[House Report 114-72]
[From the U.S. Government Publishing Office]


114th Congress    }                                       {      Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                       {      114-72

======================================================================



 
             CONTRACTING AND TAX ACCOUNTABILITY ACT OF 2015

                                _______
                                

 April 14, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Chaffetz, from the Committee on Oversight and Government Reform, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 1562]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Oversight and Government Reform, to whom 
was referred the bill (H.R. 1562) to prohibit the awarding of a 
contract or grant in excess of the simplified acquisition 
threshold unless the prospective contractor or grantee 
certifies in writing to the agency awarding the contract or 
grant that the contractor or grantee has no seriously 
delinquent tax debts, and for other purposes, having considered 
the same, report favorably thereon without amendment and 
recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Committee Statement and Views....................................     2
Section-by-Section...............................................     5
Explanation of Amendments........................................     7
Committee Consideration..........................................     7
Roll Call Votes..................................................     7
Application of Law to the Legislative Branch.....................     7
Statement of Oversight Findings and Recommendations of the 
  Committee......................................................     8
Statement of General Performance Goals and Objectives............     8
Duplication of Federal Programs..................................     8
Disclosure of Directed Rule Makings..............................     8
Federal Advisory Committee Act...................................     8
Unfunded Mandate Statement.......................................     8
Earmark Identification...........................................     8
Committee Estimate...............................................     9
Budget Authority and Congressional Budget Office Cost Estimate...     9

                     Committee Statement and Views


                          PURPOSE AND SUMMARY

    The Contracting and Tax Accountability Act of 2015 (H.R. 
1562) is designed to increase tax compliance by federal 
contractors and grantees. The federal government spends $1 
trillion on contracts and grants annually (in FY 2014, $444 
billion in contracts and $591 in grants).\1\ It is important to 
ensure that the federal contracts and grants, funded by the 
taxpayer, are only awarded to responsible businesses and 
individuals.
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    \1\USASPENDING (April 8, 2015).
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    The bill would require any agency that issues a 
solicitation or that offers a grant in an amount greater than 
the simplified acquisition threshold (currently $150,000) to 
require each person submitting a proposal to: (1) certify that 
such person does not have a seriously delinquent tax debt; and 
(2) authorize the Secretary of Treasury to disclose information 
limited to describing whether such person has a seriously 
delinquent tax debt. Self-certification of a seriously 
delinquent tax debt or a finding by the agency that the 
contractor has misrepresented its tax status would be 
considered definitive proof that a contractor is not a 
responsible party (41 U.S.C. 113) or, in the case of a grantee, 
is a high risk grant applicant--meaning a contractor is not 
eligible for new contracts and a grantee is subject to special 
oversight attention.
    If a contractor or grantee is found to have a seriously 
delinquent tax debt (whether identified by self-certification 
or by Treasury verification), the bill requires agencies to 
initiate suspension or debarment proceedings.\2\ The agency may 
exercise a waiver to stop such proceedings, if the agency makes 
a written finding of ``urgent and compelling circumstances 
significantly affecting the interests of the United States.'' A 
report on the exercise of this waiver authority must be 
provided to Congress within 30 days of exercising the waiver.
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    \2\For suspension and debarments proceedings, contractors would be 
subject to proceedings under Federal Acquisition Regulation (FAR) 9.4 
and grantees would be subject to such proceedings under 2 CFR Chap. 1, 
Part 180, Subparts G and H (and as these rules may be further revised).
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    The term ``seriously delinquent tax debt'' is defined in 
the bill as ``a Federal tax liability that has been assessed by 
the Secretary of the Treasury under the Internal Revenue Code 
of 1986 and may be collected by the Secretary by levy or by a 
proceeding in court.''\3\ The definition does not include 
certain tax debts where: (1) tax debts are being paid in a 
timely manner under an approved installment agreement or offer 
and compromise agreement with the IRS; (2) there is a 
collection due process hearing requested or pending, or where 
the taxpayer has received debt relief because the debt is not 
attributable to the taxpayer because, for example, they are an 
innocent spouse; (3) a debt subject to continuous levy has been 
issued (i.e. that debt is being collected by levy); and (4) a 
debt has been released because the Secretary has determined 
that levy is creating an economic hardship due to the financial 
condition of the taxpayer.
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    \3\The Federal Acquisition Regulation at 9.406-2(b)(1) includes a 
definition of delinquent federal taxes as an amount that exceeds $3,000 
and notes the point at which such taxes are considered delinquent to be 
when the tax liability is (1) ``finally determined'' and (2) when the 
taxpayer is delinquent in making payments. The Committee does not 
consider this definition inconsistent with the definition in the bill.
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    The Committee notes that with respect to the definition of 
``seriously delinquent tax debt,'' in practice the IRS does not 
typically issue a notice of lien unless the debt exceeds 
$10,000. Thus, in practice, this definition would cover debts 
of $10,000 or more.
    The bill also defines the term ``Executive Agency'' by 
referencing 41 U.S.C. 133. This definition in the code is a 
broad definition covering the Department of Defense. This 
definition is important because it makes clear this bill would 
have government-wide application.

                  BACKGROUND AND NEED FOR LEGISLATION

    The Government Accountability Office (GAO) has repeatedly 
found thousands of government contractors had substantial 
amounts of unpaid federal taxes. Specifically, GAO has 
reported:
           Over 30,000 Medicaid providers paid during 
        FY 2006 owed over $1 billion in unpaid federal taxes. 
        GAO-08-17 (2007).
           Tens of thousands of recipients of federal 
        grant and direct assistance programs collectively owed 
        $790 million in federal taxes (as of September 2006). 
        GAO-08-31 (2007).
           Approximately 27,000 defense contractors, 
        33,000 civilian agency contractors, and 3,800 General 
        Services Administration contractors owed about $3 
        billion, $3.3 billion, and $1.4 billion in unpaid 
        taxes, respectively. GAO-07-742T (2007).
           Over 27,000 Medicare providers paid during 
        the calendar year 2006 owed over $2 billion in federal 
        taxes. Most of the unpaid taxes owed by the providers 
        were payroll taxes that are used to fund the Medicare 
        program. GAO-08-618 (2008).
           At least 3,700 Recovery Act contract and 
        grant recipients owed more than $750 million in known 
        unpaid federal taxes while receiving over $24 billion 
        in Recovery Act funds. GAO-11-485 (2011).
           Over 83,000 DOD employees and contractors 
        who held or were eligible for national security 
        clearances had unpaid tax debt totaling more than $712 
        million as of 2012. Note: About 40 percent of the 
        83,000 had a repayment plan for their debt. GAO-14-686R 
        (2014).
    GAO's findings, over an extended period of time, indicate 
contractor tax compliance remains a significant problem. 
Contractors, like other taxpayers, must pay their fair share. 
Failure to pay federal taxes by some contractors also puts 
those contractors who do pay their fair share of taxes at a 
competitive disadvantage.
    In response to the GAO reports and Congressional attention, 
the Federal Acquisition Regulation (FAR) was revised in April 
2008. The revised FAR rule required that for any contracts over 
the simplified acquisition threshold (currently $150,000), (1) 
offerors would have to certify tax delinquency status; and (2) 
where an offeror indicates the existence of ``an indictment, 
charge, conviction, or civil judgment or Federal tax 
delinquency in an amount that exceeds $3,000'' an agency 
suspension and debarment official is notified.\4\ This bill is 
intended to codify existing FAR provisions and provide 
authority to Treasury in order to verify the contractors' self-
certification.
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    \4\FAR Part 9.104-5 Certification regarding Responsibility Matters.
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    In January 2010, the Administration reacted by publishing a 
memo pushing for greater tax compliance by tasking the 
Commissioner for the Internal Revenue Service to conduct a 
review of self certifications submitted pursuant to the 2008 
FAR revision. The President, in announcing this effort said, 
``by issuing this directive, all of us in Washington will be 
required to be more responsible stewards of your tax dollars'' 
and added that paying taxes is ``a fundamental responsibility 
of citizenship'' and that the steps he was taking to improve 
tax compliance were just ``common sense.''\5\
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    \5\President Obama Directs Administration to Crack Down on Tax 
Cheats Seeking Government Contracts, January 20, 2010. https://
www.whitehouse.gov/the-press-office/president-obama-directs-
administration-crack-down-tax-cheats-seeking-government-con. Memorandum 
for Heads of Executive Departments and Agencies, January 20, 2010. 
https://www.whitehouse.gov/the-press-office/memorandum-heads-executive-
departments-and-agencies-1
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    In response to GAO reports and related developments, 
Congress also enacted several general provisions in 
appropriation acts.\6\ The purpose of these general provisions 
was to improve contractor tax compliance. The goal of this bill 
is to apply a government-wide standard for improving contractor 
tax compliance.
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    \6\See Legislative History section for description of these General 
Provisions. Other developments include press reports, such as a 2012 
report that two owners of one of the largest U.S. contractors operating 
in Afghanistan owed more than $4 million in unpaid Federal taxes. 
http://usatoday30.usatoday.com/news/washington/story/2012-04-15/carper-
lionie-industries-taxes/54302070/1
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                          LEGISLATIVE HISTORY

    On March 24, 2015, Chairman Jason Chaffetz (R-UT) 
introduced the Contracting and Tax Accountability Act of 2015 
(H.R. 1562). Congresswoman Jackie Speier (D-CA) is an original 
cosponsor. The bill was referred to the Committee on Oversight 
and Government Reform and on March 25, 2015, the Committee 
ordered H.R. 1562 to be favorably reported by a voice vote. The 
Subcommittee on Government Operations held a hearing to discuss 
contractor and federal employee tax compliance on March 18, 
2015.
    In past Congresses, similar bills and amendments to 
appropriations bills seeking to improve contractors and 
grantees' tax compliance have been considered.
    In the 113th Congress, Chairman Chaffetz introduced H.R. 
882 on February 28, 2013.\7\ On April 12, 2013, H.R. 882 was 
ordered favorably reported by the Committee on Oversight and 
Government Reform.\8\ On April 15, 2013, H.R. 882 was approved 
by the House under suspension of the rules by a vote of 407-0. 
Senator Claire McCaskill (D-MO) introduced a similar bill in 
the Senate (S. 2247) on April 10, 2014. No further action was 
taken on these bills in the 113th Congress.
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    \7\H.R. 882 is almost identical to H.R. 1562.
    \8\H. Rept. 113-35.
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    In the 112th Congress, an identical version of H.R. 882, 
H.R. 829, was ordered favorably reported by the Committee on 
Oversight and Government Reform on April 13, 2011. In the 111th 
Congress, Congressman Brad Ellsworth (D-IN) introduced a 
similar bill, H.R. 572, and Senator McCaskill introduced S. 
265. Similar measures were also introduced in the 110th 
Congress by Congressman Ellsworth (D-IN) (H.R. 1986, H.R. 
4881). In the Senate, S. 2519 was introduced by then-Senator 
Barack Obama (D-IL).
    Several appropriations bills over the last several years 
have included general provisions to address federal contactors' 
tax compliance. In the FY2012 Consolidated Appropriations Act 
(P.L. 112-74), there were at least five general provisions in 
different parts of the Act to address tax compliance for 
Federal contractors. Generally, these provisions prohibited 
contracting with entities that had unpaid tax debts unless the 
covered agency suspension and debarment official had reviewed 
the case and determined suspension and debarment were not 
necessary to protect the government's interest. The language 
was sometimes slightly different in these provisions.
    In the FY2015 Consolidated and Continuing Appropriations 
Act (P.L. 113-235), there were at least two general provisions 
on contractor tax compliance. In the general government section 
of Division E, Section 744 took a government-wide approach to 
contractor tax compliance. In some ways, Section 744 took a 
broader approach than H.R. 1562 by applying its requirements 
beyond contracting and grants to include cooperative 
agreements, loans or loan guarantees, or memorandum of 
understanding. Section 744 language was generally consistent 
with the language of past general provisions, which prohibits 
the above mentioned transactions with entities that had unpaid 
tax liabilities, where the agency is aware of unpaid tax 
liability, unless the suspension and debarment official has 
reviewed the case and determined further action is not 
necessary to protect the interests of the government.\9\
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    \9\Section 744 of P.L. 113-235 also includes the words, ``none of 
the funds made available by this or any other act,'' indicating 
permanence and an authorization on an appropriations law.
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    The second general provision in FY2015 to address 
contractor tax compliance appears in Division B (covering 
Commerce, Justice, State appropriations). This general 
provision (Section 523) has different certification 
requirements and triggers from other general provisions in 
appropriations acts. For example, it covers only those 
contracts and grants over $500,000 and the certification 
includes a requirement to certify no criminal offense 
conviction under the Internal Revenue Code of 1986 over the 
last three years. Given multiple general provisions and varying 
language, the Committee expects that H.R. 1562 will mitigate 
any confusion in these general provisions and other provisions 
of law.

                           Section-by-Section


Section 1. Short title

    Contracting and Tax Accountability Act of 2015.

Section 2. Purpose

    This section makes clear that no government contracts or 
grants shall be awarded to individuals or companies with 
seriously delinquent federal tax debt.

Section 3. Disclosure and evaluation of contract offers from delinquent 
        federal debtors

    This section requires contractors when submitting a 
proposal: (1) to certify they do not have seriously delinquent 
tax debt (as defined in Sec. 5(3)); and (2) to authorize the 
Secretary of Treasury to disclose to the head of the agency 
information limited to determining whether the contractor has 
seriously delinquent tax debt. This certification applies to 
contracts valued over the simplified acquisition threshold 
($150,000).
    If by self-certification or the agency finds the contractor 
has seriously delinquent tax debt, this will be definitive 
proof that the contractor is not a ``responsible source,'' 
meaning they are not eligible for new contracts with the 
federal government. The term ``responsible source'' is a term 
of art defined in law (41 U.S.C. 113). Contractors must be 
``responsible'' in order to contract with the federal 
government.
    Next, this section provides that upon finding there is a 
seriously delinquent tax debt, the head of the agency must 
``shall initiate a suspension or debarment proceeding'' under 
the rules of the FAR against the contractor. However, the head 
of the agency may waive the requirement to initiate a 
suspension or debarment proceeding. The waiver authority may be 
exercised, if the agency head provides a written finding of 
``urgent and compelling circumstances significantly affecting 
the interests of the United States.'' The agency must also 
submit to Congress a report within 30 days after the waiver is 
made. The report must contain the rationale and information 
supporting the waiver.
    Finally, no later than 270 days after enactment the FAR 
must be revised to reflect the requirements of this section.

Section 4. Disclosure and evaluation of grant applications from 
        delinquent federal debtors

    This section covers grants and largely provides for the 
same processes as in Section 3. The language directs agencies 
offering grants (in excess of the simplified acquisition 
threshold) to require grant applicants to certify their tax 
status when submitting grant applications. If the grant 
applicant does have a seriously delinquent tax debt, this is 
definitive proof the grant applicant will be considered ``high 
risk'' (which is a term of art for grants). If the applicant is 
``high risk'' and if the applicant is awarded the grant, the 
agency must take appropriate measures under Office of 
Management and Budget (OMB) guidelines for enhanced oversight 
of high-risk grantees. If the grant applicant is found ``high 
risk,'' the head of the agency is required to initiate 
suspension or debarment proceedings against the grant applicant 
(2 CFR Subtitle A, Part 180 Subpart G & H).
    Like the contracts provision, there is also waiver 
authority to stop the referral to initiate suspension or 
debarment proceedings. The waiver authority may be used if the 
agency provides a written determination that there are ``urgent 
and compelling circumstances significantly affecting the 
interests of the United States.'' Then, within 30 days after 
the waiver is made, the agency must submit a report with the 
written determination and other supporting information. 
Finally, OMB is directed to revise OMB guidelines to reflect 
the requirements of this bill.

Section 5. Definitions and special rules

    This section provides definitions for terms. The definition 
of ``person'' includes an individual, a partnership, and a 
corporation. A ``partnership'' would be treated as a person 
with seriously delinquent tax debt when the partnership has a 
partner who holds an ownership interest of 50% or more in the 
partnership and has the seriously delinquent tax debt. A 
``corporation'' would be treated as a person with seriously 
delinquent tax debt when the corporation has an officer or 
shareholder who holds 50% or more or a controlling interest 
that is less than 50 percent of the outstanding shares of 
corporate stock in that corporation. The definition of 
``executive agency'' includes all executive agencies, military 
departments, independent agencies, and government corporations 
(5 U.S.C. 133).
    The definition of ``seriously delinquent tax debt'' means a 
federal tax liability that has been assessed by the Secretary 
of Treasury under the Internal Revenue Code of 1986 and may be 
collected by the Secretary by levy or by a proceeding in court.
    There are several exceptions to the term seriously 
delinquent tax debt to ensure the bill does not cover certain 
types of debt. For example, the definition ``seriously 
delinquent tax debt'' does not cover debt where: (1) the person 
has entered into an installment plan agreement or an offer and 
compromise agreement with the IRS and is making timely 
payments; (2) there is a collection due process hearing 
requested or pending, or where the taxpayer has received debt 
relief because they proved the debt is not attributable to them 
under, for example, the innocent spouse theory; (3) a debt 
subject to continuous levy has been issued (i.e. that debt is 
being collected by levy); and (4) a debt has been released 
because the Secretary has determined that levy is creating an 
economic hardship due to the financial condition of the 
taxpayer.

Section 6. Effective date

    This section provides the effective date of the bill as 270 
days after enactment.

                       Explanation of Amendments

    No amendments were offered during Full Committee 
consideration of the bill.

                        Committee Consideration

    On March 25, 2015, the Committee met in open session and 
ordered reported favorably the bill, H.R. 1562, by voice vote, 
a quorum being present.

                            Roll Call Votes

    There were no recorded votes during Full Committee 
consideration of the bill.

              Application of Law to the Legislative Branch

    Section 102(b)(3) of Public Law 104-1 requires a 
description of the application of this bill to the legislative 
branch where the bill relates to the terms and conditions of 
employment or access to public services and accommodations. 
This bill prohibits the awarding of a contract or grant in 
excess of the simplified acquisition threshold unless the 
prospective contractor or grantee certifies in writing to the 
agency awarding the contract or grant that the contractor or 
grantee has no seriously delinquent tax debts. As such, this 
bill does not relate to employment or access to public services 
and accommodations.

  Statement of Oversight Findings and Recommendations of the Committee

    In compliance with clause 3(c)(1) of rule XIII and clause 
(2)(b)(1) of rule X of the Rules of the House of 
Representatives, the Committee's oversight findings and 
recommendations are reflected in the descriptive portions of 
this report.

         Statement of General Performance Goals and Objectives

    In accordance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee's performance 
goal or objective of the bill is to prohibit the awarding of a 
contract or grant in excess of the simplified acquisition 
threshold unless the prospective contractor or grantee 
certifies in writing to the agency awarding the contract or 
grant that the contractor or grantee has no seriously 
delinquent tax debts.

                    Duplication of Federal Programs

    No provision of this bill establishes or reauthorizes a 
program of the Federal Government known to be duplicative of 
another Federal program, a program that was included in any 
report from the Government Accountability Office to Congress 
pursuant to section 21 of Public Law 111-139, or a program 
related to a program identified in the most recent Catalog of 
Federal Domestic Assistance.

                  Disclosure of Directed Rule Makings

    Section 3(e) of the bill requires the Federal Acquisition 
Regulation to be revised not later than 270 days after 
enactment. Section 4(e) requires the Office of Management and 
Budget to revise applicable regulations as necessary to 
incorporate the requirements of Section 4, not later than 270 
days after enactment.

                     Federal Advisory Committee Act

    The Committee finds that the legislation does not establish 
or authorize the establishment of an advisory committee within 
the definition of 5 U.S.C. App., Section 5(b).

                       Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act (as amended by Section 101(a)(2) of the Unfunded 
Mandate Reform Act, P.L. 104-4) requires a statement as to 
whether the provisions of the reported include unfunded 
mandates. In compliance with this requirement the Committee has 
received a letter from the Congressional Budget Office included 
herein.

                         Earmark Identification

    This bill does not include any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                           Committee Estimate

    Clause 3(d)(1) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs that would be incurred in carrying out 
this bill. However, clause 3(d)(2)(B) of that rule provides 
that this requirement does not apply when the Committee has 
included in its report a timely submitted cost estimate of the 
bill prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974.

     Budget Authority and Congressional Budget Office Cost Estimate

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the Rules of the House of Representatives and section 
308(a) of the Congressional Budget Act of 1974 and with respect 
to requirements of clause (3)(c)(3) of rule XIII of the Rules 
of the House of Representatives and section 402 of the 
Congressional Budget Act of 1974, the Committee has received 
the following cost estimate for this bill from the Director of 
Congressional Budget Office:

H.R. 1562--Contracting and Tax Accountability Act of 2015

    H.R. 1562 would prohibit federal agencies from awarding 
contracts or grants to persons or companies that have seriously 
delinquent tax debt. The legislation defines seriously 
delinquent tax debt to the federal government as Internal 
Revenue Service (IRS) assessments that may be collected by levy 
or through a court proceeding. Tax debt that is being paid in a 
timely manner, or is part of a requested or pending collection-
due-process hearing, would not be considered seriously 
delinquent. Under the bill, certain contractors and grantees 
that receive federal funds would have to certify that they do 
not have such tax debt, and the IRS would be authorized to 
confirm or refute those claims on behalf of the federal 
agencies involved.
    Based on information from the Office of Management and 
Budget, the IRS, and the staff of the Joint Committee on 
Taxation (JCT), CBO estimates that implementing H.R. 1562 would 
increase federal administrative costs by less than $500,000 
annually, assuming the availability of appropriated funds. The 
bill would affect direct spending by agencies not funded 
through annual appropriations; therefore, pay-as-you-go 
procedures apply. CBO estimates that any net increase in direct 
spending by such agencies would not be significant. JCT staff 
estimate that enacting the bill would have a negligible effect 
on revenues.
    Most provisions of the bill would codify current practices 
used to collect tax debt. The federal government currently 
collects financial information on its contractors and grant 
recipients through a variety of databases. In addition, the IRS 
provides data on tax liens and tax debt to various Treasury 
Department programs which withhold or reduce certain federal 
payments to collect delinquent tax (and nontax) debt owed to 
federal agencies. Consequently, CBO estimates that implementing 
this bill would not significantly increase administrative costs 
to federal agencies.
    H.R. 1562 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Theresa Gullo, 
Assistant Director for Budget Analysis.

                                  [all]