Puerto Rico: Factors Contributing to the Debt Crisis and Potential Federal Actions to Address Them

Puerto Rico has roughly $70 billion in outstanding debt and $50 billion in unfunded pension liabilities and since August 2015 has defaulted on over $1.5 billion in debt. The effects of Hurricanes Irma and Maria will further affect Puerto Rico's ability to repay its debt, as well as its economic condition. In response to Puerto Rico's fiscal crisis, Congress passed the Puerto Rico Oversight, Management, and Economic Security Act (PROMESA) in 2016, which included a provision for GAO to review Puerto Rico's debt.

This report describes the factors that contributed to Puerto Rico's financial condition and levels of debt and federal actions that could address these factors. Consistent with PROMESA, GAO focused on actions that would not increase the federal deficit.

To address these objectives, GAO reviewed documents and interviewed officials from the Puerto Rico and federal governments and conducted a review of relevant literature. GAO also interviewed former Puerto Rico officials and experts in Puerto Rico's economy, the municipal securities markets, and state and territorial budgeting, financial management, and debt practices, as well as officials from the Financial Oversight and Management Board for Puerto Rico (created by PROMESA).

GAO is not making recommendations based on the federal actions identified because policymakers would need to consider challenges and tradeoffs related to implementation.

The Puerto Rico government generally agreed with the factors we identified and provided additional information. GAO incorporated technical comments from SEC as appropriate.

The factors that contributed to Puerto Rico's financial condition and levels of debt relate to (1) the Puerto Rico government running persistent annual deficits—where expenses exceed revenues—and (2) its use of debt to cope with deficits. Based on a literature review and interviews with current and former Puerto Rico officials, federal officials, and other relevant experts, GAO identified factors that contributed to Puerto Rico's persistent deficits:

The Puerto Rico government's inadequate financial management and oversight practices. For example, the Puerto Rico government frequently overestimated the amount of revenue it would collect and Puerto Rico's agencies regularly spent more than the amounts Puerto Rico's legislature appropriated for a given fiscal year.

Policy decisions by Puerto Rico's government. For example, Puerto Rico borrowed funds to balance budgets and insufficiently addressed public pension funding shortfalls.

Puerto Rico's prolonged economic contraction. Examples of factors contributing to the contraction include outmigration and the resulting diminished labor force, and the high cost of importing goods and energy.

Additional factors enabled Puerto Rico to use debt to finance its deficits, such as high demand for Puerto Rico debt. One cause of high demand was that under federal law, income from Puerto Rico bonds generally receives more favorable tax treatment than income from bonds issued by states and their localities.

Based on an assessment of relevant literature and input from current and former Puerto Rico officials, federal officials, and other relevant experts, GAO identified three potential federal actions that may help address some of these factors. GAO also identified considerations for policymakers related to these actions.

Modify the tax exempt status for Puerto Rico municipal debt. Making interest income from Puerto Rico bonds earned by investors residing outside of Puerto Rico subject to applicable state and local taxes could lower demand for Puerto Rico debt. However, reduced demand could hinder Puerto Rico's ability to borrow funds for capital investments or liquidity.

Apply federal investor protection laws to Puerto Rico. Requiring Puerto Rico investment companies to disclose risks with Puerto Rico bonds and adhere to other requirements could lower demand for the bonds. However, this action could also limit Puerto Rico's ability to borrow funds.

Modify the Securities and Exchange Commission's (SEC) authority over municipal bond disclosure requirements. SEC could be allowed to require timely disclosure of materials—such as audited financial statements—associated with municipal bonds. Over the past decade, Puerto Rico often failed to provide timely audited financial statements related to its municipal bonds. Timely disclosure could help investors make informed decisions about investing in municipal bonds. However, a broad requirement could place additional burdens on all U.S. municipal issuers, such as the costs of standardizing reporting.

Puerto Rico has roughly $70 billion in outstanding public debt and $50  billion in unfunded pension liabilities and, since August 2015, has  defaulted on over $1.5 billion in debt payments. In a 2006 report, we  highlighted Puerto Rico’s weakening fiscal condition, noting that Puerto  Rico had experienced a steady, decade-long increase in debt. In 2014,  we reported that Puerto Rico had accumulated debt representing a much  larger share of personal income than in any U.S. state.

In September 2017, Hurricanes Irma and Maria made landfall on Puerto  Rico. The effects of these hurricanes, which caused loss of life, significant  displacements, and substantial damage in Puerto Rico, will further affect  Puerto Rico’s ability to repay its debt, as well as its economic condition.

In response to Puerto Rico’s long-term fiscal crisis, Congress passed and  the President signed the Puerto Rico Oversight, Management, and  Economic Stability Act (PROMESA) in June 2016. PROMESA  established a structure for oversight of Puerto Rico’s fiscal affairs and a  process for Puerto Rico to restructure its debts. As required by  PROMESA, in October 2017 we reported on public debt and fiscal issues  in Puerto Rico and other territories. We reported that Puerto Rico’s total  public debt outstanding per capita had almost doubled since fiscal year  2005, and that Puerto Rico’s outlook on repaying its debt depended on  the outcomes of its debt restructuring process.

PROMESA also included a provision for us to examine factors  contributing to the debt crisis and federal actions for preventing a future  one. This report describes (1) the factors that contributed to Puerto  Rico’s financial condition and levels of debt and (2) federal actions that  could address the factors that contributed to Puerto Rico’s financial  condition and levels of debt. Consistent with PROMESA, we focused on  actions that would not increase the federal deficit.

To describe the factors that contributed to Puerto Rico’s financial  condition and levels of debt, we collected and reviewed Puerto Rico  government documents on its financial condition and on its processes for  budget development and execution, debt issuance, and financial  management. We also conducted a literature review and collected data  from a non-generalizable sample of 20 large bond prospectuses issued  by Puerto Rico agencies and public corporations between 2000 and  2017.

To describe federal actions that could address the factors that contributed  to Puerto Rico’s financial condition and levels of debt, we reviewed  documents from the U.S. Department of the Treasury (Treasury) and the  Securities and Exchange Commission (SEC), and our past reports on  Puerto Rico, and conducted a literature review. Consistent with the  provision in PROMESA that was the statutory requirement for this work,  we focused on actions that were non-fiscal in nature—that is, actions that  would not increase the federal deficit.

For both objectives, we also interviewed current Puerto Rico officials from  several agencies—the Puerto Rico Department of Treasury (known by its  Spanish name Hacienda), Government Development Bank for Puerto  Rico (GDB), the Puerto Rico Office of Management and Budget (Spanish  acronym OGP), Fiscal Agency and Financial Advisory Authority (FAFAA),  and the Puerto Rico Electric Power Authority (PREPA). We also  interviewed 13 former Puerto Rico officials that held leadership positions  at Hacienda, GDB, or OGP, or a combination thereof. These former  officials served between 1997 and 2016 for various gubernatorial  administrations associated with the two political parties in Puerto Rico  that held the governorship during that period. We also interviewed  officials from Treasury, SEC, the Federal Reserve Bank of New York, and  the Financial Oversight and Management Board for Puerto Rico (created  by PROMESA). Additionally, we conducted another 13 interviews with  experts on Puerto Rico’s economy, the municipal securities markets,  state and territorial budgeting and debt management—including credit  rating agencies—and with select industry groups in Puerto Rico. We  selected the experts we interviewed based on their professional  knowledge closely aligning with our engagement objectives, as  demonstrated through published articles, congressional testimonies, and  referrals from agency officials or other experts. For additional details on  our scope and methodology, see appendix I.

We conducted this performance audit from January 2017 to May 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Application of Federal Laws in Puerto Rico

Puerto Rico, which has approximately 3.3 million residents according to  U.S. Census Bureau (Census) estimates, is the largest and most  populous territory of the United States. As a territory, Puerto Rico is  subject to congressional authority, though Congress has granted it broad  authority over matters of internal governance—notably, by approving  Puerto Rico’s constitution in 1952. Individuals born in Puerto Rico are  U.S. citizens and can migrate freely to the states.

Puerto Rico and its residents are generally subject to the same federal  laws as the states and their residents, except in cases where specific  exemptions have been made, such as with certain federal programs. For  example, Puerto Rico residents generally have full access to Social  Security and unemployment insurance; however, for some programs,  such as Medicaid, federal funding in Puerto Rico is restricted as  compared to funding in the states.

Residents of Puerto Rico are exempt from paying federal income tax on  income from sources in Puerto Rico. Residents are required to pay  federal income tax on income from sources outside of Puerto Rico. They  are also required to pay federal employment taxes, such as Social Security and Medicare taxes, on their income regardless of where it was  earned. Puerto Rico residents are also ineligible for certain federal tax  credits.

Corporations located in Puerto Rico are generally subject to the same  federal tax laws as corporations located in a foreign country. Corporations  in Puerto Rico are generally exempt from federal taxes on profits except  as such profits are effectively connected to a trade or business in the  states, and so long as those profits remain held outside of the states.  Additionally, these corporations were subject to a withholding tax on  certain investment income from the United States not connected to a  trade or business. Under the 2017 Public Law 115-97, starting in 2018  U.S. corporations that are shareholders in foreign corporations, such as  those organized under Puerto Rico law, generally do not owe tax on  dividends received from those foreign corporations. Prior to this law,  dividend payments to U.S. corporate shareholders were considered  taxable interest for the U.S. parent corporation.

Prior to 1996, a federal corporate income tax credit—the possessions tax  credit—was available to certain U.S. corporations that located in Puerto  Rico. In general, the credit equaled the full amount of federal tax liability  related to an eligible corporation’s income from its operations in a  possession—including Puerto Rico—effectively making such income tax- free. In 1996, the tax credit was repealed, although corporations that  were existing credit claimants were eligible to claim credits through  2005.

Puerto Rico’s economy is in a prolonged period of economic contraction.  According to data from Puerto Rico’s government, Puerto Rico’s economy  grew in the 1990s and early 2000s. However, between 2005 and 2016— the latest year for which data were available as of March 1, 2018—Puerto  Rico’s economy experienced year-over-year declines in real output in all  but two years, as measured by real gross domestic product (GDP). From  2005 to 2016, Puerto Rico’s real GDP fell by more than 9 percent (from  $82.8 billion to $75.0 billion in 2005 dollars). Puerto Rico’s gross  national product (GNP) followed a similar pattern over the same period,  declining by more than 11 percent from 2005 to 2016 (from $53.8 billion  to $47.7 billion in 2005 dollars). Figure 1 shows Puerto Rico’s real GDP  and GNP growth rates from 1991 through 2016.

The decline in Puerto Rico’s output has, in more recent years, occurred in  conjunction with a decline in Puerto Rico’s population. According to  Census estimates, Puerto Rico’s population declined from a high of  approximately 3.8 million people in 2004 to 3.3 million people in 2017, a  decline of 12.8 percent. This population loss closely matched the  decline in real output. From 2004 to 2016, Puerto Rico’s real GNP fell by  9.5 percent, while its real GNP per capita increased by 1.6 percent over  the same time period.

In addition to Puerto Rico’s declining population, the territory also has a  lower share of employed persons compared to the United States as a  whole. As of 2017, approximately 37 percent of Puerto Rico residents  were employed compared to approximately 60 percent for the United  States as a whole. Puerto Rico’s employment-to-population ratio reached  highs in 2005 and 2006 when it was approximately 43 percent, according  to data from the Federal Reserve Bank of St. Louis. According to data  from the Bureau of Labor Statistics (BLS), between 2005 and 2017,  Puerto Rico’s unemployment rate fluctuated between 10.2 percent and  17.0 percent, with an average of 13.1 percent. During the same period,  the nationwide unemployment rate fluctuated between 4.1 percent and  10.0 percent, with an average of 6.5 percent. These factors have  combined to leave Puerto Rico with a small and declining labor force.  From January 2006 to December 2017—the latest month for which data  were available as of March 1, 2018—Puerto Rico’s labor force decreased  from approximately 1.4 million persons to 1.1 million persons, according  to data from BLS.

Puerto Rico Government Financial Condition

Puerto Rico’s government has operated with a deficit—where expenses  exceed revenues—in each fiscal year since 2002, and its deficits grew  over time (see figure 2).

Puerto Rico’s governmental activities can be divided among the primary  government and component units. Puerto Rico’s primary government  provides and funds services such as public safety, education, health care,  and economic development. Puerto Rico’s component units are legally  separate entities for which its government is nonetheless financially  accountable, and provide services such as public transportation,  highways, electricity, and water.

In fiscal year 2014, the latest for which audited financial data are  available, the Puerto Rico government collected $32.5 billion in revenue,  of which $19.3 billion was collected by the primary government, and  $13.2 billion was collected by the component units. That year Puerto  Rico’s government spent $38.7 billion, of which $22.0 billion was spent  directly by the primary government, while $16.7 billion was spent by the  government’s various component units. The Puerto Rico Electric Power  Authority (PREPA), which operates the territory’s electricity generation  and distribution infrastructure, represented the largest component unit  expenditure in fiscal year 2014. Figures 3 and 4 show a breakdown of  expenses for Puerto Rico’s primary government and its component units,  respectively.

Puerto Rico’s government spending accounts for more than a third of the  territory’s GDP. In fiscal year 2014—the latest year for which audited  spending data were available as of March 1, 2018—primary government  expenditures of $22.0 billion represented 21 percent of the territory’s  GDP. Including component spending, total public expenditures were  $38.7 billion, which represented 38 percent of the territory’s GDP. By  comparison, our prior work has shown that in 2014, total state and local  government expenditures represented about 14 percent of GDP for the  United States as a whole, excluding territories. Federal government  expenditures were 20 percent of GDP for the United States as a whole in  2014.

Puerto Rico’s total public debt as a share of its economy has grown over  time. In 2002, the value of its debt was 42 percent of the territory’s GDP,  and 67 percent of its GNP. Both of these ratios grew over time such that  by 2014, Puerto Rico’s total public debt was 66 percent of the territory’s  GDP and 99 percent of its GNP. Figure 5 compares Puerto Rico’s total  public debt to its GDP and GNP, in both aggregate and per capita.

As of the end of fiscal year 2014, the last year for which Puerto Rico  issued audited financial statements, Puerto Rico had $67.8 billion in net  public debt outstanding, or $68.1 billion excluding accounting adjustments  that are not attributed in the financial statements to specific agencies. Of  the $68.1 billion, $40.6 billion was owed by Puerto Rico’s primary  government, and $27.6 billion was owed by its component units, as  shown in figure 6 (these amounts do not sum to $68.1 billion because of  rounding).

The growth of Puerto Rico’s total debt resulted in greater annual debt  servicing obligations. In fiscal year 2002, it cost Puerto Rico $2.7 billion to  service its debt, representing about 12 percent of Puerto Rico’s $21.6  billion in total public revenue for that year. By fiscal year 2014, Puerto  Rico’s annual debt service cost rose to $5.0 billion, representing just over  15 percent of Puerto Rico’s $32.5 billion in total public revenue for that  year. Following years of expenditures that exceeded revenue, and a  growing debt burden, in August 2015, Puerto Rico failed to make a  scheduled bond payment. Since then, Puerto Rico has defaulted on over  $1.5 billion in debt.

In June 2016, Congress enacted and the President signed PROMESA in  response to Puerto Rico’s fiscal crisis. PROMESA established a Financial  Oversight and Management Board for Puerto Rico (Oversight Board), and  granted it broad powers of fiscal and budgetary control over Puerto Rico.  PROMESA also established a mechanism through which the Oversight  Board could petition U.S. courts on Puerto Rico’s behalf to restructure  debt. Under federal bankruptcy laws, Puerto Rico is otherwise prohibited  from authorizing its municipalities and instrumentalities from petitioning  U.S. courts to restructure debt. The Oversight Board petitioned the U.S.  courts to restructure debt on behalf of Puerto Rico’s Highways and  Transportation Authority and the Government Employees Retirement  System on May 21, 2017 and on behalf of PREPA on July 2, 2017.

In addition to its debt obligations, Puerto Rico also faces a large financial  burden from its pension obligations for public employees. Puerto Rico’s  public pension systems had unfunded liabilities of approximately $49  billion as of the end of fiscal year 2015, the most recent year for which  data are available. Unfunded pension liabilities are similar to other kinds  of debt because they constitute a promise to make a future payment or  provide a benefit.

Officials and Experts Cited Various Factors as Contributing to Puerto Rico’s Financial Condition and Levels of Debt Factors that Contributed to Puerto Rico’s Persistent Deficits

Based on interviews with current and former Puerto Rico officials, federal  officials, and other relevant experts, as well as a review of relevant  literature, the factors that contributed to Puerto Rico’s financial condition  and levels of debt related to: (1) Puerto Rico’s government running  persistent deficits and (2) its use of debt to cope with deficits.

As previously mentioned, Puerto Rico’s government has operated with a  deficit in all years since 2002, and deficits grew over time. To cope with  its deficits, Puerto Rico’s government issued debt to finance operations,  rather than reduce its fiscal gap by cutting spending, raising taxes, or  both. Through interviews with current and former Puerto Rico officials;  federal officials; experts in Puerto Rico’s economy, the municipal  securities markets, and state and local budgeting and debt management;  as well as a review of relevant literature, we identified three groups of  factors that contributed to Puerto Rico’s persistent deficits: (1) inadequate  financial management and oversight practices, (2) policy decisions, and  (3) prolonged economic contraction. Some of the factors in these groups  may be interrelated.

Factors that Enabled Puerto Rico to Use Debt to Finance Operations

To cope with its persistent deficits, Puerto Rico issued debt to finance  operations. In reviewing 20 of Puerto Rico’s largest bond issuances from  2000 to 2017, totaling around $31 billion, we found that 16 were issued  exclusively to repay or refinance existing debt and to fund operations.  According to ratings agency officials and experts in state and local  government, states rarely issue debt to fund operations, and many states  prohibit this practice. According to former Puerto Rico officials and  experts on Puerto Rico’s economy, high demand for Puerto Rico debt and  the Government Development Bank for Puerto Rico (GDB) facilitating rising debt levels enabled Puerto Rico to continue to use debt to finance  operations.

Puerto Rico issued a relatively large amount of debt, given the size of its  population. Based on an analysis of fiscal year 2014 comprehensive  annual financial reports of the 50 states and Puerto Rico, Puerto Rico had  the second highest amount of outstanding debt among states and  territories, while its population falls between the 29th and 30th most  populous states. By comparison, California, the state with the largest  amount of outstanding debt, is the most populated state. Various factors  drove demand for Puerto Rico municipal bonds, even as the  government’s financial condition deteriorated.

Triple tax exemption: According to a former Puerto Rico official,  Federal Reserve Bank of New York officials, and an expert on Puerto  Rico’s economy, Puerto Rico’s municipal bonds were attractive to  investors because interest on the bonds was not subjected to federal,  state, or local taxes, regardless of where the investors resided. In  contrast, investors may be required to pay state or local taxes on  interest income earned from municipal securities issued by a state or  municipality in which they do not reside.

Investment grade bond ratings: Puerto Rico maintained investment  grade bond ratings until February 2014, even as its financial condition  was deteriorating. Credit ratings inform investment decisions by both  institutional investors and broker dealers. According to a current  Puerto Rico official and an expert on Puerto Rico’s economy,  investment grade ratings for Puerto Rico municipal bonds may have  driven demand for these securities in the states. Based on  interviews with ratings agency officials and a review of rating agency  criteria, we found that Puerto Rico may have maintained its  investment grade rating for two reasons. First, Puerto Rico could not  seek debt restructuring under federal bankruptcy laws, prior to the  passage of PROMESA in 2016. According to rating agency officials,  bonds with assumed bankruptcy protection tend to rate higher than  those without such protection. Second, legal frameworks that prioritize  debt service are often viewed as positive for credit ratings, according  to rating agency criteria. In the event that the Puerto Rico government  does not have sufficient resources to meet appropriations for a given  fiscal year, Puerto Rico’s constitution requires that the government  pay interest and amortization on the public debt before disbursing  funds for other purposes in accordance with the order of priorities  established by law. The prior Puerto Rico Governor cited this  constitutional provision as providing the authority to redirect revenue  streams from certain entities to the payment of general obligation  debt. This redirection of revenue streams is commonly known as a  clawback.

Lack of transparency on its financial condition: Municipal market  analysts told us that untimely financial information made it difficult for  institutional and individual investors to assess Puerto Rico’s financial  condition, which may have resulted in investors not being able to fully  take the investment risks into account when purchasing Puerto Rico  debt. According to one report, between 2010 and 2016 municipal  issuers issued their audited financial statements an average of 200  days after the end of their fiscal years. However, between fiscal  years 2002 and 2014, Puerto Rico issued its statements an average  of 386 days after the end of its fiscal year, according to our analysis of  Puerto Rico’s audited financial statements. Moreover, Puerto Rico  had not issued its fiscal years 2015 and 2016 audited financial  statements as of March 1, 2018, or 975 and 609 days after the end of  those fiscal years, respectively.

Estate tax structures: Puerto Rico residents had incentive to invest in  municipal bonds issued in Puerto Rico over those issued in the United  States because of federal and Puerto Rico estate tax structures.  Current and former Puerto Rico officials told us that this incentive  drove demand among Puerto Rico residents for bonds issued in  Puerto Rico. For federal estate tax purposes, Puerto Rico residents  are generally considered non-U.S. residents and non-citizens for all of  their U.S.-based property, including investments. Estates of Puerto  Rico residents are required to pay the prevailing federal estate tax— which ranges from 18 percent to 40 percent depending on the size of  an estate—for any U.S.-based property valued over $60,000. In  contrast, prior to 2017, all Puerto Rico-based property was only  subject to the Puerto Rico estate tax of 10 percent. Puerto Rico’s  estate tax was repealed in 2017.

Puerto Rico’s Government Development Bank Facilitated Rising Debt Levels

In addition to financing from the municipal bond markets, GDB also  provided an intragovernmental source of financing. Prior to April 2016,  GDB acted as a fiscal agent, trustee of funds, and intergovernmental  lender for the Government of Puerto Rico. GDB issued loans to Puerto  Rico’s government agencies and public corporations to support their  operations. GDB provided loans to government entities valued at up to 60  percent of GDB’s total assets, as shown in Figure 11. In general, these  entities did not fulfill the terms of their borrowing agreements with GDB,  while they independently accessed the municipal bond market.  Additionally, according to GDB’s audited financial statements, GDB did  not reflect loan losses in its audited financial statements until 2014  because it presumed that Puerto Rico’s legislature would repay loans  through the general fund or appropriations, as generally required by the  acts that approved such loans.

Facing non-repayment of public sector loans, GDB took on debt to  maintain liquidity. According to GDB documents, repayment of amounts  owed to GDB was a main reason for the creation of the Puerto Rico Sales  Tax Financing Corporation (COFINA), an entity backed by a new sales  tax, through which Puerto Rico issued some of its debt. Though initially  intended as a means to repay GDB and other debt, COFINA bonds were  also used to finance operations.

Actions That Could Address Factors that Contributed to Puerto Rico’s Unsustainable Debt Levels

Through our interviews and an assessment of relevant literature, we  identified three potential federal actions that could help address some of  the factors that contributed to unsustainable indebtedness in Puerto Rico.  Consistent with the provision in PROMESA that was the statutory  requirement for this work, we focused on actions that were non-fiscal in  nature—that is, actions that would not increase the federal deficit. There  are tradeoffs for policymakers to consider when deciding whether or how  to implement any policy. For each action, we describe a specific  challenge as it relates to debt accumulation in Puerto Rico, identify a  possible federal response to the challenge, and describe other  considerations for policymakers.

Action 1: Modify SEC’s Authority over Municipal Securities Disclosure Requirements

To help address the factors that contributed to the high demand for  Puerto Rico debt relative to other municipal debt, legislative and  executive branch policymakers could further ensure that municipal  securities issuers provide timely, ongoing, and complete disclosure  materials to bondholders and the public. Specifically, Congress could  authorize SEC to establish requirements for municipal issuers on the  timing, frequency, and content of initial and continuing disclosure  materials.

In general, the municipal securities market is less regulated and  transparent than other capital markets, such as equity markets. For  example, SEC’s authority to directly establish or enforce initial and  continuing disclosure requirements for issuers—including those in Puerto  Rico—is limited. SEC requires that underwriters (sellers of municipal  securities) reasonably determine that issuers have undertaken continuing  disclosure agreements (CDA) to publicly disclose ongoing annual  financial information, operating data, and notices of material events.  However, federal securities laws do not provide SEC with the authority to  impose penalties on municipal issuers for noncompliance with CDAs,  which may limit any incentive for issuers to comply with SEC disclosure  and reporting guidance. As a result, SEC has limited ability to compel  issuers to provide continuing disclosure information.

As previously discussed, the Puerto Rico government often issued its  audited financial statements in an untimely manner, thus failing to meet  its contractual obligations to provide continuing disclosures for securities  it issued. SEC could not directly impose any consequences on Puerto  Rico’s government for failing to adhere to the terms of, or enforce  compliance with, the CDAs. Additionally, as previously discussed,  municipal market analysts told us that untimely financial information made  it difficult for institutional and individual investors to assess Puerto Rico’s  financial condition.

Timely disclosure of information would help investors make informed  decisions about investing in municipal securities and help protect them  against fraud involving the securities. These disclosures would be made  to investors at the time of purchasing securities and throughout the term  of the security, including when material changes to an issuer’s financial  condition occur. According to SEC staff, enhanced authority could prompt  more municipal issuers to disclose financial information, including audited  financial statements, in a timelier manner. For example, SEC staff said  that if the agency had required that issuers provide timely financial statements at the time of issuing a municipal security, this may have  precluded Puerto Rico from issuing its $3.5 billion general obligation bond  in 2014. However, any rulemaking SEC would or could take as a result of  enhanced authority would depend on a number of factors, such as  compliance with other SEC guidance and related laws.

Since this action would apply to all U.S. municipal securities issuers, it  has policy and implementation implications that extend well beyond  Puerto Rico. For example, establishing and enforcing initial and  continuing disclosure requirements for municipal securities issuers could  place additional burdens on state and local issuers, and not all municipal  issuers use standardized accounting and financial reporting methods. As  a result, state and local governments may need to spend resources to  adjust financial reporting systems to meet standardized reporting  requirements. However, in a 2012 report proposing this action, SEC said  it could mitigate this burden by considering content and frequency  requirements that take into account, and possibly vary by, the size and  nature of the municipal issuer, the frequency of issuance of securities, the  type of municipal securities offered, and the amount of outstanding  securities.

Action 2: Apply Federal Investor Protection Laws to Puerto Rico

To help address the factors that contributed to the high demand for  Puerto Rico debt relative to other municipal debt, Congress could ensure  that investors residing in Puerto Rico receive the same federal investor  protections as investors residing in states. Specifically, Congress could  subject all investment companies in Puerto Rico to the Investment  Company Act of 1940, as amended (1940 Act). In recent years, the  House and Senate separately have passed legislation that would achieve  this action.

Certain investment companies in Puerto Rico and other territories— specifically, those whose securities are sold solely to the residents of the  territory in which they are located—are exempt from the 1940 Act’s  requirements. The 1940 Act regulates investment companies, such as  mutual funds that invest in securities of other issuers and issue their own  securities to the investing public. It imposes several requirements on  investment companies intended to protect investors. For example, it  requires that investment companies register with SEC and disclose  information to investors about the businesses and risks of the companies  in which they invest, and the characteristics of the securities that they  issue. It also restricts investment companies from engaging in certain  types of transactions, such as purchasing municipal securities  underwritten by affiliated companies.

According to a former Puerto Rico official, some broker-dealers in Puerto  Rico underwrote Puerto Rico municipal securities issuances and  investment companies managed by affiliated companies of these  underwriters purchased the securities, packaged them into funds, and  marketed the funds to investors residing in Puerto Rico. This practice  would be prohibited or restricted for investment companies subject to the  1940 Act, as it might result in investment companies not acting in the best  interests of their investors.

If all Puerto Rico investment companies had been subject to the 1940  Act, they would have been prohibited or restricted from investing in  Puerto Rico municipal bonds underwritten by affiliated companies. Also,  these investment companies may have further disclosed the risks  involved in Puerto Rico municipal bonds to Puerto Rico investors. As a  result, demand for Puerto Rico municipal bonds from Puerto Rico  investment companies and residents may have been lower had the 1940  Act requirements applied to all Puerto Rico investment companies, and it  may have been more difficult for the Puerto Rico government to issue  debt to finance deficits.

SEC staff told us that industry groups had raised objections to extending  the 1940 Act provisions to all investment companies in Puerto Rico.  These industry groups noted that, among other things, certain investment  companies would have difficulty meeting the 1940 Act’s leverage and  asset coverage requirements and adhering to some restrictions on  affiliated transactions. However, SEC staff noted that under certain  legislation that passed the House or Senate separately, as described  above, Puerto Rico investment companies would have three years to  come into compliance if they were newly subject to the 1940 Act. Further,  under that legislation, after three years, investment companies in Puerto  Rico could also request an additional three years to come into  compliance. Regarding affiliated company restrictions, SEC has  previously waived some requirements for investment companies if they  are unable to obtain financing by selling securities to unaffiliated parties  with an agreement to repurchase those securities at a higher price in the  future, known as repurchase agreements. According to SEC staff, SEC  would consider allowing companies in Puerto Rico to enter into reverse  repurchase agreements with their affiliates if the 1940 Act applied to  them.

Action 3: Modify the Tax Exemption Status for Puerto Rico Municipal Securities

To help address the factors that contributed to the high demand for  Puerto Rico debt relative to other municipal debt, Congress could remove  the triple tax exemption for Puerto Rico’s municipal securities. This action  would mean that interest income from Puerto Rico municipal securities  earned by investors residing outside of Puerto Rico could be taxed by  states and local governments, while still being exempt from federal  income taxes, similar to the current tax treatment of municipal bond  income in the states.

As mentioned previously, former Puerto Rico officials and experts in  municipal securities told us that the triple tax exemption fueled investor  demand and enabled Puerto Rico to continue issuing bonds despite  deteriorating financial conditions. Some of the demand for Puerto Rico municipal securities came from certain U.S. municipal bond funds. These  funds concentrated their investments in one state to sell to investors  within that state, but also included Puerto Rico bonds in their portfolios.  Puerto Rico bond yields generally were higher than state bonds yields,  according to industry experts. When added to a fund, the higher yields  from Puerto Rico bonds would increase the overall return on investment  yield of a fund.

Modifying the triple tax exemption for Puerto Rico’s municipal securities  might result in reduced demand for Puerto Rico’s debt. In response to  reduced demand for its debt, Puerto Rico’s government may need to  address any projected operating deficits by decreasing spending, raising  revenues, or both.

According to U.S. Treasury officials, this action could increase the  proportionate share of investors in Puerto Rico debt that reside in Puerto  Rico, because of reduced demand from investors in the states. In the  event of a future debt crisis, this could result in a concentration of  financial losses within Puerto Rico. Also, debt financing allows  governments to make needed capital investments and provides liquidity  to governments, and can be a more stable funding source to manage  fiscal stress. Reduced market demand for Puerto Rico’s bonds could  make access to debt financing difficult, as the Puerto Rico bond market  may not support the Puerto Rico government’s future borrowing at  reasonable interest rates, according to Treasury officials. Alternately, a  variant of this action would be to retain the triple tax exemption for Puerto  Rico debt only for bonds related to capital investments rather than for  deficit financing, according to Treasury officials.

Other Federal Actions Taken to Address Puerto Rico’s Fiscal Condition

Various provisions in PROMESA were intended to help Puerto Rico  improve its fiscal condition. PROMESA requires that the Oversight Board  certify fiscal plans for achieving fiscal responsibility and access to capital  markets. The intent of the fiscal plans is to eliminate Puerto Rico’s  structural deficits; create independent revenue estimates for the budget  process; and improve Puerto Rico’s fiscal governance, accountability, and  controls, among other things. From March 2017 to April 2017, the  Oversight Board certified the fiscal plans the Government of Puerto Rico  developed for the primary government and certain component units, such  as PREPA. As a result of the effects of Hurricanes Irma and Maria, the  Oversight Board requested that the Government develop updated fiscal  plans. Although the Government of Puerto Rico developed and submitted  updated fiscal plans, the Oversight Board did not certify them, with the  exception of the plan for GDB. Instead, in April 2018, the Oversight Board  certified fiscal plans it developed itself, as PROMESA allows.  PROMESA also requires the Oversight Board to determine whether or not  Puerto Rico’s annual budgets, developed by the Governor, comply with  the fiscal plans prior to being submitted to Puerto Rico’s legislature for  approval.

Technical assistance is another area where the federal government has  taken action to help Puerto Rico address its fiscal condition. In 2015,  Congress first authorized Treasury to provide technical assistance to  Puerto Rico, and has continued to reauthorize the technical assistance,  most recently through September 30, 2018. For example, Treasury  officials told us that they helped Puerto Rico’s Planning Board develop a  more accurate macroeconomic forecast, which should enable Hacienda  to develop more accurate revenue estimates and receipt forecasts.  Treasury officials also told us that the agency began helping Puerto Rico  improve its collection of delinquent taxes—for example, by helping  Hacienda develop an office dealing with Puerto Rico’s largest and most  sophisticated taxpayers, which are often multinational corporations. With  Puerto Rico focused on hurricane recovery efforts, Treasury and the  Puerto Rico government are reassessing the types of assistance that  Treasury might provide in the future, according to Treasury officials.

Current and former Puerto Rico government officials and experts on  Puerto Rico’s economy also told us that the federal government could  further help Puerto Rico address its persistent deficits through federal  policy changes that are fiscal in nature. For example, it could change  select federal program funding rules—at a cost to the federal  government—such as eliminating the cap on Medicaid funding and  calculating the federal matching rate similar to how the rate is calculated  in the states. Likewise, the Congressional Task Force on Economic  Growth in Puerto Rico (Congressional Task Force), as established by  PROMESA, issued a report in December 2016 that recommended  changes to federal laws and programs that would spur sustainable long- term economic growth in Puerto Rico, among other recommendations.

Puerto Rico Plans to Take Actions to Address Its Fiscal Condition and Debt Levels

In addition to federal actions that could address the factors that  contributed to Puerto Rico’s fiscal condition and debt levels, the Puerto  Rico government plans to take various actions. For example, according to  current Puerto Rico officials and the Puerto Rico government’s April 2018  fiscal plan, the government is:

Planning to implement an integrated new information technology  system for financial management, to include modernized revenue  management and accounting and payroll systems. Hacienda officials  stated that they are in the process of developing a project schedule  for this long-term effort.

Developing a new public healthcare model in which Puerto Rico’s  government pays for basic services and patients pay for premium  services. The government will begin implementing the new healthcare  model in fiscal year 2019 and expects to achieve annual savings of  $841 million by fiscal year 2023.

Collaborating with the private sector for future infrastructure and  service projects, including for reconstruction efforts related to  Hurricanes Irma and Maria, which it expects will stimulate Puerto  Rico’s weakened economy.

We also asked Puerto Rico officials about progress made toward  addressing many of the factors we identified. However, they did not  provide us this information.

Agency Comments, Third Party Views, and Our Evaluation

We provided a draft of this report for review to Treasury, SEC, the  Federal Reserve Bank of New York, the Government of Puerto Rico, and  the Oversight Board. Treasury and SEC provided technical comments,  which we incorporated as appropriate. The Federal Reserve Bank of New  York and the Oversight Board had no comments.

We received written comments from the Government of Puerto Rico,  which are reprinted in appendix II. In its comments, the Government of  Puerto Rico generally agreed with the factors we identified that  contributed to Puerto Rico’s financial condition and levels of debt. It also  provided additional context on Puerto Rico’s accumulation of debt, such  as Puerto Rico’s territorial status and its effect on federal programs in  Puerto Rico and outmigration.

The Government of Puerto Rico also noted that the federal actions we  identified to address factors contributing to Puerto Rico’s unsustainable  debt levels did not include potential actions that were fiscal in nature or  that addressed Puerto Rico’s long-term economic viability. As we note in  the report, we excluded fiscal actions from our scope, consistent with the  provision in PROMESA that was the statutory requirement for this work.  We excluded potential actions that could promote economic growth in  Puerto Rico because these actions would address debt levels in Puerto  Rico only indirectly and because the Congressional Task Force on  Economic Growth in Puerto Rico already recommended actions for  fostering economic growth in Puerto Rico in its December 2016 report.

We are sending copies of the report to the appropriate congressional  committees, the Government of Puerto Rico, the Secretary of the  Treasury, the Chairman of the Securities and Exchange Commission, and  other interested parties. In addition, this report is available at no charge  on the GAO website at http://gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-6806 or krauseh@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix III.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to describe (1) the factors that contributed to Puerto  Rico’s financial condition and levels of debt; and (2) federal actions that  could address the factors that contributed to Puerto Rico’s financial  condition and levels of debt. Consistent with the provision in the Puerto  Rico Oversight, Management, and Economic Stability Act (PROMESA)  that was the statutory requirement for this work, we focused on actions  that would not increase the federal deficit.

For both objectives we interviewed current Puerto Rico officials from  several agencies—the Puerto Rico Department of Treasury (Hacienda in  Spanish), Government Development Bank for Puerto Rico (GDB), the  Puerto Rico Office of Management and Budget (Spanish acronym OGP),  Fiscal Agency and Financial Advisory Authority (FAFAA), and the Puerto  Rico Electric Power Authority. We also interviewed 13 former Puerto Rico  officials that held leadership positions at Hacienda, GDB, or OGP, or a  combination thereof. These former officials served between 1997 and  2016 for various gubernatorial administrations associated with the two  political parties in Puerto Rico that held the governorship during that  period. We also interviewed officials from the U.S. Department of the  Treasury (Treasury), the Securities and Exchange Commission (SEC),  the Federal Reserve Bank of New York, and the Financial Oversight and  Management Board for Puerto Rico (created by PROMESA). Additionally,  we conducted another 13 interviews with experts on Puerto Rico’s  economy, the municipal securities markets, state and territorial budgeting  and debt management—including credit rating agencies—and with select  industry groups in Puerto Rico. We selected the experts we interviewed  based on their professional knowledge closely aligning with our  engagement objectives, as demonstrated through published articles,  congressional testimonies, and referrals from agency officials or other  experts.

To describe the factors that contributed to Puerto Rico’s financial  condition and levels of debt, we reviewed our prior work related to Puerto  Rico’s financial condition and levels of public debt. We also collected and  analyzed additional financial data from Puerto Rico’s audited financial  statements for the fiscal years 2002 to 2014, the last year for which  audited financial statements were available. To determine how the  Puerto Rico government used bond proceeds, we reviewed a  nongeneralizable sample of Puerto Rico bonds prospectuses issued  between 2000 and 2017 from the Electronic Municipal Market Access  database of the Municipal Securities Rulemaking Board.

We reviewed literature—including academic reports, congressional  hearing transcripts, and credit rating agency reports—that described  Puerto Rico’s economy and factors that contributed to Puerto Rico’s  levels of debt. We also reviewed credit rating agency reports that  described Puerto Rico’s municipal debt and the agencies’ methodologies  for rating municipal debt. We also collected and reviewed Puerto Rico  government documents related to budget formulation and execution, debt  issuance, and financial management. We considered factors to include,  but not be limited to, macroeconomic trends, federal policies, and actions  taken by Puerto Rico government officials. Our review focused largely,  though not exclusively, on conditions that contributed to the debt crisis  during those years for which we collected financial data on Puerto Rico,  fiscal years 2002 to 2014.

Finally, we also conducted a thematic analysis of the summaries of our  interviews to identify common patterns and ideas. Although these results  are not generalizable to all current and former officials and experts with  this subject-matter expertise, and do not necessarily represent the views  of all the individuals we interviewed, the thematic analysis provided  greater insight and considerations for the factors we identified.

To describe federal actions that could address the factors that contributed  to Puerto Rico’s financial condition and levels of debt, we reviewed our  prior reports and documents from Treasury and SEC, conducted a  literature review, and conducted various interviews. Specifically, we met  with federal agencies with subject-matter expertise or whose scope of  responsibilities related to these actions, as well as with current and former  Puerto Rico officials and municipal securities experts. Consistent with  PROMESA, we omitted from our scope: (1) actions that could increase  the federal deficit (i.e., fiscal options), (2) actions that could be taken by  the Puerto Rico government, (3) actions that could infringe upon Puerto  Rico’s sovereignty and constitutional parameters, and (4) actions that  would imperil America’s homeland and national security. We considered  actions that could promote economic growth in Puerto Rico as outside of  scope, as they could address debt levels in Puerto Rico indirectly, rather  than directly, and because a study issued by the Congressional Task  Force on Economic Growth in Puerto Rico already identified actions that  Congress and executive agencies could take to foster economic growth in  Puerto Rico. We also considered actions that could address Puerto  Rico’s unfunded pension liability as outside of our scope. The actions we  identified may also help avert future unsustainable debt levels in other  territories; however, we did not assess whether and how each action  would apply to other territories.

Appendix II: Comments from the Government of Puerto Rico

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Jeff Arkin (Assistant Director),  Amy Radovich (Analyst in Charge), Pedro Almoguera, Karen Cassidy,  Daniel Mahoney, A.J. Stephens, and Justin Snover made significant  contributions to this report.

View Spanish version of Highlights (PDF, 1 page).

Puerto Rico has roughly $70 billion in outstanding debt, and since August 2015 has defaulted on over $1.5 billion in debt.

One factor contributing to Puerto Rico’s debt levels is the Puerto Rico government's persistent annual deficits, where expenses exceeded revenues. Puerto Rico’s government has borrowed money to finance its operations, rather than cutting spending, raising taxes, or both.

We identified various potential federal actions that could help address factors contributing to the debt crisis. These include altering the tax-exempt status of Puerto Rico municipal debt, and applying federal investor protection laws to Puerto Rico.


Mental Health: Federal Procedures to Oversee Protection and Advocacy Programs Could Be Further Improved

PAIMI grant awards, established by Congress in 1986 and totaling $36 million in 2016, are administered by SAMHSA to support state protection and advocacy programs. PAIMI programs protect and advocate for the rights of individuals with significant mental illness by investigating reports of incidents of abuse and neglect of such individuals in facilities such as hospitals, and in the community, among other activities.

The 21st Century Cures Act included a provision for GAO to review the PAIMI programs and their compliance with federal statutory and regulatory requirements. This report examines (1) the outcomes reported by PAIMI programs in selected states, and (2) SAMHSA's oversight of state PAIMI programs, including their compliance with federal requirements. GAO reviewed FY 2015 and 2016 PAIMI program documentation for eight of 57 programs selected for variation in funding amount, geographic location, and other factors. GAO also reviewed relevant SAMHSA policies and procedures and assessed them against federal standards for internal control.

The eight selected state Protection and Advocacy for Individuals with Mental Illness (PAIMI) programs GAO reviewed reported a range of positive outcomes from their work on behalf of individuals with mental illness. For example, in fiscal year (FY) 2016, the selected programs reported resolving in the individual's favor 1,772 out of 2,390 cases (74 percent) related to complaints of alleged abuse, neglect, and rights violations. The remaining cases were reported as withdrawn by the client, closed due to lack of merit, or not resolved in the individual's favor. These programs also reported concluding a variety of broader, system-level activities—referred to as systemic activities—intended to benefit groups of individuals with mental illness. These systemic activities resulted in, for example, changes to procedures in mental health institutions and correctional facilities.

Source: GAO analysis of 2016 Substance Abuse and Mental Health Services Administration data. | GAO-18-450

The Substance Abuse and Mental Health Services Administration (SAMHSA), which oversees the state PAIMI programs, has a variety of procedures in place to monitor performance and compliance. However, two areas warrant additional attention, as follows:

SAMHSA has not consistently examined changes to performance benchmarks—the goals, objectives, and targets that PAIMI programs set annually for their planned work. Programs are permitted to modify these benchmarks, and GAO found that four had done so. A new SAMHSA system implemented in 2017 could improve recording of benchmark changes, but SAMHSA lacks procedures to examine changes across years, which could help identify performance concerns.

SAMHSA often failed to complete its periodic, in-depth reviews of programs and to provide findings of identified deficiencies to PAIMI programs on a timely basis. SAMHSA has plans to improve the efficiency of its review process. However, it is unclear the extent to which these plans will resolve the timeliness issues, which could delay resolution of any issues found in the reviews.

GAO recommends that SAMHSA take steps to ensure that changes to performance benchmarks are examined over time, and to ensure onsite reviews are completed—and findings are provided to state programs—in a timely manner. The Department of Health and Human Services concurred with GAO's recommendations.

Congress passed the Protection and Advocacy for Individuals with Mental  Illness (PAIMI) Act in 1986 in response to concerns about the vulnerability  of individuals with mental illness to abuse and neglect, and gaps in state  systems to address such issues. The PAIMI Act established a grant  program to support independent, state-level protection and advocacy  systems—referred to in this report as state PAIMI programs—designed to  safeguard the rights of individuals with mental illness at risk for abuse or  neglect. To qualify for federal grant support, state PAIMI programs must  have specific authority to investigate incidents of potential abuse and  neglect of individuals with significant mental illness; the ability to pursue  administrative, legal, and other appropriate remedies to protect these  individuals; and access to records needed to pursue these investigations  and remedies. In addition to investigating complaints, the PAIMI Act  requires PAIMI programs to protect and advocate for the rights of  individuals with significant mental illness.

Given their authority, access rights, and presence across all states and  territories, state PAIMI programs play an important role in supporting a  vulnerable population of individuals with serious mental health disorders.  The Substance Abuse and Mental Health Services Administration  (SAMHSA), within the Department of Health and Human Services (HHS),  administers and oversees the PAIMI programs. SAMHSA approves  PAIMI grant applications annually and oversees program compliance with  statutory and regulatory requirements, such as those regarding grievance  procedures, public engagement, and appropriate use of federal funding.  In fiscal year 2016, SAMHSA provided approximately $36 million in grants  to 57 state-based PAIMI programs to fund these activities. While  comprising a relatively small portion of SAMHSA’s total budget authority  for mental health programs (about $1.1 billion in fiscal year 2016) the  PAIMI grant program is the only federal program supporting protection  and advocacy services for individuals with significant mental illness.

The 21st Century Cures Act of 2016 included a provision for GAO to  review PAIMI program activities and their compliance with federal  statutory and regulatory requirements. This report examines  1.  the outcomes reported by the PAIMI programs in selected states; and  2.  SAMHSA’s oversight of the state PAIMI programs, including  procedures for ensuring compliance with federal statutory and  regulatory requirements.

To examine the outcomes reported by PAIMI programs, we reviewed the  annual program performance reports for a nongeneralizable selection of  eight PAIMI programs for federal fiscal years 2015 and 2016: California,  Georgia, Indiana, Louisiana, Massachusetts, Texas, Vermont, and Washington. We selected these programs based on a variety of factors  such as size of the grant, number of clients served, program type (that is,  whether the program was operated by the state or by a private nonprofit),  and geographic region. Performance data we reviewed included both  standard measures that all programs are required to report, such as the  number of abuse or neglect complaints addressed, as well as specific  measures reporting progress toward goals selected by each program. To  assess the reliability of the program performance data, we reviewed  related documentation, interviewed SAMHSA officials, and assessed the  data for obvious errors. We determined that the performance data for the  eight selected programs were sufficiently reliable for our reporting  purposes. We also reviewed SAMHSA documentation of program  performance for fiscal years 2011 and 2012 and an evaluation of the  PAIMI programs commissioned by the agency and published in 2011. In  addition, we interviewed state PAIMI program staff for four of the eight  programs to obtain in-depth examples of program activities. We also  interviewed members of two state PAIMI program advisory councils about  their roles and their perspective about the state PAIMI programs. To  obtain additional perspectives about the state PAIMI programs, we  interviewed members of two national-level mental health organizations  and two state-level mental health organizations.

To assess SAMHSA oversight of the state PAIMI programs, we examined  agency policies and procedures related to review and monitoring activities  conducted by the agency, including checklists or guidelines for  conducting annual reviews of program applications and program  performance data and periodic onsite monitoring reviews. We assessed  these policies and procedures against relevant statutory and regulatory  program requirements and federal internal control standards on  monitoring and the design of control activities. In addition, we developed  and completed a data collection instrument that allowed us to  systematically examine SAMHSA’s documentation of its review of annual  program applications and program performance data for fiscal years 2015  and 2016. We completed the instrument for the eight selected PAIMI  programs, plus an additional two programs—Oklahoma and Puerto  Rico—selected because the programs had been placed on “restricted  status,” which triggers enhanced oversight. Furthermore, we reviewed  the monitoring reports for nine PAIMI programs (Idaho, Illinois, Maryland,  Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, and Washington) for  which SAMHSA conducted an onsite review in fiscal years 2015 or 2016.  We supplemented our review of documentation with interviews with  SAMHSA officials, staff from six PAIMI programs, and staff from the  association representing PAIMI programs, the National Disability Rights  Network (NDRN).

We conducted this performance audit from July 2017 to May 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Mental health disorders affect millions of adults and children in the United  States and can range in severity. In 2016, an estimated 4.2 percent of the  adult population—more than 10.4 million individuals—were considered to  have a serious mental illness based on federal survey data. Individuals  with mental illness may reside and receive care in a variety of settings,  including inpatient institutional settings, such as public or private  hospitals, other residential treatment facilities, or community-based  settings. When originally established under the PAIMI Act, state PAIMI  programs were required to investigate reports of potential abuse and  neglect of individuals with significant mental illness residing in institutional  facilities and to protect and advocate the rights of these individuals.  Examples of institutional facilities covered under the PAIMI Act include  hospitals, nursing homes, and correctional facilities. In 2000, the PAIMI  Act was amended to allow certain PAIMI programs to also assist eligible  individuals who live in community settings, including their own homes,  although programs must still prioritize services for eligible individuals  residing in institutional settings. For example, state PAIMI programs  assist individuals with abuse, neglect, and rights violation cases in school  settings.

Key State PAIMI Program Requirements and Activities

State PAIMI programs are administered by either state agencies or non- profit organizations that have been designated by the governor of each  state to operate a protection and advocacy system. The state PAIMI  programs are allotted federal grants through a formula that is based  equally on (1) the population in each state, and (2) the population in each  state weighted by its relative per capita income. In 2016, state PAIMI  program grants ranged from $229,300 to $3,133,536. (See appendix I for  allotment by program.) To receive a PAIMI grant, each protection and  advocacy organization must submit an annual application, and the PAIMI  programs they operate must meet applicable statutory and regulatory  requirements. (See table 1.)

Approved state PAIMI programs use their grants to protect and advocate  for individual clients, such as investigating specific complaints. They may  also conduct broader system-level protection and advocacy activities,  such as facility monitoring, intended to benefit larger groups of individuals  with significant mental illness. These systemic activities, as we refer to  them in this report, include efforts to drive changes in policies and  practices of the state’s mental health agency, treatment facilities, and  other systems, such as school systems, that impact people with  significant mental illness. (See table 2.)

Each state PAIMI program, with input from the advisory council and  governing authority, sets priority goals and short-term, measurable  objectives and targets annually as performance benchmarks for the work  it plans to conduct. Programs can also revise these benchmarks during  the year to align with changing needs. For example, the types of  individual cases programs accept and work on may depend on the types  of complaints that are received, which may vary over time.

SAMHSA Oversight of State PAIMI Programs

SAMHSA administers the PAIMI grants and is responsible for oversight  and monitoring of the state PAIMI programs. To oversee the state  PAIMI programs, SAMHSA conducts both ongoing reviews of the annual  application and performance information submitted by the programs, and  periodic, in-depth reviews:

Ongoing monitoring activities. PAIMI grant applications are  effective for 4-year periods, but programs submit additional grant  applications annually to update certain information, such as the  program budget and goals. SAMHSA awards PAIMI grants based on  criteria such as whether the grantee submitted a statement of annual  program priorities, including quantifiable targets and measurable  outcomes. In addition to the application, programs must submit key  data annually in a program performance report. The performance  report must describe a program’s individual and systemic activities,  accomplishments, and expenditures during the most recent fiscal year  and must include a section prepared by the advisory council. The  performance report requires programs to report on both standard  measures required of all programs and on progress towards the  program-specific priority goals, objectives, and targets. SAMHSA  reviews information submitted by the programs annually through  grants applications and performance reports, including completing a  review checklist and following up with programs with questions.

Periodic monitoring. SAMHSA conducts four to five onsite  monitoring reviews of state PAIMI programs each year, which officials  told us means a given program would be reviewed approximately  every 10 years. Programs are reviewed on a rotating basis, but some  may be reviewed more frequently if concerns have been identified,  according to officials. The onsite monitoring process, which includes  an onsite visit and review of program documentation, is intended to  monitor program compliance and provide guidance on improving  program effectiveness. SAMHSA has procedures for the scope and  time frame of the reviews.

Selected State PAIMI Programs Reported Achievements in Ending and Preventing Abuse, Neglect, and Rights Violations of Those with Significant Mental Illness

The eight selected state PAIMI programs reported favorably resolving a  majority of individuals’ cases related to alleged abuse, neglect, or rights  violations. In addition, these selected programs reported concluding a  variety of systemic activities, with a significant focus on monitoring and  addressing issues of abuse or neglect at facilities. Through their work with  individuals and completion of systemic activities, the selected programs  reported meeting a majority of their priority goals and objectives.

Selected programs reported favorably resolving about 74 percent of  individual cases related to alleged abuse, neglect, or rights violations in  fiscal year 2016, on average (see table 3). The remaining 26 percent of  cases were reported as withdrawn by the client, closed due to lack of  merit, or were not resolved in the individual’s favor. Across the  programs there was variation in the percentage of cases resolved  favorably, with two of the selected programs reporting half, or less than  half, of their cases resolved favorably, and one program reporting nearly  100 percent of cases closed favorably. SAMHSA officials and NDRN staff  cited a number of factors that could contribute to the variation, including  complexity of the complaint, variation in the programs’ criteria for  accepting cases, program resources, or characteristics of the court or  state mental health system. For example, SAMHSA officials told us that possible explanations for variation could include a program accepting  particularly challenging cases, or a program obtaining additional funding  from other nonfederal grants that could provide greater legal staff support  in addressing complaints.

All eight selected programs reported closing cases in each of the three  categories of complaints: abuse, neglect, and rights violations during  fiscal year 2016. Five of the eight programs reported that a majority of  their cases were related to complaints about rights violations, which  occurred in both facility- and community-based settings (see fig. 1).

These complaints included denials of legal assistance or privacy rights,  employment discrimination, or—the most frequently reported case  complaint—failure to provide special education consistent with state  requirements. Issues of abuse and neglect of individuals with mental  illness were also common. The most frequent complaint reported by the  eight selected programs related to neglect was a lack of discharge  planning for release from a facility, and for alleged abuse, it was failure to  provide appropriate mental health treatment.

Program staff reported examples of how state PAIMI programs resolved  cases related to abuse, neglect, and rights violations for individuals in  institutions and the community:

Program staff in California described a rights violation case of a young  girl with a mental health disability who was eligible for special  education services, but the district placed her in a restricted,  segregated school setting where she was restrained multiple times.  The program staff negotiated her move to a general education  campus with classroom behavior support. The PAIMI program  monitored her transition, including ensuring her inclusion in school  activities, academic remediation, and social skill development.

Program staff in Georgia reported that they were contacted by a  woman in a hospital who was overmedicated such that they could not  initially understand what she was saying. The staff worked with her  hospital treatment team to adjust her medication and the woman  became more articulate. In working to address her overmedication,  the staff further discovered there were not appropriate discharge  plans for her and so they worked to ensure that she was discharged  into an appropriate facility.

To address individual cases, selected programs reported using a variety  of strategies, ranging from administrative actions to legal remedies.  Programs reported that the most frequently utilized strategy (used 62  percent of the time in fiscal year 2016) was “short-term assistance”— time-limited advice or counseling, such as assisting a client with preparing  a letter or making a phone call to resolve an issue. Selected programs  reported using legal remedies about 5 percent of the time in fiscal year  2016.

The eight selected programs conducted a range of systemic activities,  and reported successfully concluding a total of 367 of these activities in  fiscal year 2016 (see figure 2).

Facility monitoring was reported as the most frequent systemic activity in  fiscal year 2016, comprising about 71 percent of the total systemic  activities concluded by the selected programs. The selected programs  described a range of activities involving facility monitoring. For example,  California reported that the program had an effort focused on monitoring  the conditions at selected county jail systems and juvenile halls. As part  of that work, the program reported that it released five public reports and  worked with counties on policy improvements, such as reducing the use  of pepper spray on youth. Another program, Louisiana, reported that staff  used to conduct regular monitoring visits to a state’s psychiatric hospital  and addressed patient complaints that they heard during these visits.  However, with limited resources and other emerging urgent issues at  other facilities, the program decided to cease the regular monitoring and  now conducts as-needed visits to the hospital in response to specific  complaints from the patients or staff.

In addition to facility monitoring activities, other systemic activities  conducted varied across the selected programs, reflecting differences in  their resources and priorities. Some systemic activities—such as class  action litigation—take significant time and resources to undertake, and  program staff may consider various factors before beginning one. For  example, program staff from Indiana told us the program filed a lawsuit  alleging restrictive housing of prisoners with significant mental illness that  involved 4 years of negotiations. In addition, program staff from Vermont  told us after engaging in successful litigation against hospitals that helped  reduce unnecessary force, isolation, and coercion tactics, the program re- prioritized and focused on other issues, such as helping individuals  integrate into the community from facilities. However, the program  recently noticed an increase in force, isolation, and coercion tactics and  predicted another shift in focus to once more address those issues.

Through their efforts to resolve individual cases and systemic activities,  selected programs reported largely meeting the performance  benchmarks—priority goals, objectives, and targets—they determine for  themselves. For example, the Georgia program reported that to meet its  fiscal year 2016 priority goal of protecting individuals with psychiatric  disabilities in Georgia from abuse and neglect, its objective was to  investigate and advocate to address allegations of abuse and neglect,  including suspicious or unexplained deaths and inappropriate treatment  or medication issues for people with psychiatric disabilities. The  measurable target for this objective was to conduct 50 such  investigations. In its performance report for the fiscal year, the program  reported that it had completed 51 investigations of allegations of  extensive abuse and neglect during the performance year. Overall, the  selected programs reported meeting more than 95 percent of their priority  goals in fiscal year 2016. While selected programs varied in their priority  goals, all had a goal that focused on protecting individuals from abuse,  neglect, and rights violations. (See Appendix II for more information about  the types of priority goals set by the selected programs.) When objectives  were not met, the programs reported, for instance, focusing on other  priorities or that an activity was still ongoing and could not be included as  part of their performance for the year.

Although the eight selected PAIMI programs reported that they largely  met their goals, they also reported several overarching challenges to their  efforts to do so, such as limited resources, lack of access authority, or  delays in access (e.g., to documents, records, or institutions). For  instance, the selected programs collectively reported that 617 PAIMI- eligible clients were not served within 30 days due to insufficient funding  in fiscal year 2016. Additionally, five selected programs reported delays in  access to records. For example, Vermont program staff reported delays in  receiving records related to the status of prisoner grievances or medical  records, and Texas program staff reported delays and use of significant  attorney resources to address facilities that challenge their ability to  access records or premises.

SAMHSA Has Controls in Place to Oversee Program Compliance with PAIMI Requirements, but Oversight of Program Effectiveness Is More Limited

SAMHSA Has Controls in Place to Monitor Compliance with Program Requirements

SAMHSA has controls in place for monitoring the PAIMI programs’  compliance with statutory and regulatory requirements through its  ongoing and periodic in-depth monitoring activities. We found evidence  that SAMHSA had identified and resolved a variety of compliance issues  through these activities.

On an annual basis, SAMHSA monitors compliance with statutory and  regulatory program requirements by reviewing information reported by the  programs through the application and program performance report. (See  table 4.) SAMHSA’s project officers review and approve the applications  and performance reports submitted by the state PAIMI programs using a  checklist developed by the agency that prompts them to record specific  information, such as whether there are vacant advisory council seats. Not  all areas of compliance are covered by the checklist; however, SAMHSA  officials told us that the entire application and performance report are  reviewed, and that a project officer’s approval signature on a checklist  indicates that potential issues observed during a review have been  resolved satisfactorily.

In our review of fiscal year 2015 and 2016 documentation, we found  evidence that the application and performance report review process  helped identify and resolve a range of potential compliance issues. For  example, SAMHSA followed up with one program in which the advisory  council had failed to meet the threshold of 60 percent of its membership  being individuals who have received or are receiving mental health  services, or are family members of such individuals. Failing to meet this  threshold could raise concerns about whether a program is sufficiently  engaging individuals and family members affected by mental illness as  required by regulation. In this instance, SAMHSA requested a plan of  action to recruit and maintain members to meet the threshold, which the  program provided along with updated information that they had  successfully recruited an additional member that put the council make-up  over the threshold. In another example, SAMHSA followed up with one  program that had reported not meeting 3 of 6 objectives and requested a  plan of action for reducing the number of unmet objectives. The program  subsequently provided information that it had incorrectly categorized  some objectives they had met as “not met.” (See table 5.)

In addition to the annual application and performance report reviews,  SAMHSA officials told us that they use monthly conversations with other  federal agencies, referred to as federal partners, to help them identify  potential compliance issues. These federal partners oversee federal  grants for other populations of people with disabilities made to the  protection and advocacy systems that administer the PAIMI program.  SAMHSA officials told us that coordination with these federal partners  helped identify risks in at least two of our selected programs, Puerto Rico  and Oklahoma. For example, one of the federal partners conducted an  onsite monitoring visit to Puerto Rico and found several issues with its  protection and advocacy system, such as inadequately trained staff and  conflicts of interest arising from a lack of independence from the  governor’s office. Puerto Rico’s protection and advocacy system failed  to develop an adequate corrective action plan to address the federal  partner’s findings, leading the federal partner to place the system in  restricted—that is, high-risk—status. According to SAMHSA officials,  these actions led them to more closely monitor Puerto Rico’s PAIMI  program, resulting in the identification of the protection and advocacy  system’s failure to comply sufficiently with PAIMI program requirements.  For example, SAMHSA found that Puerto Rico’s PAIMI program did not  have the capacity to protect and advocate for individuals with mental  illness, as required by statute, because they had an insufficient number of  attorneys. Furthermore, the federal partner that originally placed Puerto  Rico’s protection and advocacy system in restricted status requested that  SAMHSA do so as well. As a result, SAMHSA also placed the Puerto  Rico PAIMI program in restricted status.

In addition to its ongoing monitoring, SAMHSA has procedures to oversee  state PAIMI program compliance during its periodic onsite monitoring  reviews. When SAMHSA conducts an onsite monitoring review, its  procedures specify that officials are to interview program staff, governing  board members, and advisory council members; as well as review a  sample of case record files and other documentation of program  activities. The state PAIMI program is also to submit a detailed set of  documentation to support the program’s compliance with statutory and  regulatory requirements. Agency officials are to review this information  and report back to the programs on any compliance issues or  recommendations to improve program processes.

In our review of fiscal year 2015 and 2016 documentation for the nine  onsite monitoring reviews SAMHSA conducted, we found evidence that  this process helped identify and resolve a range of potential compliance  issues. For example, SAMHSA found that one program’s bylaws could be  misinterpreted to permit lobbying for legislation for PAIMI-eligible  individuals using PAIMI funding, when federal law prohibits grants  programs from using federal funds to engage in such activity. As a result, the program’s governing board reviewed and modified the bylaws to  clearly indicate that PAIMI funds are not to be used for lobbying.

As another example, SAMHSA found that one program did not have  sufficient documentation to support that the advisory council chair was an  individual who had received or was receiving mental health services, or a  family member of such an individual, as required by regulations. As a  result, the program revised its practice to include having the advisory  council chair verify in writing that he or she meets the criteria for serving  in the position. (See table 6.)

SAMHSA Has Not Consistently Examined Changes to Program Benchmarks or Completed and Provided Onsite Review Findings in a Timely Manner

We identified two weaknesses that could be limiting SAMHSA’s oversight  of program effectiveness. First, SAMHSA’s PAIMI program monitoring did  not consistently record changes to program priority goals, objectives, and  targets—collectively, “benchmarks”—made during a performance year,  and the agency did not have procedures for examining such changes  over time. Second, the agency did not provide timely information to  programs on identified deficiencies from onsite monitoring. As of March  2018, SAMHSA was in the process of implementing new processes for its  oversight of state PAIMI programs that officials believe will streamline the  agency’s monitoring activities. However, these changes may not fully  address the weaknesses we identified.

Inconsistent Recording of Changes to Performance Benchmarks and Lack of Procedures for Examining Changes across Years

We found that SAMHSA did not always record changes programs made  to their performance benchmarks and did not have procedures for  examining benchmark changes over time. According to federal internal  control standards, an agency should evaluate the results of its  monitoring—in this case, the information collected regarding benchmark  modifications—to determine program performance.

In our review of SAMHSA’s oversight of 10 programs for fiscal years 2015  and 2016, we found that SAMHSA did not consistently record program  modifications to performance benchmarks. Specifically, we found that  four programs appeared to have modified their performance benchmarks  during the year—in some cases upward when results exceeded original  targets, and in other cases downward when results were lower than  original targets. However, these changes were not recorded by SAMHSA  reviewers in the review checklists. For instance, one program revised 17  of its 21 targets to closely match the program’s actual results, but these  changes were not recorded in the area of the review checklist that  prompts the project officer to note if such changes were made.

According to SAMHSA officials, in fiscal year 2017, SAMHSA transitioned  from paper forms to a web-based system for submission and review of  applications and performance reports. Officials told us that under the new  system, programs will be required to consult with SAMHSA officials about  and submit modifications to performance benchmarks through the  system. The system will record and display both the original priority goals,  objectives, and targets as approved at the time of the application, as well  as any modifications a program submits throughout the year. The system  will also record that information over time, providing the ability to review  and track program modifications to benchmarks over multiple years.

SAMHSA’s new system should improve recording of benchmark changes,  however, SAMHSA lacks procedures for examining such changes across  years to assess whether the changes could indicate larger performance  issues. SAMHSA officials acknowledged that they did not have specific  procedures in place directing project officers to examine changes to  performance benchmarks across multiple years, but said that other  relevant procedures were in place. For example, officials noted that  programs are not able to modify benchmarks without approval by  SAMHSA project officers. However, without implementing procedures  aimed specifically at examining trends in benchmark modifications across  years, SAMHSA lacks assurances that its project officers will consistently  examine whether a particular program is regularly making changes to  benchmarks that may be indicative of a potential performance problem,  such as revising its targets downwards over multiple years.

Failure to Provide Timely Information on Identified Deficiencies

We found that SAMHSA generally failed to meet its timelines for  producing and providing onsite monitoring review reports to the state  PAIMI programs under review during fiscal years 2015 and 2016. This  inability to produce and provide onsite monitoring reports to PAIMI  programs in a timely manner is inconsistent with SAMHSA’s internal  requirements and with federal internal control standards regarding  evaluating issues and remediating deficiencies on a timely basis.

Specifically, for onsite monitoring reviews, SAMHSA’s procedures specify  the agency is to provide an initial report to the reviewed program within  150 days of the onsite visit. However, for eight of the nine monitoring  review reports we reviewed for fiscal years 2015 and 2016, SAMHSA  provided the report more than a year after the visit. One program that had  just received its report at the time of our review told us that it was difficult  to plan the necessary changes to its work without an official report with  findings and recommendations to help guide them in restructuring their  operations. Program staff said they had moved ahead and made some  changes but were uncertain whether those changes would be deemed  sufficient because of the lack of feedback from the agency.

SAMHSA officials told us that they may have missed some deadlines as a  result of competing priorities and restricted resources—for example,  recently only two of four PAIMI project officer positions have been  occupied. Officials reported that the agency was taking steps to  streamline the process to make it more efficient and to bring on more staff  resources. The officials said that in 2018 SAMHSA planned to shift  responsibility for the project officers’ portion of the onsite reviews to a  dedicated onsite monitor, which they hoped would expedite the review  process. In addition, the agency had taken steps to streamline its onsite  monitoring review process, such as by revising and standardizing its  reporting template.

There are uncertainties with regard to how effective these changes will be  in increasing timeliness. For example, the planned efficiencies target  some, but not all, of the key components of the reviews. In particular,  SAMHSA officials told us that these review process changes do not  pertain to the portion of the onsite review that focuses on state PAIMI  program compliance with applicable fiscal requirements. Officials noted  that the SAMHSA office that conducts the fiscal portion of the review has  had staff shortages for the past 16 months and is not able to operate  within normal time frames for completing this portion of the report.  Without meeting its deadlines for completing its review and providing  timely, detailed information and feedback to PAIMI programs, SAMHSA  cannot ensure that identified issues are resolved in a timely manner, thus  potentially endangering the effectiveness of the programs.

Individuals with mental illness can face abuse, neglect, and rights  violations in both institutional and community treatment settings, including their own homes. The protection and advocacy services provided by state  PAIMI programs play an important role in reducing these serious issues  for this vulnerable population. Therefore, it is important to monitor how  effective the programs are in addressing such issues. SAMHSA has a  number of procedures in place to monitor program compliance with  statutory and regulatory requirements, which enable the agency to  identify and resolve potential issues with program compliance, and it is  taking steps to streamline and improve its compliance oversight. At the  same time, the agency’s processes for oversight of program effectiveness  could be improved, such as by examining trends in mid-performance  changes programs make to their priority goals, objectives, and targets  across multiple years. Without such monitoring, SAMHSA may not  recognize a pattern of changes that signal larger concerns about that  program’s effectiveness. Finally, SAMHSA has not been timely in  completing its onsite monitoring reviews or providing the results of these  reviews to the programs. Although SAMHSA has plans to make reviews  more efficient and to add resources, it is unclear to what extent these  steps will resolve the lack of timeliness.

We are making the following two recommendations to SAMHSA:  The Assistant Secretary for Mental Health and Substance Use should  establish procedures to better ensure that mid-performance changes to  program priority goals, objectives, and targets are examined across  multiple years. (Recommendation 1)

The Assistant Secretary for Mental Health and Substance Use should  take steps, including the steps it has planned, to ensure onsite reviews  are completed and findings are provided to programs on a timely basis.  (Recommendation 2)

We provided a draft of this report to HHS for comment.  In its written  comments, HHS concurred with both of our recommendations and  indicated that it will examine ways to implement them.  HHS’s comments  are reprinted in appendix III. HHS also provided technical comments,  which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Health and Human Services, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or at iritanik@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.

Appendix I: Protection and Advocacy for Individuals with Mental Illness (PAIMI) Grants by Program, Fiscal Year 2016

Appendix II: Selected State PAIMI Program Priority Goal Categories in Fiscal Year 2016

State Protection and Advocacy for Individuals with Mental Illness (PAIMI)  programs determine their priority goals each fiscal year to prioritize the  work they hope to accomplish. Our analysis of the priority goals reported  in the annual program performance reports by eight selected state PAIMI  programs found that all programs had at least one priority goal focused  on Protection and Civil Rights in fiscal year 2016 (see fig. 3).  Access/Discrimination was the next most frequently set priority goal  category—with seven of the eight programs establishing these goals. We  also reviewed program goal categories from fiscal year 2015 and  identified few significant differences between 2015 and 2016.

Eight priority goal categories emerged from our analysis:

Access/Discrimination: This category refers to issues broadly  related to access to services or benefits, and reduction of  discrimination, e.g., advocating for access to legal services or  elimination of barriers to housing, employment, and education  services.

Community Integration: This category refers to issues of integrating  the individual into community facilities or ensuring they can be  independent outside of a facility.

Education: This category refers to specific issues related to access  or equality in education services.

Employment: This category refers to specific issues related to  access to employment.

Health Care Services: This category refers to specific issues related  to access to health care services within the community or state.

Housing: This category refers to specific issues related to access to  housing.

Information/Outreach: This category refers to activities related to  distributing publications or performing outreach to individuals.

Protection and Civil Rights: This category refers to issues broadly  related to rights violations and protection from restraint, seclusion, or  other abuse or neglect.

Appendix III: Agency Comments from the Department of Health and Human Services

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Susan Barnidge, Assistant  Director; Hannah Marston Minter, Analyst-in-Charge; Joanna Wu  Gerhardt; and Emily Beller Holland made key contributions to this report.  Also contributing were Jennie Apter, Muriel Brown, and Emily Wilson.

Individuals with mental illness are a vulnerable population. To investigate potential abuse or neglect, the Department of Health and Human Services provides grants for state-based Protection and Advocacy for Individuals with Mental Illness programs. In 2016, it gave $36 million to 57 programs.

We found that the programs reported a range of positive outcomes, including a high percentage of cases resolved in the individual's favor.

We also identified needed improvements to HHS's oversight procedures, including a need to track long-term performance changes and be more timely in completing program reviews, and recommended HHS address these gaps.