Introduction According to a 2019 study, 2 million Americans lack access to running water, indoor plumbing, or wastewater services. Many of the communities with inadequate water supply infrastructure are in rural areas or on tribal lands. Over time, Congress has authorized projects and programs through various federal agencies to address rural water supply needs. Since 1980, Congress has authorized the Bureau of Reclamation (Reclamation), among other federal agencies, to develop municipal and industrial (M&I) water supply projects in rural areas and on tribal lands. Reclamation was established to implement the Reclamation Act of 1902, which authorized the construction of water works to provide water for irrigation in arid western states. Reclamation owns and manages 491 dams and 338 reservoirs, which are capable of storing a combined 140 million acre-feet of water. Reclamation has incorporated M&I water resource projects into larger projects that serve various other authorized purposes (e.g., irrigation, power). Reclamation-funded M&I water deliveries total approximately 10 trillion gallons of water per year. As part of Reclamation's M&I responsibilities, Congress has expressly authorized the agency to undertake the design and construction of rural water supply projects intended to deliver potable water supplies to defined rural communities. From 1980 through 2009, Congress authorized Reclamation to undertake the design and construction, and in some cases the operations and maintenance (O&M), of specific projects intended to deliver potable water supplies to rural communities in western Reclamation states. These projects were largely located in North Dakota, South Dakota, Montana, and New Mexico. The rural communities include tribal reservations and nontribal rural communities with nonexistent, substandard, or declining water supply or water quality. Many rural water projects are large in scopeâtaking water from one location and moving it long distances to tie to existing systems. M&I portions of Reclamation water supply facilities typically require 100% repayment of construction costs to the federal treasury with interest. Congress also has authorized rural water projects that receive funding from the federal government for some or all costs on a nonreimbursable basis (i.e., a de facto grant). For example, the federal government pays up to 100% of the cost of tribal rural water supply projects, including O&M. For nontribal rural water supply projects, the federal cost share for current projects ranges from 75% to 80%. The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) created the Rural Water Supply Program, a structured program for developing and recommending rural water supply projects. This program was to replace the previous process of authorizing projects individuallyâoften without the level of analysis and review (e.g., feasibility studies) consistent with Reclamation's other projects. Under the Rural Water Supply Program, Congress authorized Reclamation to work with rural communities and tribes to identify M&I water needs and options to address such needs through appraisal investigations and feasibility studies. Congress would then consider feasibility studies recommended by the Administration before authorizing specific projects for construction in legislation. Ultimately, Congress did not authorize any projects for construction through this process, and the authority for the program expired in 2016. Reclamation continues to construct rural water projects (and to provide O&M assistance for some tribal components) that were authorized and initiated outside of the Rural Water Supply Program. In 2012, Reclamation developed prioritization criteria for budgeting these projects: inclusion of tribal components amount of financial resources committed urgency and severity of need financial need and potential economic impact regional and watershed approach water, energy, and other priority objectives According to Reclamation, the criteria aim to reflect both the priorities identified in the statutes that authorized individual projects and the goals of the Rural Water Supply Act of 2006. For FY2020, Congress appropriated $145.1 million for construction and O&M at seven authorized rural water projects, which was $117.4 million above the Administration's FY2020 budget request. As of early 2020, Reclamation reported that $1.2 billion was still needed to construct authorized, ongoing rural water projects. For FY2021, the Administration requested $30.3 million for Reclamation rural water activities, of which $8.1 million is for construction. This report provides an overview of Reclamation rural water projects, including completed and ongoing rural projects and efforts under Reclamation's Rural Water Supply Program. The report also discusses considerations for Congress (e.g., funding prioritization, potential nexus with other federal programs) and presents recent legislation relating to authorizing additional projects and reauthorizing the Rural Water Supply Program. Rural Water Projects Congress has funded water supply projects in rural areas for more than four decades. Reclamation first became involved in these efforts beginning with authorization of the WEB Rural Water Supply Project in 1980 ( P.L. 96-355 ). Since that time, Congress has authorized Reclamation to fund the construction of several other rural water supply projects (see Table 1 ). These projects have individual authorizations and generally aim to provide water exclusively for M&I water uses in rural areasâa departure from the historical mission of providing water for irrigation, with M&I water use as an incidental project purpose. According to a U.S. Government Accountability Office (GAO) report, Reclamation became involved in such projects because communities proposed projects directly to Congress and, in response, Congress created specific authorizations for these rural water supply projects, with Reclamation overseeing funding and construction. In addition to projects authorized only in Reclamation states, Congress specifically authorized Reclamation's involvement in the Lewis and Clark Rural Water Supply Project located in South Dakota, Iowa, and Minnesota. Reclamation reported that, prior to authorization, some rural water projects did not go through the level of analysis and review that is consistent with Reclamation's other projects and did not meet the economic, environmental, and design standards that are required to determine the feasibility of federal water resources development projects. In these instances, following authorization, Reclamation was to complete the analysis that was necessary to execute the project while adhering to the project configuration and designs specified by the authorizing statutes and in accordance with other laws (e.g., Clean Water Act [33 U.S.C. Â§Â§1251-1387], National Environmental Policy Act [42 U.S.C. Â§4321 et seq.]). Critics have sometimes expressed concerns over this approachâspecifically, whether the authorized project would have emerged as the most cost-effective preferred alternative had a feasibility study been performed prior to authorization. Each rural water project authorization required that the cost ceilings authorized in the legislation be indexed to adjust for inflation to include the rising cost of materials and labor, which was estimated to be 4% annually. The result of these indexing requirements is that the overall cost of authorized rural water projects has risen and continues to rise due in part to actual federal appropriations for projects falling short of the optimal funding scenarios that were assumed under planning projections. As of early 2020, Reclamation reported that $1.2 billion was needed to construct authorized, ongoing rural water projects. For FY2021, the Administration's budget proposal requested $30.3 million: $8.1 million for ongoing construction at four authorized rural water projects and $22.2 million for O&M of tribal systems (e.g., $14.5 million for the Mni Wiconi Project, $7.7 million for the Garrison Diversion Unit M&I, and $20,000 for the Mid-Dakota Rural Water System). The FY2021 request is $114.8 million less than FY2020 enacted funding of $145.1 million. The FY2021 request continues a trend since FY2014 in which the President's budget requested reduced funding for rural water projects from prior-year enacted levels. Reclamation also has emphasized its authority to accept nonfederal contributions in excess of cost-sharing requirements as one way to expedite projects in the absence of increased federal funding. In the FY2021 budget request, Reclamation noted that nonfederal parties have the ability to move forward with important investments in water resources infrastructure by contributing amounts in excess of minimum contributions. Rural Water Projects Under Construction in FY2020 In FY2020, Reclamation funded $125.4 million in construction work at five projects ( Table 2 ). Reclamation's FY2020 budget request included $8.0 million in construction for four projects, but Congress provided $117.4 million in appropriations above the President's budget request. The Administration distributed the funds above the request among five authorized projects, as described in Reclamation's additional funding spend plan. The following briefly describes the projects under construction in FY2020 based on Reclamation budget documents. Garrison Diversion Unit of the Pick-Sloan Missouri Basin Program The Garrison Diversion Unit of the Pick-Sloan Missouri-Basin Program was authorized in 1965 (P.L. 89-108) and was amended in 1986 by the Garrison Diversion Unit Reformulation Act ( P.L. 99-294 ) to include rural water services. Garrison Diversion Unit water supply facilities are associated with Garrison Dam of the Pick-Sloan Missouri Basin Program. They are located in eight counties in the central and eastern part of North Dakota and serve four tribal reservations (Spirit Lake, Fort Berthold, Turtle Mountain, and Standing Rock Indian Reservations). The multipurpose project principally provides tribal and nontribal M&I water, along with fish and wildlife, recreation, and flood control benefits. Fort Peck Reservation/Dry Prairie Rural Water System The Fort Peck Reservation Rural Water System Act of 2000 ( P.L. 106-382 ), as amended, authorized rural water projects in northeastern Montana for the Fort Peck Reservation, serving the Assiniboine and Sioux Tribes, and for the Dry Prairie Rural Water Authority, serving towns outside of the reservation. The total service area population is around 25,000 people; rural water use is also available for commercial users and livestock. Currently, groundwater from shallow alluvial aquifers is the primary water source for the municipal systems, but groundwater quality is generally poor. The regional rural water project is to provide for a single water treatment plant located on the Missouri River, which is to distribute up to 13.6 million gallons of treated water per day through 3,200 miles of pipeline. Lewis and Clark Rural Water System The Lewis and Clark Rural Water System Act of 2000 (Division B, Title IV of P.L. 106-246 ) authorized the Lewis and Clark Rural Water System to serve over 300,000 people in southeast South Dakota, southwest Minnesota, and northwest Iowa. The project aims to address concerns regarding low water quality, contamination, and insufficient supplies of existing drinking water sources throughout the project area. The water source for the Lewis and Clark Rural Water System is the sand and gravel aquifers of the Missouri River near Vermillion, SD. The project is to collect, treat, and distribute water through a network of wells, pipelines, pump stations, and storage reservoirs to each of 15 municipalities (including the city of Sioux Falls) and five rural systems. As of February 2020, completed facilities delivered water to the first 14 of 20 members, serving more than 200,000 individuals in Iowa, Minnesota, and South Dakota. Rocky Boy's/North Central Montana Rural Water System The Rocky Boy's/North Central Montana Regional Water System Act of 2002 (Title IX of P.L. 107-331 ) authorized a rural water system to serve the Rocky Boy's Indian Reservation (Chippewa Cree Tribe) and surrounding communities in northern Montana. The system is designed to serve a total projected population of 43,000 (14,000 on reservation and 29,000 off reservation) by providing infrastructure to ensure existing water systems within the project service area comply with federal Safe Drinking Water Act (42 U.S.C. Â§Â§300f-300j-26) regulations. A core pipeline is to provide potable water from Tiber Reservoir to the Rocky Boy's Reservation, and non-core pipelines are to serve 21 surrounding towns and rural water districts. A $20 million trust fund established with Bureau of Indian Affairs appropriations is to fund O&M and replacement for the core and on-reservation systems initially; eventually, water users are expected to entirely fund the project. Reclamation states that the current authorization is not adequate to cover the project. Eastern New Mexico Water Supply Section 9103 of the Omnibus Public Land Management Act of 2009 ( P.L. 111-11 ) authorized the Eastern New Mexico Water Supply project to deliver water from Ute Reservoir on the Canadian River to eight member communities. The use of Ute Reservoir water aims to provide long-term water supply and reduce the eight communities' dependence on groundwater in the Ogallala Aquifer. Current funding is for planning, design, and construction of interim projects to deliver groundwater to the communities before treated surface water is delivered from the Ute Reservoir Pipeline. Rural Water Supply Act of 2006 The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) authorized the Rural Water Supply Program and directed the Secretary of the Interior to undertake certain activities to implement the program. Specifically, the act directed Reclamation to conduct appraisal investigations and feasibility studies (or to ensure that nonfederal entities conducted such studies) and to recommend proposed projects to Congress for construction authorization and subsequent funding. In 2008, Reclamation published an interim final rule (43 C.F.R. Â§404) that established operating criteria for the program and defined the criteria for the prioritization, eligibility, and evaluation of appraisal investigations and feasibility studies, in accordance with the act. To be eligible under the rule, a rural community must have a population under 50,000. The rule prioritized domestic, residential, and municipal uses and prohibited the use of water for commercial irrigation purposes. Interested entities (e.g., Reclamation states and western tribes) may request that either (1) Reclamation complete an appraisal investigation or feasibility study or (2) Reclamation provide financial assistance so the entity can conduct an appraisal investigation or feasibility study. Reclamation began to implement the Rural Water Supply Program in FY2010 on a pilot basis, providing assistance to nonfederal entities to conduct appraisal investigations and feasibility studies. Between FY2009 and FY2012, Congress provided Reclamation a total of $7.9 million for the program. After FY2012, Reclamation no longer requested funding for the program and Congress did not appropriate funds for it. Overall, Reclamation reported using this authority to study approximately 22 projects to varying extents (see Appendix ). Twelve were located in the Reclamation's Great Plains region, five in the Upper Colorado region, four in the Lower Colorado region, and one in the Pacific Northwest region. Of these, Reclamation finalized and approved two feasibility reports: the Musselshell-Judith Rural Water System Feasibility Report (Montana) and the Payson-Cragin Reservoir Water Supply Project Feasibility Report (Arizona). Reclamation did not recommend these or any other projects for authorization, and Congress did not authorize any projects. In justifying its lack of construction recommendations, Reclamation pointed to existing rural water construction obligations, which it argued precluded recommendation of new projects with completed feasibility studies. The authority for the Rural Water Supply Program expired at the end of FY2016 and has not been renewed. Members of Congress have introduced legislation in the 116 th Congress that would reauthorize both the Rural Water Supply Program and particular projects and studies previously considered through the expired program (see " Legislation in the 116th Congress "). Issues for Congress Congress continues to fund construction and O&M (only required for tribal components) of authorized rural water projects; however, since the FY2016 expiration of the Rural Water Supply Program, Reclamation has for the most part ceased activities relating to new project study and authorization. Congress may consider conducting oversight or legislating changes to Reclamation's rural water activities, including those related to existing or new program and project authorizations, funding prioritization criteria, and Reclamation's role in supporting rural water projects. Addressing Ongoing Rural Water Needs The Rural Water Supply Act of 2006 required the Secretary of the Interior to assess the demand for new rural water supply projects in Reclamation states. In FY2009, Reclamation estimated that identified needs for potable water supply systems in rural areas ranged from $5 billion to $8 billion for nontribal needs; in the same year, it estimated approximately $1.2 billion for specific tribal water supply projects. However, the Administration has not recommended, and Congress has not authorized, any new Reclamation rural water projects since 2009. Additionally, because authorization of Reclamation's Rural Water Supply Program lapsed at the end of FY2016, Reclamation lacks a structured program for developing and recommending rural water supply projects. Legislation in the 116th Congress In the 116 th Congress, House and Senate companion bills H.R. 967 and S. 334 , both titled the Clean Water for Rural Communities Act, would authorize $5 million for a feasibility study for the Dry Redwater Rural Water System and $56.7 million (2014 price levels) for construction of the Musselshell-Judith Rural Water System. As noted, a feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program, but the Administration did not recommend the project to Congress for authorization. Congress also is considering legislation to reauthorize the Rural Water Supply Program through FY2026. In the 116 th Congress, both the Water Justice Act ( H.R. 4033 ) and the Securing Access for the Central Valley and Enhancing (SAVE) Water Resources Act ( H.R. 2473 ) would reauthorize the existing program. Congress may consider other legislative proposals to address the demand for rural water assistance in the West. For example, the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would require the Secretary of the Interior to establish a grant program to provide financial assistance to disadvantaged communities of less than 60,000 residents that have experienced a significant decline in quantity or quality of drinking water. The grants could fund technical assistance, initial operating and capital costs for edible facilities, and up to 25% of such facilities' O&M. Other legislative proposals would address rural water needs by amending authorities to specific water technology and programs. For example, the Western Water Security Act of 2019 ( H.R. 4891 ) would amend the Water Desalination Act of 1996, as amended ( P.L. 104-298 ; 42 U.S.C. Â§10301 note), to add a classification for rural desalination projects with a higher federal cost share than desalination projects serving more than 40,000 individuals. Funding of Current and Future Projects In early 2020, Reclamation stated that $1.2 billion was needed to complete authorized rural water projects under construction by the agency. In addition, Reclamation has previously estimated nontribal rural water supply needs in excess of $5 billion, and some observers have reported that assistance for communities is needed to address these needs. Some stakeholders have requested continued and increased funding for Reclamation rural water projects. In the 115 th Congress, representatives of the National Water Resources Association and the Family Farm Alliance asked Congress to compel Reclamation and the Office of Management and Budget to implement the Rural Water Supply Program and investigate opportunities to develop loan and loan guarantee programs that can help fund new water infrastructure projects. Over the years, Reclamation has provided its views regarding funding for rural water projects. In general, Reclamation has testified that rural water projects must compete with a long list of other priorities, including aging infrastructure, environmental compliance and restoration actions, and dam safety. During the consideration of authorizing existing rural water projects, Reclamation stated that long-standing agency policy was that local sponsors, particularly those that are nontribal, should reimburse Reclamation for 100% of the costs incurred for rural water supply from multipurpose projects. Reclamation notes in its budget requests to Congress that constrained federal budgets do not preclude nonfederal sponsors' ability to move forward with rural water projects by funding in excess of the minimum nonfederal contributions. Reclamation has recommended that tribes, where possible, and other project beneficiaries be responsible for the O&M expenses of their rural water projects. Congress has appropriated funds for rural water projects on a nonreimbursable basis (i.e., as de facto grants). In some cases, local and tribal sponsors do not have funds or have not prioritized funds to increase their funding contributions. Should Congress continue to support rural water projects through Reclamation, Congress may consider various options. These might include Continue to provide Reclamation annual appropriations for the agency to allocate funds to individually authorized rural water projects based on established agency criteria. Establish mandatory funding for Reclamation to allocate funds to individually authorized rural water projects based on established agency criteria. For example, the Authorized Rural Water Projects Completion Act ( S. 1556 ) in the 115 th Congress would have created a Reclamation Rural Water Construction Account to receive $80 million annually that otherwise would be deposited into the Reclamation Fund. Funds in the Reclamation Rural Water Construction Account, in addition to amounts appropriated for rural water projects, would be available for the construction of authorized rural water projects. Provide grant funding through a competitive process for nonfederal sponsors to support local projects, such as the grant program the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would establish for communities with fewer than 60,000 residents. Direct appropriations to individually authorized rural water projects. Other Rural Water Options As GAO noted in a 2007 report, numerous federal entities provide funding for water supply and wastewater projects. In addition to Reclamation (which funds only water supply projects), the U.S. Department of Agriculture (USDA), Environmental Protection Agency (EPA), Army Corps of Engineers (USACE), Department of Housing and Urban Development (HUD), and Department of Commerce (DOC) all provide funding for both water supply and wastewater projects. USDA, EPA, HUD, and DOC have formal, nationwide programs with standardized eligibility criteria and processes under which communities compete for funding. In contrast, Reclamation and USACE fund water projects in defined geographic locations under explicit congressional authorizations. According to GAO, Congress has chosen Reclamation to fill a void for projects that are larger and more complex than other rural water projects and that do not meet the criteria of other rural water programs. Some might argue that these projects would be better accomplished via other existing federal water quality or water supply programs. However, as GAO has observed, as designed, some of Reclamation's authorized rural water projects do not fit criteria of other agency's programs due to their cost and regional focus; thus, project proponents have looked to Reclamation for funding. For example, Reclamation may assist rural areas with populations in excess of 10,000 residents that may not be eligible for funding under other programs. Reclamation rural water projects also may serve more than one community (i.e., a regional area, as opposed to a single area). Reclamation developed its Rural Water Supply Program with the intent to complement, rather than duplicate, the efforts of the other agencies' programs and activities. In creating the program, Reclamation signed memoranda of understanding and related documents with other agencies to coordinate efforts. Reclamation has stated that it participates in a variety of broad coordination activities among agencies related to ongoing authorized projects. With the expiration of the Rural Water Supply Program, this formal coordination between Reclamation and other agencies' programs is no longer required. Appendix. Rural Water Supply Program Appraisal Investigations and Feasibility Studies The Bureau of Reclamation (Reclamation) provided the Congressional Research Service with a list of appraisal investigations and feasibility studies conducted for potential projects under the Rural Water Supply Program. Before the program authorization expired in FY2016, 22 appraisal investigations were conducted, with nine recommendations for a feasibility study. Five feasibility studies were conducted. Reclamation did not recommend any projects for construction funding, although two studies found feasible alternatives for rural water supply. Reclamation issued concluding reports for appraisal investigations and feasibility studies of projects that were not recommended for construction funding. Reclamation provided a range of reasons for issuing concluding reports: studies being incomplete, no found feasible alternatives, lack of funding, and program expiration. According to Reclamation, some concluding reports were not issued due to a lack of time or resources. In these cases, Reclamation considered the appraisal reports as concluding reports for the purposes of the Rural Water Supply Program. A feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program. Legislation introduced in the 116 th congress, the Clean Water for Rural Communities Act ( H.R. 967 and S. 334 ), would authorize the Central Montana Musselshell-Judith Rural Water System.


Introduction Approximately 27 million trips are taken on public transportation on an average day. Federal assistance to public transportation is provided primarily through the public transportation program administered by the Department of Transportation's (DOT's) Federal Transit Administration (FTA). The federal public transportation program was authorized from FY2016 through FY2020 as part of the Fixing America's Surface Transportation (FAST) Act ( P.L. 114-94 ). This report discusses the major issues that may arise as Congress considers reauthorization. In federal law, public transportationâalso known as public transit, mass transit, and mass transportationâincludes local buses, subways, commuter rail, light rail, paratransit (often service for the elderly and disabled using small buses and vans), and ferryboats, but excludes Amtrak, intercity buses, and school buses (49 U.S.C. Â§5302). About 48% of public transportation trips are made by bus, 38% by heavy rail (also called metro and subway), 5% by commuter rail, and 6% by light rail (including streetcars). Paratransit accounts for about 2% of all public transportation trips, and ferries about 1%. Public transportation accounts for about 3% of all daily transportation trips and about 7% of commute trips. Although ridership is heavily concentrated in a few large cities and their surrounding suburbs, especially the New York City metropolitan area, public transportation is provided in a wide range of places including small urban areas, rural areas, and Indian land. The Federal Public Transportation Program Most federal funding for public transportation is authorized in multiyear surface transportation acts. The FAST Act authorized $61.1 billion for five fiscal years beginning in FY2016, an average of $12.2 billion per year. The authorization for FY2020 is $12.6 billion. Of the total five-year amount, 80% was authorized from the mass transit account of the Highway Trust Fund. Funding authorized from the Highway Trust Fund is provided as contract authority, a type of budget authority that may be obligated prior to an appropriation. The other 20% was authorized from the general fund of the U.S. Treasury as appropriated budget authority. Funding for public transportation is sometimes provided under other authorities. The FY2018, FY2019, and FY2020 appropriations acts ( P.L. 115-141 , P.L. 116-6 , P.L. 116-94 ), for example, provided additional general fund money for several programs that typically receive funding only from the Highway Trust Fund, thereby raising the general fund share of federal public transportation expenditures to about 28% in FY2018, 26% in FY2019, and 21% in FY2020. Funding for the Public Transportation Emergency Relief Program, which provides grants for emergency repairs following natural disasters or other emergencies, is typically from the general fund provided in supplemental appropriations acts. Transit projects can also be funded with money transferred (or "flexed") from federal highway programs by state and local officials. In FY2016, the last year for which data are available, $1.3 billion in highway funds was flexed to transit. Excluding flexed highway funds and emergency relief funding, funding provided in FY2017 through FY2020 was above the level authorized in the FAST Act ( Figure 1 ). There are six major programs for public transportation authorized by the FAST Act: (1) Urbanized Area Formula; (2) State of Good Repair; (3) Capital Investment Grants (CIG) (also known as "New Starts"); (4) Rural Area Formula; (5) Bus and Bus Facilities; and (6) Enhanced Mobility of Seniors and Individuals with Disabilities. Typically, funding for all of these programs, except CIG, comes from the mass transit account of the Highway Trust Fund. CIG funding comes from the general fund. There are also a number of other much smaller programs ( Figure 2 ). Reauthorization Issues Program Funding The average of $12.2 billion per year authorized for the federal public transportation program in the FAST Act represented about a 14% increase (unadjusted for inflation) from the previous authorization, the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ). The Senate Committee on Environment and Public Works reported a bill in August 2019 ( S. 2302 ) that would reauthorize highway infrastructure programs through FY2025 with a 27% increase over the funding provided by the FAST Act. A similar increase in the annual authorization of public transportation funding would provide for federal expenditures of about $15.5 billion per year. A higher level of federal funding might improve the condition and performance of public transportation infrastructure. One indicator of the condition of public transportation infrastructure is the reinvestment backlog, which DOT defines as "an indication of the amount of near-term investment needed to replace assets that are past their expected useful lifetime." DOT estimated the reinvestment backlog to be $98 billion in 2014, about 13% of the total value of transit assets. In its biennial Conditions and Performance report, DOT projects how various future spending levels might affect the condition of public transportation infrastructure. The most recent report was published in November 2019 and used 2014 as the base year for projections. Capital expenditures on public transportation in 2014, DOT noted, totaled $17.7 billion from all sources, including federal, state, and local government support. Of this amount, $11.3 billion was spent on preserving the existing system and $6.4 billion on expansion. If this spending pattern were to continue over the 20 years between 2015 and 2034, DOT estimates, the investment backlog would grow to $116 billion (in 2014 inflation-adjusted dollars), an increase of 18%. DOT constructed two scenarios to estimate how much spending would be needed to eliminate the backlog and accommodate new riders. Under the assumption of low ridership growth, DOT estimated, $23.4 billion would be needed annually, an increase of about 32% (in 2014 inflation-adjusted dollars). In a scenario projecting high ridership growth, $25.6 billion would be needed annually, an increase of 45% (in 2014 inflation-adjusted dollars). DOT did not estimate the spending necessary if ridership is stagnant or dropping. However, it did estimate that $18.4 billion annually (adjusted for inflation) would eliminate the reinvestment backlog over 20 years if there was no spending on expansion. The focus of the federal public transportation program is on capital expenditures, but the program also supports operational expenses in some circumstances, as well as safety oversight, planning, and research. Greater federal support for transit operations could increase the quantity of transit service offered or reduce fares. In the past, particularly in the 1970s and early 1980s, such support caused the costs of providing service to increase, particularly through increases in wages and fringe benefits and by expanding services on routes with less demand. With greater flexibility to use federal funding for operating expenses, transit agencies could neglect maintenance and asset renewal, leading to a more rapid decline in the condition of capital assets. Existing flexibility to use capital funds for maintenance may help agencies preserve equipment and facilities. DOT does not make any recommendations about the relative shares of public transportation funding that should be borne by federal, state, and local governments. The federal share of government spending on public transportation has been around 15% to 20% over the past 30 years. A higher level of funding by the federal government may not necessarily translate into more spending overall if transit providers substitute federal dollars for their own. Highway Trust Fund Issues The solvency of the Highway Trust Fund and its two accounts, the highway account and the mass transit account, is a major issue in reauthorization of funding for the public transportation program. Outlays from the mass transit account have outpaced receipts for over a decade, an imbalance the Congressional Budget Office (CBO) projects will continue in the future under current law. For the five-year period beginning in FY2021, CBO expects the gap between revenues and outlays to total $26 billion, an average of $5.2 billion annually ( Table 1 ). The primary revenue source for the Highway Trust Fund is motor fuel taxes, which were last raised in 1993. Currently, of the 18.3 cents-per-gallon tax on gasoline and 24.3 cents-per-gallon tax on diesel that go to the Highway Trust Fund, 2.86 cents is deposited in the mass transit account. Congress has chosen to transfer general fund monies into the mass transit account to permit a higher level of spending than motor fuel tax revenues alone could sustain. These transfers have totaled $29 billion since they began in 2008. The FAST Act transferred $18.1 billion to the mass transit account from the general fund. According to FTA, a balance of at least $1 billion in the mass transit account is required to ensure that the agency has sufficient funds to make mandated payments to transit agencies. CBO estimates that if Congress were to extend current law without providing for further transfers from the general fund to the mass transit account, the balance in the mass transit account would be about $300 million at the end of FY2021 and would reach zero at some point in FY2022. This would likely require FTA to slow payments to transit agencies. Outlays also outpace receipts in the highway account, but solvency problems are expected to arrive earlier in the mass transit account. Bringing the receipts and outlays of the mass transit account into balance would involve a cut in program spending, an increase in revenues paid into the account, or a combination of the two. An increase in revenues could involve a commitment to regular transfers from the general fund. With the highway account facing similar problems, another possible change would be to redirect revenues from the mass transit account to the highway account and to fund the transit account with a general fund appropriation each year. This likely would make transit funding less certain, and it would not make up the entire shortfall in the highway account. Financing In addition to grants, the federal government supports public transportation infrastructure with direct loans and tax preferences for municipal bonds. Changes to two major federal loan programs relevant to public transportationâthe Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Railroad Rehabilitation and Infrastructure Finance (RRIF) programâcould be considered in reauthorization. TIFIA provides long-term, low-interest loans and other types of credit assistance for the construction of surface transportation projects (23 U.S.C. Â§601 et seq.). Although the maximum federal share of project costs that may be provided by the TIFIA program was raised in MAP-21 from 33% to 49%, DOT has stated that it will provide more than 33% only in exceptional circumstances. To date, TIFIA has not covered more than 33% of the cost of any project. By limiting the TIFIA share in this way, DOT appears to be trying to maximize the leveraging of nonfederal resources, but it may be excluding projects that may not be financially viable without greater federal assistance. Public transportation projects typically cover a relatively small share of their costs from user fees, thus they usually need more government support than highway and bridge projects. Congress could direct DOT to consider a higher federal share in more circumstances or across the board. Some project sponsors have stated that the lengthy process and upfront costs for obtaining TIFIA assistance led them not to seek TIFIA loans. The FAST Act required DOT to expedite projects thought to be lower-riskâthose requesting $100 million or less in credit assistance with a dedicated revenue stream unrelated to project performance and standard loan termsâbut this has apparently not had a significant effect: two projects have received TIFIA loans of less than $100 million since the passage of the FAST Act. Congress could make small TIFIA loans more attractive by changing a requirement that project sponsors obtain two credit ratings; at present, that requirement applies to TIFIA loans for projects with debt of $75 million or more. Less stringent requirements for credit ratings may increase the risk to the government of these loans. Reauthorization legislation also could incorporate various proposals that have been suggested to speed up approvals, such as requiring more frequent meetings of the DOT officials who make recommendations on project loans to the Secretary of Transportation (known as the Council on Credit and Finance), hiring additional staff to more quickly assess applications, and mandating that DOT regularly publish information about the time it takes loan applications to reach milestones. The RRIF program was originally created to support freight railroads, particularly small freight railroads known as short lines, but loans are increasingly being made to commuter railroads. Legislative changes have made RRIF loans more attractive to commuter railroads. Recent changes also permit loans for transit-oriented development, that is economic development projects, including commercial and residential development, physically or functionally related to a passenger rail station. Several large loans have been made to transit agencies for commuter rail projects in the past few years, including $908 million to the Dallas Area Rapid Transit to finance a project from Dallas-Fort Worth Airport, $220 million to the Massachusetts Bay Transportation Authority for positive train control (PTC), and almost $1 billion to the New York Metropolitan Transportation Authority, also for PTC. The federal government requires project sponsors to make a payment known as a credit risk premium to offset the risk of a default. No federal funding has been authorized to pay the credit risk premiums for RRIF borrowers, although $25 million was made available for this purpose in the 2018 appropriations act. To enhance the attractiveness of RRIF for public transportation projects, Congress could authorize a federal subsidy for the credit risk premium from the Highway Trust Fund. Alternatively, Congress could provide for the credit risk premium from the general fund directly or as part of another program. For example, the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ) makes RRIF credit risk premiums eligible for grants under the BUILD Transportation Discretionary Grants Program. Another RRIF-related proposal is to extend the authority to provide loans for transit-oriented development projects, which expires on September 30, 2020. Capital Investment Grants (CIG) Program Because the CIG program receives funding from the general fund, not the Highway Trust Fund, appropriators have greater influence over its funding than they do over other transit programs. Nevertheless, the authorization sets a benchmark for the program's funding level, creates the program's overall structure, and can provide more or less discretion for FTA in the program's implementation. These characteristics could be more important in reauthorization than usual because of disagreements about the existence and operation of the program between Congress and the Trump Administration. During the Obama Administration, FTA, among others, recommended significant increases in CIG funding to accommodate demand by project sponsors, especially because projects to expand the capacity of existing transit facilities, known as Core Capacity projects, were made eligible for funding beginning in FY2013. FTA noted in its FY2017 budget submission that the number of projects in the CIG "pipeline" had grown from 37 in FY2012 to 63 in FY2016. In addition, FTA asked Congress in its FY2017 budget request to increase annual CIG funding from the $2.3 billion authorized by the FAST Act to $3.5 billion, to accelerate projects to "not only potentially lower financing costs incurred on these projects, but also allow FTA to better manage the overall program given the ever growing demand for funds." For FY2018 and FY2019, the Trump Administration proposed that funding should be limited to projects with existing commitments from the federal government, and that CIG funding should be phased out. In its funding recommendation for FY2018, FTA noted that "future investments in new transit projects would be funded by the localities that use and benefit from these localized projects." House and Senate appropriators rejected this approach, directing FTA to continue working with project sponsors to develop projects, including issuing project evaluation ratings, and requiring the allocation of appropriations, with deadlines, to projects that have met the program requirements. With pressure for continued operation of the program, FTA has made several announcements of allocations of CIG funding to new projects. In July 2019, FTA stated that from the beginning of the Trump Administration in January 20, 2017, FTA had made CIG funding commitments to 25 new projects totaling $7.63 billion. It appears that FTA has dropped its call for phasing out the program; it recommended funding of $1.5 billion in FY2020, including $500 million for new projects. Congress agreed to nearly $2 billion for the program in the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ). New York and New Jersey Gateway Program The Gateway Program, which involves a set of projects in a 10-mile section of the Northeast Corridor (NEC) between Penn Station in Newark, NJ, and Penn Station in New York City, would be designed to improve intercity passenger rail service by Amtrak, which owns the underlying infrastructure, as well as commuter rail service provided by New Jersey (NJ) Transit. NJ Transit ridership in the corridor is approximately 50 million passenger trips per year, making this among the most heavily traveled public transportation routes in the country. The project sponsorsâthe Port Authority of New York and New Jersey, in cooperation with the Gateway Program Development Corporation, New Jersey Transit Corporation, and Amtrakâhave proposed $7 billion in CIG program funding for the costliest Gateway Program project to date. The $14 billion project is for the construction of a new tunnel under the Hudson River, the restoration of the current tunnel that was damaged by Hurricane Sandy in 2012, and the preservation of the Hudson Yards right-of-way linking the proposed new tunnel with Pennsylvania Station in New York City. In addition, the project sponsors propose to borrow several billion dollars for tunnel construction from the federal government through the RRIF program. NJ Transit, the lead sponsor of the $1.6 billion Portal North Bridge project across the Hackensack River in New Jersey, has proposed a CIG grant to cover about half the cost. The Gateway Program overall is estimated to cost about $30 billion. The federal amount sought for the Gateway Program is equal to several years of funding for CIG, at recent funding levels, and could potentially overwhelm a program that is responsible for aiding projects throughout the country. The largest CIG grant since FY2007 is $2.6 billion. FTA typically pays out such grants in smaller amounts over a prolonged construction period; single-year allocations of funding for individual projects have rarely exceeded $200 million. The proposed use of federal loans in conjunction with federal grants for the Gateway Program is also controversial. The statute governing TIFIA (23 U.S.C. Â§603(b)(8)) states that proceeds from a TIFIA loan "may" be used as a nonfederal share of project costs if the loan will be repaid from nonfederal funds. The Trump Administration has been critical of CIG project sponsors using both federal grants and loans on public transportation projects. In June 2018, FTA circulated a letter stating the following: given the competitive nature of this discretionary program, the [CIG] statute specifically urges FTA to consider the extent to which the project has a local financial commitment that exceeds the required non-government share of the cost of the project. To this end, FTA considers U.S. Department of Transportation loans in the context of all Federal funding sources requested by the project sponsor when completing the CIG evaluation process, and not as separate from the Federal funding sources. The appropriations committees have taken action to prevent this policy from being implemented. For instance, Section 165 of Division G of the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ), states that "none of the funds made available under this Act may be used for the implementation or furtherance of new policies detailed in the 'Dear Colleague' letter distributed by the Federal Transit Administration to capital investment grant program project sponsors on June 29, 2018." In a potential reauthorization, Congress could seek to eliminate permanently DOT's discretion to block project sponsors from combining CIG grants and TIFIA loans on a single project. Bills pending in the House, H.R. 731 and H.R. 1849 , would allow recipients of TIFIA and RRIF support to elect to have the loans treated as nonfederal funds. Expediting CIG Projects Applying for CIG funding requires the development of extensive data and the preparation of many detailed reports and other documents, all of which are reviewed by FTA in making project approval determinations. Legislative changes in MAP-21 and the FAST Act sought to simplify the process. For example, MAP-21 reduced the number of separate FTA approvals for more expensive projects from four to three, and for less expensive projects from three to two. The less expensive projects, known as small starts projects, are those that cost $300 million or less to build and require $100 million or less of CIG funding. Moreover, MAP-21 authorized the use of project justification warrants in certain cases "that allow a proposed project to automatically receive a satisfactory rating on a given criterion based on the project's characteristics or the characteristics of the project corridor." The FAST Act created an Expedited Project Delivery for Capital Investment Grants Pilot Program to more quickly review up to eight projects involving public-private partnerships in which the federal grant is 25% or less of the project cost. The federal share of a CIG project is typically about 50%. There have been no comprehensive evaluations of whether these changes have resulted in projects progressing more quickly through the CIG pipeline. However, there are options that could be considered to further speed CIG projects. For instance, the threshold for projects to qualify as small starts could be increased, and the use of warrants could be permitted in more circumstances. FTA has been slow to implement the Expedited Project Delivery for Capital Investment Grants Pilot Program. Increasing the permitted maximum federal share of project costs under the pilot program, currently 25%, might make the program more attractive to transit agencies. Falling Public Transportation Ridership According to data from the American Public Transportation Association (APTA), annual transit ridership reached a modern-era high of 10.7 billion trips in 2014. Since then, it has fallen by almost 8% to 9.9 billion trips in 2018. National trends in public transportation ridership are not necessarily reflected at the local level; thus, different areas may have different reasons for growth or decline. But at the national level, the two factors that most affect public transportation ridership are competitive factors and the supply of transit service. Several competitive factors, notably increased car ownership, the relatively low price of gasoline over the past few years, and the growing popularity of bikeshare, scooters, and ridesourcing services such as Lyft and Uber, appear to have reduced transit ridership. The amount of transit service supplied has generally grown over time, along with government investment, but average fares have risen faster than inflation, possibly deterring riders. The future of public transportation ridership in the short to medium term is likely to depend on population growth, the public funding commitment to supplying transit, and factors that make driving more or less attractive, such as the price of parking, the extent of highway congestion, and the implementation of fuel taxes, tolls, and mileage-based user fees. Under current law, federal grants to transit agencies are based mainly on population, population density, and the amount of service provided. Congress could address the issue of declining ridership by tying the allocation of federal formula funds to agencies' success in boosting ridership or fare revenue. Over the long term, the introduction of fully autonomous vehicles could reduce transit ridership, unless restrictions or fees make them an expensive alternative. However, there is significant uncertainty about when, or whether, fully autonomous vehicles will affect ridership. Given this uncertainty, federal capital funding might focus on buses, which last about 10 years, and not new rail systems that take many years to build and will remain in service for decades. Another option would be to redirect CIG funding from building new rail systems and lines to refurbishing rail transit in the large and dense cities where rail transit currently carries large numbers of riders. The emergence of new mobility options may have reduced transit ridership, but it also may present an opportunity for transit agencies to provide new services to improve customer mobility. FTA has funded some pilot projects through the Research, Development, Demonstration, and Deployment program. An option in reauthorization would be to fund a program that focuses on boosting transit ridership through mobility and technological innovations. Climate Change Surface transportation is a major source of carbon dioxide (CO 2 ) in the atmosphere, the main human-related greenhouse gas (GHG) contributing to climate change. At the same time, the effects of climate change on environmental conditions, such as extreme heat and global sea level rise, pose a threat to transportation infrastructure. Surface transportation reauthorization may seek to address environmental conditions with mitigation provisions that aim to reduce GHG emissions from surface transportation and adaptation provisions that aim to make the surface transportation system more resilient. S. 2302 , the reauthorization bill reported by the Senate Committee on Environment and Public Works in August 2019, included provisions that address climate change. GHG emissions from the transportation sector come mainly from passenger cars and light trucks. Public transportation might contribute to a reduction of GHG emissions if trips made in personal vehicles, particularly single-occupant trips, are made by trains and buses instead. The efficiency of public transportation in terms of GHG emissions depends, in part, on the amount of ridership in relation to the amount of transit supplied. GHG emissions from public transportation are also dependent on the sources of fuel used to power trains and buses, including the way in which electricity is generated. Specific policy options that might be considered to reduce GHG gases from public transportation vehicles could include funding for alternatives to diesel-powered buses, particularly electric buses using electricity generated from renewable sources. This could include a higher level of funding for the Low or No Emission Vehicle (Lo-No) Program. In the FAST Act, the discretionary Lo-No Program was funded as a $55 million annual set-aside from the Bus and Bus Facilities Program. Another possibility would be to require buses purchased using federal funds to have low or no emissions. Electric buses cost more to purchase than traditional diesel-powered buses, although the lifecycle cost is comparable. To overcome this, the federal government could offer low-interest or no-interest loans for the nonfederal share of the cost of buying electric buses. Adaptation is action to reduce the vulnerabilities and increase the resilience of the transportation system to the effects of climate change. Although much of the funding administered by FTA can be used to assess the potential impacts of climate change on public transportation infrastructure and to apply adaptation strategies, there is currently no dedicated surface transportation funding for adaptation projects. Reauthorization could create a new grant program dedicated to adaptation planning and projects or require that funds from other programs be set aside for such purposes. Emergency Relief Program The Public Transportation Emergency Relief (ER) Program (49 U.S.C. Â§5324; 49 C.F.R. Â§602) provides federal funding on a reimbursement basis to states, territories, local government authorities, Indian tribes, and public transportation agencies for damage to public transportation facilities or operations as a result of a natural disaster or other emergency and to protect assets from future damage, so-called resilience projects. FTA's ER program does not have a permanent annual authorization. Rather, all funds are authorized on a "such sums as necessary" basis and require an appropriation from the Treasury's general fund. Because of this, FTA cannot provide funding immediately after a disaster or emergency is declared. Transit agencies, therefore, typically rely on the Federal Emergency Management Agency (FEMA) to fund immediate needs beyond the capacity of state and local government. This could slow the response of transit agencies and blur the lines of responsibility between FTA and FEMA if funds are later appropriated for the ER program. Adding a quick-release mechanism to FTA's ER program would allow FTA funds to be approved and distributed within a few days of a disaster. Such a program already exists for the Federal Highway Administration, with an annual authorization of funds from the Highway Trust Fund, and FTA's program could similarly be authorized an amount from the mass transit account of the fund. Such an authorization, however, would place a new claim on resources of the mass transit account. The FTA's ER program does not have a limit on the amount that can be spent on resilience projects. Although this may allow for better projects, it can result in Congress appropriating larger amounts than might otherwise be necessary, and it could also be a way for transit agencies to fund betterments and new facilities that have little direct connection to the goals of repairing damages and making the transit systems resilient to future natural hazards. A separate resilience program and changes to the ER program may be a more effective way to protect public transportation infrastructure from future disasters. Public Transportation Safety Public transportation is a relatively safe mode of passenger transportation compared with traveling by car and light truck. The fatality rate per passenger mile for cars and light trucks is about double that of transit buses and five times that of heavy rail. While the fatality rate per passenger mile for commuter rail is more comparable with cars and light trucks, most commuter rail fatalities are nonusers, such as trespassing pedestrians and those in vehicles struck at grade crossings. The federal government's role in public transportation safety has been expanded significantly since 2008. One of the major changes was the requirement in the Rail Safety Improvement Act of 2008 ( P.L. 110-432 ) for commuter railroads, along with Amtrak and freight railroads, to install positive train control (PTC), systems that use signals and sensors to monitor and control railroad operations. The federal requirement for PTC resulted in significant capital costs for commuter rail agencies, of which about 10% has been borne by the federal discretionary and formula funds. In addition to the initial costs of installing PTC, commuter rail agencies claim that there will be ongoing costs associated with PTC estimated to be about $160 million per year. Consequently, PTC implementation may have a detrimental effect on the overall financial condition of commuter rail agencies, and, without more funding from federal, state, or local government, may have a detrimental effect on the condition of commuter rail assets. Commuter rail agencies have proposed the creation of a new federal PTC funding program that could pay some or all of these ongoing costs. Separately, proposals have been advanced to dedicate federal funding for commuter railroads to improve the safety of highway-rail grade crossings. Buy America With the aim of protecting American manufacturing and manufacturing jobs, Buy America laws place domestic content restrictions on federally funded transportation projects. Buy America requirements vary according to the specific DOT funding program and administering agency. For projects funded by FTA there is a 100% U.S.-made requirement for iron, steel, and manufactured goods. However, Buy America does not apply to rolling stock if more than 70% of components, by value, are produced domestically and final assembly is in the United States. An addition to Buy America law in the National Defense Authorization Act for Fiscal Year 2020 ( P.L. 116-92 , Â§7613) prohibits transit agencies purchasing railcars and buses from certain government-owned, -controlled or -subsidized companies, such as the China Railway Rolling Stock Corporation and BYD, even if they are otherwise Buy America-compliant. Waivers of Buy America requirements can be provided by DOT agencies under certain circumstances, but these can be difficult and time-consuming to obtain. To speed up the waiver process, Congress could require that a waiver decision be made within a specific number of days. Each DOT agency has its own Buy America requirements, creating complications when a project involves funding from more than one of the agencies. Congress might seek to standardize Buy America requirements across the department. Other proposals have been to make Buy America requirements more stringent. For example, the Buy America 2.0 Act ( H.R. 2755 , 116 th Congress) would increase the share of public transit rolling stock components and subcomponents that must be produced in the United States by five percentage points annually beginning in FY2021, reaching 100% by FY2026. Such measures may make it more costly and time-consuming for transit agencies to procure vehicles.


Introduction Around the world, people use websites on their computers and apps on their mobile devices to access information and services. Creators of these websites and apps are known as "edge providers." The Federal Communications Commission (FCC) first used the term in 2010 to refer to individuals and entities "providing content, applications, services, and devices accessed over or connected to broadband Internet access service." Such activities, conducted on the "edge" of the internetâhence the nameâcan range from an individual creating a personal blog to a billion-dollar company creating a website. At that time, the FCC determined that it would not regulate edge provider activities. Instead, similar to other businesses, edge providers may be examined by the Department of Justice (DOJ) and Federal Trade Commission (FTC) on a case-by-case basis for potential violations of consumer protection or antitrust statutes. Federal agencies and Congress are investigating competition among edge providers, particularly companies with large amounts of revenue. The FTC, DOJ, and at least 47 attorneys general are reportedly looking into whether select edge providersâreportedly including Google, Apple, Facebook, and Amazonâhave violated antitrust laws. A House Judiciary Committee investigation into competition in digital markets has raised the question of whether existing antitrust laws, competition policies, and current enforcement levels are adequate to address competition issues among edge providers. Competition is generally viewed as a means to ensure low prices for consumers and to spur innovation. Some have raised concern that competition is being harmed by a few dominant edge providers and that regulations may be needed. This report examines the potential effects of edge providers' expansion on competition. Due to acquisitions or growth, some edge providers now operate in multiple industries. Some companies have integrated vertically, both generating content as edge providers and delivering it to consumers as internet service providers (ISPs). Other companies have integrated horizontally by acquiring other edge providers, which could increase their customer base and expand the content or services offered, but also eliminate potential competitors. This report focuses on how horizontal and vertical integration may affect edge providers' relationships with ISPs and competition among edge providers. What Are Edge Providers? In its 2010 Open Internet Order, the FCC first referred to individuals and entities "providing content, applications, services, and devices" over the internet as "edge providers." These can be search engine providers, streaming video or music services, social media platforms, retailers, or other types of businesses. An edge provider can be a blog or personal website maintained by an individual, making it difficult to distinguish between edge providers and end users. It can also be a website maintained by a company that generates billions of dollars in revenue. An edge provider can serve as a conduit for content created by others instead of or in addition to content created by the company itself. Some of the content may be subject to licenses granted by copyright holders, while other content might not face any copyright restrictions. This report focuses on companies that operate at least one edge provider. Some edge providers generate revenue by selling products or subscriptions to their content. Others offer their content for free and generate their revenue by using information provided by their users to sell advertising spaces or by selling the information itself. In the third quarter of 2019, Facebook, one of the largest edge providers as measured by market capitalization, reported $17.4 billion in revenue from advertising, which made up 98% of its total quarterly revenue. Google, another large edge provider, reported $33.9 billion in advertising revenue for the same quarter, which made up 84% of its total quarterly revenue. ISPs and mobile carriers connect edge providers with those who use their content. On mobile devices, edge providers generally provide their content over apps. Consumers typically obtain apps from online app stores such as Google Play and the Apple App Store. Browser appsâsuch as Chrome, Safari, and Firefoxâallow users to access other edge providers' websites, similar to a browser on a computer. To access the content on apps, users need a data plan from their mobile carrier or a wireless connection to an ISP. Figure 1 presents a simplified example of how edge providers interact with ISPs and users. In this example, Content Provider (CP) A relies on digital advertising for its revenue: advertisers pay CP A to place an ad, and in turn receive revenue from users who pay for the advertised product. CP B receives a direct payment for its content from users. Both edge providers pay the ISP a termination fee to bring the content to the terminal point, the user. Users pay the ISP a subscription fee to access the data provided by CP A and CP B. In reality, the process can be more complicated. An edge provider may rely on a different ISP than its users' ISPs, in which case the content would travel through the internet backbone. The internet backbone consists of various networks linking servers and multiple ISPs together. An edge provider may also have direct connections to multiple ISPs or upload its content directly onto the internet backbone. While details on how the internet operates are beyond the scope of this report, a key factor in competition among edge providers is the role ISPs have in the relationship between edge providers and their users. Vertical Integration of Edge Providers Edge providers depend entirely on ISPs and mobile carriers to deliver their content to users. A growing number of companies operate both as edge providers and as ISPs, becoming vertically integrated (i.e., operating at multiple stages along a supply chain). Thus, companies that both generate content and deliver it to users are competing with others that either solely generate content or solely deliver it to users. Companies that started in the telecommunications and media industries are now among the most popular edge providers. Of the 16 edge providers that attracted the largest number of users in the United States in July 2019 ( Figure 2 ), six â Google, Facebook, Amazon, PayPal, Twitter, and the Weather Companyâstarted as edge providers. Examples of ISPs Becoming Edge Providers AT&T. AT&T owns part of the internet backbone and is considered a Tier 1 ISP, meaning it has free access to the entire U.S. internet region. It is also a mobile carrier and provides voice services and video programming. In 2018, AT&T acquired Time Warner, a content creator that owns HBO and its affiliated edge provider HBO NOW, as well as other cable channels. The DOJ unsuccessfully attempted to block the merger. AT&T has announced plans to introduce a new edge providerâHBO Maxâto stream video programming for no extra charge to AT&T customers who are also HBO subscribers; other customers will reportedly be charged a subscription fee. Comcast. Comcast is an ISP, a cable television service, and a voice service provider. In 2011, Comcast became the majority owner of NBCUniversal, which owns television networks and broadcast stations, and thus obtained minority ownership of Hulu, an edge provider that streams video programming to subscribers. In 2019, Walt Disney Company obtained "full operational control" of Hulu, but Comcast retained its 33% financial stake. Comcast also announced plans to launch its own video streaming service, Peacock. Comcast reportedly plans to offer three subscription options for Peacock: a free option supported by ads, a premium version with more programming for a fee, and the premium version with no ads for a higher fee. The premium version is to be offered for free to subscribers of Comcast and Cox Communications. Verizon. Verizon owns part of the internet backbone and is considered a Tier 1 ISP. It is also a mobile carrier, and offers video, voice, and ISP services. In 2015, Verizon acquired AOL, an ISP and edge provider, and in 2016, it acquired the core business of Yahoo, an edge provider. It combined the edge provider products from these acquisitionsâsuch as Yahoo Finance, Huffington Post, TechCrunch, and Engadgetâin 2017 to create Oath. Examples of Edge Providers Becoming ISPs Google. Google is the largest subsidiary of the company Alphabet. It offers multiple products, including a search engine, email server, word processing, video streaming, and mapping/navigation system. Google generally relies on other ISPs to deliver its content, but entered the ISP market in 2010 when it announced Google Fiber. Google Fiber provides broadband internet service and video programming. Beginning in 2016, it suspended or ended some of its projects; as of October 2019, it had installed fiber optic cables in 18 cities. Facebook. As it attracted more users, Facebook expanded from providing an online platform that connects users to an online platform suitable for various activities, including fundraising, messaging, and commerce. In 2018, a spokesman confirmed that Facebook was pursuing another project, dubbed Athena. Athena is an experimental satellite that would beam internet access through radio signals. If successful, Athena would enable Facebook to become an ISP. Amazon. In addition to being a major online retailer, Amazon offers information technology infrastructure services through Amazon Web Services. In 2019, Amazon confirmed plansâdubbed Project Kuiperâto launch 3,236 satellites into low-Earth orbit to provide broadband internet across the world. If successful, Project Kuiper would enable Amazon to become an ISP. Competition Among Edge Providers Edge providers can compete in various ways. A few examples include offering new content or services, advertising their content, or acquiring potential competitors. Subscription-based edge providers can lower their fees, offer discounts for referrals, or use price promotions to attract new users. This report focuses on the potential effects of vertical integration (e.g., where a company operates as both an edge provider and an ISP) as well as horizontal integration (e.g., where an edge provider acquires another edge provider). Common indicators used to determine the level of competition in a market include measuring its concentration and changes in the number of establishments. Market concentration is determined by examining whether most sales are concentrated among a few firms or dispersed among a large number of firms. Changes in the number of establishments can be used as an indicator as well, particularly when firm-level sales are unavailable. For example, if the total number of stores in a market is decreasing, it can suggest, but does not demonstrate, that competition is decreasing. To use these indicators to measure competition in a market, one must first define its scope. A common method of defining a market's scope is to use the North American Industry Classification System (NAICS). Two industries that consist of only edge providers are "Data Processing, Hosting, and Related Services" (NAICS 519130) and "Internet Publishing and Broadcasting and Web Search Portals" (NAICS 518210). Figure 3 shows that the number of establishments in both industries has increased over the past decade. However, most users seeking specific types of content obtain it from only a few edge providers. For example, data from August 2019 show that among social network websites, 95% of the visits from the users in the United States went to three websites: Facebook, Pinterest, and Twitter ( Figure 4 ). Similarly, data from June 2019 show that among mobile social networking apps, the three most popular among users in the United States were Facebook, Instagram (owned by Facebook), and Facebook Messenger ( Figure 5 ). Edge providers compete for users based on content and quality of services offered. To increase the number of users, edge providers attempt to provide content that is in high demand and to ensure that the content is delivered as seamlessly as possible. In response to network congestion, most content used to be delivered on a "best effort" basis because most of the content was not time-sensitive (e.g., email). The "best effort" basis does not guarantee that content will be delivered by a certain time or at a certain speed. This meant that some content was held at a congestion point until a future time, while other content was dispatched in real time. While this practice was suitable for some content, it became problematic for edge providers sending time-sensitive content. Interruptions, latency, or delays in transferring data lower the value of time-sensitive content (e.g., video programming). As a result, some edge providers have been given the option to pay network managers, including ISPs, to ensure their content would be given priority, an industry practice known as paid prioritization. Another practice to ensure a more consistent quality of service is to avoid potential congestion points by bypassing parts of the network. For example, edge providers can pay ISPs for a direct connection to their networks, or edge providers can build their own content delivery network (CDN) or pay to use another company's CDN. Examples of CDNs include Microsoft's Azure or Amazon's CloudFront, which is available through Amazon Web Services. A CDN distributes online content and network services from servers located as close as possible to users' ISPs to avoid potential congestion points and reduce the bandwidth needed to send the content; a CDN may also have a direct connection to users' ISPs. As a result, CDNs can serve as a digital intermediary between users' ISPs and other edge providers. Congress and the FCC have considered edge providers' access to end users over the internet under the rubric of "net neutrality," a term associated with the concept that ISPs should treat data in a nondiscriminatory manner, regardless of the size or type of content. Policy discussions on net neutrality have focused on the role of the ISP in delivering content to end users. Concerns over practices ISPs might use to manage the flow of content, such as blocking, throttling, and paid prioritization, have become major discussion points. Although the FCC placed a ban on such practices when it issued the 2015 Open Internet Order, the restrictions were subsequently removed by the FCC with the issuance of the 2017 Restoring Internet Freedom Order. Congress has considered bills both banning or removing bans on such practices. The ability to pay ISPs for direction connections or prioritization of content could affect competition among edge providers. Although some see paid prioritization as a management tool that ensures time-sensitive content receives priority, others view it as a means to discriminate among content. A nascent edge provider may not have the financial resources to pay for prioritization or for a direct connection, meaning its content could be delivered more slowly than content from competing edge providers that can afford these payments. The potential competitive imbalance between nascent edge providers and more established ones may be further exacerbated by the growing number of vertical mergers. Effect of Vertical Integration on Competition Some of the companies edge providers rely on for distribution are also their competitors because of vertical integration among edge providers and ISPs. For example, while Netflix works with Comcast to deliver its content, Comcast is also its competitor as the operator of cable systems, a partial owner of Hulu, and the owner of the planned video streaming service Peacock. Vertical integration could affect competition among edge providers. Companies that operate as both an ISP and edge provider may have a competitive advantage with the quality of content delivery over edge providers that have not paid for a direct connection to the ISP's network. Companies that pay for a direct connection to the network may also be at a competitive disadvantage because they incur an additional cost to obtain a connection that vertically integrated edge providers do not. Edge providers that also operate as CDNs may similarly benefit from better connections to ISPs without incurring a cost borne by edge providers that are not integrated with CDNs or ISPs. For example, Netflix pays Amazon to house its content on Amazon Web Services, although it competes with Amazon Prime Video, which also offers video streaming services. Vertically integrated companies associated with an ISP or CDN could also potentially prioritize their own edge providers' content over rivals' content. Similar concerns affect companies that operate as both edge providers and mobile carriers. Edge providers that are also mobile carriers can include their own apps on their customers' mobile devices for free and retain all of the profits from those apps. In contrast, competing edge providers may be charged a feeâsuch as an initial payment or a percentage of salesâfor including their apps in the app store. In this case, nonaffiliated edge providers would face a cost that edge providers affiliated with mobile carriers do not. Edge providers associated with mobile devices in general may also have similar advantages. For example, in 2005, Google acquired Androidâan operating system for mobile devicesâand further developed the software thereafter. Google was fined â¬4.34 billion ($5.05 billion) by the European Union (EU) for anticompetitive practices related to Android. Specifically, the European Commission determined that Google violated EU antitrust law by "bundling" its Play app store with its Search and Chrome apps (i.e., by requiring smartphone manufacturers that preinstalled the Google Play store to preinstall Google Search and Google Chrome). The ruling stated that by doing so, Google reduced the ability of rival search engines and web browsers to compete effectively, as consumers with Google Search and Google Chrome preinstalled on their devices were less likely to download competing search engines and web browsers. Some ISPs, particularly mobile carriers, have introduced "zero rating" or sponsored data plans. These plans allow subscribers to consume specific content or services without incurring charges against the subscriber's usage limits. For example, Facebook's Free Basics is a mobile phone app available through various mobile carriers in 65 countries. It provides free access to a limited selection of services and websites, including Facebook. It was banned by the Telecom Regulatory Authority of India for being anticompetitive by offering free access only to online services owned or controlled by Facebook. Similarly, critics claim that these plans favor edge providers affiliated with ISPs and those that are entrenched and well financed. However, supporters claim that these plans encourage consumers to try new services, particularly those that require large amounts of data. By combining consumer data collected by its ISP and edge provider components, a vertically integrated company may also have a competitive advantage through its ability to send targeted advertisements. In proposing to acquire Time Warner in 2018, AT&T chief executive Randall Stephenson stated that the merger would expand AT&T's access to customer and viewer data, allowing it to run targeted advertisements, which tend to be more profitable. Some state legislatures have passed or introduced legislation restricting how ISPs may collect or share consumer data; Congress has not passed similar legislation at the federal level. California has enacted data protection legislation, the California Consumer Privacy Act, which went into effect on January 1, 2020. It provides California residents the right to access, delete, and share personal information collected by businesses, including edge providers and ISPs. Consumers could benefit from the economic efficiencies obtained from edge providers' vertical integration with ISPs or mobile carriers by receiving content at faster speeds and lower prices. Vertically integrated edge providers could pass on to consumers the cost savings of not paying for a direct connection to the ISP network. For example, subscribers to a streaming service owned by an ISP may be able to receive its content more smoothly and at lower cost than subscribers to a streaming service not affiliated with an ISP. Free apps could benefit consumers as well. Vertical integration may also benefit consumers by increasing competition among ISPs. Currently, individual users in many areas have access to a limited number of internet providers because of the high costs associated with broadband deployment. If edge providers enter the ISP market, consumers may benefit from an increase in provider options, potentially resulting in lower prices and/or faster speeds. For example, one study credits Google Fiber for encouraging faster speeds, lower prices, and/or network upgrades among competing ISPs. However, the competitive benefit of edge providers entering the ISP market may be undermined by reduced competition among edge providers. Effect of Horizontal Integration on Competition Through mergers and acquisitions among themselves, edge providers have integrated horizontally. Facebook has made at least 79 acquisitions, including Instagram, WhatsApp, Oculus VR, and Chai labs. Google has made over 200 acquisitions, including DoubleClick, Waze, Nest, and YouTube. In some cases, edge providers have acquired companies with unique technologies in the early stages of development, foreclosing potential competition. Whether such acquisitions should be reviewed in the context of antitrust enforcement is controversial. Some commentators advocate limiting mergers among edge providers or breaking up large edge providers to increase competition, while others view mergers as a natural result of a competitive market in which more successful firms acquire smaller ones. Edge providers can benefit from acquiring other edge providers that offer different content or services. They can participate in a diverse set of online markets, expand or improve their content, or eliminate potential competitors. Google's acquisition of YouTube enabled it to gain a stronger footing in the online video market. Facebook acquired Divvyshot to improve its photo-sharing platform, particularly for mobile devices. These acquisitions can be viewed as integrating media platforms to improve end users' experience, a positive byproduct of competition, or as reducing competition by preventing the growth of other edge providers. Some have criticized Facebook's acquisition of Instagramâa photo and video-sharing social media appâand advocate for breaking up Facebook and Instagram; critics include some Members of Congress. Horizontal integration may increase an edge provider's customer base, which may give it greater bargaining power with ISPs. Because edge providers rely on ISPs to deliver their content, ISPs generally have leverage over edge providers that seek access to their networks. However, edge providers with large numbers of end users may have much greater bargaining power than smaller local or regional ISPs, as they may in some cases account for a large share of an ISP's internet traffic. By increasing their customer base through horizontal integration, edge providers can improve their market position. Edge providers that rely on digital advertising can target more individuals with digital advertisements and potentially increase the number of spaces to sell to advertisers. Edge providers can create more detailed profiles of individual users and improve their methods of targeting advertisements by combining consumer data from multiple sources. Some edge providers have acquired firms that control tools used to buy and sell digital advertising, such as advertisement servers that place spaces in auctions to determine which advertisement should be selected. By controlling such tools, an edge provider could have a competitive advantage against other edge providers that need to pay to use these tools. Concern about control of digital advertising tools has focused on Alphabet, which has acquired and incorporated into Google several digital advertising tools, including DoubleClick, AdMob, and Admeld. These acquisitions helped Google become the largest seller of digital advertising. Google has reportedly waived fees for using multiple components of its advertising services, bundling them together. This could make it difficult for rivals to offer competing services. Google reportedly required advertisers to use its advertising services to purchase advertisement spaces on YouTube, and used data collected from its edge provider services (e.g., Gmail and Google maps) in its advertising server. The DOJ and state attorneys general are reportedly investigating Google's use of its advertising products. Oversight of Edge Providers The vertical integration of edge providers and ISPs creates a situation in which certain activities of a company may be regulated by the FCC while closely connected activities are not. On June 15, 2015, Consumer Watchdog, a nonprofit organization that advocates for taxpayer and consumer interests, filed a petition requesting the FCC to regulate edge providers and prevent them from "tracking personal information and web activity without consumers' knowledge and permission." The FCC dismissed the petition on November 6, 2015, citing its 2015 Open Internet Order, which stated that the FCC would not regulate any internet content. The 2017 Restore Internet Freedom Order reversed the 2015 Open Internet Order by reclassifying ISPs under Title I, but it also did not address the regulation of edge providers. Thus, pursuant to the 2015 Open Internet Order, the FCC has left oversight of edge providers to other agencies, principally the FTC and DOJ. The FTC deals with consumer privacy issues under its broad authority to prohibit unfair and deceptive trade practices, and the FTC and DOJ deal with unfair methods of competition that may violate antitrust laws. The FTC has expanded its examination of consumer data privacy concerns from its initial edge provider focus to include vertical integration by ISPs. On March 26, 2019, the FTC issued orders to seven ISPs to obtain information on how they collect, retain, use, and disclose information about consumers and their devices. The order specifically addressed the need to better understand ISPs' privacy practices because their vertical integration allows them to provide advertising-supported content produced by related entities within the companies. The FTC and DOJ opened antitrust investigations of possible anticompetitive behavior by "Big Tech" firms, reportedly including Google, Apple, Facebook, and Amazon. On September 6, 2019, the attorneys general of eight states and the District of Columbia announced an investigation of Facebook and Google for possible antitrust violations. By October 22, 2019, the number of participating attorneys general had reportedly grown to 47. A key question in these antitrust investigations could be determining the market for edge providers. Generally, a market is established based on specific goods or services, and their substitutability with other goods and services. However, because some edge providers offer multiple goods and services that could be classified in multiple industries, it has become difficult to determine which market(s) these edge providers belong in. For example, should each product sold on Amazon (e.g., clothes, children's toys, books) be placed in a separate market? If so, should products that are sold by another company on Amazon's website be considered Amazon's products or the selling company's products? Are physical books sold on Amazon in the same market as its Kindle e-books or its Audible audiobooks? Competition analysis generally involves defining the market of a product, which can be particularly complex in the analysis of edge providers. Determining the market share for edge providers that rely on digital advertising rather than selling tangible products may be even more complicated. In addition to the complexity of defining which market some of these edge providers fall in, it can be difficult to determine their "sales," as they generally do not obtain revenue from offering their content to users. These edge providers obtain revenue from selling advertisement spaces using users' data or from selling users' data directly. Should the market share for these edge providers be determined by the total advertising revenue obtained from each website or by the amount of user data collected? In the latter case, how should user data be "priced"? Should all edge providers that rely on digital advertising be compared to each other in one market, or should these edge providers be separated based on content? Considerations for Congress On June 3, 2019, the House Judiciary Committee announced that it would begin an investigation into competition in digital markets. It has held five hearings, which have raised questions and discussions including or related to the topics covered in this report. Among the major questions related to edge providers that Congress may wish to consider are the following: How does vertical integration among ISPs and edge providers affect competition? One of the difficulties in answering this question is the inability to evaluate how the market would have developed absent vertical integration. For example, vertical integration may lead to greater innovation in some cases, but to less innovation in others. It is also unclear how the effect of vertical integration on competition should be measured. As many users of edge providers' services do not pay for those services in a monetary sense, price effects, which are traditionally used to evaluate the extent of competition, may not be a sufficient measure. How could inequities in the amount of consumer data obtained by edge providers affect competition in the future? Consumer data may become increasingly important as machine learning and artificial intelligence technologies are further refined. It could be used to predict behavior among consumers or provide other competitive advantages for edge providers with large amounts of consumer data. Should competition among edge providers be regulated, and if so, to what extent? While the DOJ and FTC examine specific companies on a case-by-case basis for consumer protection or antitrust violations, the establishment of a regulatory framework could help prohibit anticompetitive practices. However, regulations may also disadvantage potential entrants while strengthening incumbents, and may impede innovation. Edge providers offer a wide variety of products and services, which could complicate the establishment of a single regulatory framework. However, other aspects of competition among edge providers, such as their relations with ISPs, are a matter relevant to all edge providers.