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The tax windfall that wasn’t: A troubling new IRS report suggests many Americans may be giving money right back to the government

The tax windfall that wasn't: A troubling new IRS report suggests many Americans may be giving money right back to the government
President Donald Trump hosts an event to celebrate Congress passing the Tax Cuts and Jobs Act with Republican members of the House and Senate on the South Lawn of the White House December 20, 2017 in Washington, DC. (Chip Somodevilla / Getty Images)

Americans like their tax refunds. Refunds are good for tax administration, too. Plenty of evidence shows that tax compliance is higher when taxpayers see refunds on their tax returns.

But millions of Americans looking forward to their tax refunds are about to be disappointed, even upset. They will not see their expected refunds when they file their returns in 2019. Even worse, many will be required to pay extra taxes. Why the change? The Republicans’ push to sell their tax law to the American public is the culprit.

The tax law signed by President Trump in December of 2017 made many changes to the tax code. The standard deduction increased, but the personal exemptions disappeared. Business owners got a rate cut but the deduction for state and local taxes shrunk. Mortgage interest deduction became less generous, but child credit expanded. Because of all these changes and many others, the withholding form that every American employee filed with his or her employer became outdated when 2018 arrived.

Employers needed new information from employees to keep the refunds roughly the same. But getting this information would take time. And Republicans wanted American workers to see tax savings from the 2017 tax law in their paychecks right away, before the 2018 midterm elections — whether these savings were real or not.

Adulting Is Hard: 5 Health Insurance Missteps to Avoid

So the IRS took a leap of faith, came up with an updated withholding schedule as best it could, and told employers to follow it going forward. The IRS then tried to convince Americans to do a “paycheck checkup” using its new “withholding calculator” to make sure that the employers’ withholding is not grossly off the mark.

Well-intentioned, but how realistic?

Democrats had doubts about the Republican tax strategy all along. Ron Wyden, D-Ore., the highest ranking Democrat on the Senate tax-writing committee, warned all the way back in January that “the Trump administration is tampering with Americans’ paychecks, resulting in a whopping tax bill next year.” The Trump administration dismissed these concerns as “ridiculous.”

At first, it seemed that the rushed implementation of the new tax law was not going to create a big problem. At Democrats’ request, the Government Accountability Office evaluated the new withholding regime and issued a report in July. The report concluded that the number of taxpayers who will have to pay extra tax rather than get a refund may increase by 3 million in 2018. Not chump change, but nothing earth-shattering either given the total of 150 million returns filed.

But last month a new report became public. This one came from the IRS Information Reporting Advisory Committee. And this new report drops a few troubling hints.

The IRS decision not to wait until employers obtain the necessary information from the employees, the report explains, “may cause a significant number of taxpayers to be under-withheld when they file their 2018 personal income tax returns.” The IRS calculator, it turns out, did not exactly catch fire. “Despite the IRS’s efforts to inform taxpayers to check their withholding and encourage the use of the ‘calculator’ on the IRS website, usage of the ‘calculator’ through completion has been minimal because of the complexity (per IRS comments).”

How concerned is the Advisory Committee about a major increase in the number of “under-withheld” taxpayers who will have to pay extra tax during the filing season? Concerned enough to officially recommend that the IRS waive penalties for under-withholding.

That’s right, if you did nothing during 2018 about your taxes at all, you may end up owing not just extra taxes, but penalties as well — all because the IRS decided to rely on the old forms that you may have given to your employer years ago. The idea, of course, was for you to “start seeing a lot more money in your paycheck” as soon as possible, as Trump said. Unfortunately, all that money can come right out of your bank account in a few months, and then some.

If the IRS Advisory Committee is worried, you should be as well. So do yourself a favor — check that IRS withholding calculator. You may need to cut back on your holiday shopping after that.

Raskolnikov is Wilbur H. Friedman Professor of Tax Law at Columbia Law School.

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The US just elected 9 new scientists to Congress, including an ocean expert, a nurse, and a biochemist

march for science washington dc
Congress just picked up several new science and health experts.
 Jessica Kourkounis/Getty Images

Midterm Elections Banner

The faces of Capitol Hill are changing.

When the 116th Congress heads to Washington in January, there will be a record number of women in the ranks — at least 123, according to the news website Axios, including the first Muslim women, the first Somali-American, and the first Native American women.

There will be more scientists too.

On Tuesday, nine new science-credentialed candidates were elected: one senator and eight members of the House.

The members of the current 115th Congress include one physicist, one microbiologist, and one chemist, as well as eight engineers and one mathematician. The medical professions are slightly better represented, with three nurses and 15 doctors, as well as at least three veterinarians.

The new winners will bolster those science ranks. The Democratic candidates who won all ran successful campaigns with the support of a nonprofit political action committee called 314 Action, which started in 2016 and is dedicated to recruiting, training, and funding scientists and healthcare workers who want to run for political office. (One Republican engineer turned businessman won a race in Oklahoma, without support from the PAC.)

“Scientists are essentially problem-solvers,” Shaughnessy Naughton, the president of 314 Action, told Business Insider before the election results came in.

Since Congress often wrestles with complex issues like climate change, cybersecurity, and how to provide fairer, cheaper healthcare, Naughton said she thought the US should put more scientists into the decision-making body.

“Who better to be tackling these issues than scientists?” she said.

Here’s what to know about the new scientists heading to the Hill.

Jacky Rosen, a computer programmer who positioned herself as a moderate Democrat, beat her Republican opponent, Dean Heller, in the US Senate race in Nevada.

Jacky Rosen, a computer programmer who positioned herself as a moderate Democrat, beat her Republican opponent, Dean Heller, in the US Senate race in Nevada.John Locher/AP

Rosen, who two years ago was elected to represent Nevada’s 3rd District in the House, touted her role in the construction of a large solar array in a Las Vegas suburb that she said lowered her synagogue’s energy bill by 70%.

During the campaign, she criticized Heller for his deciding vote on a law letting internet service providers sell consumer data without their permission. Despite initially opposing efforts to repeal the Affordable Care Act, Heller also changed his stance on the healthcare law and supported a Republican replacement plan.

Nevada’s turnout was enormous, with twice as many early voters as there were in the 2014 midterm elections.

Chrissy Houlahan, an industrial engineer, Democrat, and Air Force veteran, won the House seat in Pennsylvania’s 6th District.

Chrissy Houlahan, an industrial engineer, Democrat, and Air Force veteran, won the House seat in Pennsylvania's 6th District.AP Photo/Matt Rourke

Houlahan, who said she would focus on making healthcare more affordable, defeated her Republican challenger, Greg McCauley, a tax lawyer who has owned 20 Wendy’s franchises, after Rep. Ryan Costello decided not to seek reelection.

Houlahan is one of several women who will represent states that currently have no women in the House. She will be the 6th District’s first Democratic representative since 2003.

In South Carolina’s 1st District, which has been red since 1981, Joe Cunningham, an ocean scientist, defeated the Republican hopeful Katie Arrington.

In South Carolina's 1st District, which has been red since 1981, Joe Cunningham, an ocean scientist, defeated the Republican hopeful Katie Arrington.Mic Smith/AP

Cunningham, who is also a lawyer, sparred with Arrington throughout the campaign over the future of offshore drilling. His expertise in this area won over the Republican mayors of the coastal cities of Folly Beach and Isle of Palms.

Arrington, who has served in South Carolina’s House of Representatives, does not oppose offshore drilling. She emphasized national issues such as immigration and President Donald Trump’s proposed wall along the US-Mexico border, while Cunningham focused on local issues.

Cunningham won the race by 4,036 votes, a margin of 1.4 percentage points. An outcome with a margin of 1 percentage point or less would have triggered an automatic recount.

Sean Casten, a biochemical engineer, defeated Rep. Peter Roskam, the Republican incumbent, in Illinois’ 6th District.

Sean Casten, a biochemical engineer, defeated Rep. Peter Roskam, the Republican incumbent, in Illinois' 6th District.314 Action

Casten, who founded a waste-energy recovery company with his father, was victorious in a district that had been a Republican stronghold since 1970.

Roskam, who has represented the district since 2007, has called the consensus on climate change “junk science.” After Casten decided to run, Roskam joined the bipartisan Climate Solutions Caucus.

During his campaign, Casten frequently criticized Trump and focused on healthcare, climate change, gun control, and LGBTQ rights.

Elaine Luria, a nuclear engineer, won her House seat in Virginia, becoming the first Democrat since 2008 to represent the 2nd District.

Elaine Luria, a nuclear engineer, won her House seat in Virginia, becoming the first Democrat since 2008 to represent the 2nd District.314 Action

Luria, who joined the US Navy when she was 17, spent 20 years operating nuclear reactors as an engineer and Navy commander. She defeated Rep. Scott Taylor on Tuesday after focusing her campaign on expanding the Affordable Care Act, pushing for tighter gun laws, and increasing the minimum wage.

Taylor, a former Navy Seal, was seeking his second term in Congress. In September, The Virginian-Pilot reported that Taylor was subpoenaed to testify in a lawsuit alleging that some of his campaign staff members circulated fraudulent petitions to help get an independent candidate on the district’s ballot.

In Washington state, Kim Schrier, a pediatrician, defeated former state Sen. Dino Rossi to become the 8th District’s first Democratic representative.

In Washington state, Kim Schrier, a pediatrician, defeated former state Sen. Dino Rossi to become the 8th District's first Democratic representative.Elaine Thompson/AP

Schrier was leading with about 53% of the vote as of Wednesday afternoon, and Rossi conceded later in the dayafter new vote totals put Schrier even further ahead.

Since the 8th District was created in 1983, only three Republicans have been elected to represent it. This year’s 8th District election was the most expensive House race in Washington state history.

Schrier, who started her medical practice more than 15 years ago, will become the first female doctor in Congress.

In Illinois’ 14th District, Lauren Underwood, a registered nurse, unseated Randy Hultgren, the four-term Republican incumbent.

In Illinois' 14th District, Lauren Underwood, a registered nurse, unseated Randy Hultgren, the four-term Republican incumbent.314 Action

Underwood was a senior adviser at the Department of Health and Human Services under President Barack Obama. In the role, she focused on preventing and responding to bioterrorism threats, public-health emergencies, and other disasters.

This year, Underwood focused her campaign on expanding access to healthcare, noting that she has a preexisting condition: an irregular heart rhythm.

She will be the first black woman to represent the 14th District, which is about 86% white.

The only new Republican scientist in Congress so far is Kevin Hern, a former aerospace engineer and businessman who handily beat his Democratic challenger, Tim Gilpin, in Oklahoma’s 1st District, which includes Tulsa.

Hern’s LinkedIn page says he holds a bachelor’s degree in mechanical engineering from Arkansas Tech University.

“While moving around during his early adulthood, Kevin worked a variety of jobs including working in the Aerospace industry for Rockwell, writing computer programs to automate tasks for businesses, real estate, and even hog farming,” his campaign website says.

His dream at the time was to be an astronaut. Then the space shuttle Challenger blew up in 1986, and he pivoted to fast food.

“That was a very humbling experience,” he said in a campaign video. “I’d gone from working with Ph.D. guys to on Saturday morning cooking Egg McMuffins with a 16-year-old.”

Hern is a vocal Trump supporter who wants to expand the US-Mexico border wall and repeal the Affordable Care Act. He owns 10 McDonald’s restaurants around the Tulsa area.

In Washington, he’ll replace Rep. Jim Bridenstine, who’s now the NASA administrator.

In New Jersey’s southernmost 2nd District, Jeff Van Drew, a dentist, will replace Republican Rep. Frank LoBiondo, who’s represented that part of the state since 1995 and is retiring.

In New Jersey's southernmost 2nd District, Jeff Van Drew, a dentist, will replace Republican Rep. Frank LoBiondo, who's represented that part of the state since 1995 and is retiring.Mel Evans/AP

Van Drew, who’s been a New Jersey state senator since 2008, has sponsored legislation to help children with dyslexia, preserve farmland, and stop offshore drilling on the coast.

He has said his biggest focus on Capitol Hill will be increasing the number of jobs in New Jersey.

His opponent, the Republican attorney Seth Grossman, did not immediately concede the race as results poured in early Wednesday, though Van Drew locked in 52% of the vote.

All seven of the scientists endorsed by 314 Action who were up for reelection won their races. So did seven other incumbent scientists.

All seven of the scientists endorsed by 314 Action who were up for reelection won their races. So did seven other incumbent scientists.
Rep. Ami Bera has represented California’s 7th District since 2013. He’s also a physician and a professor of medicine.
 AP Photo/Rich Pedroncelli

They include:

  • Democratic Rep. Martin Heinrich of New Mexico, a mechanical engineer.
  • Democratic Rep. Ami Bera, a doctor and medical-school professor who serves on the House Committee on Science, Space, and Technology.
  • Democratic Rep. Jerry McNerney of California, who’s also on the House committee.
  • Democratic Rep. Raul Ruiz of California, an emergency-room doctor.
  • Democratic Rep. Bill Foster of Illinois, a physicist who’s also on the House committee.
  • Democratic Rep. Paul Tonko of New York, a mechanical and industrial engineer who serves on the House committee.
  • Democratic Rep. Seth Moulton of Massachusetts, a physicist and Iraq War veteran.
  • Democratic Rep. Brad Schneider of Illinois, an industrial engineer.
  • Democratic Rep. Tony Cárdenas of California, a computer scientist.
  • Democratic Rep. Ted Lieu of California, a computer scientist.
  • Republican Rep. Chris Collins of New York, a mechanical engineer.
  • Democratic Rep. Kurt Schrader of Oregon, a farmer and veterinarian.
  • Republican Rep. Ralph Abraham of Louisiana, a doctor and veterinarian who’s also on the House committee.
  • Republican Rep. Ted Yoho of Florida, a veterinarian.

SEE ALSO: There are 21 scientists running for Congress — here’s what these engineers, physicians, and computer programmers want to do in DC

 

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Donald Trump admitted he has no idea who’s in the caravan

by Chris Cillizza –

(CNN)On Thursday, in a speech in the Roosevelt Room at the White House, focused on his desire to tighten asylum rules to discourage those trying to enter the country illegally, President Donald Trump admitted something important.

“We have no idea who they are,” Trump said of the large group of migrants currently making their way across Mexico toward the US border. Which is an, um, interesting statement given what Trump has said previously about who is in the caravan.
Trump has suggested via Twitter that the caravan contains “criminals and unknown Middle Easterners.” He has described the caravan as containing “very tough criminal elements” and suggesting to reporters that if they went into the middle of the caravan, “you’re going to find MS-13, you’re going to find Middle Eastern, you’re going to find everything.”
The Washington Post’s Kevin Sieff, who has traveled with the caravan, reports a very different nature to the group than Trump describes. Wrote Sieff:
“Women push babies in strollers next to clusters of teenage boys. At night, small families sleep on the ground next to middle-aged men smoking cigarettes. One man walks with his 3-month-old puppy named Muñeca on a red leash. One teenager shows off his tattoo of a marijuana leaf.”
The Point: The honest truth is that there COULD be a violent or bad person or two in the caravan. It’s a group of more than 7,000 people. But the other honest truth is that Trump has NO idea whether there are “unknown Middle Easterners” or “very tough criminal elements” in the caravan. He’s just saying it because he knows it will strike fear in the hearts of GOP base voters. And that’s what he needs this close to the election.
 

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Draining Swamps, emptying cups, and soul searching

THE GREAT DIVIDE IS DOOMED!

In some ways the election of the Great Trumpkin might end up being one of the best things to ever have happened to America.   He is SO rude, off-putting, indignantly pro-American, unabashed, ignorant, and obnoxious it is hard to believe anyone really listens to him.   But what he is above all is polarizing. He has people tripping all over each other trying to make their points, holding each other accountable for transgressions real or imagined, and scouring every detail of every action ad nauseam.

Hopefully that will  eventually extend to the  congress, and ultimately end up in a good old-fashioned fist fight where we finally spend our pent-up frustrations and collapse on each other much as two brothers, fighting over the last beer, in exhaustion and acceptance.  Then we will be reminded of the love that binds us in the first place, dust each other off and stroll off-hand in hand to the corner grocery to buy another 6-pack.

America is not quite to that stage yet.  We have been through the first of the “Me-too” scandles and gotten rid of a ton of marginal dead wood at the top of a few industries, and some moguls.  We are now feeling a series of racial backlash where simple ignorance is no longer an excuse.

I will admit that I was insulated from exactly how  horrific the “black face” phenomenon was, and I figured myself fairly sensitive and educated.   Meghan Kelly went way outside the lines with her comments, but evidently those words were the straw that broke the camels back.  The Fox News criticism of the LibTards really never left her.  She always tended towards a snarky side.  I am a progressively moderate person, and I find the LibTard thing embarrassing for both sides.  It would be akin to referring to those of the opposite position as RepubliPigs.

So another “professional” journalist goes the way of Howard Cosell who let slip “look at that little monkey run.”   Watch yourselves people. In this media rich environment those little “slips” are deal stoppers, but as my daddy used to say “you can’t spill what isn’t in your cup.”

Pray, meditate, and concentrate on thinking the best of each other.  Get your mind right.  There is no longer any excuse to say “I am from the South, or “That’s just the way I was raised,  Today (pun intended) is the only day we have.   Get it together.

Maybe then we can drop our fists and learn again to love and work with each other.

 

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Becoming a “legal” immigrant aint what it used to be.

I am getting pretty fed up with headlines like “Immigrant DESTROYS Sanctuary City BS In Under A Minute.”

Steve Ulrich shared a video.

In  other words, “you lazy assholes, I did it so suck it up and do it yourself.”

Well you did it 45 years ago buddy.  Things  have changed.

Not quite as easy now days. It’s a lottery system to start the process lf gettiing a green card. Some categories are just now accepting people who applied from Mexico 22DEC95. Then they have to live here for 5 years and keep all the paperwork up to date. Oh, up to date to whatever Trump and his buddies change it to. https://travel.state.gov/…/visa-bulletin-for-october-2018.h…

Immigrating to the United States is often a difficult process. In addition, there may be long delays due to backlogs. In order to maintain an orderly immigration process, the United States has established a waiting list system. While this makes for an orderly process, it can create backlogs of many years for certain countries and certain categories. Understanding how the system works will better allow you to estimate how long it will take a person to actually immigrate to the United States. It will also help you to understand why some people seem to immigrate quickly while others take much longer.

Approximately 350,000 per year persons can immigrate to the United States as family preference relatives. There are four family preferences:

First preference – Unmarried Sons and Daughters of U.S. Citizens: 23,400 per year plus any numbers not required for fourth preference.

Second preference – Spouses and Children, and Unmarried Sons and Daughters of Permanent Residents: 114,200 per year, plus the number (if any) by which the worldwide family preference level exceeds 226,000 per year, plus any unused first preference numbers.

Divided into two categories:

  • 2A – Spouses and Children of Permanent Residents: 77% of the overall second preference limitation, of which 75% are exempt from the per-country limit;
  • 2B – Unmarried Sons and Daughters (21 years of age or older) of Permanent Residents: 23% of the overall second preference limitation.

Third Preference – Married Sons and Daughters of U.S. Citizens: 23,400 per year, plus any numbers not required by first and second preferences.

Fourth Preference – Brothers and Sisters of Adult U.S. Citizens: 65,000 per year, plus any numbers not required by first three preferences.

Since there are over two million eligible people in the family preference category but only 350,000 spaces available, not all of them will be allowed to immigrate this year. Most preferences have become oversubscribed, creating backlogs. This means that some persons in those preferences must wait until the next year to immigrate and some, even longer.

Individuals immigrating under the First Preference category for all countries have often retrogressed and have long wait times.

Persons who fall in the Second Preference for spouses and children under 21 years old often have wait times. Generally, persons who are Second Preference sons and daughters over the age of 21 have longer wait times. Sons and daughters over the age of 21 from Mexico and the Philippines have the longest wait times.

The third preference backlog has long wait times. The Philippines and Mexico usually have much longer family preference backlogs than the rest of the countries in the world.

Historically, Fourth Preference has been greatly oversubscribed usually with long wait times.

Your family member’s preference category will determine how long they will have to wait for an immigrant visa number. For visa availability information, see the Visa Bulletin section below.

Litwin & Smith has helped hundred, if not thousands, of U.S. Citizens and Lawful Permanent Residents file family petitions for spouses and family members. Our law practice is limited to immigration. Our firm is nationally recognized as a premiere immigration law firm. We routinely provide immigration assistance to foreign nationals from all over the world. When you are ready to proceed just let us know.

Employment Preferences

There are approximately 140,000 people per year who can immigrate under the five employment preferences per year. Employment preferences are as follows:

First Preference – Priority Workers: 28.6% of the worldwide employment-based preference level, plus any numbers not required for fourth and fifth preferences.

Second Preference – Members of the Professions Holding Advanced Degrees or Persons of Exceptional Ability: 28.6% of the worldwide employment-based preference level, plus any numbers not required by first preference.

Third Preference – Skilled Workers, Professionals, and Other Workers: 28.6% of the worldwide level, plus any numbers not required by first and second preferences, not more than 10,000 of which to “Other Workers.”

Fourth Preference – Certain Special Immigrants: 7.1% of the worldwide level.

Fifth Preference – Employment Creation: 7.1% of the worldwide level, not less than 3,000 of which reserved for investors in a targeted rural or high-unemployment area, and 3,000 set aside for investors in regional centers by Sec. 610 of Pub. L. 102-395.

Except for the Other Workers category and some people from the Philippines, China, and India, employment preferences currently have no serious backlog for Second Preference and a 2-3 years backlog for Third Preference. However, the government processing time is considerable. Even when there is no per country backlog, the average processing time a labor certification/visa petition/adjustment of status process is approximately 1½ to 3 years. (For more information about immigrating under an employment preference, see “Would You Like to Immigrate to the United States Through Investment?” and “Would You Like to Work in the United States?“)

For visa availability information, see the Visa Bulletin section below.

Litwin & Smith is a nationally recognized preiere immigration firm. We have been very successful in preparing and obtaining nonimmigrant and subsequent immigrant visas and green cards for employees and their families. We prepare hundreds of such petitions each year. When you are ready to proceed just let us know.

Other Factors Affecting Immigration

Besides an overall cap as to the number of people who can immigrate to the United States in one year, there are other factors which affect how quickly a person can immigrate to the United States, including:

1. Country of Nationality

Congress has established a maximum limit as to the number of people that can come from any one country in any given year. Historically, certain countries in the world have contributed more immigrants than others. Currently, there are four countries in the world which reach their maximum each year: China, India, Mexico, and Philippines. Persons who are born in these countries therefore, have a greater likelihood of having to wait longer to be able to immigrate than persons in the same preference category from other countries.

2. Per Cent Allocations Between Preferences

The law does not allocate equal numbers to each preference category, nor is there equal demand for each preference category. For example, family first preference (unmarried sons and daughters of U.S. citizens) is allocated 23,400 visa numbers per year. Fourth preference (brothers and sisters of adult U.S. citizens) is allocated almost three times as many visa numbers per year, 65,000. Unfortunately, currently over 1.5 million people are waiting in Fourth Preference. Therefore, there are substantial delays in this category.

3. Fall Down

The law requires that all numbers be used each year. Under certain circumstances, one category may not use all of its numbers. The leftover numbers usually fall down to a lower preference category. For example, if all the numbers allocated for Family First Preference are not used up in a year, the unused numbers would go to Family Second Preference to be used by spouses and sons and daughters of permanent residents. Brothers and sisters of United States citizens are eligible to receive any numbers not used by the first three Family preferences. Unfortunately, no unused numbers ever reach fourth preference.

Visa Bulletin

Each month, the State Department notifies the public as to who can actually immigrate to the United States that particular month. Visa bulletin information is available through the Department of State, our website, or by calling (650) 588-7100. Based on the preferences (remember that immediate relatives are not limited, and therefore, are not included in the Visa Bulletin), three pieces of information are given based on each category.

Current: means no backlog exists at all and everyone in that category can immigrate, assuming all of the paperwork has been properly completed. When a category is current, it is noted in the Bulletin by the letter “C”.

Unavailable: means no visas are available that month for the category. Therefore, no one who fits within that category can immigrate to the United States. When there are no numbers available, this is designated by the letter “U”.

Cut-Off Date: by considering all of the factors explained earlier, the State Department tries to estimate how many people can be allowed to immigrate in a given month so that all the numbers available for that year will be used up by the end of the year. They do this by establishing cut-off dates. These dates are used by the Immigration Service and the State Department so they can issue visas to people who then become permanent residents of the United States that month.

Each person who is within one of the family or employment preferences is given a priority date. This is the date that a visa petition or labor certification was filed on the person’s behalf. By keeping track of that date, it can be estimated, by looking at the Visa Bulletin, how quickly a person will be able to immigrate to the United States.

When persons file visa petitions for family members, they usually want to know how soon their relatives will be able to immigrate to the United States. When employment based visas are filed, people want to know how long until they can immigrate. The best way to estimate the time it will take for a category to move to a particular date is to check with the State Department for a few months to see how fast the cut off dates are moving in the particular category. By looking at the cutoff date and calculating the speed it is moving, it is possible to estimate how long it will take for that priority date to become current.

 

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The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies

The attack by Chinese spies reached almost 30 U.S. companies, including Amazon and Apple, by compromising America’s technology supply chain, according to extensive interviews with government and corporate sources.

By Jordan Robertson and Michael Riley –

 

In 2015, Amazon.com Inc. began quietly evaluating a startup called Elemental Technologies, a potential acquisition to help with a major expansion of its streaming video service, known today as Amazon Prime Video. Based in Portland, Ore., Elemental made software for compressing massive video files and formatting them for different devices. Its technology had helped stream the Olympic Games online, communicate with the International Space Station, and funnel drone footage to the Central Intelligence Agency. Elemental’s national security contracts weren’t the main reason for the proposed acquisition, but they fit nicely with Amazon’s government businesses, such as the highly secure cloud that Amazon Web Services (AWS) was building for the CIA.

To help with due diligence, AWS, which was overseeing the prospective acquisition, hired a third-party company to scrutinize Elemental’s security, according to one person familiar with the process. The first pass uncovered troubling issues, prompting AWS to take a closer look at Elemental’s main product: the expensive servers that customers installed in their networks to handle the video compression. These servers were assembled for Elemental by Super Micro Computer Inc., a San Jose-based company (commonly known as Supermicro) that’s also one of the world’s biggest suppliers of server motherboards, the fiberglass-mounted clusters of chips and capacitors that act as the neurons of data centers large and small. In late spring of 2015, Elemental’s staff boxed up several servers and sent them to Ontario, Canada, for the third-party security company to test, the person says.

Featured in Bloomberg Businessweek, Oct. 8, 2018. Subscribe now.

PHOTOGRAPHER: VICTOR PRADO FOR BLOOMBERG BUSINESSWEEK

Nested on the servers’ motherboards, the testers found a tiny microchip, not much bigger than a grain of rice, that wasn’t part of the boards’ original design. Amazon reported the discovery to U.S. authorities, sending a shudder through the intelligence community. Elemental’s servers could be found in Department of Defense data centers, the CIA’s drone operations, and the onboard networks of Navy warships. And Elemental was just one of hundreds of Supermicro customers.

During the ensuing top-secret probe, which remains open more than three years later, investigators determined that the chips allowed the attackers to create a stealth doorway into any network that included the altered machines. Multiple people familiar with the matter say investigators found that the chips had been inserted at factories run by manufacturing subcontractors in China.

This attack was something graver than the software-based incidents the world has grown accustomed to seeing. Hardware hacks are more difficult to pull off and potentially more devastating, promising the kind of long-term, stealth access that spy agencies are willing to invest millions of dollars and many years to get.

“Having a well-done, nation-state-level hardware implant surface would be like witnessing a unicorn jumping over a rainbow”

There are two ways for spies to alter the guts of computer equipment. One, known as interdiction, consists of manipulating devices as they’re in transit from manufacturer to customer. This approach is favored by U.S. spy agencies, according to documents leaked by former National Security Agency contractor Edward Snowden. The other method involves seeding changes from the very beginning.

One country in particular has an advantage executing this kind of attack: China, which by some estimates makes 75 percent of the world’s mobile phones and 90 percent of its PCs. Still, to actually accomplish a seeding attack would mean developing a deep understanding of a product’s design, manipulating components at the factory, and ensuring that the doctored devices made it through the global logistics chain to the desired location—a feat akin to throwing a stick in the Yangtze River upstream from Shanghai and ensuring that it washes ashore in Seattle. “Having a well-done, nation-state-level hardware implant surface would be like witnessing a unicorn jumping over a rainbow,” says Joe Grand, a hardware hacker and the founder of Grand Idea Studio Inc. “Hardware is just so far off the radar, it’s almost treated like black magic.”

But that’s just what U.S. investigators found: The chips had been inserted during the manufacturing process, two officials say, by operatives from a unit of the People’s Liberation Army. In Supermicro, China’s spies appear to have found a perfect conduit for what U.S. officials now describe as the most significant supply chain attack known to have been carried out against American companies.

One official says investigators found that it eventually affected almost 30 companies, including a major bank, government contractors, and the world’s most valuable company, Apple Inc. Apple was an important Supermicro customer and had planned to order more than 30,000 of its servers in two years for a new global network of data centers. Three senior insiders at Apple say that in the summer of 2015, it, too, found malicious chips on Supermicro motherboards. Apple severed ties with Supermicro the following year, for what it described as unrelated reasons.

In emailed statements, Amazon (which announced its acquisition of Elemental in September 2015), Apple, and Supermicro disputed summaries of Bloomberg Businessweek’s reporting. “It’s untrue that AWS knew about a supply chain compromise, an issue with malicious chips, or hardware modifications when acquiring Elemental,” Amazon wrote. “On this we can be very clear: Apple has never found malicious chips, ‘hardware manipulations’ or vulnerabilities purposely planted in any server,” Apple wrote. “We remain unaware of any such investigation,” wrote a spokesman for Supermicro, Perry Hayes. The Chinese government didn’t directly address questions about manipulation of Supermicro servers, issuing a statement that read, in part, “Supply chain safety in cyberspace is an issue of common concern, and China is also a victim.” The FBI and the Office of the Director of National Intelligence, representing the CIA and NSA, declined to comment.

Related:

The companies’ denials are countered by six current and former senior national security officials, who—in conversations that began during the Obama administration and continued under the Trump administration—detailed the discovery of the chips and the government’s investigation. One of those officials and two people inside AWS provided extensive information on how the attack played out at Elemental and Amazon; the official and one of the insiders also described Amazon’s cooperation with the government investigation. In addition to the three Apple insiders, four of the six U.S. officials confirmed that Apple was a victim. In all, 17 people confirmed the manipulation of Supermicro’s hardware and other elements of the attacks. The sources were granted anonymity because of the sensitive, and in some cases classified, nature of the information.

One government official says China’s goal was long-term access to high-value corporate secrets and sensitive government networks. No consumer data is known to have been stolen.

The ramifications of the attack continue to play out. The Trump administration has made computer and networking hardware, including motherboards, a focus of its latest round of trade sanctions against China, and White House officials have made it clear they think companies will begin shifting their supply chains to other countries as a result. Such a shift might assuage officials who have been warning for years about the security of the supply chain—even though they’ve never disclosed a major reason for their concerns.

How the Hack Worked, According to U.S. Officials

Illustrator: Scott Gelber

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Back in 2006, three engineers in Oregon had a clever idea. Demand for mobile video was about to explode, and they predicted that broadcasters would be desperate to transform programs designed to fit TV screens into the various formats needed for viewing on smartphones, laptops, and other devices. To meet the anticipated demand, the engineers started Elemental Technologies, assembling what one former adviser to the company calls a genius team to write code that would adapt the superfast graphics chips being produced for high-end video-gaming machines. The resulting software dramatically reduced the time it took to process large video files. Elemental then loaded the software onto custom-built servers emblazoned with its leprechaun-green logos.

Elemental servers sold for as much as $100,000 each, at profit margins of as high as 70 percent, according to a former adviser to the company. Two of Elemental’s biggest early clients were the Mormon church, which used the technology to beam sermons to congregations around the world, and the adult film industry, which did not.

Elemental also started working with American spy agencies. In 2009 the company announced a development partnership with In-Q-Tel Inc., the CIA’s investment arm, a deal that paved the way for Elemental servers to be used in national security missions across the U.S. government. Public documents, including the company’s own promotional materials, show that the servers have been used inside Department of Defense data centers to process drone and surveillance-camera footage, on Navy warships to transmit feeds of airborne missions, and inside government buildings to enable secure videoconferencing. NASA, both houses of Congress, and the Department of Homeland Security have also been customers. This portfolio made Elemental a target for foreign adversaries.

Supermicro had been an obvious choice to build Elemental’s servers. Headquartered north of San Jose’s airport, up a smoggy stretch of Interstate 880, the company was founded by Charles Liang, a Taiwanese engineer who attended graduate school in Texas and then moved west to start Supermicro with his wife in 1993. Silicon Valley was then embracing outsourcing, forging a pathway from Taiwanese, and later Chinese, factories to American consumers, and Liang added a comforting advantage: Supermicro’s motherboards would be engineered mostly in San Jose, close to the company’s biggest clients, even if the products were manufactured overseas.

Today, Supermicro sells more server motherboards than almost anyone else. It also dominates the $1 billion market for boards used in special-purpose computers, from MRI machines to weapons systems. Its motherboards can be found in made-to-order server setups at banks, hedge funds, cloud computing providers, and web-hosting services, among other places. Supermicro has assembly facilities in California, the Netherlands, and Taiwan, but its motherboards—its core product—are nearly all manufactured by contractors in China.

The company’s pitch to customers hinges on unmatched customization, made possible by hundreds of full-time engineers and a catalog encompassing more than 600 designs. The majority of its workforce in San Jose is Taiwanese or Chinese, and Mandarin is the preferred language, with hanzi filling the whiteboards, according to six former employees. Chinese pastries are delivered every week, and many routine calls are done twice, once for English-only workers and again in Mandarin. The latter are more productive, according to people who’ve been on both. These overseas ties, especially the widespread use of Mandarin, would have made it easier for China to gain an understanding of Supermicro’s operations and potentially to infiltrate the company. (A U.S. official says the government’s probe is still examining whether spies were planted inside Supermicro or other American companies to aid the attack.)

With more than 900 customers in 100 countries by 2015, Supermicro offered inroads to a bountiful collection of sensitive targets. “Think of Supermicro as the Microsoft of the hardware world,” says a former U.S. intelligence official who’s studied Supermicro and its business model. “Attacking Supermicro motherboards is like attacking Windows. It’s like attacking the whole world.”

The security of the global technology supply chain had been compromised, even if consumers and most companies didn’t know it yet

Well before evidence of the attack surfaced inside the networks of U.S. companies, American intelligence sources were reporting that China’s spies had plans to introduce malicious microchips into the supply chain. The sources weren’t specific, according to a person familiar with the information they provided, and millions of motherboards are shipped into the U.S. annually. But in the first half of 2014, a different person briefed on high-level discussions says, intelligence officials went to the White House with something more concrete: China’s military was preparing to insert the chips into Supermicro motherboards bound for U.S. companies.

The specificity of the information was remarkable, but so were the challenges it posed. Issuing a broad warning to Supermicro’s customers could have crippled the company, a major American hardware maker, and it wasn’t clear from the intelligence whom the operation was targeting or what its ultimate aims were. Plus, without confirmation that anyone had been attacked, the FBI was limited in how it could respond. The White House requested periodic updates as information came in, the person familiar with the discussions says.

Apple made its discovery of suspicious chips inside Supermicro servers around May 2015, after detecting odd network activity and firmware problems, according to a person familiar with the timeline. Two of the senior Apple insiders say the company reported the incident to the FBI but kept details about what it had detected tightly held, even internally. Government investigators were still chasing clues on their own when Amazon made its discovery and gave them access to sabotaged hardware, according to one U.S. official. This created an invaluable opportunity for intelligence agencies and the FBI—by then running a full investigation led by its cyber- and counterintelligence teams—to see what the chips looked like and how they worked.

The chips on Elemental servers were designed to be as inconspicuous as possible, according to one person who saw a detailed report prepared for Amazon by its third-party security contractor, as well as a second person who saw digital photos and X-ray images of the chips incorporated into a later report prepared by Amazon’s security team. Gray or off-white in color, they looked more like signal conditioning couplers, another common motherboard component, than microchips, and so they were unlikely to be detectable without specialized equipment. Depending on the board model, the chips varied slightly in size, suggesting that the attackers had supplied different factories with different batches.

Officials familiar with the investigation say the primary role of implants such as these is to open doors that other attackers can go through. “Hardware attacks are about access,” as one former senior official puts it. In simplified terms, the implants on Supermicro hardware manipulated the core operating instructions that tell the server what to do as data move across a motherboard, two people familiar with the chips’ operation say. This happened at a crucial moment, as small bits of the operating system were being stored in the board’s temporary memory en route to the server’s central processor, the CPU. The implant was placed on the board in a way that allowed it to effectively edit this information queue, injecting its own code or altering the order of the instructions the CPU was meant to follow. Deviously small changes could create disastrous effects.

Since the implants were small, the amount of code they contained was small as well. But they were capable of doing two very important things: telling the device to communicate with one of several anonymous computers elsewhere on the internet that were loaded with more complex code; and preparing the device’s operating system to accept this new code. The illicit chips could do all this because they were connected to the baseboard management controller, a kind of superchip that administrators use to remotely log in to problematic servers, giving them access to the most sensitive code even on machines that have crashed or are turned off.

This system could let the attackers alter how the device functioned, line by line, however they wanted, leaving no one the wiser. To understand the power that would give them, take this hypothetical example: Somewhere in the Linux operating system, which runs in many servers, is code that authorizes a user by verifying a typed password against a stored encrypted one. An implanted chip can alter part of that code so the server won’t check for a password—and presto! A secure machine is open to any and all users. A chip can also steal encryption keys for secure communications, block security updates that would neutralize the attack, and open up new pathways to the internet. Should some anomaly be noticed, it would likely be cast as an unexplained oddity. “The hardware opens whatever door it wants,” says Joe FitzPatrick, founder of Hardware Security Resources LLC, a company that trains cybersecurity professionals in hardware hacking techniques.

U.S. officials had caught China experimenting with hardware tampering before, but they’d never seen anything of this scale and ambition. The security of the global technology supply chain had been compromised, even if consumers and most companies didn’t know it yet. What remained for investigators to learn was how the attackers had so thoroughly infiltrated Supermicro’s production process—and how many doors they’d opened into American targets.

Unlike software-based hacks, hardware manipulation creates a real-world trail. Components leave a wake of shipping manifests and invoices. Boards have serial numbers that trace to specific factories. To track the corrupted chips to their source, U.S. intelligence agencies began following Supermicro’s serpentine supply chain in reverse, a person briefed on evidence gathered during the probe says.

As recently as 2016, according to DigiTimes, a news site specializing in supply chain research, Supermicro had three primary manufacturers constructing its motherboards, two headquartered in Taiwan and one in Shanghai. When such suppliers are choked with big orders, they sometimes parcel out work to subcontractors. In order to get further down the trail, U.S. spy agencies drew on the prodigious tools at their disposal. They sifted through communications intercepts, tapped informants in Taiwan and China, even tracked key individuals through their phones, according to the person briefed on evidence gathered during the probe. Eventually, that person says, they traced the malicious chips to four subcontracting factories that had been building Supermicro motherboards for at least two years.

As the agents monitored interactions among Chinese officials, motherboard manufacturers, and middlemen, they glimpsed how the seeding process worked. In some cases, plant managers were approached by people who claimed to represent Supermicro or who held positions suggesting a connection to the government. The middlemen would request changes to the motherboards’ original designs, initially offering bribes in conjunction with their unusual requests. If that didn’t work, they threatened factory managers with inspections that could shut down their plants. Once arrangements were in place, the middlemen would organize delivery of the chips to the factories.

The investigators concluded that this intricate scheme was the work of a People’s Liberation Army unit specializing in hardware attacks, according to two people briefed on its activities. The existence of this group has never been revealed before, but one official says, “We’ve been tracking these guys for longer than we’d like to admit.” The unit is believed to focus on high-priority targets, including advanced commercial technology and the computers of rival militaries. In past attacks, it targeted the designs for high-performance computer chips and computing systems of large U.S. internet providers.

Provided details of Businessweek’s reporting, China’s Ministry of Foreign Affairs sent a statement that said “China is a resolute defender of cybersecurity.” The ministry added that in 2011, China proposed international guarantees on hardware security along with other members of the Shanghai Cooperation Organization, a regional security body. The statement concluded, “We hope parties make less gratuitous accusations and suspicions but conduct more constructive talk and collaboration so that we can work together in building a peaceful, safe, open, cooperative and orderly cyberspace.”

The Supermicro attack was on another order entirely from earlier episodes attributed to the PLA. It threatened to have reached a dizzying array of end users, with some vital ones in the mix. Apple, for its part, has used Supermicro hardware in its data centers sporadically for years, but the relationship intensified after 2013, when Apple acquired a startup called Topsy Labs, which created superfast technology for indexing and searching vast troves of internet content. By 2014, the startup was put to work building small data centers in or near major global cities. This project, known internally as Ledbelly, was designed to make the search function for Apple’s voice assistant, Siri, faster, according to the three senior Apple insiders.

Documents seen by Businessweek show that in 2014, Apple planned to order more than 6,000 Supermicro servers for installation in 17 locations, including Amsterdam, Chicago, Hong Kong, Los Angeles, New York, San Jose, Singapore, and Tokyo, plus 4,000 servers for its existing North Carolina and Oregon data centers. Those orders were supposed to double, to 20,000, by 2015. Ledbelly made Apple an important Supermicro customer at the exact same time the PLA was found to be manipulating the vendor’s hardware.

Project delays and early performance problems meant that around 7,000 Supermicro servers were humming in Apple’s network by the time the company’s security team found the added chips. Because Apple didn’t, according to a U.S. official, provide government investigators with access to its facilities or the tampered hardware, the extent of the attack there remained outside their view.

Microchips found on altered motherboards in some cases looked like signal conditioning couplers.

PHOTOGRAPHER: VICTOR PRADO FOR BLOOMBERG BUSINESSWEEK

American investigators eventually figured out who else had been hit. Since the implanted chips were designed to ping anonymous computers on the internet for further instructions, operatives could hack those computers to identify others who’d been affected. Although the investigators couldn’t be sure they’d found every victim, a person familiar with the U.S. probe says they ultimately concluded that the number was almost 30 companies.

That left the question of whom to notify and how. U.S. officials had been warning for years that hardware made by two Chinese telecommunications giants, Huawei Corp. and ZTE Corp., was subject to Chinese government manipulation. (Both Huawei and ZTE have said no such tampering has occurred.) But a similar public alert regarding a U.S. company was out of the question. Instead, officials reached out to a small number of important Supermicro customers. One executive of a large web-hosting company says the message he took away from the exchange was clear: Supermicro’s hardware couldn’t be trusted. “That’s been the nudge to everyone—get that crap out,” the person says.

Amazon, for its part, began acquisition talks with an Elemental competitor, but according to one person familiar with Amazon’s deliberations, it reversed course in the summer of 2015 after learning that Elemental’s board was nearing a deal with another buyer. Amazon announced its acquisition of Elemental in September 2015, in a transaction whose value one person familiar with the deal places at $350 million. Multiple sources say that Amazon intended to move Elemental’s software to AWS’s cloud, whose chips, motherboards, and servers are typically designed in-house and built by factories that Amazon contracts from directly.

A notable exception was AWS’s data centers inside China, which were filled with Supermicro-built servers, according to two people with knowledge of AWS’s operations there. Mindful of the Elemental findings, Amazon’s security team conducted its own investigation into AWS’s Beijing facilities and found altered motherboards there as well, including more sophisticated designs than they’d previously encountered. In one case, the malicious chips were thin enough that they’d been embedded between the layers of fiberglass onto which the other components were attached, according to one person who saw pictures of the chips. That generation of chips was smaller than a sharpened pencil tip, the person says. (Amazon denies that AWS knew of servers found in China containing malicious chips.)

China has long been known to monitor banks, manufacturers, and ordinary citizens on its own soil, and the main customers of AWS’s China cloud were domestic companies or foreign entities with operations there. Still, the fact that the country appeared to be conducting those operations inside Amazon’s cloud presented the company with a Gordian knot. Its security team determined that it would be difficult to quietly remove the equipment and that, even if they could devise a way, doing so would alert the attackers that the chips had been found, according to a person familiar with the company’s probe. Instead, the team developed a method of monitoring the chips. In the ensuing months, they detected brief check-in communications between the attackers and the sabotaged servers but didn’t see any attempts to remove data. That likely meant either that the attackers were saving the chips for a later operation or that they’d infiltrated other parts of the network before the monitoring began. Neither possibility was reassuring.

When in 2016 the Chinese government was about to pass a new cybersecurity law—seen by many outside the country as a pretext to give authorities wider access to sensitive data—Amazon decided to act, the person familiar with the company’s probe says. In August it transferred operational control of its Beijing data center to its local partner, Beijing Sinnet, a move the companies said was needed to comply with the incoming law. The following November, Amazon sold the entire infrastructure to Beijing Sinnet for about $300 million. The person familiar with Amazon’s probe casts the sale as a choice to “hack off the diseased limb.”

As for Apple, one of the three senior insiders says that in the summer of 2015, a few weeks after it identified the malicious chips, the company started removing all Supermicro servers from its data centers, a process Apple referred to internally as “going to zero.” Every Supermicro server, all 7,000 or so, was replaced in a matter of weeks, the senior insider says. (Apple denies that any servers were removed.) In 2016, Apple informed Supermicro that it was severing their relationship entirely—a decision a spokesman for Apple ascribed in response to Businessweek’s questions to an unrelated and relatively minor security incident.

That August, Supermicro’s CEO, Liang, revealed that the company had lost two major customers. Although he didn’t name them, one was later identified in news reports as Apple. He blamed competition, but his explanation was vague. “When customers asked for lower price, our people did not respond quickly enough,” he said on a conference call with analysts. Hayes, the Supermicro spokesman, says the company has never been notified of the existence of malicious chips on its motherboards by either customers or U.S. law enforcement.

Concurrent with the illicit chips’ discovery in 2015 and the unfolding investigation, Supermicro has been plagued by an accounting problem, which the company characterizes as an issue related to the timing of certain revenue recognition. After missing two deadlines to file quarterly and annual reports required by regulators, Supermicro was delisted from the Nasdaq on Aug. 23 of this year. It marked an extraordinary stumble for a company whose annual revenue had risen sharply in the previous four years, from a reported $1.5 billion in 2014 to a projected $3.2 billion this year.

One Friday in late September 2015, President Barack Obama and Chinese President Xi Jinping appeared together at the White House for an hourlong press conference headlined by a landmark deal on cybersecurity. After months of negotiations, the U.S. had extracted from China a grand promise: It would no longer support the theft by hackers of U.S. intellectual property to benefit Chinese companies. Left out of those pronouncements, according to a person familiar with discussions among senior officials across the U.S. government, was the White House’s deep concern that China was willing to offer this concession because it was already developing far more advanced and surreptitious forms of hacking founded on its near monopoly of the technology supply chain.

In the weeks after the agreement was announced, the U.S. government quietly raised the alarm with several dozen tech executives and investors at a small, invite-only meeting in McLean, Va., organized by the Pentagon. According to someone who was present, Defense Department officials briefed the technologists on a recent attack and asked them to think about creating commercial products that could detect hardware implants. Attendees weren’t told the name of the hardware maker involved, but it was clear to at least some in the room that it was Supermicro, the person says.

The problem under discussion wasn’t just technological. It spoke to decisions made decades ago to send advanced production work to Southeast Asia. In the intervening years, low-cost Chinese manufacturing had come to underpin the business models of many of America’s largest technology companies. Early on, Apple, for instance, made many of its most sophisticated electronics domestically. Then in 1992, it closed a state-of-the-art plant for motherboard and computer assembly in Fremont, Calif., and sent much of that work overseas.

Over the decades, the security of the supply chain became an article of faith despite repeated warnings by Western officials. A belief formed that China was unlikely to jeopardize its position as workshop to the world by letting its spies meddle in its factories. That left the decision about where to build commercial systems resting largely on where capacity was greatest and cheapest. “You end up with a classic Satan’s bargain,” one former U.S. official says. “You can have less supply than you want and guarantee it’s secure, or you can have the supply you need, but there will be risk. Every organization has accepted the second proposition.”

In the three years since the briefing in McLean, no commercially viable way to detect attacks like the one on Supermicro’s motherboards has emerged—or has looked likely to emerge. Few companies have the resources of Apple and Amazon, and it took some luck even for them to spot the problem. “This stuff is at the cutting edge of the cutting edge, and there is no easy technological solution,” one of the people present in McLean says. “You have to invest in things that the world wants. You cannot invest in things that the world is not ready to accept yet.”

Bloomberg LP has been a Supermicro customer. According to a Bloomberg LP spokesperson, the company has found no evidence to suggest that it has been affected by the hardware issues raised in the article.

 

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‘You Just Don’t Touch That Tap Water Unless Absolutely Necessary’

Rockcastle Creek flows past residential homes and businesses along Route 3 in the town of Inez, the county seat of Martin County, Ky. A giant coal sludge spill in October 2000 contaminated the county’s rivers for miles, and locals still don’t trust the water.

Rich-Joseph Facun for NPR

Aleigha Sloan can’t remember ever drinking a glass of water from the tap at her home.

That is “absolutely dangerous,” the 17-year-old says, wrinkling her nose and making a face at the thought.

“You just don’t touch that tap water unless absolutely necessary. I mean, like showers and things — you have to do what you have to do. But other than that, no,” she says. “I don’t know anybody that does.”

Sloan sits on the couch in her family’s cozy two-story house, tucked back along winding rural roads in Huntleyville, Ky., near the West Virginia border. Her mother, BarbiAnn Maynard, 41, is in the kitchen, emptying out a plastic 5-gallon jug that she uses to fetch cooking water from a local spring.

“You take it for granted until you don’t have it,” Maynard says about a clean water supply. “I think that’s the attitude of a lot people right now, but I don’t think they understand how close they are to it happening to them.”

BarbiAnn Maynard walks between the headstones at her family’s cemetery, pointing out her grandparents and her cousins. Her deep roots in Martin County are one reason she says she’ll never leave, despite the lack of a reliable supply of clean drinking water.

Kat Lonsdorf/NPR

Americans across the country, from Maynard’s home in rural Appalachia to urban areas like Flint, Mich., or Compton, Calif., are facing a lack of clean, reliable drinking water. At the heart of the problem is a water system in crisis: aging, crumbling infrastructure and a lack of funds to pay for upgrading it.

On top of that, about 50 percent of water utilities — serving about 12 percent of the population — are privately owned. This complicated mix of public and private ownership often confounds efforts to mandate improvements or levy penalties, even if customers complain of poor water quality or mismanagement.

Drinking water is delivered nationally via 1 million miles of pipes, many of which were laid in the early to mid-20th century, according to the American Society of Civil Engineers. Those pipes are now nearing the end of their life spans.

A 2017 report by the group gave America’s water systems a near-failing grade, citing an estimated 240,000 water line breaks a year nationwide.

The Environmental Protection Agency estimates it will cost the country nearly $400 billion to fix the problem — a burden that would fall largely on average ratepayers who often don’t have the extra money. It’s a particularly heavy burden in places like Martin County, one of the poorest counties in the country.

The nearly 12,000 residents in Martin County have to deal with tap water that sometimes comes out brown or milky or smells bad. Other times the water is shut off and nothing comes out of the taps at all. At the Martin County Water Warriors Facebook page, people post videos of their water, share boil water advisory notices or try to figure out how widespread an outage is.

All of this is why Maynard’s family doesn’t drink the tap water. She says they spend about $30 a week on bottles of drinking water. That’s on top of their monthly water bill — about $65 — for water used only for cleaning and flushing the toilets.

Some county residents say they bathe their babies in bottled water to avoid exposing them to the tap water; others store jugs of water near the bathroom in case the tap runs dry in the middle of a shower.

“It’s anything other than normal,” Maynard sighs. “But it’s our normal.”

In October 2000, an estimated 300 million gallons of toxic waste — including heavy metals like arsenic and mercury — flowed into Martin County’s river system. Here, the remains of a coal sediment pond that collapsed near Inez.

Bob Bird/AP

The decades-long problems in Martin County illustrate just how complex the issues are. Leaks in the pipes that carry water throughout the county result in substantial losses of treated water — nearly 65 percent in 2016. And those leaks create a vacuum, sucking in untreated water from the ground that’s subsequently delivered to people’s homes.

That’s especially worrisome given the region’s history of mining and industrial activities. In October 2000, a giant coal sludge spilldumped more than 300 million gallons of toxic waste — including heavy metals like arsenic and mercury — into Martin County’s river system, which is also its main source for drinking water. Thick black sludge ran downstream for dozens of miles, spilling over onto lawns and roads.

And even after officials announced that the water was safe, the trauma from that spill created mistrust that runs deep to this day.

Gary Michael Hunt is one of Martin County’s nearly 12,000 residents living with water issues. Hunt lives outside town on a mountain ridge and has outfitted a tank to collect water when the taps work and store it for when they stop working. He says his taps run dry multiple times a week.

Rich-Joseph Facun for NPR

That concern is warranted, says Gail Brion, a University of Kentucky professor of civil engineering specializing in water infrastructure.

“The treatment plant operators can’t control the quality of the water in the pipes if they cannot keep the pipes intact,” Brion says. “This is really not on the water quality coming out of the plant. It is on what happens to the water as it goes through this leaky straw.”

The Martin County Water District, the private utility that manages the county’s water, reported 29 line breaks in 2017 and advised residents to boil their water in case of contamination. There have been a slew of other infrastructure-related issues — like failing intake pumps struggling to fill the reservoir.

The utility spent hundreds of thousands of dollars in September to rent a pump in hopes of fixing the problem, but it wasn’t enough. The water level has gotten so low that the utility board recently declared a state of emergency, warning that the system was near collapse. There’s a real chance the county could run out of water.

Reporting by the local paper, the Mountain Citizen, prompted the first state investigation into the Martin County Water District, in 2002. Since then, there have been several audits and investigations by the Public Service Commission, the agency that regulates utilities in the state.

Its recommendations have ranged from basic maintenance improvements to better money management to improved water testing — and were mostly not implemented. Since the Martin County Water District is privately owned, it falls largely outside state jurisdiction: Aside from investigations, recommendations and fines, there’s little that state governing bodies can do.

Gary Ball, editor of the local Mountain Citizen newspaper, has been reporting on water issues in the county for nearly two decades. Reporting in the Mountain Citizen prompted the state in 2002 to open the first investigation into the Martin County Water District.

Rich-Joseph Facun for NPR

In 2016, the Public Service Commission opened another investigation, which is ongoing. Galvanized by the 2000 coal sludge spill, retired public school teacher Nina McCoy, 61, is one of the most vocal water activists in Martin County. She goes to nearly every meeting related to water issues in the county, sometimes spending all day driving to and from Frankfort, the state capital, to attend hearings.

This time around, Mary Cromer, a lawyer from the Appalachian Citizens’ Law Center, has stepped in to represent the citizens of Martin County pro bono. She travels regularly to the county seat, Inez, where McCoy lives, to help organize local residents.

The region’s century-long reliance on the coal industry is one issue, Cromer says, but not the only one.

“This isn’t just confined to Martin County. This isn’t just confined to Appalachia. We have dilapidated infrastructure all over this country,” she says. “And so if you’re going to have rural areas that are going to survive, much less thrive, you’ve got to pay attention to these critical infrastructure needs.”

Nina McCoy, a retired biology teacher, at Metrobilly’s, the local diner she runs with her husband. They use bottled water in their cooking. McCoy started the Martin County Concerned Citizens group to address local water issues.

Rich-Joseph Facun for NPR

Change is happening in Martin County, albeit slowly. The state attorney general announced in June that his office would be opening an independent investigation into the water utility, specifically focused on alleged money mismanagement. Most of the Martin County Water District board resigned at the beginning of the year, and new leadership was brought in to help right the system.

But the fixes all require money, and the utility is more than $1 million in debt — and it will need millions of dollars to upgrade the system. That’s money Martin County simply doesn’t have.

Mickey McCoy (from left), a local activist and Nina’s huband; Ricki Draper, a fellow with the Appalachian Citizens’ Law Center; Mary Cromer, a staff attorney with the law center; and Nina McCoy meet in August to discuss water issues in Martin County.

Rich-Joseph Facun for NPR

Jimmy Kerr, the board’s new treasurer, took on the position because he wants to make the county better for his two daughters, but he says it is a daunting task.

“If we don’t get our finances in order, we will never be able to give the people of Martin County the water that they want,” Kerr says.

The Martin County Water District recently received nearly $5 million in federal grant money, but it’s not enough. Now it’s looking to raise rates dramatically, something that — aside from some temporary rate hikes to cope with emergency situations — hasn’t happened in years. The utility has asked for a nearly 50 percent permanent rate increase, which has left a lot of residents angry.

“I know who I’m hurting. But there’s no one coming in on a white horse to save us,” Kerr says. “The people of this county did not create this mess, but we’re the ones who are going to have to fix it.”

Jimmy Kerr is treasurer of the Martin County water board. One of his main reasons for taking on the role was an effort to help improve the water issues for his children.

Rich-Joseph Facun for NPR

That’s one thing that many in Martin County seem to agree on — that the residents are going to have to dig in and keep working to fix the water problems here.

Maynard is doing just that, by, among other things, running for local government. She says she is committed to staying in Martin County, where her roots go back six generations.

At the family cemetery, tucked behind a coal mine, there are dozens of graves, adorned with brightly colored flowers and ribbons. She walks carefully between the headstones, pointing out her grandparents and her cousins.

She stops at a tall headstone, piled high with flowers.

“Back here is my mommy, and hers is the prettiest, most fancy one here,” she says.

Maynard points down the sloping hill to a corner under a tree. “And I wanna be down there by that rock. Daddy will be right there. My kids will be right there.”

She looks around.

“There’s no price tag you can put on that,” she says.

Maureen Pao edited the Web story. Jolie Myers edited the audio story.

 

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