. EPA stated that the safety valve could be triggered only in an emergency situation. For example, extreme weather events are “of short duration and would not require major—if any—adjustments to emission standards for affected EGUs or to state plans.” In addition, EPA, the Department of Energy, and the Federal Energy Regulatory Commission have agreed to coordinate efforts while the state compliance plans are developed and implemented to ensure that the power sector can continue to maintain electric reliability. A formal memorandum expresses their joint understanding of how they will cooperate, monitor, implement, share information, and resolve difficulties that may be encountered. Additional Information Table A-1. State-Specific Emission Rate Targets (2030) and Reduction Requirements Compared to 2012 Baselines Proposed Rule vs. Final Rule Proposed Rule Final Rule State 2012 Emission Rate Baseline 2030 Emission Rate Target Percentage Change Compared to Baseline 2012 Emission Rate Baseline 2030 Emission Rate Target Percentage Change Compared to Baseline Pounds of CO2 emissions per MWh Alabama 1,444 1,059 27% 1,518 1,018 33% Alaska 1,351 1,003 26% Not established Not established NA Arizona 1,453 702 52% 1,552 1,031 34% Arkansas 1,634 910 44% 1,816 1,130 38% California 698 537 23% 954 828 13% Colorado 1,714 1,108 35% 1,904 1,174 38% Connecticut 765 540 29% 846 786 7% Delaware 1,234 841 32% 1,209 916 24% Florida 1,199 740 38% 1,221 919 25% Georgia 1,500 834 44% 1,597 1,049 34% Hawaii 1,540 1,306 15% Not established Not established NA Idaho 339 228 33% 834 771 8% Illinois 1,894 1,271 33% 2,149 1,245 42% Indiana 1,924 1,531 20% 2,025 1,242 39% Iowa 1,552 1,301 16% 2,195 1,283 42% Kansas 1,940 1,499 23% 2,288 1,293 43% Kentucky 2,158 1,763 18% 2,122 1,286 39% Louisiana 1,455 883 39% 1,577 1,121 29% Maine 437 378 14% 873 779 11% Maryland 1,870 1,187 37% 2,031 1,287 37% Massachusetts 925 576 38% 1,003 824 18% Michigan 1,690 1,161 31% 1,928 1,169 39% Minnesota 1,470 873 41% 2,082 1,213 42% Mississippi 1,093 692 37% 1,151 945 18% Missouri 1,963 1,544 21% 2,008 1,272 37% Montana 2,246 1,771 21% 2,481 1,305 47% Nebraska 2,009 1,479 26% 2,161 1,296 40% Nevada 988 647 35% 1,102 855 22% New Hampshire 905 486 46% 1,119 858 23% New Jersey 928 531 43% 1,058 812 23% New Mexico 1,586 1,048 34% 1,798 1,146 36% New York 978 549 44% 1,140 918 19% North Carolina 1,647 992 40% 1,673 1,136 32% North Dakota 1,994 1,783 11% 2,368 1,305 45% Ohio 1,850 1,338 28% 1,855 1,190 36% Oklahoma 1,387 895 35% 1,565 1,068 32% Oregon 717 372 48% 1,089 871 20% Pennsylvania 1,531 1,052 31% 1,642 1,095 33% Rhode Island 907 782 14% 918 771 16% South Carolina 1,587 772 51% 1,791 1,156 35% South Dakota 1,135 741 35% 1,895 1,167 38% Tennessee 1,903 1,163 39% 1,985 1,211 39% Texas 1,284 791 38% 1,553 1,042 33% Utah 1,813 1,322 27% 1,790 1,179 34% Virginia 1,302 810 38% 1,366 934 32% Washington 756 215 72% 1,566 983 37% West Virginia 2,019 1,620 20% 2,064 1,305 37% Wisconsin 1,827 1,203 34% 1,996 1,176 41% Wyoming 2,115 1,714 19% 2,315 1,299 44% Source: Prepared by CRS; proposed rule tar

Aug 14, 2015